Continuing to create a FinTech-friendly environment: next steps

Latvijas Banka will also take a number of steps to improve the FinTech environment and the financial sector's cooperation with innovative financial service providers.

Planned activities of Latvijas Banka to promote the development of the FinTech environment

Update of the AML Manual. In order to create a common understanding on both the banking and supervisory sides of the application of laws and regulations related to the prevention of financial crime, as well as to introduce a risk-based approach, Latvijas Banka has committed to update the AML Manual[1] by 31 December 2023 on the risks associated with payment service providers, virtual asset service providers and other current FinTech models and their management. Representatives of industry associations are invited to provide Latvijas Banka with practical examples for inclusion in the Manual.

Draft amendments to the Manual will be published shortly and already include examples agreed with industry representatives on the specifics of risk management for investment firms operating investment platforms whose business is related to trading credit claims on web-based platforms (i.e. investment platforms), managers of open-end and alternative investment funds, providers of payment initiation and account information services, etc.

Regular risk assessment of the non-bank financial sector. Latvijas Banka plans to present an annual risk assessment of the non-bank financial sector to credit institutions to help them strengthen the application of a risk-based approach, including understanding the specific existing and emerging risks of the non-bank sector. To date, Latvijas Banka has already presented the sector risk assessment to the non-bank financial sector itself and plans to do so also in the future.

A framework for information exchange cooperation for FinTech initial assessment. Latvijas Banka, in cooperation with the Finance Latvia Association, has undertaken to assess the possibility of developing a framework for cooperation between credit institutions and Latvijas Banka on the exchange of information during the initial assessment of FinTech companies in order to facilitate cooperation between credit institutions and FinTech companies.

Training on business models and risk management in the non-bank sector. Taking into account the specificities of the FinTech sector, Latvijas Banka has undertaken to organise a training seminar for employees and auditors of credit institutions in order to promote a common understanding of non-bank institutions, their business models, risks and recommendations for risk management. Latvijas Banka has organised and will continue to organise training seminars also for representatives of the non-bank sector, based on sector-specific risks, their management and identified issues.

A tripartite cooperation model for innovative FinTech business models. In order to enhance FinTech companies' understanding of the application of regulatory framework and compliance of innovative services with this framework, and to ensure that FinTech companies develop internal control systems and documentation that are appropriate for the specific FinTech company, Latvijas Banka, in cooperation with industry associations, plans to develop a cooperation model between a FinTech company, a credit institution and Latvijas Banka using the framework of Latvijas Banka's Regulatory Sandbox. Such a cooperation framework is permitted by the existing requirements of Latvijas Banka's Regulatory Sandbox, so it would be important to agree with industry representatives on the most successful cooperation model, also involving credit institutions. The cooperation model would enable the supervisor, credit institutions and FinTech companies to get to know new business models and identify potential barriers to mutual cooperation and innovation development in general. Such a cooperation model would be designed for new and particularly innovative FinTech business models.

Support in problematic situations. Dialogue between the parties is essential for solving problems. Latvijas Banka engages in problem-solving, including reviewing complaints about the activities of financial and capital market participants and responding to the findings of the complaint. Latvijas Banka encourages both credit institutions and FinTech companies to approach the regulator if any issues arise prior to or during the cooperation, thereby facilitating the involvement of Latvijas Banka in building the relationship between FinTech companies and credit institutions. Latvijas Banka is open to clarifying questions on the application of regulatory framework.

Development. Latvijas Banka promotes Latvia as a FinTech-friendly country open to new and existing FinTech members. One of its activities is the organisation of an international forum – this autumn, the FinTech Forum will also be held in Riga, where visitors will be introduced to the implementation of Latvia's FinTech strategy and the progress made in FinTech development, will be able to receive advice from Latvijas Banka and other organisations and learn about current trends in FinTech. Experts from Latvijas Banka also participate in other public financial industry events in Latvia and abroad and present opportunities for FinTech companies to obtain an operating permit and develop their business in Latvia.

The activity plan is based on a survey of market participants (credit institutions, FinTech companies and foreign exchange companies) conducted by Latvijas Banka early this year and discussions with industry representatives after compiling the results of the survey. The results of the survey were presented to FinTech representatives at the FinTech Breakfast organised by the FinTech Latvia Association on 16 May, while a broader dialogue between industry representatives was organised by Latvijas Banka on 14 June.

We would like to thank Laima Letiņa, Advisor of the Finance Latvia Association, Tīna Lūse, Head of the FinTech Latvia Association, Rūdolfs Eņģelis, Attorney at Law, Partner at Sorainen ZAB SIA, and FinTech companies, foreign exchange companies and credit institutions that completed the survey and participated in the dialogue organised by Latvijas Banka for their active participation in the establishment of dialogues and in the development of the activity plan.

[1] Financial and Capital Market Commission Recommendations No 169 "Recommendations for the Establishment of the Internal Control System for Anti-Money Laundering and Countering Terrorism and Proliferation Financing and Sanctions Risk Management, and for Customer Due Diligence" or the AML Manual.