Latvia: Banking & Finance

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding banking and finance law in Latvia including national authorities, regulation, licenses, organisational requirements, supervision and assets.

This Q&A is part of the global guide to Banking & Finance.

For a full list of jurisdictional Q&As visit

  1. What are the national authorities for banking regulation, supervision and resolution in the jurisdiction?

    The national authority responsible for banking regulation and supervision in Latvia is the Financial and Capital Market Commission (FCMC). Moreover, the central bank of Latvia (the Bank of Latvia) contributes to the smooth conduct of policies pursued by the FCMC relating to the prudential supervision of banks and the stability of the financial system. As regards the resolution of banks, the responsible authority is also the FCMC.

  2. Which type of activities trigger the requirement of a banking licence?

    In order to trigger the requirement of a banking licence, the activities of the relevant entity have to be covered by the scope of the definition of the bank, i.e., it is a capital company, which accepts deposits and other repayable funds from an unlimited circle of clients, issues credits in its own name and provides other financial services.

  3. Does the regulatory regime know different licenses for different banking services?

    Yes, the regulatory regime knows different licences for different banking services, for example:

    a) A savings and loan association is a co-operative society with variable number of members and capital and that provides certain financial services to the members of the association. In order to for the savings and loan association to operate, it has to obtain a licence from the FCMC.

    b) An investment management company is a company, whose main business activity is the management of investment funds and the management of funds of the state funded pension scheme. Before commencing any business activity, the investment management company shall obtain a licence from the FCMC.

    c) A pension fund accumulates and invests contributions of monetary means made by pension scheme participants themselves or voluntarily made in their favour in order to ensure pension benefits to such participants. In order to for the pension fund to operate, it has to obtain a licence from the FCMC.

  4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

    Yes, the banking licence permits the bank to perform certain other activities, e.g., provide payment services and to issue e-money.

  5. What is the general application process for bank licenses and what is the average timing?

    In Latvia, a bank may be founded only as a joint stock company (JSC) (i.e., public company, the shares of which may be publicly tradable).

    A newly founded bank prior to recording thereof in the Commercial register shall submit to the FCMC an application for the receipt of a licence. Registration of the bank in the Commercial register shall be carried out only after the decision of the FCMC to issue a licence for the operation of a bank has been submitted to the Commercial register.

    The founders of the bank shall organise payment of money into a temporary account at the Bank of Latvia and shall fully prepay the founding equity capital of the bank until examination of the application to the FCMC for the receipt of a licence. The founding equity capital of the bank may only be deposited in money.

    The FCMC shall examine an application for the issuance of a licence within three months after receipt of all the necessary documents; however, not later than within 12 months from the day when the application for the receipt of a licence was received. There is, however, no publicly available information on average timing for application process for the receipt of a banking licence.

    The initial capital of a bank shall be not less than five million euros.

  6. Is mere cross-border activity permissible? If yes, what are the requirements?

    A bank registered in the EU Member State, the branches thereof or branches of a foreign credit institution have the right to engage in banking activities in the Republic of Latvia.

    A foreign bank may open a branch in Latvia, if the minimum initial capital of such bank is not less than five million euros and consist of the items prescribed by the Credit Institutions Law. The period of operation of such bank shall not be less than three financial years, unless the bank has been registered in a foreign state, which is a member of the WTO.

    In addition, the banks registered in the Republic of Latvia, may under certain conditions defined in the Credit Institutions Law, engage in cross-border activity by opening representative offices or branches in both the EU Member States and foreign states.

  7. What legal entities can operate as banks? What legal forms are generally used to operate as banks?

    In Latvia, a bank may be founded only as a JSC (i.e., public company, the shares of which may be publicly tradable).

  8. What are the organisational requirements for banks, including with respect to corporate governance?

    As well as any other JSC, a bank is governed by a meeting of shareholders, a council and a board of directors.

    The meeting of shareholders has certain exclusive rights, e.g., to make decisions concerning the annual financial statements of the bank, the use of the profit from the previous year of activities, amending the articles of association of the banks and others.

    The council is the supervisory institution of the bank, which represents the interests of shareholders during the time periods between the meetings of shareholders and supervises the activities of the board of directors. The council has certain duties, e.g., to monitor that the business of the bank is conducted in accordance with law, the articles of association and the decisions of the meeting of shareholders. The council can consist of not more than 20 members.

    The board of directors is the executive institution of the bank, which manages and represents the bank. It shall supervise and manage the affairs of the bank. It shall be responsible for the commercial activities of the bank, as well as for accounting, in compliance with law. The board of directors shall administer the property of the bank and shall act with its means according to the requirements of law, the articles of association and decisions of meetings of shareholders.

    Regarding the organisational structure of the banks, the law stipulates certain additional requirements in terms of qualification and suitability of the relevant officers. For instance, only the following persons may act as a chairperson of the board of directors, member of the board of directors, head of the internal audit service, risk manager, person responsible for compliance control, person responsible for compliance with the requirements of the prevention of money laundering (ML) and terrorism financing (TF), company controller, head and procurator of a branch of a foreign bank or of a branch of a bank in a foreign country:

    • who are competent in the financial management issues; person responsible for compliance with the requirements of the prevention of ML and TF may be competent in business administration issues;
    • who have the necessary education and three years professional work experience in an undertaking, organisation or institution of relevant size;
    • who have an impeccable reputation;
    • who have not been deprived of the right of engaging in commercial activities.

    Moreover, the law obliges the banks to ensure the establishment and operation of a comprehensive and efficient internal control system, which is suitable to the nature, volume and complexity of the activities thereof. The internal control system shall include the following basic elements:

    • an organisational structure conforming to the size and operational risks of the bank, in which there is a clearly determined, unambiguous and systematic division of duties, authorisations and responsibilities in relation to the performance and control of transactions between the structural units and responsible employees of the bank;
    • a system for the identification, management, supervision and reporting of inherent and potential risks for activities of the bank;
    • internal control procedures;
    • remuneration system.
  9. Do any restrictions on remuneration policies apply?

    Certain restrictions to remuneration policies apply to the banks. The law obliges the bank to ensure such remuneration policy and practice for its officials or employees whose professional activities significantly affect the risk profile of the bank, which corresponds to cautious and effective risk management and facilitates it, but does not facilitate undertaking of risks which are above the allowed level of undertaking of risks determined by the bank.

    Moreover, for the officials or employees of the bank whose professional activities significantly affect the risk profile of the bank, the bank shall not determine the variable part of the remuneration to be such that exceeds the fixed part of the remuneration determined for the respective official or employee in the reporting year, except under certain exhaustively defined conditions.

    Furthermore, the FCMC has developed binding regulations on the basic principles of remuneration policy that the banks are obliged to follow (FCMC Regulations No. 126 of 2 July 2014).

  10. Has the jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?

    Basel III framework with respect to regulatory capital has been implemented by the means of the EU law, namely, the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV), the requirements of which have been transposed to the national law of the Republic of Latvia by amendments to existing legislative instruments and adoption of new ones. While CRD IV governs, among other things, access to deposit taking activities and corporate governance of banks, the CRR sets the capital requirements that institutions need to respect and thus translates the bulk of the Basel provisions (

  11. Are there any requirements with respect to the leverage ratio?

    A leverage ratio (LR) is a new regulatory and supervisory tool for the EU. On 3 August 2016, the European Banking Authority (EBA) published its report on the impact assessment and calibration of the LR, recommending the introduction of a LR minimum requirement in the EU to mitigate the risk of excessive leverage ( The analysis suggests that the potential impact of introducing a LR requirement of 3% on the provision of financing by the banks would be relatively moderate, while, overall, it should lead to more stable banks.

    Therefore, currently the Latvian law states that banks shall draw up and implement a cautious strategy, policies, procedures and systems which allow timely identification, assessment, analysis and management of credit risks, concentration risk, market risk, operational risk, interest rate risk of the non-trading-book, liquidity risk, excessive leverage risk and other important risks of the bank. In addition, the FCMC shall, also assess, among other things, the vulnerability of banks to excessive leverage risk.

  12. What liquidity requirements apply? Has the jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

    The FCMC has adopted normative regulations of 28 December 2009 No. 195 “On Liquidity Requirements, Procedure for Execution Thereof and Management of Liquidity Risk”. In addition, the liquidity requirements prescribed by the CRR and the CRD IV and the Commission delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement CRR with regard to liquidity coverage requirement for Credit Institutions are applicable.

    Article 412(1) of the CRR imposes a liquidity coverage requirement on banks formulated in general terms as an obligation to hold ‘liquid assets, the sum of the values of which covers the liquidity outflows less the liquidity inflows under stressed conditions’. Pursuant to Article 460 of the CRR, the EU Commission is empowered to specify in detail that liquidity coverage requirement and the circumstances under which competent authorities have to impose specific in- and outflow levels on banks in order to capture specific risks to which they are exposed. In accordance with Recital 101 of the CRR, the rules should be comparable to the liquidity coverage ratio set out in the international framework for liquidity risk measurement, standards and monitoring of the Basel Committee on Banking Supervision (BCBS), taking into account the EU and national specificities. Until the full implementation of the liquidity coverage requirement from 1 January 2018, Member States should be able to apply a liquidity coverage requirement up to 100 % for credit institutions in accordance with national law.

    Article 413(3) of the CRR states that the EU Member States may maintain or introduce national provisions in the area of stable funding requirements before binding minimum standards for net stable funding requirements are specified and introduced in the EU in accordance with Article 510 of the CRR.

    It has to be noted that the EU Commission had proposed the introduction of the NSFR, and that the European Central Bank (ECB) envisaged the implementation of the NSFR in January 2018 ( 26_MMSR_Item_5_iii_NSFR.pdf?3294d2e9a73c282389db328e497f1c9f).

  13. Do banks have to publish their financial statements?

    Yes, the banks are obliged to prepare public statements in order to inform the public regarding the activities and financial indicators of the bank.

    Moreover, annual financial statements and consolidated financial statements are also made public.

  14. Does consolidated supervision of a bank exist in the jurisdiction? If so, what are the consequences?

    Yes, consolidated supervision of banks exists in Latvia. Consolidated supervision of banks contributes to effective supervision of complex multinational banking or financial services organisations and promotes transparency.

  15. What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

    A participation in a bank can be described as a “qualifying holding” when it represents 10% or more of the shares and/or voting rights in the bank or crosses the other relevant thresholds (20%, 30% or 50%). In addition, obtaining rights to appoint the (majority of) the management board or other means of providing significant influence over the management of the bank also falls within the scope of a “qualifying holding”.

    Pursuant to Article 4(1)c) of the Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (SSM Regulation), as the European banking supervisor, the ECB is exclusively competent to assess notifications of the acquisition and disposal of qualifying holdings in banks.

  16. Does the regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

    Yes, the regulatory regime imposes conditions for eligible owners of banks, most specifically, with regard to qualifying holdings. Among others, the following conditions apply.

    Firstly, only the following may acquire qualifying holdings in a bank:

    1) natural persons of legal age and with the capacity to act;

    2) legal (registered) person;

    3) the state or local governments.

    Secondly, those who acquire qualifying holdings shall be identifiable, have an impeccable reputation, financial stability, as well as the legality of their financial resources shall be provable by documentary evidence.

  17. Are there specific restrictions on foreign shareholdings in banks?

    No, the laws and regulations in Latvia do not provide for any specific restrictions on foreign shareholdings in banks.

  18. Is there a special regime for domestic and/or globally systemically important banks?

    Authorities are expected to impose higher own funds requirements on global systemically important institutions (G-SIIs) in order to compensate for the higher risk that G-SIIs represent for the financial system and the potential impact of their failure on taxpayers.

    The identification methodology for G-SIIs shall be based on the following categories:

    (a) size of the group;

    (b) interconnectedness of the group with the financial system;

    (c) substitutability of the services or of the financial infrastructure provided by the group;

    (d) complexity of the group;

    (e) cross-border activity of the group, including cross border activity between Member States and between a Member State and a third country.

    Each category shall receive an equal weighting and shall consist of quantifiable indicators.
    The special regime for G-SIIs in Latvian jurisdiction stems from the EU law.

  19. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

    Sanctions that the national regulator – the FCMC – may order vary in their scope and effect on the banks, as well as the degree of violation of baking regulations.

    If the FCMC detects that a bank does not comply with the requirements of the Credit Institutions Law of the Republic of Latvia, the CRR, the directly applicable laws and regulations issued by the EU authorities or the requirements of decisions or regulatory provisions issued by the FCMC, or if activities of the a bank endanger the stability or solvency thereof, the security or stability of the sector of banks of Latvia, threatens to cause significant losses to the national economy, or if an excessive outflow of deposits or other outside funds from the bank takes place, the FCMC is entitled to carry out one or more of the following activities by taking a decision:

    • to give binding written instructions to the administrative bodies of the bank, their managers and members, which are necessary for the prevention of such situation;
    • to impose restrictions for the rights and activities of the bank, including completely or partially suspend the provision of financial services, as well as to lay down restrictions for execution of liabilities;
    • to appoint one or more authorised persons of the FCMC in the bank;
    • to require the bank to narrow down or restrict commercial activities, the network of activity or entities, abandon the areas of activity, which pose excessive threat to its stability;
    • to require the bank to reduce the risks inherent to its activity, products or systems;
    • to require the bank to determine such restriction on the variable remuneration of officials and employees, which is expressed as percentage of net income and allows the bank to maintain a stable capital base;
    • and others.
  20. What is the resolution regime for banks?

    Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (BRR Directive) establishes the resolution regime for banks and basically introduces four resolution tools:

    • the sale of business tool;
    • the bridge institution tool;
    • the asset separation tool;
    • the bail-in tool.

    As of the moment of establishment of the Single Resolution Mechanism (SRM), the resolution authority is the FCMC in cooperation with the Single Resolution Board, the EU agency.

  21. How are client’s assets and cash deposits protected?

    For any client - both natural and legal persons - of Latvian banks, in accordance with the Deposit Guarantee Law of the Republic of Latvia, guaranteed payment of indemnity for all types of deposits in all currencies is guaranteed up to EUR 100,000 in each bank or credit union (all accounts together if there are multiple accounts in one bank). The guaranteed remuneration covers both deposits and current account balances, salary accounts, savings accounts etc. In certain cases, the amount of the guaranteed remuneration may exceed EUR 100,000.

  22. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?

    Yes. The bail-in tool was introduced in Latvia by transposing the BRR Directive.

    Article 44(1) of the BRR Directive states that the EU Member States shall ensure that the bail-in tool may be applied to all liabilities of the bank. However, Article 44(2) of the BRR Directive provides that the resolution authorities shall not exercise the write down or conversion powers in relation to the following liabilities, among others:

    • covered deposits;
    • secured liabilities including covered bonds and liabilities in the form of financial instruments used for hedging purposes which form an integral part of the cover pool and which according to national law are secured in a way similar to covered bonds;
    • liabilities to institutions, excluding entities that are part of the same group, with an original maturity of less than seven days;
    • and others.
  23. Is there a requirement for banks to hold gone concern capital (TLAC)?

    Yes, pursuant to the CRR, there is a requirement for banks to hold gone concern capital.

  24. In your view, what are the recent trends in bank regulation?

    The volume of regulation applicable to banks is increasing every year on both the national and EU level. On the national level, the FCMC has been particularly active in the recent years, especially, in the field of AML. Banks have dedicated considerable financial and staff resources to ensure implementation of the new FCMC requirements. AML has been the biggest trend in banking regulation also in 2017 when EU’s 2017 AML IV Directive became applicable and was transposed to the Latvian law, encouraging banks to take further steps at improving their AML internal control systems.

    It is certain that 2018 will bring a lot of new regulation on implementation of which Latvian banks have already been working for some time. Several EU legislative acts will become effective in 2018, namely:

    • Revised Payment services directive (PSD 2) that will require the banks to share information on their customers with certain third parties;
    • General data protection regulation (GDPR) that will require banks to review and amend their customer data protection processes;
    • Revised Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) that will affect financial instrument markets;
    • Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs) that seeks to implement uniform rules on the transparency of packaged retail and insurance based investment products.
  25. What do you believe to be the biggest threat to the success of the financial sector ?

    The macroeconomic environment and more stringent regulation on the financial market are believed to be the two core sources of influence of the financial sector in Latvia. The market participants will have to adapt to continuously evolving circumstances and environment to keep their profitability.

    The anticipation for future is favourable – the financial sector will continue to grow, adapt to changes and provide innovative solutions. The transformation from classical banking services paves the way for crucial changes in the financial sector and the banks are forced to explore possibilities of beginning to provide innovative services.

    In other words, the biggest threat to success is at the same time the biggest opportunity for success – the technological transformation of financial services. The market participants in the highly competitive sector with remarkable success in implementation of new technology and using it for their benefit will strive; whereas, the rather conservative competitors are expected to stagnate.