Lithuania’s central bank is eyeing the potential of what it describes as a ‘revolutionary’ new regulatory technology (‘RegTech’) tool after undertaking trials focused on monitoring for anti-money laundering (AML) compliance.
Lietuvos Bankas (Bank of Lithuania) this week showcased what it calls a ‘solution prototype’ that would automate reporting procedures and cut the administrative burden for financial market participants, as well as providing its own staff with better ‘monitoring and analysis opportunities’.
Its heightened interest in RegTech comes as Lietuvos Bankas reviews its data governance processes and the Baltic state’s authorities look to bolster the country’s AML efforts. The central bank is looking to increase its data management ‘maturity’ while, separately, a new Centre of Excellence in Anti-Money Laundering – a public-private initiative – is set to open in the country this year.
Lietuvos Bankas presented the RegTech prototype at an event on 24 February alongside the two IT companies, Columbus Lietuva and Peekdata, that developed it.
“This solution is revolutionary in terms of its efficiency and accuracy,” said Ramūnas Baravykas, head of RegTech and advisor to the director of Bank of Lithuania’s supervision service. “During the testing period, we used reports for anti-money laundering [AML] purposes, yet the range of its application is very wide.”
AML’s growing relevance
The RegTech prototype requires financial institutions to install an application programming interface (API) module to automatically collect the required data from the institution’s databases and submit them in a standardised format to the supervisory authority. It was tested with electronic money institutions, but can automate reporting procedures for many other financial market participants, according to Lietuvos Bankas.
As a next step, the central bank plans to discuss potential rollout of the tool further with other national institutions and market participants. Amendments to legislation would be needed before it could go live.
After feedback that such a tool would bring the greatest benefits if it were applied globally rather than at the level of a single jurisdiction, Lietuvos Bankas has submitted this idea to the Switzerland-headquartered Bank for International Settlements Innovation Hub.
A report on the country’s fintech sector published last week by Invest Lithuania, an agency of the Ministry of Economy, described the topic of AML as ‘never having been more relevant’.
The ‘Fintech Landscape in Lithuania: 2020-2021 Report’ reported that more than 81 million payments were made within the Bank of Lithuania’s payment system, CENTROlink, during 2020, with fintechs generating a volume reaching almost €115.8 billion (about $140.5 bn). Both numbers were double 2019 amounts. The number of payment service providers accessing the system also increased from 85 in 2019 to 117 in 2020. ‘With such impressive growth, the topic of anti-money laundering has never been more relevant,’ a report summary noted.
Fintech compliance is ‘strategic goal’
Lithuania’s government gave the green light to the establishment of the Centre of Excellence in Anti-Money Laundering in October last year.
The centre, which will officially open this year, is being set up by the Ministry of Finance, Lietuvos Bankas and the country’s commercial banks, while other financial market participants ‘will also be invited to join its activities’. The centre is being established to help with the sharing of information on money laundering and terrorist financing, undertake analyses, prepare guidelines and legislative initiatives to improve Lithuania’s AML/CTF (Counter-Terrorist Financing) framework, as well as help businesses with AML/CTF risk assessments.
In last week’s publication, Lietuvos Bankas’s executive director of financial market supervision service, Jekaterina Govina, notes that ‘as Lithuania’s financial market grows steadily alongside technology, we are prioritising AML, cybersecurity and the supervision of other risks accordingly’. She added that ‘we [Lietuvos Bankas] intend to set the strengthening of the fintech market’s maturity in the field of compliance as our strategic goal for the upcoming four years’ and that the central bank was also developing innovative ‘SupTech’ (supervisory technology) tools.
Meanwhile, board member Marius Jurgilas wrote in the same publication that the central bank is ‘about to modernise [its] data management system, deploying new RegTech solutions, which [have] provided us with lessons on how to streamline reporting procedures as well as reduce the administrative burden and costs for both supervised entities and the regulator. As a supervisory authority, we will be able to gain insights on potential market risks and share them with financial market participants in a more timely and accurate manner, resulting in more efficient supervisory practices’.
Jurgilas also identifies the ‘WealthTech’ sector as ‘ripe for growth’, citing new European Union rules on crowdfunding and ‘an increased need for investments after coronavirus’.
Fintech companies on the rise
The number of active fintech companies in Lithuania increased from 210 to 230 last year, with 87 per cent seeing their revenue increase, according to the ‘Fintech Landscape in Lithuania’ publication. It highlights that among the companies with the highest revenue growth were fintechs in the compliance, payments and financial software sub-sectors.
“Growing revenues helped many Lithuania-based fintechs to expand their teams,” said Invest Lithuania’s head of technology sector team, Gintarė Bačiulienė. “According to our report, at the end of the year, there were around 4,000 people employed in fintech, a 17.6% increase year-on-year. And while a large part of the sector’s companies run modestly sized teams, 35% of them employ more than 10 people.”
The RegTech tool was presented as part of an event organised by GovTech Lab Lithuania, a public sector team that is part of the Agency for Science, Innovation and Technology (MITA).