We often see the information (and my blog is no exception) about the deficient legislative regulation of the financial technology sector, about the insufficient quantity of bank cards among Ukrainians, and about the former popularity of payment terminals in Ukraine. However, my blog also shows that the fintech in our country is developing with great dynamism. Just the fact that payment for utilities, the internet, travel, tickets, grocery shopping and other things have become associated primarily with cashless payments is the best proof. But there isn’t always a clearly defined model of work for e-wallets, mobile banks, cryptocurrency projects, which are already changing or may change the online services consumption habits in Ukraine. I can’t talk about “bad” and “good”
because the issue of regulation with respect to security and data protection is too complex for simple categories. It’s of utmost importance to understand what has already been done, what is being done and what we need to work for.
The increasing regulation of fintech in Ukraine
The strategy of Ukrainian financial sector development until 2025 is aimed at the phased establishment of a full-fledged fintech ecosystem. The strategy encompasses important issues: the innovation-based growth, financial inclusion, the implementation of the concept of a full-fledged regulatory sandbox. It’s necessary for the global fintech trends implementation to set proper regulation, which will allow revealing and preventing the use of financial instruments for illegal activities, but at the same time let the industry be fully operational. That is the most difficult task. So, for example, the financial monitoring act 2020 has changed a lot in the regulation of the banks and other financial institutions activities .
Remote verification. What both financial institutions and their clients had been waiting for happened
remote account opening has become possible. Now banks can open accounts via video communication (clients provide documents requested by the bank), via the NBU BankID system and QES, or using simplified models that imply certain limits on the transaction amount and client account balances. The procedure has not yet been fully optimized, since there are additional requests to clients with old-style passports, and the necessary electronic data systems are not ready for full use.
For fintech tools like e-wallet, the registration procedure has only become more complicated. If previously a phone number was enough to create a wallet, then soon the user will need to go through the identification procedure. This partly destroys that payment instrument concept, but provides better control in the context of the e-commerce and online payments rapid development.
E-hryvnia. The central banks of the leading countries are considering using digital currency as an alternative to existing monetary units and currencies. Ukraine has been studying this issue since 2016. China, which is testing the digital yuan, notes the benefits of the state digital currency implementation. Beijing believes that this method will reduce the dependence of the national economy on the US dollar and, in general, on sanctions and US policy towards China. Also, with the state digital currency, the commissions will be lower, since payment systems won’t be relevant on the payment way.
Recently, the world already has the first CBDC issuer
the Central Bank of Lithuania. The regulator desires to introduce an environment conducive to competition and leading innovations in finance, that resulted in the Lbcoin launch. The Lbcoin is based on the NEM blockchain and provides different ways of payment with the use of the latest technologies. Lbcoin can be exchanged directly with the central bank and on private blockchain networks.
Cryptocurrencies. On the way to the development of digital technologies, automation, blockchain, big data analysis, the legal regulation is being adjusted for the effective achievement of the set goals. So Ukraine has introduced cryptocurrencies regulation as the part of the new rules of financial monitoring. The Ministry of Digital Transformation of Ukraine is responsible for the regulation and supervision of service providers related to the virtual assets turnover. The amendments include:
● The definitions of terms related to digital currencies and service providers related to the virtual assets turnover ;
● The obligatory identification of the parties to the transaction with virtual assets, if the transaction amount exceeds UAH 30 000;
● Special reports from service providers related to the virtual assets turnover, if the transaction amount exceeds UAH 400,000 and the transaction is made in cash, relates the politically exposed persons or parties registered in one of the countries of the sanctions list, or for the purpose of transferring funds abroad.
A lot of people have a negative attitude to such regulation, as the payments anonymity is lost. However, it is clear that security is a top concern regardless of the type of financial service. The experience of the world’s leading countries is important in this matter. Some of them have introduced special cryptocurrency licenses. The UK has introduced binding registration with the FCA and compliance with the requirements of a regulatory body that closely monitors market participants.