Cabinet of Ministers Republic of Latvia

Latvian Financial Sector Update

No. 18 4 November 2019

Santa Purgaile

Chairwoman of the FCMC

Santa Purgaile

Message from the FCMC

As the new Head of the Financial and Capital Market Commission (FCMC), it’s a great honour for me to join such an experienced team of professionals and carry out the strengthened mandate of an independent financial supervisor given to me by the Latvian Parliament and Cabinet of Ministers.

We are rigorously implementing recommendations from international institutions – including MONEYVAL and the IMF – and are stepping up dialogue with international partners to demonstrate the significant steps we are taking to drive the Latvian financial sector forward.

The FCMC has already introduced a series of actions to strengthen the supervision of financial institutions – including improving internal control systems and risk reduction measures. This has resulted in a significant drop in high-risk customers in the financial market. What’s more, the work we’re doing is consistent and our efforts will persist.

The FCMC is strongly committed to providing guidance through inclusive dialogue and support to all financial market participants and, where necessary, will also enforce compliance in prudential and, in particular, AML requirements.

The Latvian Parliament (Saeima) appointed Santa Purgaile as the Chairperson of the Financial and Capital Market Commission on October 24.

In This Issue

  • FCMC suspends the provision of financial services by JSC “PNB Banka”
  • Financial Intelligence Units (FIU) from across Europe meet in Riga to participate in an International Financial Intelligence Task Force
  • S&P Global Ratings and Fitch maintain a long-term foreign currency sovereign credit rating of ‘A’ and ‘A-‘ respectively, with a stable outlook
  • FIU Latvia freezes EUR 212.5 million assets in first nine months of 2019, up 2.8 times from the same period in 2018
  • The number of cases prosecuted for money laundering has doubled in the first eight months of 2019, compared with the same period in 2018
  • FCMC applies a fine of one million euros to JSC “PrivatBank” and imposes a number of legal obligations
  • State Revenue Service applies sanctions, imposing fines in total of EUR 301,675

Financial Sector Transformation

Minister of Finance briefs US strategic partners on the progress of financial sector reform

Latvian Minister of Finance Jānis Reirs participated in the spring meetings of representatives of the World Bank Group (WBG) and International Monetary Fund (IMF) in Washington, D.C., on October 14-20. During his visit, Mr. Reirs met representatives of the US Treasury, WBG and IMF to present, in detail, the implementation of the financial sector control reform in Latvia.

He commented: “Reducing and controlling money laundering risks and preventing financial crime is the highest political priority of the Latvian government now and for the foreseeable future.”

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FCMC suspends the provision of financial services by JSC “PNB Banka”

On August 15, 2019, The European Central bank (ECB) – as a direct supervisor of JSC “PNB Banka” – recognized the bank as ‘failing or likely to fail financial institution’. Despite this, the European Single Resolution Board (SRB) decided not to take resolution of JSC “PNB Banka”. In light of the above, and with a view to protecting the deposits of PNB Banka customers, the Board of the Financial and Capital Market Commission (FCMC) held an extraordinary meeting, during which it elected to suspend the provision of financial services and prevent customers withdrawing deposits from JSC “PNB Banka”.

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Financial intelligence units step up cooperation

During October, Financial Intelligence Units (FIU) from across Europe (including members of the Egmont Group of Financial Intelligence Units), met in Riga to participate in an International Financial Intelligence Task Force, focusing on illicit flows in the region. The meeting was initiated by Latvian FIU.

“In today’s interconnected world, efficient cooperation among partners to fight economic crime is more important than ever. Exchanging information, sharing data and intelligence is a prerequisite to carrying out complex analysis of financial transactions. I strongly believe in the constant need to improve, adapt and invent new tools to ensure our financial systems are repelling any potential abuse,” says Ilze Znotiņa, Head of FIU Latvia.

The Egmont group actively supports initiatives fostering international cooperation and recognises the sharing of financial intelligence has become a cornerstone of international efforts to counter money laundering and terrorism financing.


Latvia’s progress report to MONEYVAL demonstrates measurable progress

On August 30, Latvia submitted a progress report regarding the implementation of MONEYVAL’s 5th round assessment recommendations, aimed at improving Latvia’s anti-money laundering, terrorism, and proliferation financing prevention (AML/CFT/CPF) system. It also detailed the results of co-responsible institutions, notably the Latvian Government and Latvian Parliament (Saeima).

In October 2018, the Latvian Government adopted an action plan to implement MONEYVAL recommendations. This was followed by an ambitious, yet necessary, plan to overhaul the Latvia financial sector. Adopted in February 2019, this plan aimed to strengthen the capabilities of financial sector regulators when fighting financial crime, improving coordination with partners to achieve effective results.

At the same time, the Financial Sector Development Plan has been revised in order to address remaining vulnerabilities and risks in AML/CFT/CPF capabilities.

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FCMC publishes financial and capital market review for Q2 2019

In Q2 2019, foreign deposits remained virtually unchanged (up by 0.3% or EUR 13 million). EU deposits increased significantly by EUR 159 million, while non-EU customer deposits continued to decline by EUR 146 million, and their share in total deposits also declined from 9.3% to 8.4%.


S&P Global Ratings affirms Latvia’s credit rating

On September 20, the credit rating agency S&P Global Ratings reaffirmed the Republic of Latvia’s ‘A’ score for long-term foreign currency sovereign credit ratings.

S&P notes the Latvian authorities have made significant effort in strengthening the regulatory framework regarding; AML and financial crime prevention, increasing supervisory capabilities, reducing deposits of non-residents, and implementing comprehensive reforms in financial sector.

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Credit rating agency Fitch affirms Latvia’s credit rating

On October 11, the credit rating agency Fitch affirmed the Republic of Latvia’s ‘A-’ score for long-term foreign currency sovereign credit ratings.

Fitch specifically praised the measures taken to enhance the anti-money laundering framework, strengthen supervisory capacity, and change the business models of banks serving the non-resident sector.

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AML Risk Management & Compliance

FIU performance results for the first nine months of this year reveal significant progress in all areas

The Financial Intelligence Unit of Latvia (FIU Latvia) issued 266 freezing orders in the first nine months of this year, freezing a total of EUR 212.5 million, which is 2.8 times (equivalent to EUR 137.5 million) more than in the same period during 2018.

FIU Latvia has sent 153 materials to law enforcement institutions for further investigation, an increase of 12% over the same period in 2018. In 88 of these cases, the responsible authorities have initiated criminal proceedings, of which 55% are criminal proceedings for autonomous money laundering offenses. In addition, FIU Latvia received 516 requests from foreign institutions and sent 627 requests to foreign FIUs.

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The number of cases prosecuted for money laundering has doubled

During the first eight months of 2019, the number of money laundering cases presented in court increased significantly to 45 cases (up from 23 in 2018).

“As the fight against money laundering is a priority, the work has led to improved results. Improvement in the efficiency of the pre-trial investigation of these criminal cases is also due to other measures taken – specialized training events and active involvement in the development of guidelines have significantly improved and unified the understanding of investigators and prosecutors regarding the use of evidence and the application of the latest legal framework,” commented Attorney General Mr. Ēriks Kalnmeiers.


Latvian State Security Service develops Strategy for Prevention of Terrorism Financing

State Security Service (VDD) has developed the strategy for the prevention of terrorism financing for 2019-2021, aimed at improving the country’s prevention of terrorism financing, while also elevating the reputation of Latvia in the international financial markets.

The strategy outlines the terrorism threat situation in Latvia and in other countries, and also defines the joint strategic basic principles for the prevention of terrorism financing. These principles will help to secure an effective terrorism financing prevention system by both decreasing risks of terrorism financing and increasing coordinated and effective cooperation among the institutions involved in the prevention of terrorism financing.

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FCMC informs banks on best practices in the identification of beneficial owners

In line with MONEYVAL recommendation to improve the understanding and application of the legislation on the identification and compliance control of the beneficial owners (BO) of the financial and capital market participants, the Financial and Capital Market Commission (FCMC) has carried out an examination of internal documentation developed by 15 banks and five branches of Member States' banks operating in Latvia.

The FCMC provided banks with best practice guidance for the identification of the BO and verification of compliance of identified beneficiary, as well as advising the areas where improvements are required. In addition, an explanation of the application of Latvian laws and regulations was prepared, analysing the problems identified in the application of the legislation, performing the identification of the BO and verification of compliance.

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FCMC fines JSC “PrivatBank” one million euros

On September 13, The Board of the Financial and Capital Market Commission (FCMC) imposed a fine of EUR 1 019 319 on JSC "PrivatBank", for violation of the regulatory requirements for the prevention of money laundering and terrorism and proliferation financing. The bank is also subject to a number of additional legal obligations, including submitting an action plan to the FCMC, addressing breaches and shortcomings identified, and carrying out an independent review of its internal control system.

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State Revenue Service applies sanctions and fines

During the first nine months of 2019, State Revenue Service (SRS) made 155 decisions to apply sanctions for failure to comply with the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing (AML/CFT/CPF Law). Fines were imposed for 152 of these cases, amounting to EUR 222,565.

For failure to comply with the SRS requirement and ensure the inspection and production of the requested documents, 24 cases were subject to fines amounting to EUR 79,110.


Sanctions Coordination Council begins work

The Council had its first session on August 21, where State Secretary of the Ministry of Foreign Affairs, Mr. Andris Pelšs, noted that the relevance of sanctions is growing rapidly in international relations. As an instrument of foreign policy, sanctions are also critical in promoting Latvia's interest in global security.

During the session, a Sanctions Coordination Council working group was set up to promote cooperation between responsible authorities and to co-ordinate action on specific sanctions violations. In particular, relating to the prevention of proliferation and terrorism financing, taking into account MONEYVAL recommendations.

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The Council’s second session took place on October 14 and discussed the application of the Law on International and National Sanctions, as well as sanctions from the US Office of Foreign Assets Control. The Ministry of Foreign Affairs proposed the creation of a section on the Ministry’s website, which would make all sanctions materials publicly available to the institutions involved. In addition, the Council will develop an informative material that will explain the reporting obligations contained in International and National Sanctions Law.

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FIU Latvia seminars on national risk assessment reports

In order to improve the circulation of information, the Financial Intelligence Unit of Latvia – in close cooperation with the supervisory and control authorities – is organizing seminars for subjects of the AML/CFT/CPF law. The seminars will provide detailed guidance on the AML/CFT/CPF risk assessments developed in 2019. The first information seminar was organised for sworn notaries in cooperation with the Latvian Council of Sworn Notaries.

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FIU Latvia launches educational campaign

The Financial Intelligence Unit of Latvia has launched an educational campaign to inform the general public and entrepreneurs about avoiding involvement in financial and economic crime, as well as recommended courses of action for specific scenarios.

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The Ministry of Foreign Affairs launches seminar on latest developments in application of sanctions

Taking place on September 27, the seminar saw experts from the Ministry of Foreign Affairs provide information on current types of sanctions regimes in Latvia and give updates on the application of sanctions. In the light of the implementation of MONEYVAL recommendations, the latest legislative changes were also covered.

The seminar was attended by 100 experts from Latvian financial institutions and companies, as well as officials from the State Police and the Prosecutor General's Office.

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Finance Latvia discusses public-private partnership in mission to combat financial crime

In August 2019, representatives from the Finance Latvia Association and RUSI (Royal United Services Institute) discussed the best international practices regarding cooperation platforms for the voluntary exchange of information.

During the discussion, the current Latvian and international experience in public-private cooperation for combating financial crime was debated.

The event was attended by more than 50 high-level experts and heads of involved institutions - the Financial and Capital Market Commission (FCMC), the Corruption Prevention and Combating Bureau (KNAB), the State Revenue Service, the Financial Intelligence Unit of Latvia, the Ministry of the Interior, as well as representatives from the Ministry of Finance, the Prosecutor General's Office, the State Police and board members of financial institutions. Among the participants were international experts from Refinitv and RUSI – Jan Persson-Tryggedsson and Nick J. Maxwell.

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Financial Sector Development

New leadership for the Supervisory Council of Finance Latvia Association

Head of SEB Latvia Ms. Ieva Tetere has been elected to lead the Supervisory Council of the Finance Latvia Association. Chairman of the Board of Swedbank Latvia Mr. Reinis Rubenis becomes deputy head of the Supervisory Council.

Council members have also agreed to explore an annual rotation of the Supervisory Council leadership, iterating Finance Latvia’s commitment to meeting the highest standards of corporate governance.

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Counterfeit currency significantly decreases

In H1 2019, the total number of counterfeit banknotes and coins in Latvia decreased by 22% compared to H1 2018. Financial losses incurred have decreased by 20% to EUR 32.3 thousand (H1 2018 ­– EUR 40.5 thousand). Latvia is among the euro area countries with the lowest number of counterfeits per capita.


The value of instant payments reaches EUR 1.3 billion

As revealed by Latvijas Banka’s Payment Radar report, by end of August, more than 6.5 million instant payments totalling around EUR 1.3 billion have been made.

The Council of Latvijas Banka has adopted a number of regulatory enactments, extending the capabilities of instant payments to provide innovative financial services.

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Blackstone completes acquisition of €1 billion majority stake in Luminor

At the end of September 2019, the acquisition of a 60% majority stake in Luminor bank by a consortium – led by private equity funds managed by Blackstone – was completed. The bank’s current owners, Nordea Bank Abp (“Nordea”) and DNB BANK ASA (“DNB”), will each retain a 20% equity stake in Luminor.

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Contributing Institutions

Cabinet of Ministers Republic of LatviaState Chancellery Republic of LatviaMinistry of Finance Republic of LatviaMinistry of Foreign Affairs Republic of Latvia
Ministry of the InteriorRegister of Enterprises Republic of LatviaFinanšu izlūkošanas dienestsState Revenue Service Republic of Latvia
Latvijas BankaFinancial and Capital Market ComissionFinance Latvia AssociationLatvian State Security Service

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