In November 2017, the finance ministers of Latvia, Estonia, and Lithuania signed a memorandum on joint efforts to develop the financial sector. One of the points of the document included support for “innovations in the capital market” and regional fintech solutions, including distributed ledger technology. Thus, the authorities of the Baltic countries officially designated blockchain and cryptocurrency as part of financial technology.
The Baltic States region as a whole is one of the most economically developed regions of Eastern Europe, and Lithuania is the main Baltic economy. If we rely on data from the International Monetary Fund, this year, Lithuania’s GDP at purchasing power parity (PPP) will be more than $96 billion, which is two times more than in Estonia ($44 billion) and Latvia ($57 billion). Per capita, GDP at PPP also speaks in favor of Lithuania: about $35,000 versus $34,000 in Estonia and $29,000 in Latvia.
The authoritative Doing Business ranking for 2018, ranks Lithuania at 16th out of 190, which is among the top 20 countries in the world with the most favorable environment for entrepreneurship (although it gives up a few positions to Estonia). An additional advantage is a membership in the European Union, giving access to a huge market.
But, in contrast to neighboring Estonia, world famous for its IT sector and state programs like “electronic residence,” Lithuania has taken the path of integrating blockchain into the financial sector, including the actual recognition of cryptocurrencies as full-fledged financial instruments.
Crypto Enthusiast from the Government
Lithuanian Finance Minister Vilius Sapoka is one of the main “blockchain evangelicals” in the country's government, who remains an active supporter of the concept of global regulation of the crypto industry.
His position is not groundless, as blockchain projects in Lithuania are actively working. According to the PricewaterhouseCoopers study, in the first half of 2018, Lithuania became one of the most popular countries for ICOs in terms of fees, skipping ahead of offshore companies, the United States, Singapore, and neighboring Estonia.
“We believe that in the coming years, the crypto industry will develop drastically, and we, as a structure of the Lithuanian government, must find the right balance between innovation and protective measures,” the official said in an interview with Bitnews Today.
Sapoka is, to some extent, the face of Lithuanian bureaucracy for blockchain companies. He actively commented on the blockchain topic in the media, and in June of this year, the Ministry of Finance issued a compendium of rules for conducting ICOs. On its first page, there is a photo of a smiling Finance Minister, who is as if inviting to hold a token sale in Lithuania. Although this compilation is not a regulatory document, it clearly demonstrates the “legal framework” that crypto projects lack in other countries.
At the same time, there are no separate laws in Lithuania that regulate cryptocurrency procedures and operations. But in the same interview for Bitnews Today, Sapoka said that next year, Lithuania would adopt amendments to the law on combating money laundering, which would introduce specific requirements for disclosing data from users of crypto exchangers and wallets, as well as ICO participants.
World Fintech Hub
Perhaps the loudest fintech project in Lithuania is the DESICO crowdfunding platform. It is positioned as the world's first platform for Security Token Offering (STO). That is, it allows users to legally raise funds in exchange for tokens that have the status of shares or investment contracts.
DESICO emphasizes that it acts completely in the legal field. The company has a brokerage license for the secondary trade of tokens, as well as an E.U. license for issuing electronic money (E.U. EMI), which allows for the exchange of cryptocurrency for fiat and open international bank accounts (IBAN) for cross-border payments.
How did they do it? The project received support at the highest level. On the official website of DESICO, there are logos of two Lithuanian ministries of economics and finance. In addition, the project has already become a member of the association of blockchain companies of the Enterprise Ethereum Alliance. It is beneficial for the government of the country to promote such a platform to demonstrate the attractiveness of the national legislation, in particular, the crowdfunding law, according to which DESICO was founded. “Lithuania needs a transparent and regulated crowdfunding platform in order to become the future leader of financial technologies in the Baltic Scandinavian region. Lithuania already has an exceptional legislative advantage. The country is the first member of the European Union, which regulates ICO in the legal field and adopted a crowdfunding law. And this is at a time when other E.U. countries, the U.S.A., Canada, and China are only preparing the legal basis for ICOs,” said Vilius Sapoka on the occasion of the announcement of the platform, calling it the future “national fintech hub.”
The availability of international payments suggests that both startups and investors from different countries will be able to use the services of the platform. In addition, the “white” legal scheme, supplemented by state support, will attract institutional investors.
Beta testing of the platform will begin in the second quarter of 2019, and a full release is scheduled for the fourth quarter.
An important ally of the Ministry of Finance is the Bank of Lithuania. In April of this year, the Central Bank sat at the roundtable officials from various departments and businessmen from the crypto industry and commercial banks so that they finally began to cooperate with each other. “Blind denial, unwillingness to understand and work with the world of cryptocurrency leads us nowhere,” the representative of the Central Bank declared then.
At the same time, in October 2017, the Bank of Lithuania designated the “red line,” banning any operations with cryptocurrencies to “traditional” companies in the financial sector, for example, banks, in an official explanation of the status of cryptocurrencies.
In January 2018, the Central Bank's “regulatory sandbox” project called “LBChain” began to work in Lithuania in test mode. In essence, the sandbox allows users to test Fintech product for compliance with the law under the supervision of the financial regulator. Moreover, the Central Bank selects companies that will be given access to the LBChain platform and to additional consultations on regulation.
The Central Bank is trying to “bribe” Fintech with other benefits, for example, a reduced period of issuing an EMI license and a small amount of initial capital to issue a license for basic banking services.
The Exile of Bankera
Despite the efforts of the authorities, not all blockchain companies in Lithuania can boast of successful business experience.
One victim of the as of yet unclear legislation was the Bankera startup. In the fall of 2017, it launched an ICO, which became one of the most successful in terms of fees and raised more than $150 million. Bankera is working on creating a “blockchain bank” with a wide range of services, including opening standard bank accounts, lending and even investment instruments, including traditional index funds and robotic trading.
The company was selling tokens with a promise of dividends, but in February of this year, a couple of weeks before the end of the ICO, the Bank of Lithuania announced the launch of an investigation into Bankera. After the test, the Lithuanian legal entity of the project, UAB Pervesk, and its CEO were fined €700,000 and €500,000, respectively, for allegedly misjudging the risk level of their clients, which violated the law on money laundering. As a result, Bankera was forced to leave Lithuania.