Latvia's Central Bank Keystone in Fintech Expansion Despite Lacking Crypto Regulations
Summary:
Latvia's Central Bank is exploring fintech and emerging technologies, despite no clear regulations in place for digital currencies in the country. The bank has been operating its Innovation Hub for five years to encourage fintech companies' participation in the Latvian market. Furthermore, the bank is implementing AI technologies and embarking on a synthetic data project to support businesses in developing their operational models. The country has seen a significant drop in crypto asset investments, attributed to sluggish market conditions globally. However, the impending adoption of the EU's Markets in Crypto-Assets (MiCA) legislation is seen as a promising step forward.
The advancement in financial technology (fintech) and other emerging technologies is causing global legislators to scramble to understand and regulate them. Despite a few countries, like the United States and El Salvador, openly embracing these new technologies, others are silently following suit. One such example is Latvia, a tiny country in the Baltics, nestled between Estonia and Lithuania. In a conversation with Marine Krasovska, the head of fintech at Latvijas Banka (Bank of Latvia) - Latvia’s central bank, it became clear how the authorities there are managing new technologies like cryptocurrencies and artificial intelligence (AI). However, unlike its neighbor Estonia which established definitive regulations for digital currencies - a first in Europe, these assets remain directionless in Latvia. The Latvian Personal Income Tax Act only treats crypto as a capital asset that's taxed at a general capital gains rate of 20%. In 2020, one of Latvia’s finance regulators, the Financial and Capital Market Commission (FCMC), cautioned the public on crypto-fraud since crypto firms in Latvia "operate within an environment which is relatively sparely regulated in comparison with financial and capital markets." Since FCMC's initial warnings, Latvia has not formulated any new cryptocurrency laws. But Krasovska detailed how the central bank – Latvia's main regulator, has been running its Innovation Hub over the past five years. Although fintech firms are by no means obligated to participate, the central bank recommends it as an ideal "launch pad" into the Latvian market. The central bank provides this service for free to both international firms and those originating from Latvia. Krasovka talked about this during her speech at the Global Government Fintech Lab 2022 conference. She noted that the Innovation Hub is an enabling platform, offering businesses firsthand interaction with the regulators to understand the business licensing needed and risk assessment. Her recommendation was for firms to engage a lawyer to deal with the interpretation of legislation, which she termed as carrying 'great responsibility'. Over the Summer, the bank initiated a pre-licensing process within the Innovation Hub, primarily to assist fintech companies dealing with digital assets. Krasovska reported that last year, the Innovation Hub had consulted with about 40% of all participants from Latvia in its 72 consultations. She noted that data from the hub indicates growing interest from companies in ‘crypto and electronic money institutions services.’ The central bank has also been incorporating new technologies to enhance its internal processes. This comprises moving central bank data to the cloud and integrating AI technologies like OpenAI’s popular chatbot, ChatGPT. Krasovska explains that the bank created an internal lab two years ago, where they have been experimenting with various technological solutions. She highlighted the feasibility studies they’re conducting on ChatGPT which will help to summarise chunks of unsorted documents, like tax documents, for example. Latvia Central Bank has also been utilising AI for data direction projects and code supervision. When it comes to data usage, the bank is pioneering a new project around synthetic data. This year and next year will see the bank working towards creating a synthetic database that could be used by aspiring businesses or tech companies developing new solutions that need access to a robust transaction database to understand how related monitoring tools work. Krasovska believes that this synthetic data set would help businesses understand how their tools function before they scale up their business and start to offer their solutions to real customers. A report over the summer from the Latvian central bank disclosed that local investments in crypto assets had dropped by half in the past year. The report, which is based on payment card usage, indicated that in February 2023, only 4% of the population purchased crypto assets, down from 8% in the same month the previous year. Krasovska attributed this downturn to poor market conditions globally and the current state of the financial market. Despite the dreary outlook given regulatory difficulties and a lingering bear market in many major markets, Krasovska believes things will look up with the European Union’s adoption and implementation of the Markets in Crypto-Assets (MiCA) legislation.
Published At
9/19/2023 1:03:00 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.