Fintech innovations and emerging technologies have been rapidly evolving worldwide, prompting global regulators to adapt and establish regulatory frameworks. In this landscape, Latvia, a small Baltic country neighboring Estonia and Lithuania, has been quietly joining the efforts to understand and regulate these technologies, including cryptocurrencies and artificial intelligence (AI). Unlike Estonia, which established clear regulations and guidelines for digital currencies, Latvia has not introduced specific regulations for cryptocurrencies. Currently, Latvia defines cryptocurrencies as capital assets subject to a general capital gains tax of 20%.
However, in the last five years, Latvia’s central bank, Latvijas Banka (Bank of Latvia), has taken steps to engage with fintech companies and offer support for those entering the Latvian market. Marine Krasovska, the head of financial technology at Latvijas Banka, explained that the central bank operates an Innovation Hub, which serves as a voluntary entry point for fintech companies looking to operate in Latvia. The Innovation Hub provides support and guidance, helps businesses understand licensing requirements, and assesses risks. It is a platform for fintech companies to interact with regulators and gain insights into regulatory compliance.
Within the Innovation Hub, Latvijas Banka has introduced a pre-licensing process to assist fintech companies in creating a high-quality application package, enabling them to receive feedback before submitting their official applications. Krasovska mentioned that there has been increased interest from companies in crypto and electronic money institution services.
Latvia’s Fintech Landscape: Balancing Innovation and Regulation
Additionally, Latvijas Banka has been adopting new technologies internally to enhance its operations. This includes moving central bank data to the cloud and implementing AI technologies like OpenAI’s ChatGPT for tasks such as summarizing large volumes of unstructured documents.
Krasovska also mentioned the central bank’s involvement in a project related to synthetic data creation. This project aims to create an integrated database that can generate synthetic data for tech companies and newcomers seeking data sets to train business models.
Regarding cryptocurrency sentiment in Latvia, a report from the central bank revealed that local investments in crypto assets had declined by 50% over the past year. Krasovska attributed this decline to global market conditions and slumping trends in the cryptocurrency market. However, she pointed to the European Union’s adoption of the Markets in Crypto-Assets (MiCA) legislation as a positive development that could influence Latvia’s regulatory approach in the future.
In summary, Latvia’s approach to fintech regulation involves providing support and guidance to fintech companies through its Innovation Hub, adopting emerging technologies internally, and considering the broader regulatory landscape within the European Union. While cryptocurrency-specific regulations are still pending in Latvia, the central bank remains engaged with the fintech ecosystem and adapts to global regulatory developments.