Regional focus
Financing Prevention Act. The Bank of Estonia has also developed a new mathematical model designed to more closely review payments and react more quickly when risks emerge.
As Ilja Nogicevs, head of digital banking Latvia at SEB Banka, explains, the region has made a “significant and comprehensive improvement”. “Currently, we’re ensuring the highest standards in countering money laundering and terrorism financing, and we’re also facilitating the sustainable development of the banking sector,” he says. “At present, each country has its own approach for what exactly happens with customer data. We would like to see the Baltic banking industry introduce a shared know your customer (KYC) utility, which would enable us to share information between the market players that are looking to fight financial crime.”
“Our plan is to have everything digitally available, and then help educate customers in how they can take advantage of the possibilities we can provide to them in this area.”
Ilja Nogicevs, SEB Banka
Swedbank was hit with a SKr4bn ($386m) fine over its failure to impose proper controls in its Baltic subsidiary. Meanwhile the Latvian bank ABLV was raided as part of a €50m money laundering investigation, prompting its liquidation, and Latvia’s Central Bank chairman, Ilmars Rimsevics, was accused of breaking money laundering rules.
A moment of reckoning
Since these scandals broke, the European banking sector has had a moment of reckoning. Notably, the bloc moved to centralise its AML and counterterrorist financing rules, which were previously imposed on a country-by-country basis.
The Baltic States themselves, keen to restore their reputation as safe havens for foreign investments, have stepped up their campaigns against financial crime. Together with the Nordic countries, they have engaged the International Monetary Fund (IMF) to analyse the cross-border risks in the region. There are also various regional initiatives under
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Latvian start-ups that belong to the fintech sector.
way, including Lithuania’s new Centre of Excellence in Anti-Money Laundering, which seeks to rebrand the region as a leader in the field. (It should be noted that Lithuania did not play a major role in the scandals.) Latvia’s prime minister Krisjanis Karins has pledged to rid the banking sector of money laundering “rats”, while Estonia’s parliament has updated its Money Laundering and Terrorist
SEB Banka was not exempt from the money laundering scandal, having been fined SEK1bn (€96m) in June 2020 for doing too little and too late. Since then, the Stockholm-based lender says it has worked to improve its corporate governance and internal controls. It is also treating AML as a spur for technological innovation. “We are putting a lot of effort into understanding how we can automate things, putting control mechanisms or alert mechanisms in place to quickly catch discrepancies in the payments,” says Nogicevs. “My team’s first responsibility is how we can use customer data wisely – not only from the reporting and regulatory side, but also in terms of the business processes we’ll be offering.”
The path to becoming fintech leaders Quite aside from their vulnerability to financial crime, the Baltic States are well known for their impressive digital infrastructure. Playing host to companies like TransferWise (now Wise), Monese and Mintos, they have worked hard to create a favourable regulatory framework for fintech startups. Venture capital firm Index Ventures recently ranked the Baltic States as the three most start-up-friendly countries in Europe. Meanwhile, the Financial Times’ FDI Intelligence division listed Vilnius as the number one start-up city for tech on earth.
In other words, the Baltic States have both the incentive and the know-how to be fintech leaders. While stamping out financial crime is one piece of the puzzle, these small countries often serve as ‘test’ markets for other types of banking innovation. “There is scope to trial quite a large number of technologies in this market, and then scale them up in other markets,” says Nogicevs. “I would say that our customers’ adaptability and the possibility to scale up technologies is the thing about us that’s quite interesting for others.”
Future Banking /
www.nsbanking.com
SEB Banka
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