The Bank of Lithuania has admitted its supervisory regime for fintechs requires improvement but insists that it remains open to new licensees in the space, after its decision to revoke the licence of a payments firm was overturned by EU courts.
Following a European Court of Justice decision, the Supreme Administrative Court of Lithuania ruled last month that the payment institution licence of ABC Projektai was wrongly revoked by the country’s central bank in 2020. The company’s licence was reinstated on July 1.
“After licensing a lot of institutions, we see that we need to step up our supervisory measures,” Denas Gadeikis, the central bank’s head of payment and electronic money institutions supervision, told The Banker.
The ruling to reinstate ABC Projektai’s licence means that the Bank of Lithuania must reconsider its position about what it considers to be payment services and e-money services, he said.
The Bank of Lithuania ruled in 2020 that by holding client funds for longer than the 48-hour statutory period — without having a prior payment order about which funds should be transferred — ABC Projektai had effectively issued e-money without being licensed to do so.
Yet the ECJ determined in February that this did not constitute the issuance of e-money, leading Lithuania’s Supreme Administrative Court to reinstate ABC Projektai’s financial licence.
In its appeal of the central bank’s decision, the fintech received support from EU countries such as Germany, Poland and the Czech Republic, as well as the European Commission.
The decision to revoke ABC Projektai’s licence could have been “related to the lack of competence” at the central bank, said Justinas Jarusevičius, a lawyer at Lithuanian firm Motieka & Audzevicius, which represented the company.
As such, the ECJ’s decision will be “perceived as a very strong signal to [the] Lithuanian regulator that [they] should behave in a more […] conscious manner”, Jarusevičius said.
The number of licensed fintechs in Lithuania has grown from 117 in 2017 to 276 in 2023, with companies such as Revolut using licences from the country to offer services across the EU. The country remains a significant regulatory centre for electronic money institutions, with around 80 licensed players.
ABC Projektai was among the first wave of fintechs granted an electronic payment institution licence by the Bank of Lithuania in 2016, with the Bank of Lithuania opening its doors to the fintech community following the UK’s Brexit vote that year.
“[The Bank of Lithuania was] broadly communicating: ‘we are open, we speak English, we are waiting for you’, especially because it was clear that UK-licensed entities [would] need [an] EU licence,” said Jarusevičius.
Towards the end of 2019, however, the attitude of the central bank changed and became “overly aggressive”, Jarusevičius said.
“They understood that they [didn’t] have sufficient resources to supervise; they didn’t know how to properly supervise, and because of that they [became] overcautious [and] overcareful and applied disproportionate, over-aggressive measures to the market players.”
The Wirecard scandal, which “exploded” in 2020, may also have impacted regulatory scrutiny in Lithuania, Jarusevičius said, after Vilnius-based payments company UAB Finolita Unio was accused of stealing more than €100mn from Wirecard weeks before its collapse.
The Bank of Lithuania revoked the company’s licence over anti-money laundering concerns in 2021.
But the Bank of Lithuania’s Gadeikis described this as a “simplistic view” of the regulator’s supervision, which he said remains “very welcoming” to new entrants.
“It was a different market during the 2016 and 2019 period, when the market was not as competitive. Nowadays, [there are] a lot of e-money and payment institutions [and] a lot of banks competing in the same market.”
The Bank of Lithuania has a 2016 position governing what constitutes e-money and what constitutes payment services, Gadeikis added, which the central bank will likely change “in a clear manner” through consultation with institutions such as the European Banking Authority.
“I think it’s very rare that EU regulators are as open as [the Bank of Lithuania], and we are very interested in new entrants which have a viable business model and are ready to play by the rules,” Gadeikis said.
He insisted that the ECJ’s decision is beneficial for the wider EU market because there has long been an “issue [about] how to separate regular payment services — which are done usually through a regular payment account — and [defining] what is e-money,” Gadeikis said.
“All the supervisors, and even European supervisory authorities, had an issue [with] how to separate those two things because it’s considered by different directives: one is the PSD2 [Payment Services Directive 2], one is [the] e-money directive,” he added.
The case has come at the right time, Gadeikis said, given the EU’s ongoing discussions about the next iteration of the directive on payments services, PSD3, and how to define e-money more clearly.
Jarusevičius said he is hopeful that the ruling will signal a change in Lithuania’s regulatory attitude towards new entrants.
ABC Projektai is now in a conversation with the central bank about when it may practically begin to operate again, said a spokesperson for Eyal Nachum, a board member of and investor in the company, which was formerly known as Bruc Bond.
