Latvia has ambitions to become the fintech hub

Latvia has ambitions to become the fintech hub. In order to achieve this, professionals at all levels of government need to understand the specifics of the industry and be open-minded.

“Currently, conditions are maximally positive and the stars are aligned better than before – Latvijas Banka is actively signalling that Latvia wants to become more open to fintech companies. Latvijas Banka is doing a great job – attending various events in other countries, trying to show the positive attitude of the financial market supervisor,” says Rūdolfs Eņģelis, partner at law firm Sorainen.

Agneta Rumpa, senior associate at Sorainen, also highlights the Financial Intelligence Unit of Latvia as a good example of a good understanding of the industry, especially the crypto asset field. She believes that other institutions need to be equally understanding.

“As soon as we talk about innovative technologies and services that are different from the classic ones, there is unfortunately not the same understanding everywhere. Once the knowledge of financial technology will also flow to other institutions, we will have everything we need to achieve good results in this area,” says A. Rumpa.

She believes that Latvia could benefit from a high-level official with a strong voice or interest in the industry. For example, when the new prime minister of the UK started to work, the crypto industry was very enthusiastic because he had previously spoken positively about the potential of the sector.

“Conceptually, a milestone may have been reached – now we need to see whether what is declared will happen in practice. Once we have practical results, we will be able to draw conclusions,” says Andis Ozoliņš, associate partner at law firm Walless.

There are valuable benefits from the overhaul

“Latvia went through an overhaul of its financial industry – more ambitious than anywhere else in Europe. Market participants, supervisors, and advisors at all levels are now much more knowledgeable about this area than the European average. Now that fintech is evolving so rapidly and there are so many business models, each with its own specific compliance risks, we have the opportunity to demonstrate best practice in managing these risks, allowing new business models to develop. But it also requires more courage from the side of infrastructure holders to partner with fintech start-ups,” says R. Eņģelis.

A. Ozoliņš also agrees that the overhaul, which many believe caused damage to the business, also has had positive side effects. He sees similarities with the situation in consumer lending, which started to develop rapidly earlier in Latvia than in other countries. Practice was developed, the Consumer Rights Protection Centre issued guidelines, the law was amended.

As a result, consumer credit rules in Latvia became more developed than in many other countries. A. Ozoliņš foresees that the strict regulation of anti-money laundering risks could also potentially be used to the industry’s advantage. While the changes come slowly around the world, Latvia already has experience implementing them.

“Being able to use this situation can be to our advantage. This requires cooperation between market participants and the regulator, as well as the search for new solutions,” says A. Ozoliņš.

Foreign companies show interest in Latvia

Recently, a number of foreign fintech companies have shown interest in Latvia. From time to time, Sorainen receives requests for assistance in obtaining permits to provide payment services, collective financing or other financial services and to start a business in Latvia.

“This trend is becoming more obvious. I would like to hope that Latvia’s name is no longer so much associated with anti-money laundering problems, but rather with the fact that fintech companies have a significant advantage in the Latvian market. For example, our regulator is easily accessible, industry associations provide support, there are tax benefits, staff options and a special framework for start-ups,” says A. Rumpa.

A. Ozoliņš suggests that the issue regarding anti-money laundering has reached its top point and that attitudes may now become more flexible. “Latvijas Banka wants to make Latvia one of the centres of fintech development. Work in this direction has started – now we have to see whether it will result in new fintech companies in Latvia,” says A. Ozoliņš.

This feature is reproduced by kind permission of Fintech Pulse 2023. It is part of a series. Read the first article here.

Source: Fintech Pulse 2023
Photo: Shutterstock