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Regulatory events affecting the payments industry hit a record single-month high in March 2022, following the Russian invasion of Ukraine.
New data from VIXIO’s Global Regulatory Impact Index shows that regulatory events exploded in the weeks following the invasion on February 24.
Of the data from *45 jurisdictions collected by VIXIO during Q1 2022, a total of 239 regulatory events took place in March 2022.
This was made up of 75 informative, 86 indicative and 78 actionable events, according to VIXIO’s Horizon Scanning analysis.
To put those numbers in perspective, only 103 regulatory events across all categories were recorded in January, which was the second-lowest single-month total since 2019, when VIXIO first started monitoring global payments regulatory activity.
Sanctions, what sanctions?
The sudden flurry of regulatory activity in March 2022 was primarily driven by Western nations imposing sanctions on Russia and Belarus.
In the EU, US and UK, regulators have issued extensive and highly targeted sanctions packages against Russia.
Although Western nations began to impose sanctions prior to and immediately after the invasion, the majority of sanctions were actually passed in early March, as the conflict escalated.
In addition to direct sanctions, Western nations have issued supporting orders and legislation to ensure that existing sanctions are effective and enforceable. In some cases, they have brought forward previously announced upcoming law changes.
For example, the UK fast tracked its Economic Crime (Transparency and Enforcement) Act 2022, which makes it easier for the government to seize crypto-assets.
While sanctions made up the bulk of regulatory events, more traditional regulatory activity also ramped up in March, including updates such as new rules for fair treatment of customers in Taiwan and EBA Q&A responses to E-Money Directive Queries.
Additionally, alongside direct sanctions have come dozens of related measures to ensure that current sanctions against Russia remain effective.
“Although sanctions are the main focus right now, the real impact lies in changes designed to ensure the robustness of sanctions,” said Katherine Long, author of the Global Regulatory Impact Index.
“Many countries, particularly those in the EU but also the UK and US, have recently evaluated their AML, crypto and security-related rules to remove loopholes that Russian firms and their government may want to use.
“These measures are likely to be permanent, and are almost certain to create a regulatory environment less friendly to growth and innovation for payments firms, particularly in the crypto sector.”
Knock-on effects on payments industry players
As well as the expected impact from a more burdensome regulatory framework, the new sanctions regime will have a knock-on effect on many smaller jurisdictions that have either direct financial ties or geographical proximity to Russia.
One such country is Lithuania, which prior to the invasion had established itself as one of the largest fintech hubs in the EU.
According to the 2020-2021 report by Invest Lithuania, the country has 74 emerging money institution (EMI) licensees and 39 payment institution (PI) licensees — numbers that are outmatched only by the UK.
However, given Lithuania’s close historic and geographic ties to Russia and Belarus, its popularity as a fintech hub is now under threat.
Gediminas Šimkus, chairman of the board of the Bank of Lithuania, has raised concerns that the conflict in Ukraine will deter business investment in Lithuania, and will damage the wider economy.
Additionally, Lithuania has been legislating significantly more than usual, producing 22 updates in Q1 2022 compared with 12 for the whole of 2021.
As VIXIO’s Global Regulatory Impact Index suggests, 2022 has begun much like the previous year, during which regulatory activity was extremely difficult to predict, albeit in that case due to COVID-19.
Find out more in this month’s Global Regulatory Impact Index.
*As of April 2022, VIXIO monitors 59 jurisdictions, with data from 45 via Horizon Scanning being used to produce this research.
