FinTech startups and companies will soon be able in Lithuania to test their innovative products business solutions in a live environment with real customers while the Bank of Lithuania will provide them with consultations. FinTech companies will be subject to simplified regulations and licensing procedures, some supervisory requirements would temporarily not be applied. If the services work well in the test environment, companies would be able to start operating in normal conditions.
Regulatory sandbox – faster and easier access to new financial solutions
Sandbox participants will also be entitled to certain reliefs pre-agreed with the regulator, including the temporary lifting of some supervisory requirements. Once testing of financial innovations has proved successful, companies could shift to the usual operating environment. The regulatory sandbox will be open to both existing authorised financial institutions and market newcomers. Selection of eligible participants will be based on certain criteria, the innovativeness of products or solutions and their benefits to society being the most important among them.
“New possibilities are opening for FinTech investors in Lithuania and there is no doubt that development of financial technologies and creating the most favourable environment for Fintech companies will attract even more investors from all around the world” says Inga Karulaitytė-Kvainauskienė, attorney at law at ECOVIS ProventusLaw, a law firm is specialising in financial law and financial services licensing.
According to the Bank of Lithuania, the regulatory sandbox will be especially useful in cases when regulation of innovations is insufficient or unclear. Strong cooperation between innovators and the regulator could help understand the impact of financial innovation on consumers, identify emerging risks, determine potential regulatory shortcomings and eliminate or reduce any possible negative effects.
Criteria ant steps for being selected for regulatory sandbox
The participants of the regulatory sandbox will be selected according such criteria as genuine innovation, consumer benefit, need for testing in a live environment, readiness for testing, ambition to provide financial services in Lithuania. After the applicant provides reasoned arguments providing that the financial innovation meets the eligibility criteria, the Bank of Lithuania will review the application within 1-2 months. After that the applicant and the Bank of Lithuania will agree on the testing period, protection of consumer rights, other testing conditions and the Bank of Lithuania will allow to start testing under the agreed conditions.
It will be allowed to test financial service in a live environment for up to 6 months, with the possibility of extension of up to 12 months. During that period the Bank of Lithuania will provide consulting assistance and monitors compliance with testing conditions. If testing proves successful, the FinTech company decides whether to continue service provision (after obtaining a license). Submission of applications to enter the Bank of Lithuania regulatory sandbox opens on 15 October 2018.
Lithuania – a gateway for FinTech companies to the EU
Lithuania has already developed a legitimate and a very firm base for the sector of financial technologies. A developed sector of information technologies, positive attitude of the Bank of Lithuania (Central Bank and regulator) and the public sector towards new technology-based business, cooperation between state authorities and businesses, talented people, favourable geographical location, active FinTech community comparatively quick and cheap licencing of financial service providers – all these factors encourage FinTech companies to choose Lithuania
What is more, CENTROlink – the Bank’s payment system – allows companies like Revolut, Contis Group and InstaReM, among many others, not only to reach 34 SEPA countries with ease, but also to issue IBAN accounts without any middle-person involved.
Setting up a FinTech company in Lithuania provides access to a 512-million-strong market and more than 23 million small and medium enterprises (SMEs). Registering a company takes merely three days, while getting a Payment Institution or Electronic Money Institution license takes only three months, 2-3 times faster than in other EU jurisdictions.
Based on the Lithuania Fintech Report 2017, a total of 117 FinTech companies were operating in the country in 2017, with 35 of them being registered last year. The overall number of startups grew by nearly 43% year-over-year.