What do you do when you recognise that the opportunities, which can be created from embracing innovation are at your doorstep, but you are being challenged by incumbent regulatory status quo?
You create a regulatory sandbox environment.
This was the answer of the Central Bank (CB) of Lithuania, which has created world’s first blockchain- based sandbox environment that is developed by a financial regulator. The Lithuania CB has combined technological and regulatory infrastructures and spread the implementation of the project in four phases, carefully selecting and assessing the results at each step.
Lithuania, which is part of the European Union since 2004, and is a member of the Euro-zone, is an extremely tech savvy country, with entrepreneurial spirit and hunger to establish itself as a leader, and tech innovations seems to be paving the way. Lithuania is the country where Google, Revolut, Uber, Wix, Trafi all have strong presence. Lithuania is also among the leaders in the World when it comes to blockchain projects. There is no lack of developers here, and more coding schools are opening each year.
While many were debating the suitability of blockchain and distributed ledger technology among the highly regulated financial services industry, Lithuania has decided to create a special technical and regulatory environment, call a tender for solution providers and then test fintech prototypes on the platforms.
At the beginning of September, 2019, the LB Chain- this is the name of the Lithuania’s Central Bank blockchain- based sandbox- has reported progress and has embarked on to the next phase, which involves platform testing and selection of final solutions. One thing is already clear: financial innovations can help manage risks, reduce costs of financial intermediation, cut transaction costs and potentially open new markets.
The LB Chain is both technological and regulatory sandbox- it creates a technology environment for blockchain and fintech initiatives in a supervised way. The mission of the LB Chain is to accelerate the development and application of blockchain based solutions for financial market.
One of the features being a member of the EU and the Euro-zone is that the countries’ Central Banks behave in sync with the European Central Bank (ECB), and getting a license for fintech in one country normally is valid throughout the whole EU. This is the key point of having access to the whole market of the European continent, and this is why financial institutions are relocating their operations to EU-Europe from the Brexit country.
The LB Chain, since its inception in March 2018, have created technological environments and explored fintech solutions that could solve problems, or make operations more efficient, using the blockchain, or, rather, distributed ledger technology.
A KYC solution by Ondato is being tested, that streamlines the compliance management for businesses. Banks, fintechs, exchanges, funds and other parties requiring KYC can simply plug in the software solution, already powered by artificial intelligence.
If KYC procedures were streamlined on a global level and a party could use its individual KYC attributes for global transactions- this would open up access to new markets and speed up the process of on-boarding new clients.
That would mean a potential to increase clients and assets under management for businesses. And also remove the work of many intermediaries.
Other solutions tested on the LB Chain platform include software for asset management, which already includes distributed ledger technology features. This one is presented by a Finnish company- a good example of EU inter-country cooperation when it comes to innovations.
The LB Chain is still submitting applications for fintech startups; the deadline is 23rd of September 2019.
Overall, it is exciting to see solid projects developing solutions transforming entire lines of industries and showing to the World what the distributed ledger technology is beneficial for.
It is not the same as Bitcoin and cryptocurrency, but about that- in another blog;)
Thank you for reading,