Interview with Bank of Lithuania on inclusiveness, regulating Open Banking, and exploring new tech

Thursday 4 April 2019 14:31 CET | Interview

Jekaterina Govina, Bank of Lithuania: We are open to innovation and new entrants to our financial market, all while ensuring the financial stability and integrity of the financial market as well as consumer protection

In recent news, many financial companies and startups from Britain and elsewhere are applying for a licence in the burgeoning fintech hub that is Lithuania, in order to ensure they have access to the European Union after Brexit. Could you share with our readers how is the bank keeping up with the Brexit-fuelled interest from international payment companies?

The Bank of Lithuania has noticed an increase in licence applications over the past two years and has already granted more than 110 licences to fintech companies (e-money and payment institutions, crowdfunding and P2P platforms). As our primary focus (due to the established knowledge, infrastructure and space for competition) is payment service providers, we see a large part of UK fintech companies entering the Lithuanian market from payments market.

Although we are open to innovation and new entrants to our financial market, our main goal is to ensure the financial stability and integrity of the financial market as well as to ensure a sufficient level of consumer protection. As the number of companies licensed by the Bank of Lithuania is growing, we are enhancing our supervision capacities. Among other things, we have recently established two separate divisions – the Electronic Money and Payment Institution Supervision Division and Anti-Money Laundering and Counter Terrorist Financing Division, thus increasing the number of staff working in these areas.

What is more, we are strengthening our collaboration with different Lithuanian enforcement and policy-making authorities. On the 19th of March 2019, nine Lithuanian institutions signed inter-institutional memorandum in risk management in fintech. The main goal of this memorandum is to promptly anticipate fintech potential risks and effectively manage them. The Memorandum establishes that the institutions will strengthen administrative capacities of their staff members in supervision and management of potential financial innovation and financial technology–related risks, raise the levels of excellence in this area and will organise joint advanced training in supervision and management of potential financial innovation and financial technology–related risks.

The Bank of Lithuania is working on a blockchain sandbox dubbed „LBChain“, which so far has received a great deal of attention from developers. We would love to know more about the status of the project. Who will benefit from it and what would be some application areas in which the project can be used or adapted?

LBChain is blockchain-based sandbox, run by Bank of Lithuania, combining (technology) infrastructure and regulatory support (in the form of regulatory sandbox).Currently, we are in the second stage of the project. During its first stage, we have selected the service providers that will create the platform itself. In the second stage, they have been joined by six selected fintech companies which will contribute to the development of the LBChain platform, as well as build a prototype of their envisaged product, both of which will be later tested with a focus group. The third stage of the project is planned to start in September 2019, where fintech companies will create and test their products within the LBChain environment. If the project proves to be successful, we are planning to launch the LBChain platform at the beginning of 2020.

LBChain will be beneficial for companies and individuals who build innovative blockchain-based fintech solutions, in areas such as voting, KYC, payments, investment trading and many others.

What is the main idea and driver behind the regulatory sandbox announced in 2018? More so, is fintech ready for this, what is the status of implementation, and who will stand to benefit from this development?

The regulatory sandbox was launched in October 2018 as a part of the Lithuanian fintech strategy, in order to build an innovative environment in the financial sector. The idea is to provide financial companies (both pure fintechs and incumbents implementing fintech solutions in their activities) with the possibility to test their innovative solutions under regulatory guidance in the real environment with real customers. We see it as a chance to learn about the emerging technologies and solutions, as well as to develop the necessary regulatory framework and implement risk management solutions. We are also part of the UK Financial Conduct Authority’s initiative of the Global Financial Innovation Network (GFIN), namely – the global sandbox regime that provides companies with the possibility to test their solutions in different parts of the world under regulatory scrutiny.

Considering that Bank of Lithuania has launched a public consultation on Open Banking in Lithuania and that the community of Lithuanian payment service providers has set up the API Standard Working Group, what would you name as the most important lessons learned from industry players from these consultations?

First of all, we have attracted the attention of those market participants or companies that are eager to enter the market. The Open Banking is of crucial importance in boosting competition among the financial market players, and opening more doors for fintech companies. Currently, we are summing up all the information and will come back with the results. However, we can say that new Open Banking measures should be based on the customers’ needs and business use cases. New solutions should improve users experience (UX) and create a win-win situation for both sides – providers and customers. Bank of Lithuania will create an open banking working group in the Lithuanian Payments Council, which will explore different use cases and customer journeys for new Open Banking measures in Lithuania.

What does the Bank of Lithuania see as the most important industry topics for 2019? And what are the most important steps we should expect Bank of Lithuania to make in 2019?

There is still place for more efficiency in some financial services (eg insurance, investments) and 2019 can bring a breakthrough in these areas. We are supportive of the EU-wide crowdfunding regulation and expect 2019 to bring some progress in this field. We believe that it will step up the activity of crowdfunding, as it is what we are focused on at the moment. With fintech gaining increasingly more attention from supranational institutions (eg the Bali Fintech Agenda developed by the International Monetary Fund and the World Bank), we think that it will give rise to more coordinated and cross-country initiatives. One of the recent examples is the aforementioned GFIN.

Throughout 2019, we will further work on the implementation of our fintech strategy, by working with regulatory sandbox applicants, developing LBChain and pushing forward the Open Banking initiative. At the same time, we are exploring possibilities to expand the use of new technologies in our daily life, eg by deploying big data systems and artificial intelligence in order to become more efficient and able to keep pace with industry developments, as well as to effectively supervise the innovative companies. Effective risk management is our primary focus.

About Jekaterina Govina

Jekaterina Govina is an Advisor to the Board Member of the Lietuvos bankas (Bank of Lithuania). Jekaterina takes part in developing policies for the fintech industry in Lithuania. She is coordinator of the Bank of Lithuania Fintech strategy and Head of Innovation Committee. She also leads the Bank of Lithuania LBChain project (blockchain sandbox/accelerator). She has been working as a lawyer in various divisions of the Bank of Lithuania, with the areas of responsibility that included insurance, payments, lending, peer-to-peer lending and crowdfunding regulations. She has been awarded as a Public Sector Lawyer of the Year for developing the concept of the crowdfunding regulation in Lithuania and preparing the draft law on crowdfunding and was acknowledged by Lattice80 as one of the Top 100 Women in Fintech.

About Bank of Lithuania

The Bank of Lithuania is responsible for implementing monetary policy (as part of the European system of central banks), ensuring stability of the domestic financial system, regulating and supervising financial market participants, maintaining robust financial market infrastructure, as well as conducting macroeconomic research and forecasting. At the international level, the Bank of Lithuania takes part in the activities of the International Monetary Fund, the Bank for International Settlements and other European institutional bodies.

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Keywords: Jekaterina Govina, Bank of Lithuania, innovation, fintech, Open Banking, technology, interview, payments, KYC, blockchain
Countries: World