Latvia’s government has published a strategy to encourage the development of the country’s fintech sector.
The public portal on draft legislation (‘Tiesību aktu projektu publiskais portāls’) has published what is described as an ‘information report’ setting out a fintech development strategy for the Baltic nation (‘Par Latvijas finanšu tehnoloģiju sektora attīstības stratēģiju’).
‘Latvia as a whole has untapped potential for the development of the fintech sector. While the framework is business-friendly, there is a need to continue working on reducing unjustified barriers to starting a business in the financial sector,’ the report, which is signed off by finance minister Jānis Reirs, states.
‘Particular attention should be paid to technological development and application in financial services in order to promote the creation of products with high added value, thereby increasing the competitiveness of the sector,’ the report (which is in Latvian language only) notes, specifying that the ‘development and integration’ of artificial intelligence (AI), ‘Big Data’, cloud solutions and other technologies in financial services should be promoted.
The report sets out a vision (‘Vīzija’) that the country, which has a population of about 1.9 million, becomes ‘an important fintech centre at the European Union (EU) level, where fintech companies are enablers of innovation and competition in the financial sector, developing important, secure and internationally scalable business models.’
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Eight ‘prerequisites and recommendations’
Eight prerequisites and recommendations (‘priekšnosacījumi un rekomendācijas’) that ultimately aim to boost the fintech sector, as well as a 21-task ‘activity plan’, are contained within the documentation (as well as a 45-page review of the Latvian fintech sector – all documents are Latvian language only).
Included in the recommendations are ‘ensuring the availability of capital and other financial backstops, with a particular focus on venture capital projects at an early stage’ and ‘fostering the growth of an appropriate talent base’, including better training for Latvian specialists and ‘attracting them from abroad, thus accelerating the entry of knowledge into the market.’
The report also calls for a ‘strong and cohesive’ fintech ecosystem, which, it states ‘requires dynamic and open co-operation between its main players, i.e. entrepreneurs, industry professionals, supervisors, public administration, investors, financial sector actors and other parties.’
It adds that when developing the field of fintech, ‘it is important not to lower standards and culture of compliance control.’
The 21-point activity plan, meanwhile, includes the ‘establishment of a framework for inter-institutional cooperation for the support and development of financial innovations’, spurred along by a ‘fintech taskforce’.
The taskforce includes representatives from the Ministry of Finance, Latvijas Banka (central bank), LIAA (Investment & Development Agency of Latvia), the Ministry of Environmental Protection & Regional Development (VARAM) and Ministry of Education & Science, as well as private-sector members.
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Opening up public-sector data
Third in the list of 21 action points is ‘ensuring availability of data including for fintech companies (open data) in the public sector and state-owned enterprises’. Leadership on this task is assigned to the Ministry of Environmental Protection & Regional Development with the end of December 2023 as a deadline for progress.
Tenth on the list is ‘evaluating possible solutions for the reduction of administrative burden, including optimisation of data exchange between financial market participants and the State Revenue Service in relation to income earned and taxes paid by all investors’. The Finance Ministry is itself leading on this, with the document stating that an ‘evaluation’ had already been undertaken in 2022.
Further priorities (indeed referenced first and second, respectively, in the 21-strong action list) are promoting the development of crypto-assets and DeFi (decentralised finance) services; and strengthening the digital operational resilience of the financial sector – priorities for almost all countries worldwide. The EU’s Markets in Crypto-Assets (MiCA) rules and Digital Operational Resilience Act (DORA) will be important in Latvia – as in all 27 member states.
Other actions include doing more to ‘stimulate the development’ of RegTech (regulatory technology) companies and increasing ‘visibility’ of state-aid programmes through which fintech companies can receive support.
The promotion of co-operation with universities on financial innovation matters, and increasing the involvement of higher education institutions in ‘working with’ innovations in the financial sector, are also included among the action points.
Central bank and supervisor’s merger
The strategy’s publication follows the recent merger of Latvijas Banka and the Financial and Capital Market Commission (FCMC). The Saeima (parliament)’s adoption of a new Law on Latvijas Banka paved the way for the two institutions’ integration.
Marine Krasovska, who is head of the combined entity’s fintech supervision department (she was previously head of the FCMC’s financial innovation department), was among the speakers at the Global Government Fintech Lab 2022, an event held in Latvia’s neighbour Estonia on 1 June. Speaking on a panel tackling the question ‘How can governments help the fintech sector to grow?’, Krasovska described Latvia as having a “small, young and ambitious” fintech market and that she had “big hopes” of the fintech strategy “finally” being approved. “We are not where we want to be, but we are also not where we were two years ago,” she said.
Speaking to Global Government Fintech in the wake of the strategy’s publication, Krasovska said that her and other authorities’ focus would be on implementation of the strategy “with the aim to reduce the administrative burden on financial innovation”.
The process by which fintech companies are licensed in Latvia is “already under review and we are seeing the first fruits of it,” she said.
She said the strategy’s publication was important, more broadly, to encourage ongoing dialogue between banks, industry associations and fintech companies, and to stimulate the development of fintech and RegTech solutions. She added that the authorities would also continue to develop the capacity, availability and operation – in respect of speed and consultations on cross-border activity – of Latvijas Banka’s Innovation Hub (which, alongside a regulatory sandbox, was formerly overseen by the FCMC).
Well known Latvian fintech companies include open banking firm Nordigen, which was acquired last summer by UK-headquartered GoCardless. The country’s biggest city is capital Riga, which is home to about one third of the country’s population.
FURTHER READING
’Shifting sands: governments strive to drive fintech growth’ – our news story on the 2022 Global Government Fintech Lab’s second panel session – ‘How can governments help the fintech sector to grow?’ (held on 1 June 2022) – that featured Marine Krasovska
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