Comment of the Bank of Lithuania on Wirecard and Finolita Unio

BaFin, Germany’s financial market supervisory authority, only in June 2020 acknowledged that Wirecard had problems. In order to assess their potential impact on Lithuania’s financial market, the Bank of Lithuania immediately addressed the domestic market and learned that the Wirecard group provided various services to 11 financial market participants in Lithuania. It was ascertained that the Wirecard group’s bankruptcy would not pose a threat to the business continuity of companies operating in Lithuania. This assessment proved to be correct.

Having identified internal connections of Finolita Unio with the Wirecard companies, the Bank of Lithuania initiated enhanced supervision of the company’s operations: it analysed the situation, including links between the companies and cash flows, as well as regularly communicated with the Finolita Unio management. In summer 2020, the Bank of Lithuania also contacted the financial market supervisory authorities of the United Kingdom and Singapore, requesting that they provide any negative information about the company’s shareholders that could potentially be in their possession. After the assessment of all circumstances, including the data obtained from the CENTROlink payment system, as well as potential threats, in September 2020, a decision was made to initiate an ad-hoc investigation of the institution’s activities. Its results will be presented to the general public shortly. We cannot currently disclose the details of the investigation due to the restrictions imposed by the Republic of Lithuania Law on the Bank of Lithuania.

The Bank of Lithuania carefully assesses all potential financial market participants, which means that not all those who apply for a licence manage to complete the authorisation process. The recently adopted new strategy of the Bank of Lithuania envisages the objective of increasing the FinTech sector’s maturity. Consequently, the expected quality level has been raised very high. In 2020, the door to Lithuania’s financial market remained closed for more than 100 potential financial market participants, despite the fact that some of them were licensed in other jurisdictions. Since 2018, 18 licences have been revoked or cancelled. Last year, 33 inspections of electronic money and payment institutions were conducted and 25 enforcement measures were imposed. This year, the Bank of Lithuania plans to inspect almost 70 electronic money and payment institutions.

Over the last three years, the Bank of Lithuania applied enforcement measures for violations of anti-money laundering and counter-terrorist financing requirements to 8 financial corporations. Monetary fines totalling almost €1.8 million were imposed on 7 of them. The licence of 1 institution was revoked.

One of the main aspects attracting FinTechs to Lithuania is CENTROlink, the Bank of Lithuania’s payment system that provides access to the Single Euro Payments Area (SEPA). That being said, access is granted only to financial institutions with an impeccable reputation: since 2016, almost 50 applications of companies offering payment services were rejected following unsatisfactory risk assessments. In 2020, 39 financial institutions joined CENTROlink and started providing services to their customers; 12 applications were rejected after unfavourable risk assessment. The activities and transactions of payment service providers are closely monitored and, in case of any doubts regarding adequacy of their operational risk and anti-money laundering controls, access to the system may be suspended or terminated. Due to these and other reasons, 10 institutions have been denied access to the system since 2016 (4 institutions in 2020 alone). This works as a deterrent to companies with incentives to engage in illegal activities from setting up in Lithuania.

Chronology of Finolita Unio operations in Lithuania

• In the beginning of September 2015, the Board of the Bank of Lithuania granted a payment institution licence to Finolita Unio, UAB.
• In the beginning of May 2017, the Supervision Service of the Bank of Lithuania (currently, the Financial Market Supervision Service of the Bank of Lithuania) did not object to Senjo Group Pte. Ltd. (a company originating from Singapore) acquiring 100% of Finolita Unio, UAB shares and respective voting rights.
• In the beginning of February 2019, the Board of the Bank of Lithuania granted an electronic money institution licence to Finolita Unio, AB and cancelled its payment institution licence at the request of the company. 
• At the end of October 2020, the Supervision Service of the Bank of Lithuania did not object to the direct acquisition of a share of voting rights in Finolita Unio, UAB exceeding 50% by Valnetas, UAB. Through this decision, the company distanced itself from the influence of Senjo Group Pte. Ltd. until a long-term solution could be found. The Bank of Lithuania takes the decisions on the objection or non-objection to the proposed acquisition transactions after carefully assessing the compliance of both the transaction and the acquirer with legal requirements.

Other anti-money laundering measures applied by the Bank of Lithuania

Increased focus on prevention. The Bank of Lithuania regularly analyses the situation in the financial market in order to help market participants and strengthen intolerance to money laundering. It set an ambitious goal to become a regional centre of excellence in preventing money laundering and terrorist financing. In addition, the Bank of Lithuania provides continuous guidance to financial market participants, drafts and develops official positions, and organises events and training:

• The Bank of Lithuania analysed money laundering risks in the life insurance sector, credit union sector, crowdfunding sector, and the sector of peer-to-peer lending platform operators, financial brokerage and management companies; its findings and recommendations were made publicly available. 
• The Bank of Lithuania analysed the risk assessments of 20 financial market participants (banks, electronic money and payment institutions) and published a review. 
• The Bank of Lithuania prepared comprehensive practical guidance to financial market newcomers seeking to obtain operating licenses in Lithuania. 
• The Bank of Lithuania has been offering recommendations on the assessment of higher-risk customers, highlighting areas that should receive particular attention.
• The Bank of Lithuania continuously issues warnings for the general public (e.g., money mules, fake e-shops). 
• The Bank of Lithuania issued a position on the right of electronic money and payment institutions to use bank accounts opened with credit institutions.

Structural changes. The Bank of Lithuania understands the importance of preventing money laundering in Lithuania, which is one of the most important fintech centres in Europe. Therefore, following the changes in the organisational structure of the Financial Market Supervision Service of the Bank of Lithuania, the Anti-Money Laundering Division became autonomous and directly accountable to the Director of the Financial Market Supervision Service, thus reinforcing its independence and importance within the institution. 

Public-private partnership (PPP) initiatives. The Centre of Excellence in Anti-Money Laundering was launched in May this year. One of its initiators and founders is the Bank of Lithuania. The aim of the Centre is to bring together representatives of both the public and private sectors, and lift anti-money laundering practices implemented in the country to an entirely new level, both domestically and internationally.

Active international cooperation. The Bank of Lithuania is actively involved in international initiatives to combat money laundering:

• Lithuania, together with seven Nordic and Baltic countries, applied to the International Monetary Fund (IMF), asking it to conduct an analysis of cross-border money laundering (ML) and terrorist financing (TF) risks in the region, i.e. to analyse the most pertinent ML/TF threats and vulnerabilities in the region given the interconnectedness of the financial systems and particularly the many cross-border banking networks and relationships in the Nordic-Baltic region. 
• The Bank of Lithuania is actively involved in international legislative initiatives, expressing its views and sharing experience.
• The Bank of Lithuania actively participates in inter-institutional cooperation initiatives between the Nordic and Baltic supervisory authorities and has provided assistance to the Swedish and Estonian supervisory authorities in the investigation of ML cases.

Progress acknowledged at an international level. At the end of August last year, the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) awarded Lithuania a higher rating of compliance with international standards, recognising that Lithuania has a clear understanding of potential risks and threats. 

Supervision of financial market participants, AML