Latvijas Banka (Bank of Latvia)

Overview

Latvijas Banka is the central bank of Latvia and the country's integrated financial regulator. On 1 January 2023, Latvijas Banka formally merged with the Financial and Capital Market Commission (FKTK), consolidating all financial supervision functions into a single institution.

Leadership

Governor: Mārtiņš Kazāks (until 20 December 2024)

Acting Governor (Designate): Māris Kālis (appointed pending Saeima confirmation for new full term)

Integration Rationale

The merger of Latvijas Banka (central bank) and FKTK (financial regulator) was authorized by Saeima decision on 23 September 2021 and implemented to:

• Increase effectiveness of macroprudential policy

• Reduce operational and administrative redundancy

• Improve policy coordination and institutional efficiency

• Enhance systemic risk monitoring

• Strengthen financial sector oversight

Operational Efficiency Gains

• Estimated annual operating cost reduction: EUR 1.6 million (3.4%)

• Consolidated staffing: 539 employees post-integration (previously 732 at Latvijas Banka + 95 at FKTK pre-2001 separation)

• Unified regulatory infrastructure

Basic Identity

Classification

Inclusion Justification

What This Entity Oversees

Single Supervisory Mechanism (SSM)

Latvijas Banka supervises less significant institutions (LSIs) under ECB oversight:

• Commercial banks

• Credit unions

• Mortgage credit institutions

• Savings banks

• Non-bank credit institutions

Significant Institutions: Direct ECB supervision (Eurosystem-wide)

Prudential Standards

• Minimum CET1 ratio: 8% plus capital buffers

• Tier 1 capital ratio: 10.5% minimum

• Total capital ratio: 12.5% minimum

• Liquidity Coverage Ratio (LCR) standards

• Net Stable Funding Ratio (NSFR) compliance

• Large exposure limits and concentration controls

Post-ABLV Crisis AML Reforms

Following the ABLV Bank collapse (2018) due to massive AML compliance failures, Latvijas Banka implemented:

• Enhanced customer identification and verification

• Beneficial ownership verification protocols

• Source of funds verification procedures

• Cross-border transaction monitoring intensification

• Regular AML compliance audits and inspections

• Stricter Politically Exposed Persons (PEP) screening

Market Supervision

• Nasdaq Riga (stock exchange) oversight

• Investment services providers (ISPs)

• Alternative Trading Systems (ATS)

• Fund managers and administrators

• Custodians and depositaries

Market Conduct Standards

• Insider dealing prohibition and enforcement

• Market manipulation prevention

• Prospectus approval and continuous disclosure

• Fund licensing and governance

• Securities issuance framework

Latvijas Banka oversees:

• Non-life insurance undertakings

• Life insurance providers

• Reinsurance companies

• Insurance intermediaries and brokers

• Solvency II capital framework

Capital Requirements

• Minimum Solvency Capital Requirement (SCR)

• Own Risk and Solvency Assessment (ORSA)

• Internal model authorization

• Governance and internal control standards

Regulatory Framework

• FATF 40 Recommendations implementation

• 5th and 6th EU AML Directives (AMLD5/AMLD6)

• Money Laundering and Terrorism Financing Prevention Act

• Financial Intelligence Unit (FIU) coordination

• ABLV crisis-driven enhanced protocols

CDD and EDD Requirements

• Know Your Customer (KYC) standards

• Enhanced Due Diligence (EDD) for high-risk customers

• Beneficial ownership identification and tracing

• Politically Exposed Persons (PEP) screening

• Source of funds verification

Suspicious Activity Reporting (SAR)

• Mandatory reporting to FIU

• Quarterly statistical reporting

• Cross-border transaction monitoring

• Terrorist financing prevention

• Trade-based money laundering detection

Regulatory Powers

Administrative Actions

• License issuance, suspension, revocation

• Administrative fines and penalties

• Capital surcharge imposition

• Business conduct restrictions

• Cease-and-desist orders

Resolution Authority

Post-2023 integration, Latvijas Banka exercises resolution powers:

• Bank resolution and wind-down authority

• Bridge bank establishment

• Deposit protection coordination

• Asset sale and consolidation

• Shareholder loss allocation

Regulatory Role and Function

Legal Foundation

Law on Latvijas Banka (Amended 2023)

The amended Law on Latvijas Banka incorporates FKTK functions and establishes:

• Integrated central banking and financial supervision authority

• Function separation through internal governance mechanisms

• Separate Supervision Committee for regulatory decisions

• Distinct Resolution Committee for resolution authority

• Information barriers and internal control systems

• Independent audit and compliance monitoring

EU Regulatory Framework

As an Eurosystem member:

• Alignment with ECB regulatory framework

• Basel III/CRD IV/CRR implementation

• Single Supervisory Mechanism (SSM) participation

• Payment Services Directive (PSD2) compliance

Licensing and Authorization Relevance

Markets in Crypto-Assets Regulation (MiCA)

Latvijas Banka now issues MiCA-compliant licenses to crypto-asset service providers (CASPs):

• Crypto-asset exchange services

• Custodian services

• Trading, placement, portfolio management

• Stablecoin issuance and provision

• AML/KYC compliance for VASPs

First MiCA License

In 2024, Latvijas Banka issued its first MiCA license to BlockBen, demonstrating Latvia's active participation in EU crypto regulation framework.

Capital and Governance

• Tiered capital requirements based on service type

• Operational resilience standards

• Cybersecurity and digital operational resilience (DORA)

• Customer asset segregation

• Enhanced governance for institutional providers

Payments and Money Movement Relevance

Euro Adoption

Latvia joined the Eurosystem on 1 January 2014, making Latvijas Banka a full participant in:

• European Central Bank (ECB) Governing Council

• Monetary Policy decisions via the Governor

• Eurosystem operational framework implementation

• Common currency circulation management

Monetary Policy Framework

• Primary objective: Price stability within Eurosystem

• Coordination with ECB monetary policy

• Implementation of ECB policy rates in Latvia

• Foreign exchange reserves management

PSD2 Framework Implementation

• Payment service providers (PSPs)

• Payment initiation services (PIS)

• Account information services (AIS)

• Money transmission and funds transfers

• Electronic money institution (EMI) authorization

Capital Requirements

• EMI minimum capital: EUR 350,000 (unrestricted activity)

• PI minimum capital: EUR 125,000

• Safeguarding and deposit protection

• Customer due diligence requirements

Payment Systems Oversight

• Payment clearing and settlement infrastructure

• Real-time gross settlement (RTGS) systems

• Interbank payment arrangements

• Cross-border payment coordination

Payment Systems Governed or Overseen

The Latvijas Banka (Bank of Latvia) operates and/or oversees the national payment and settlement infrastructure of Latvia. Specific systems include:

[Further detail on specific system names requires verification from official sources]

Relationship to Other Regulators

Eurosystem Membership

• Participation in ECB Governing Council (via Governor)

• Implementation of ECB monetary policy decisions

• Eurosystem operational framework compliance

• Foreign exchange reserves management

• Emergency liquidity assistance framework

EU and EEA Coordination

• European Banking Authority (EBA) alignment

• European Securities and Markets Authority (ESMA) cooperation

• European Insurance and Occupational Pensions Authority (EIOPA)

• Single Supervisory Mechanism (SSM) with ECB

• Financial Stability Board (FSB) participation

Bilateral Cooperation

• MOU agreements with other EU central banks

• VASP and crypto asset intelligence sharing

• Cross-border supervisory coordination

• Joint enforcement and crisis management protocols

Geography and Jurisdiction Notes

Important Departments and Divisions

Key Public Resources

Latvijas Banka (Bank of Latvia)

• Address: K. Valdemara iela 2A, Rīga LV-1050, Latvia

• Telephone: +371 67022300

• Email: [email protected]

• Website: https://www.bank.lv/en

• Supervisory Inquiries: [email protected]

• MiCA/CASP Licensing: [email protected]

• AML/CFT Compliance: [email protected]

Notes on Naming and Language