2023-03-28
Electronic money and payment institution sector: strong growth calls for better compliance
The electronic money and payment institution (EMI/PI) sector grew rapidly in 2022. Despite the fact that its largest participant, Revolut Payments UAB, became a bank, the sector’s income from licensing activities increased to €405.2 million, or was 1.6 times higher than in 2021. The amount of payment transactions reached €110 billion, representing an increase of 1.3 times year on year. The Bank of Lithuania conducted market consultations, which attracted a lot of attention from financial market participants, taking into account the needs of the sector and the areas where operational weaknesses were identified.
At the end of last year, 131 EMIs and PIs were licensed in the sector. The five largest EMIs and PIs in terms of the amount of payment transactions generated more than 54% of the sector’s total turnover, while the five largest EMIs and PIs in terms of income from licencing activities generated 39% of the sector’s total income. 40% of all EMIs and PIs generated up to €100,000 or less income from licensing activities.
“Growth in income from licensing activities and payment transactions has been recorded. To achieve a sustainable and compliant operation of the sector participants, we are actively pursuing our supervisory activities: we regularly communicate with companies in the sector, organise targeted market consultations, carry out routine and non-routine inspections, and we encourage institutions to pay more attention to the requirements,” says Simonas Krėpšta, Member of the Board of the Bank of Lithuania.
Improving communication and outreach to the sector goes beyond sanctions. The Bank of Lithuania organised 14 different types of consultation events for financial market participants in response to the needs of the and the areas where weaknesses had been identified. On average, 108 participants took part in one of them, with a total of around 1,500 participants.
The Bank of Lithuania also regularly publishes the latest and relevant information for market participants, updates frequently asked questions on its website and publishes recommendations.
In 2022, two institutions ended the year without meeting their capital requirements, a result that remained unchanged during the quarter. For 13 institutions, the ratio was between 1 and 1.1, therefore market participants need to continue actively monitoring regulatory indicators and strengthening the capital case, where necessary.
At the end of 2022, the share of client funds held with the central bank by EMIs and PIs amounted to 52%. Compared to 2021, it decreased by 16 percentage points.
During the previous year, the Bank of Lithuania examined and issued 5 new licences for EMIs and PIs, meanwhile 5 licences were revoked following inspections and the application of other supervisory measures. Some of the institutions whose licences were revoked had not started their activities.
In 2022, the Bank of Lithuania carried out a total of 31 individual inspections, one thematic inspection and 4 sectoral analyses, assessing the institutions’ compliance with the requirements of money laundering risk management, KYC and fraud risk management, equity capital, protection of customers’ funds, and internal audit, internal control and risk management requirements. 17 fines were imposed, amounting to € 614,500. Following inspections and other supervisory measures, in addition to the revocation of licences, 4 companies were warned, and 3 infringements were made public.
The Bank of Lithuania continues to publish positions on the right of electronic money and payment institutions to use bank accounts opened with credit institutions, which remains one of the areas supervised by the Bank of Lithuania. In the fourth quarter of 2022, two notifications were received from credit institutions regarding closed or restricted accounts for EMIs and PIs. In total, the Bank of Lithuania has received 64 such notifications since 2019.
The Bank of Lithuania continues to strive to increase the maturity of the sector and encourages institutions to devote more attention and resources to the most important areas: prevention of money laundering, compliance with the requirements for the protection of equity capital and customer funds, internal control and risk management requirements, and strengthening compliance.
In line with the Financial Sector Maturity Scoreboard, which measures maturity and shows the upward trend in compliance, the aim will be to improve the compliance of the EMI/PI sector in the following areas: reporting, audit reporting, capitalisation, and licensing activities. The Bank of Lithuania will also aim to implement a cycle of inspections so that the most prone to risk institutions are inspected once every three years.
The Bank of Lithuania publishes information on planned inspections of electronic money and payment institutions, as well as annual and quarterly key performance indicators and prudential compliance indicators for each institution.