Latvia central bank opens to fintech with ‘Innovation Hub’


Fintech improvements and rising applied sciences have swept the world, inflicting global lawmakers to rush to perceive and regulate them. 

While some international locations like the United States and El Salvador have had a public relationship with adopting new applied sciences, others have quietly joined the sport. Among these is Latvia, a small nation located in the Baltics, neighboring Estonia and Lithuania.

Cointelegraph spoke with Marine Krasovska, the top of economic expertise at Latvijas Banka (Bank of Latvia) — Latvia’s central bank — to higher perceive how regulators within the nation are dealing with new applied sciences like cryptocurrencies and synthetic intelligence (AI).

Unlike its neighbor Estonia, which was the primary European nation to present clear rules and pointers for digital currencies, these property stay unregulated within the Latvian panorama. The Latvian Personal Income Tax Act defines crypto as a capital asset topic to the final capital good points tax of 20%.

Back in 2020, one of many nation’s monetary regulators, the Financial and Capital Market Commission (FCMC), warned the public about crypto fraud — significantly provided that in Latvia, crypto corporations “operate in an infrastructure that is currently characterized by lower regulation than in the financial and capital markets.”

An upcoming hub of innovation 

Since early warnings from the FCMC, Latvia has not developed new cryptocurrency rules. However, Krasovska defined that within the final 5 years, the central bank, which is the first regulator in Latvia, has been working its Innovation Hub.

Krasovska stated participation by fintech corporations just isn’t obligatory; nevertheless, the bank advises it as a “first entry point” to the Latvian market. The central bank presents this service freed from cost for worldwide corporations and people originating from Latvia.

Krasovka speaks on the Global Government Fintech Lab 2022 convention. Source: Global Government Fintech

“When businesses come to the Innovation Hub and begin to describe their business model, sometimes we start to understand what companies actually need and don’t need,” she stated.

She added that it’s a possibility for companies to speak in individual with regulators to perceive the enterprise licensing wanted and get dangers assessed.

“We always suggest for companies to bring a lawyer to disclose interpretation risks. Interpretation of legislation is a very high-level responsibility.” 

Within the Innovation Hub, the bank has additionally created a pre-licensing course of. According to Krasovska, this was created to assist fintech corporations — significantly these dealing with digital property — create a “package of documents” that they’ll obtain suggestions on relating to the standard. 

Related: Germany’s blockchain funding increases 3% amid market downturn: Report

“So when the official application goes in,” she stated, “the license process will be focusing on the main ideas rather than the quality of the application. This new pre-licensing began last summer.”

“We want to see more innovation on the market. But we also want to see that the risks are managed in a proper way.”

Krasovska stated that final 12 months, the Innovation Hub had 72 consultations with round 40% of all contributors from Latvia. She commented that the hub’s knowledge reveals elevated curiosity from corporations in “crypto and electronic money institutions services.”

Adoption from the within

Along with serving to companies thrive within the Latvian fintech panorama, Krasovska stated that the Latvian central bank itself is adopting new applied sciences to streamline its processes from the within.

This contains shifting central bank knowledge into the cloud and adopting AI applied sciences like OpenAI’s widespread chatbot ChatGPT.

“We, as a central bank, will also start this year to integrate artificial intelligence and ChatGPT in our work. Not just not just trying to do some kind of studies as everyone is using it, but we’re starting to adapt it in terms of we have identified our needs.” 

She stated the central bank created an inside lab two years in the past, which started experimenting with totally different sorts of technological options. 

Related: European Banking Authority calls for early adoption of stablecoin standards

She highlighted ChatGPT feasibility research the bank has performed, which is able to assist it summarize giant portions of paperwork, akin to tax paperwork that she referred to as “not structured information.”

Krasovska additionally stated the bank employs AI to assist with knowledge path tasks and supervise code.

Synthetic knowledge creation

When it comes to knowledge, the fintech government stated the Bank of Latvia is spearheading a brand new mission in relation to artificial knowledge.

She stated that when newcomers or tech corporations creating new options ask for an information set to prepare enterprise fashions, it has nothing it will probably legally present.

“This year and also next year, we will be working with the database ideas from which we can create this synthetic data that is like a synthetic lottery or something along those lines,” she stated.

“Then companies can come and use these different types of data to understand how their tools work or don’t work before they scale the business and offer their solution to real customers.” 

For instance, companies may have entry to a big transaction database to perceive how associated monitoring instruments work, “so what we’re doing right now is working on this integrated database,” she stated.

Latvia and the present state of crypto

Over the summer time, a report from the Latvian central bank stated that local investments in crypto assets had declined by 50% over the previous 12 months.

The report was based mostly on findings from fee card utilization, revealing that 4% of the inhabitants purchased crypto property in February 2023, in contrast to 8% in the identical month of 2022.

When requested in regards to the sentiment towards cryptocurrencies in Latvia, Krasovska pointed to the crypto market situations together with slumping market traits globally: “Globally, the financial markets are the way they are right now, and of course, this is [excluding] the crypto [market].”

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Aside from the rocky situations for the crypto neighborhood introduced on by the lingering bear market, regulatory difficulties in major markets have triggered investor sentiment to turn out to be much less optimistic.

However, Krasovska pointed towards the European Union’s adoption and implementation of the Markets in Crypto-Assets (MiCA) laws as one thing the central bank can lean on.

“With the adoption of MiCA, we can ensure very high standards for financial services.”

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