. it seems that regulators are not willing to take chances and wait for a ‘ minsky moment ’ to occur on the back of technological innovation. looking from the perspective of international financial stability, this is a highly welcome and reassuring development. treating fintech as an opportunity, not as a headache so : an opportunity or a headache? adapting the regulatory framework to ever - changing financial innovations is not an easy task. yet instead of treating this as a problem, we should see it as an ideal chance. this is exactly the strategy that we are pursuing at the bank of lithuania. a couple of years ago, our institution set out on a mission to turn lithuania into a regional fintech hub. the nordic - baltic region is known for its highly digitalised economies and financial systems. yet lithuania has managed to stand out as a particularly fintech - focused and open jurisdiction. of course, this does not undermine our core mission – to ensure stability and credibility of our financial system. looking into specific fintech - supporting regulatory elements, the bank of lithuania is one of the few central banks globally providing direct access to its payments infrastructure for non - bank financial firms. this means that fintechs can provide payment services across the euro area on their own, cutting out the middleman. in other words, innovative financial institutions are placed on a truly equal footing with established banks, fostering competition in the sector. while ‘ regulatory sandboxes ’ for interacting with new market entrants have become quite widespread by now, we have taken a step further. next year, we are preparing to launch a ‘ technological sandbox ’, codenamed lbchain. it will function as a service - based platform for cooperating with private actors both nationally and internationally. the platform ’ s central goal is developing and testing state - of - the - art solutions based on the emerging blockchain technology. being a fintech frontrunner regionally, lithuania also offers one of the most favourable regulatory environments in europe. take, for example, licensing. as we are highly speedoriented, an electronic money or payments institution licence will be ready in 3 months – compared with roughly 12 months in most other european countries. on top of this, we have introduced a unique ‘ specialised bank ’ licence, which allows fintech firms to transform themselves into banks, but with lower capital requirements. and it is not just a lithuanian licence that you get. it also enables fintechs to offer their services across europe, with basically no

##kits, aligning them with the new generation of business models and technological solutions brought about by fintech. in recent years, similar formats for regulator engagement with the industry have sprung up widely – from canada to australia. arguably, these developments mark a shift in authorities ’ thinking – facilitating innovation instead of aiming to restrict it. in this regard, the idea of developing a central bank digital currency has recently been gaining traction. the task of issuing a central bank digital currency is indeed complex and requires extensive long - term efforts. yet it also offers substantial gains. these include increased transparency, more efficient payment and settlement systems and enhanced instruments for financial risk monitoring. with more flexibility come new responsibilities nevertheless – and here i have to put the strongest emphasis – with more flexibility come new responsibilities. while becoming more open to innovations, we – i mean both industry and regulators – cannot turn a blind eye on the associated risks. first of all – cyber risks, which, under intensifying digitalisation processes, attract elevated regulator attention. financial institutions increasingly base their operations on novel technological solutions, such as cloud computing. this certainly brings efficiency gains. but also makes financial firms more vulnerable to hacking and malware, placing vast amounts of data and critical ict infrastructure in a potential danger zone. today this challenge is particularly relevant in europe due to the ongoing regulatory shift towards ‘ open banking ’. it is therefore no surprise that international standard setters, such as the bank for international settlements, have recently become more active in this domain. as a result, today financial institutions and regulators are offered guidance – including the recent steps taken by the european central bank – that they can implement to enhance the level of cyber resilience. to strengthen these efforts, the international monetary fund has lately been putting more emphasis 2 / 4 bis central bankers'speeches on cyber risks within its surveillance and policy advice frameworks. nevertheless, digitalisation - induced risks for the financial system stem beyond cyber threats. financial innovations also tend to create additional room for ‘ shadow banking ’ to expand. it takes time to identify and fully understand these new and often obscure financial services, sometimes revealing regulatory and supervisory loopholes. through interlinkages with other financial institutions, this may eventually lead to a build - up of hidden systemic risk. in other words, in absence of adequate regulation, ‘ shadow banking ’ operations risk putting the whole financial system under threat. in the last several years, we have witnessed an increase in scrutiny towards ‘ shadow banking ’ activities on a global scale