Global Impact Award: Bank of Lithuania

Since fintech appeared on the central banking community’s radar, there has been debate around whether innovation can be successfully supported while maintaining consumer protection. Lithuania’s thriving fintech ecosystem is proof that regulators have a crucial role to play.

The central bank started early, in 2016 launching its Newcomer Programme – a one-stop shop specifically designed for new entrants to the market considering applying for a licence in the country. Since its launch, the central banks has reviewed more than 500 applications from 60 countries. 

Over the past 18 months, the Bank of Lithuania has complemented its programme by digitising its licensing process. Prospective banks have been able to apply for two licences – a payment systems provider licence and an electronic money licence – through the central bank’s new e-licensing tool, offering easier access to smaller players.

The system automatically generates a list of mandatory documents that need to be submitted, alongside guidance relating to disclosure. “We focus on the solutions that contribute to time efficiency and the quality of supervision,” says Marius Jurgilas, a member of the Bank of Lithuania’s board.

The central bank has also launched a regulatory and technology sandbox (LBChain) – the only one to be completely blockchain-focused. The Bank of Lithuania partnered with IBM and Tieto to create the environment within which 11 fintech firms have been testing their blockchain products. “It allows existing and potential financial market participants to test financial innovations in a test environment under the guidance and supervision of the regulator,” says Jurgilas. The central bank has also taken a foray into the world of central bank digital currency; earlier this year, Bank of Lithuania became the first central bank to issue a blockchain-based digital collector coin.

But the central bank is not stopping there. A core component of its forward-looking strategy rests on a new regulatory reporting framework that is being created in tandem with local IT infrastructure companies.

Currently, financial firms have to submit a large volume of reports to the central bank, which is resource-intensive and time-consuming; the central bank received 845 reports annually. Under the new system, preliminary operational data would automatically be sent to the central bank.

Created in February 2020, the prototype was tested among electronic money institutions using anti-money laundering data. Should it prove successful, financial market participants will need to install an additional application programming interface module within their systems. This will automatically collect the required data from the institution’s databases and submit in a standardised format to the data reception module of the central bank.  

“The Bank of Lithuania is open for innovations by shaping global discussions on central bank digital currencies, searching for the effective regtech solutions, setting a global example in using the blockchain technology as a regulatory sandbox and in the field of digital numismatics,” says Jurgilas.