Lithuanian central bank rebuffs Wirecard criticism

Lithuania’s central bank insisted it was not “asleep at the wheel” over its regulation of a local fintech, that prosecutors suspect was used to steal more than €100m from Wirecard before it collapsed, and called for greater global sharing of information on financial crime among supervisors.

Marius Jurgilas, the board member at Bank of Lithuania responsible for supervision, rebuffed criticism from German and Lithuanian lawmakers that the central bank should have done more to supervise payments company UAB Finolita Unio, and stressed it had stopped many fintechs from operating in the Baltic country.

“We did not miss this and we immediately reacted. The statements by some German parliamentarians are out of line . . . This issue is very sensitive domestically, due to the previous events in this region. In the public eye, there is zero tolerance to events like this. There might be a lynching for anyone involved in this,” he told the Financial Times.

Following multiple money-laundering scandals in both Estonia and Latvia, some politicians in Lithuania are anxious about the country’s attempt to become a leading European centre for fintechs, attracting well-known groups such as heavyweight Revolut.

Lithuania is the only EU country that uses a loophole in EU banking regulation: while all other countries in the bloc insist on banks providing a minimum initial capital requirement of €5m, the Lithuanian threshold sits at just €1m.

Lithuania’s wooing of international fintechs has long caused disquiet among European banking regulators. Among their concerns is whether the regulator in the small Baltic country has sufficient resources to monitor the large number of fintechs operating in its country.

The German payments company Wirecard went bust in June 2020 after disclosing a €1.9bn hole in its balance sheet. Prosecutors in Munich suspect that hundreds of millions of euros were siphoned off in the run-up to its insolvency and are looking at Finolita, owned by Singapore-based Senjo Group, one of Wirecard’s business partners and has been under investigation.

Jurgilas said German financial regulator BaFin only confirmed there were issues in June 2020 while the “red light that there is something linking it to Lithuania” came in early July when Singapore police placed Senjo under investigation. The Bank of Lithuania only found out about the Singaporean investigation through media reports, and decided to start a “very intensive supervisory dialogue” with Finolita.

In a public statement published on Wednesday, Lithuania’s central bank argued that it had a strict licensing regime and only accepted “financial institutions with impeccable reputation”. The regulator pointed out that it turned down more than 100 applications in 2020 alone, and revoked 18 licences over the past three years.

The central bank agreed with the fintech that if it wanted “to continue to operate” it should cut its ties to Senjo, and it approved a transferal of the Singaporean company’s voting rights in Finolita to a Lithuanian trustee. An investigation by the central bank into Finolita is expected to be finished in the coming weeks.

“What this shows is that global finance is not operating in Germany, Singapore, Lithuania. They are global entities. We need to find a framework of how to share global supervisory events that something has happened,” Jurgilas said.

He added that in 2017 a “who’s who” from Wirecard visited Lithuania “intending to apply for a special purpose bank licence”. He said the central bank explained the benefits of its central payments settlement system but that Wirecard never applied for the licence.

Jurgilas said that the fight against money laundering was the “number one priority” for the central bank. This year, it plans to inspect 70 out of its 130 electronic money and payment institutions.

BaFin declined to comment. A spokesperson for Singapore’s monetary authority said investigations into Senjo Group were ongoing, adding “the Singapore authorities have been assisting and stand ready to assist other relevant authorities in relation to the Wirecard matter”. 

Additional reporting by Stefania Palma in Singapore