Lithuania Demands Better Compliance From Bulging Payment Sectors

March 31, 2023
Lithuania joins other jurisdictions in Europe such as the UK in calling for better compliance processes at payments and electronic money firms as it reviews its activities for 2022.

Lithuania joins other jurisdictions in Europe such as the UK in calling for better compliance processes at payments and electronic money firms as it reviews its activities for 2022.

The Bank of Lithuania has issued a new release claiming that there are “strong calls for better compliance”.

This comes at the same time as immense growth in the Baltic EU state’s payments market. At the end of last year, 131 electronic money institutions (EMIs) and payment institutions (PIs) were licensed in the sector and recent data from the European Banking Authority shows that Lithuania issued more payments licences between 2019 and 2021 than any other EU country.

“Growth in income from licensing activities and payment transactions has been recorded,” acknowledged Simonas Krėpšta, member of the board of the Bank of Lithuania, but there is now a stronger focus on maturing the sector.

The five largest EMIs and PIs in terms of income from licensing activities generated 39 percent of the sector’s total income.

At the same time, 40 percent of all EMIs and PIs generated less than €100,000 income from licensing activities.

“To achieve a sustainable and compliant operation of the sector participants, we are actively pursuing our supervisory activities. We regularly communicate with companies in the sector, organise targeted market consultations, carry out routine and non-routine inspections, and we encourage institutions to pay more attention to the requirements,” said Krėpšta.

In 2022, the Bank of Lithuania carried out a total of 31 individual inspections, one thematic inspection and four sectoral analyses.

These assessed the institutions’ compliance with the requirements of money laundering risk management, know your customer (KYC) processes and fraud risk management, as well as areas such as equity capital, protection of customers’ funds, and internal audit, internal control and risk management requirements.

During the year, 17 fines were imposed amounting to €614,500. Following inspections and other supervisory measures, one licence was revoked, four companies were warned and three infringements were made public.

In contrast to recent clampdowns, such as limiting the activity of the Railsr subsidiary PayrNet, the central bank has also been more conciliatory, listing beneficial ways of working with firms such as improving communication and outreach.

For example, the regulator says that it organised 14 different types of consultation events for financial market participants in response to sector needs and weaknesses.

An area where the Bank of Lithuania says that it is now concentrating is shoring up the payments sector's compliance with capital requirements.

In 2022, two institutions ended the year without meeting their capital requirements, a result that remained unchanged during the quarter.

For 13 other institutions, the ratio was between one and 1.1.

“Therefore, market participants need to continue actively monitoring regulatory indicators and strengthening the capital case, where necessary,” the authority said.

Despite the fact that its largest participant, Revolut, became a bank, the sector’s income from licensing activities increased to €405.2m, which is up 60 percent compared with 2021.

The amount of payment transactions, meanwhile, reached €110bn in 2022, up 30 percent during the year.

The sector now makes up 28 percent of the country’s economy, perhaps indicating why the regulator is stepping up its supervisory activities.

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