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MONEYVAL has found that Lithuania has improved its anti-money laundering (AML) framework, a commendable achievement for the Bank of Lithuania, which is supervising the largest group of fintechs within the EU.
MONEYVAL, the AML monitoring body of the Council of Europe, has released a new follow-up report, concluding that “Lithuania has improved measures to combat money laundering and terrorist financing, demonstrating significant progress in the level of compliance with the Financial Action Task Force (FATF) standards”.
This evaluation is important for the whole anti-money laundering/counter-terrorism financing (AML/CTF) framework in Lithuania and will certainly have a positive impact on the country that strives to combat effectively the crimes of money laundering, Egle Kontautaite, an expert at Baltic law firm Ellex, told VIXIO.
In recent years, Lithuania has grown to be the main financial hub in Europe. Following the UK’s departure from the EU, Lithuania’s fintech-friendly approach has attracted numerous big payments processors and e-money institutions into the country. Revolut, Yapily and Curve have all chosen the Baltic country to set up their European office following Brexit.
However, the large increase in the number of fintech providers came with a proportional increase in financial crime. From January to September 2021, Lithuania’s Financial Intelligence Unit saw the number of suspicious transaction report (STR) notifications increase 20 times compared with the same period the previous year.
Meanwhile, the number of requests to suspend monetary transactions almost tripled compared with the same period in 2020.
Although the infamous Wirecard scandal also had Lithuanian ties through a Vilnius-based financial services company, the Baltic country has doubled down on its efforts to enforce AML rules through enforcement actions and by using its power to revoke licences.
The MONEYVAL report has now brought positive news for Lithuania and the report signals that the country is on the right track of improvements towards compliance with the FATF standards, Ruta Bajarunaite, an expert at the Center of Excellence in Anti-Money Laundering, told VIXIO.
The MONEYVAL report acknowledges that Lithuania adopted a new AML/CTF supervision policy for financial institutions and related risk assessment methodology. It also re-rated the country as largely compliant with the relevant FATF recommendation.
“The re-rating is an important step, particularly if we take into account the number of fintech companies operating here in Lithuania,” Bajarunaite explained. As the risks are growing together with the fintech sector, the Baltic country has put efforts on a national level to ensure that the sector’s further development includes improvements in managing ML/TF risks as well, she continued.
With the built-up ML/TF Risk Scoring Methodology, the Bank of Lithuania has now a process for assessing risk and determining an individual risk scoring of every financial market participant. Although the methodology has still room for improvement, it already serves as an effective risk management tool when it comes to deciding where the supervisory focus should be targeted at, Bajarunaite added.
The recognition of the risk-based supervision means that Lithuania is going with a strictly balanced approach towards market expansion, Kontautaite stressed.
In addition to the improvements, the report highlighted that certain deficiencies remained in Lithuania’s regulation concerning designated non-financial market participants regulation, a topic that has been put under the spotlight in many countries around the globe following the release of the Pandora Papers.
“Leaving the rating the same as it was identified in the year 2018 means that Lithuania has not done enough to ensure that the designated non-financial market participants are subject to a risk-sensitive system for monitoring compliance with AML/CFT requirements,” Kontautaite said.
The report also spotted weaknesses in Lithuania’s targeted financial sanctions regime, and the detection of cross-border transportation of currency, keeping those ratings at partially compliant.
