Lithuania has been touting its ambitions to become a European fintech hub, but a recent scandal has thrown doubts on its ability to ensure proper oversight.
After the high-profile collapse of the German financial service company Wirecard, it turned out that over 100 million euros could have been siphoned off via a Lithuanian fintech firm, Finolita Unio.
The Bank of Lithuania, the country's central bank, has said it is investigating the matter, some local politicians remain unconvinced.
MP Valius Ąžuolas, of the opposition Farmers and Greens Union (LVŽS), has said in a recent meeting of the parliamentary Committee on Budget and Finance that welcoming financial technology companies brings the risk of money laundering scandals, as Lithuania is not prepared to monitor such firms.
Calling it a “ticking time bomb”, he has suggested that the government should be investing more into the Financial Crime Investigation Service (FNTT).
Gediminas Šimkus, chairman of Bank of Lithuania, admits that the FNTT had approached the institution before the Wirecard scandal and complained that it did not have adequate resources and skills to effectively monitor the fintech sector.
However, Šimkus believes, politicians like Ąžuolas overstate the risks that come with financial technology companies.
“I don’t think that this is a ticking bomb. We shouldn’t dramatise the situation, and instead put all effort into managing and minimising the risks, which is what the Bank of Lithuania is doing,” he said.
According to Jekaterina Govina, executive director of the Supervision Service at the Bank of Lithuania, specialised banks make up a very small proportion of the country's banking sector. Still, the electronic money sector has undergone substantial growth in recent years.
“In 2020, the sector was almost three times as big as it had been in 2016. Back then we had 50 companies, and in 2020 there were 130,” says Govina.
Revenues of electronic payment companies grew even more: from 26,54 million euros in 2016 to 137,28 million in 2020. They brought in capital worth 150 million euros and created 800 jobs, according to the Bank of Lithuania.
In 2020, fintech companies paid 10 million euros in corporate tax.
According to Govina, the central bank conducts periodic inspections of financial institutions and has planned 12 inspections of 72 electronic money companies this year.
“Our main goal is to prevent violations. [...] We want everyone to realise that Lithuania is not a place where you can easily get a licence and do anything you want, and that everyone understands that oversight here is adequate,” she says.
One rotten apple
Central bank chief Šimkus says Lithuania currently has the biggest number of electronic money institutions in the eurozone.
“An action plan for the development of the Lithuanian fintech industry was prepared back in March. I will be honest: I don’t think that the goal of this strategy is to focus on the number of new financial technology companies,” says Šimkus.
“In my opinion, the action plan should include ways that fintech can contribute to solving serious issues such as the high concentration in the banking sector, as well as service costs and accessibility.”
MP Mykolas Majauskas, chairman of the Committee on Budget and Finance, says that the central bank can be trusted to effectively monitor financial institutions, and that one should not judge the entire sector “because of one rotten apple”.