Vilius Šapoka, Lithuania’s Finance Minister, told a Forbes contributor: ‘Here is a red carpet, come disrupt the market.’
Countries like Gibraltar, Malta, Lithuania, Estonia and Switzerland are in a competition with each other to create the most efficient and safest framework for firms to launch ICOs.
Marius Jurgilas, member of the board of the Bank of Lithuania, was kind enough to brief on the country’s inventive solutions to issues arising in the fintech space, in particular around reducing barriers to entry.
Lithuania is in an interesting position internationally: it’s population is less than three million, but membership of the EU gives its financial services sector access to a market of 510 million people – a huge opportunity.
One approach from the central bank has been to create what Marius calls a ‘regulatory sandbox’. This is where the crypto-community needs to be educated because banks are not only taking the initiatives and testing them but also providing a platform for firms to come and test their system. This is a collaborative, rather than confrontational approach, where regulators and innovators work together from a project’s inception in Lithuania.
This activist approach helps deepen understanding on both sides of what in other contexts can be a needlessly antagonistic relationship: experiments can be made, and whether or not they are successful or failed both institutions have deepened their knowledge. It’s also faster: one fintech operation in Lithuania took two years to pass compliance on a new onboarding channel for mobile banking, but Marius estimates that with the sandbox structure it could have taken only six months.
This initiative, known as LBChain, is part of a broader effort to create an ecosystem friendly to innovation. One interesting facet is the central bank’s approach to security. ‘The best way of controlling risk is to understand risk,’ according to Marius, so the central bank actually stimulates attack scenarios, with staff acting as ‘hackers,’ testing companies’ consumer protection protocols.
This platform becomes of central importance when it comes to blockchain projects: the public blockchain is irreversible, and hackers have been known to target vulnerable non-blockchain parts of the chain like exchanges, so large amounts have been lost in security breaches. The Bank of Lithuania’s aggressive posture puts the lie to the notion that global authorities have been caught napping by the sudden rise of these kind of crimes.
Existing cryptocurrencies are also being actively explored by the Lithuanians. Ripple, in particular, seems to offer a solution to the challenge of expanding horizons beyond the Eurozone . This was the view of Marius from Bank of Lithuania. In a global world, businesses will inevitably need to settle in currencies selected for reasons other than their convenience to the Lithuanian fintech sector, and Ripple’s flexibility seems to offer an off-the-peg solution.
What’s more, it’s a solution the central bank is actively facilitating, rather than resisting or simply ignoring because it’s an effort to grasp the fundamentals. This is a model, governments and regulators around the world would do well to emulate.