It’s firmly on the map as a go-to European destination for financial-technology hopefuls. Now Lithuania must make sure the buzzing startup hub it’s nurtured doesn’t fall foul of the law.
The Baltic nation’s fintech transformation won plaudits this month from Mario Draghi. But his praise came with a warning: the boom carries risks as well as rewards.
With nearby Latvia and Estonia mired in a string of money-laundering scandals, Lithuania will face added scrutiny. There are already warning signs. U.K. regulators are looking into why London-based Revolut Ltd, which is starting a bank in Lithuania, last summer temporarily turned off a system designed to automatically block suspicious transactions.
“It’s a remarkable reality,” said Draghi, in Vilnius for the once-annual European Central Bank policy meeting held outside Frankfurt. “It’s a major source of future growth for Lithuania and, of course, future concern and future attention in terms of supervision.”
The European Union and eurozone member of 2.8 million people was second only to the U.K. in issuing fintech licenses last year, successfully luring fledgling companies with super-fast approvals for paperwork and English-language services.
Success stories include Earthport Plc, which helps banks and other financial firms transmit cross-border payments for their own clients as an alternative to the Swift system, and Singapore startup InstaRem, which provides international payment services in more than 55 countries. About 700 fintech jobs were created last year alone in Lithuania.
The next phase is is policing what the country has built in the past three years. While Lithuania mostly shunned the offshore-banking services that landed Estonia and Latvia in strife, it must now be vigilant to safeguard against money laundering and terrorist financing.
“They’re very much aware of the risks,” Tao Zhang, a deputy managing director at the International Monetary Fund, told reporters this month at a fintech conference in Vilnius. Lithuania is trying “to match with the necessary conditions so the sector can be developed on a more solid base. In that regard, compared to its peers, the country is moving ahead of the curve, taking a lead in the EU.”
The central bank, which is also responsible for supervision, has warned on several occasions that the fintech project carries risks. And problems can appear suddenly. Until tens of billions of illicit transfers were unearthed around Danske Bank A/S’s unit in Tallinn, Estonia was considered a role model for transparency in post-communist Europe.
Lithuania, for its part, is levying more fines for violations of anti-money laundering procedures and processing illicit transactions. The central bank in February established a separate AML unit to deal with the growing flow of new financial-market participants and has signed an accord with the financial-investigation unit, the tax authority and other institutions to boost cooperation and exchange of information.
Central bank board member Marius Jurgilas insists Lithuania will be tough when called for.
“Being a good regulator, doesn’t mean being nice all the time,” he told the recent fintech event in Vilnius. “If you misbehave, you talk to the other hand, the heavy hand of the Bank of Lithuania. We’re naming and shaming and introducing the right incentives to behave cooperatively.”