Financial Sector Transformation
Prime Minister’s Visit to the United States
From 8 to 15 July, the Prime Minister Krišjānis Kariņš engaged in his first working visit to the United States, in his capacity as Prime Minister.
During the visit, Mr. Kariņš met with representatives of the US presidential administration and Congress to address issues regarding bilateral cooperation and transatlantic security; investment opportunities in the Latvian economy; and the international fight against money laundering and terrorism financing.
At the conclusion of the working visit, Mr. Kariņš noted that the positive assessments of Latvia’s reform programme: specifically, representatives of the US presidential administration and Congress welcomed Latvia’s progress, in strengthening both its national defence capabilities and its business and investment environments.
Cabinet of Ministers adopts regulations to comply with FATF standards and Moneyval recommendations
On 9 July, the Cabinet of Ministers adopted two new regulations to ensure full compliance with FATF standards and Moneyval recommendations: the “Procedures for the Proposal and Enforcement of International and National Sanctions” legislation, and the “Statute of Sanctions Coordination Council” legislation.
These regulations establish, among other benefits:
- asset freezing procedures for all persons (without delay and without prior notice)
- a clear evidentiary standard and procedure for designation proposals, including upon the request of foreign parties
- de-listing and exemption procedures
The regulations also establish a Sanctions Coordination Council, chaired by the Ministry of Foreign Affairs with the participation of more than 20 other institutions involved in the application of sanctions. The Council will also feature members of civil bodies, including the Finance Latvia Association, the Employers’ Confederation of Latvia, and the Latvian Chamber of Commerce and Industry.
FCMC publishes its annual report for 2018
On 1 July, Latvia’s Financial and Capital Market Commission (FCMC) published its annual report for 2018, detailing its regulatory activities, as well as the performance of the market participants currently under surveillance.
Commercial banks still represent the largest segment of Latvia’s financial and capital markets, in terms of assets. However, under the strict risk mitigation procedures implemented by the FCMC in 2016, the Latvian banking sector continued to narrow in 2018. Indeed, commercial banks represented 79% of financial sector assets in 2018, dropping from 84% a year earlier.
In the change management process, the most important task remained for lending and financial institutions to abandon potentially high-risk foreign financial assets, deposited in Latvian accounts.
In 2015, the share of foreign deposits was 54%. By the end of 2017 and 2018, this had fallen to 39% and 20%, respectively. In addition, Latvian authorities reduced the sector’s exposure to CIS customers to 5-6%, through the extensive auditing of high-risk customer bases. In the same three-year period, US dollar transactions also declined more than 26 times.
The volume of domestic deposits has steadily increased – offsetting the decline in foreign deposits, and bolstering financial stability across the sector. At the end of 2018, the loan portfolio was valued at some 13 billion euros.
Changes in the Financial and Capital Market Commission
On 4 July, Pēters Putniņš, Chairman of the Financial and Capital Market Commission (FCMC), and Gunta Razāne, Deputy Chairwoman of the FCMC, submitted their resignation to the Saeima (the Parliament).
The FCMC will continue working in accordance with its priority objectives: to promote the protection of interests of investors, depositors and insured persons; to promote the development and stability of the financial and capital market; and to ensure the prevention of money laundering and terrorism and proliferation financing.
“Successful operation of the FCMC is currently particularly important, taking into account the necessity to introduce Moneyval recommendations in order to strengthen the prevention system for money laundering and terrorism and proliferation financing,” emphasised Jānis Reirs, the Minister for Finance. “I will invite the interim chairperson of the FCMC to ensure this remains a priority.”
On 8 July, Saeima’s Budget and Finance Committee appointed Kristīne Černaja-Mežmale, the head of the FCMC’s Monetary Finance Institutions Operations Analysis Office, as the temporary head of the Commission.
New arrangements for the selection of candidates for the post of Chairman of the Financial and Capital Market Commission’s Council
On 9 July, the Cabinet of Ministers approved draft legislation relating to the selection of candidates for the post of Chairman of the Financial and Capital Market Commission’s (FCMC). The selection will be carried out by the Commission under the leadership of Jānis Citskovskis, Director of the State Chancellery.
The head of the FCMC will be selected through a three-round open competition, which the State Chancellery launched on 12 July. Applicants are encouraged to apply here before 12 August.