In a new bulletin, the Lithuanian regulator has said it is seeking to mature the growing fintech hub it has come to supervise, while addressing operational risks and compliance setbacks.
With the Lithuanian payments sector's revenue, transaction volumes and customer funds all increasing, the central bank said in the bulletin that institutions should boost capitalisation and capital adequacy ratios to guard against unexpected losses.
It added that it remains committed to advancing sector maturity through supervisory measures and strategic initiatives.
The regulator said that, over the past year, Lithuanian payment and e-money institutions have shifted funds, reduced central bank holdings by one-sixth to €955m, increased bank deposits by 3 percent to €594m and nearly quadrupled financial asset investments to €682m, raising market and liquidity risks.
"The sector continues to grow consistently and we see progress," said Denas Jonas Gadeikis, head of the payment and e-money supervision department of the Bank of Lithuania.
"This year, for the first time in almost three years, according to the submitted reports, all institutions in the sector fulfilled the equity capital requirements.”
For example, for the first time since Q3 2021, all nine institutions in the sector met equity requirements by the end of Q1 2024. The equity capital adequacy ratio for these institutions ranged between 1.0 and 1.1 in this period.
However, Gadeikis added that the central bank has noticed increased operational risks as the sector has grown. “Under such conditions, institutions should strive for higher capital adequacy performance indicators in order to strengthen their capital armour."
Fostering sector maturity
Throughout Q1 2024, the Bank of Lithuania assessed how institutions adhered to money laundering risk management, customer familiarisation, fraud risk management, equity protection and internal audit control.
This included completing four individual inspections, applying four measures, organising 30 meetings with market participants, and sending 26 advisory letters.
According to the central bank, by the end of Q1 2024, the sector had 123 licensed institutions, down from 129 in Q1 2023. This included 80 e-money institutions and 43 payment institutions, compared to 85 and 44 respectively the previous year.
During the quarter, the central bank issued one new licence and revoked three licences due to non-compliance with the money laundering rules, among other regulations.
Overall in Q1 2024, the sector’s income from licensed activities rose to €129m, a 20 percent increase from the previous year. Payment transaction volumes also increased by nearly 12 percent to €121bn.
The ten largest institutions generated 65 percent of the sector’s income (€84m) and 70 percent of its turnover (€84bn).
However, 26 institutions had a turnover of less than €50m, and 63 institutions earned less than €1m from licensed activities.
Ongoing guidance
The Bank of Lithuania also announced that it has organised its annual meeting to present its 2024-26 strategy, review the 2023 sector and discuss transforming reporting data systems.
The central bank held a consultative event on service provision regulation through intermediaries, emerging challenges and best practices, in a bid to improve sector maturity.
In addition, the regulator urged institutions planning to offer asset-referenced tokens (ARTs) or electronic money tokens (EMTs) to prepare for the EU’s upcoming Markets in Crypto-Assets (MiCA) Regulation, with some of the regulation’s compliance requirements becoming actionable this week.