Source: Bank of Lithuania
In response to the European Commission’s consultations on the development of the digitalisation of financial services in Europe, the Bank of Lithuania proposes to apply uniform regulation throughout the European Union (EU), following a technologically neutral approach, and applying smart supervisory solutions more widely.
“The Bank of Lithuania has made a significant contribution to the promotion of financial innovations - the FinTech ecosystem has grown in the country and gained international recognition. We are now willing to share our experience with other European countries, because we have to overcome the fragmentation arising from divergent national regulations and approaches to innovation. Europe can take up the leading international role in designing and adapting FinTech solutions if we find a far-reaching and unified approach at the community level,” said Marius Jurgilas, Member of the Board of the Bank of Lithuania.
Digital financial services are playing an increasingly important role on the EU institutional agenda. This year, the European Commission is planning to put forward a new strategy for the development of the sector. Based on the experience gained at the national level, the Bank of Lithuania offers key considerations for a European approach in promoting financial innovations.
Financial innovation is often treated differently in different EU Member States in terms of both regulatory and supervisory aspects. In the opinion of the Bank of Lithuania, solutions should be found to deal with this issue, which would reduce disparity in attitudes. Decisions at EU level could provide impetus for change, for example by moving from directives which provide for a certain degree of flexibility in transposition to domestic law to regulations that are directly applicable and fully binding.
One of the areas where, according to the Bank of Lithuania, agreement on equal treatment is especially important, is the prevention of money laundering and terrorist financing, in particular with regard to the KYC process and remote identification.
Financial innovations often emerge and grow faster than the regulatory framework adapts, so it is important to find an appropriate solution, one that does not slow down progress and is proportionate to the risks involved. For this reason, it is important to ensure a technology-neutral approach at the EU level, regardless of the underlying technology; if it has the characteristics of a financial instrument, it should be subject to appropriate regulation and supervision.
This is particularly true for virtual assets. In the opinion of the Bank of Lithuania, a clear definition is needed at the EU level to regulate and treat digital securities or financial instruments in the same way. This would strengthen the EU single market and, at the same time, this “economy of scale” would lead to more favourable financing for small and medium-sized enterprises through innovative financing methods such as initial public offering (IPO) or security token offering (STO).
In order to achieve more effective regulation, closer cooperation between supervisory authorities and a lower administrative burden for financial market participants, the Bank of Lithuania proposes to harmonise and digitise the standards of data provided for supervisory purposes at the EU level, using smart regulation technologies (e.g. RegTech, SupTech solutions). In addition, a register of trusted providers of RegTech services should be established and supervision of these services should be considered.
The Bank of Lithuania is also of the opinion that there is a need for consensus on the concept of the regulatory sandbox and on rules for assessing innovations being tested, and to promote cooperation between the financial sector and supervisory authorities in other areas (e.g. law enforcement, consumer rights protection).
In the discussion on how to promote the development of instant payments in the EU, the Bank of Lithuania supports the proposal to create a level playing field for both banking and non-banking sector participants (e-money institutions, payment institutions) to access the payment infrastructure and to ensure the universal availability of instant payments, gradually seeking to make them a mandatory service.