Electronic money and payment institutions: growing market requires closer supervisory attention
In the first quarter of 2021, the number of participants, payment transactions and income of electronic money institutions (EMIs) and payment institutions (PIs), which represent the greatest share of the Lithuanian fintech sector, significantly increased, while the Bank of Lithuania is further focusing on strengthening the sector’s maturity.
“The EMI/PI sector continues to grow at a rapid pace, thus boosting competition in the field of payment services and providing businesses with more freedom of choice,” said Rūta Merkevičiūtė, Director of the Financial Services and Market Supervision Department of the Bank of Lithuania.
Ms Merkevičiūtė also emphasised that the Bank of Lithuania was constantly sharpening its focus on this particular sector: “We seek to ensure that the development of EMIs and PIs goes hand in hand with the compliance and the institutions learn not only from their own mistakes but from other market participants as well. Managing money laundering risks, strengthening safeguarding of customer funds as well as ensuring internal control and compliance culture – these are the main areas that we will continue to focus on”.
In line with its supervisory mandate, the Bank of Lithuania devotes particular attention to monitoring the sector’s compliance with the requirements for anti-money laundering, own funds and safeguarding of customer funds. Moreover, in the second quarter of 2021, the Bank of Lithuania started its targeted analyses on the assurance of the internal audit function and the reliability of internal controls, covering more than 20 EMIs and PIs. Their results and key trends are expected to be published later this year. More than 40 companies will be inspected in terms of their compliance with the requirements for safeguarding of customer funds.
The Bank of Lithuania has also addressed the heads of EMIs and PIs, setting out its expectations for strengthening the governance, internal controls and compliance culture of these institutions, and will closely monitor the implementation of its expectations. Having established certain infringements in the first quarter of 2021, the central bank imposed one fine and made one public announcement. The Bank of Lithuania has also been improving the automatic risk assessment model for EMIs and PIs, which involves additional risk indicators, and is currently working on trainings for companies on various relevant issues.
In the first quarter of 2021, payment transactions executed by EMIs and PIs totalled* €84.3 billion. On a year-on-year basis, this amount grew 4.6 times. Institutions received €96.1 million in income from licensed activities – an increase of €75.2 million (4.6 times) compared to the first quarter of 2020: 92% of this income was earned by EMIs, while the remaining 8% – by PIs.
At the end of the first quarter of 2021, the public list of EMIs and PIs included 136 institutions (84 EMIs and 52 PIs), compared to 117 institutions (71 EMIs and 46 PIs) in the respective quarter of last year. The Bank of Lithuania is currently examining around 40 applications for EMI and PI licences.
The central bank has noted that EMIs and PIs must always meet the own funds requirements with a margin. The financial performance indicators for the first quarter of 2021 show that the market situation has improved, as only 1 out of 136 institutions failed to comply with the set requirement and has already taken certain steps to ensure its capital adequacy (compared to 9 of 117 institutions in the respective period of 2020).
The Bank of Lithuania continues to closely monitor whether credit institutions follow its position on the right of EMIs and PIs to access bank accounts opened with credit institutions and, where necessary, contacts such entities. The aim of the position is to ensure the right of EMIs and PIs to open bank accounts for keeping customer funds and use them to an extent that would allow these institutions to provide payment services efficiently and without any disruptions. The growth in the number of reports on closed or restricted accounts remained broadly unchanged – in the first quarter of 2021, the Bank of Lithuania received four notifications of this kind.
The EMI and PI inspection plans (available in the Lithuanian language) as well as the key annual and quarterly performance and compliance indicators for each EMI and PI are available on the Bank of Lithuania website.
* The data provided herein excludes the EMIs and PIs that only provide the payment initiation or account information service and/or only engage in the collection of fees for utilities or other services provided on a regular basis for household needs, in the collection of fines and/or other charges to public authorities, and in the payment of social benefits, and which are required to submit only annual reports instead of quarterly ones.