EN ECB-PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 26 February 2021  
on the reform of Latvijas Banka  
(CON/2021/9) 
 
Introduction and legal basis  
On 22 December 2020 the European Central Bank (ECB) received a request from the Latvian Ministry of 
Finance for an opinion on a proposal for a new Law on Latvijas Banka (hereinafter the ‘draft law’), 
together with amendments to 27 ot her laws (hereinafter ‘the dra ft legislative package’). 
The ECB’s competence to deliver an opinion is based on Articles  127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the first, second, third,  fourth, fifth and sixth indents of Article 2(1) 
of Council Decision 98/415/EC1, as the draft legislative package relates to currency matters,  means of 
payment, Latvijas Banka, the collection, compilation and distri bution of monetary, financial, banking, 
payment systems and balance of pay ment statistics, rules applic able to financial institutions insofar as 
they materially influence the st ability of financial institutio ns and markets and the specific tasks conferred 
on the ECB concerning the prudential supervision of credit inst itutions pursuant to Article 127(6) of the 
Treaty. In accordance with the fi rst sentence of Article 17.5 o f the Rules of Procedure of the European 
Central Bank, the Governing Council has adopted this opinion. 
 1. Purpose of the draft legislative package 
On 21 November 2019 the Parliament of the Republic of Latvia ad opted amendments to the Law on 
Latvijas Banka, requiring the Cabi net of Ministers to submit to  the Parliament a new draft law on Latvijas 
Banka that would regulate the governance structure of Latvijas Banka and provide for incorporating 
Finanšu un kapitāla tirgus komisija (the Latvian Financial and Capital Market Commission - FKTK) into 
Latvijas Banka. The governance reform and the incorporation of FKTK into Latvijas Banka, constitute the 
main elements of the draft legisl ative package. However, given that the current Law on Latvijas Banka 
was adopted in 1992 and has not been amended very substantially , the draft law also envisages a 
number of amendments that impact many areas of Latvijas Banka’s  existing competences, including 
payment systems, statistics, and the issue and circulation of b anknotes and coins. These amendments 
mainly reflect existing practices at Latvijas Banka, however, w here necessary, they add new powers, for 
example, introducing a sanctioning regime for breaches committe d by cash handlers and for breaches of 
national statistical rules. Once the draft law enters into forc e the Law on Latvijas Banka and the Law on 
Financial and Capital Marke t Commission will be repealed. 
 
1  Council Decision 98/415/EC of 29 June 1998 on the consultation  of the European Central Bank by national 
authorities regarding draft legisl ative provisions (OJ L 189, 3 .7.1998, p. 42). 
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2  
2. General observations on Latvijas Banka’s reform  2.1 Under Article 131 of the Treaty each Member State is requir ed to ensure that its national legislation 
including the statutes of its nat ional central bank (NCB) is co mpatible with the Treaties and the 
Statute of the European System of Central Banks and of the Euro pean Central Bank (hereinafter 
the ‘Statute of the ESCB’). When the statute of an NCB, in this  case the Law on Latvijas Banka, is 
amended, the amending law should ensure, in particular, that ce ntral bank independence, 
guaranteed under Article 130 of the Treaty and Articles 7 and 1 4.2 of the Statute of the ESCB, is 
fully respected. Compatibility with those provisions is a funda mental aspect of the legal 
convergence of a Member State, which is examined in the converg ence reports required by 
Article 140(1) of the Treaty to  assess a country’s readiness to  join the euro area
2. 
2.2 The ECB welcomes the fact that, as a result of the transfer  to Latvijas Banka of FKTK’s tasks 
relating to the prudential supervision of credit institutions, Latvijas Banka will become a national 
competent authority (NCA) within the framework of the ECB’s Sin gle Supervisory Mechanism 
(SSM) established pursuant to C ouncil Regulation (EU) No 1024/2 0133. 
 
3. Governance reform of Latvijas Banka 3.1 Change from a two tier governance structur e to a single tier governance structure  
3.1.1 Purpose of the draft law’s provisions on a single tier governance structure 
At present Latvijas Banka has a two tier governance structure. The Council of Latvijas Banka, 
composed of six Members appointed by the Parliament, is the hig hest decision-making body, while 
the Board of Latvijas Banka is an executive body appointed by t he Council to ensure the efficient 
management of Latvijas Banka
4. The Council is chaired by the Governor of Latvijas Banka, who  is 
appointed for a five–year term that may be renewed once. The dr aft law introduces a single tier 
governance structure, whereby the sole decision-making body per forming tasks related to the 
European System of Central Banks (ESCB), and whose independence  is guaranteed under the 
Treaty and the Statute of the ESCB, will be the Council. The Co uncil will be composed of seven 
members. It will be chaired by t he Governor, who will have two deputies. The appointment 
procedure remains unchanged, all Council members, including the  Governor and the two Deputy 
Governors, will be appointed by the Parliament. While it is int ended that the draft law will enter into 
force on 1 January 2023, the switch  to the single tier governan ce structure is intended to take place 
earlier (when the amendments to the present Law on Latvijas Ban ka are passed by the 
Parliament), in order to ensure that the change in the governan ce structure occurs before FKTK’s 
functions are assumed by Latvijas Banka. 
 
2  See paragraph 2.1. of Opinion CON/2018/23. All ECB opinions ar e published on the ECB’s website at 
www.ecb.europa.eu . 
3  Council Regulation (EU) No 1024/2013 of 15 October 2013 confe rring specific tasks on the European Central Bank 
concerning policies relating  to the prudential supervision of c redit institutions (OJ L 287, 29.10.2013, p. 63). 
4  Article 23 of the Law on Latvijas Banka. 
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3 3.1.2 Specific observations on the draft la w’s single tier governance structure 
The ECB notes that the Treaty and the Statute of the ESCB do no t have specific requirements in 
relation to the levels of governance structure of the NCBs in t he ESCB. The members of the Board 
of Latvijas Banka are employees of Latvijas Banka. The Board of  Latvijas Banka manages the 
operations of Latvijas Banka, implementing the resolutions of t he Council of Latvijas Banka. The 
ECB has already noted that the decision-making body involved in  performing ESCB-related tasks 
in Latvijas Banka is the Council, while the Board of Latvijas B anka is an executive body of Latvijas 
Banka which merely implements the resolutions of the Council of  Latvijas Banka5. Against this 
background, the ECB does not have any observations with regard to the abolition of the Board. 
3.2 Establishment of committees 
3.2.1 Purpose of the draft law’s provisions on establishing committees 
The draft law envisages that Lat vijas Banka’s Council will esta blish a number of committees, which 
would be entitled to adopt binding administrative decisions. Ac cording to the draft law, a 
Supervisory Committee, a Resol ution Committee and a Cash Replac ement Committee will be 
established, while a Committee mandated to apply sanctions for breaches of the national statistics 
regime may be established.  
The members of such committees would be prohibited from seeking  or taking instructions from the 
Government of the Republic of Latvia and from other Union Membe r States, the Union’s institutions 
and other national, foreign or international institutions and t heir bodies, and these entities would in 
turn be prohibited from giving in structions or otherwise seekin g to influence Latvijas Banka, the 
members of its Council and the me mbers of the Committees establ ished by the Council.  
The Supervisory Committee will be  authorised to take decisions stipulated by the laws governing 
both the financial market and the operations of financial marke t participants supervised by Latvijas 
Banka, these include, inter alia, decisions to: a) impose sanct ions on and/or b) restrict the rights, 
obligations and operations of the financial market participants  supervised by Latvijas Banka. 
Latvijas Banka will further elaborate the tasks of the Supervis ory Committee. The Council of 
Latvijas Banka will determine the composition of the Supervisor y Committee, which will be chaired 
by a member of the Council of Latvijas Banka appointed by the C ouncil. No one who is either a 
member of the Resolution Committee or an employee of Latvijas B anka responsible for Latvijas 
Banka’s tasks in the field of m onetary policy formulation and i mplementation, may be a member of 
the Supervisory Committee. A decision taken by the Supervisory Committee may be challenged 
before the Council of Latvijas B anka in line with the procedure  stipulated in the Administrative 
Procedure Law.  
The Resolution Committee will be authorised to take decisions s tipulated by the laws governing the 
application of resolution tools and the implementation of the c ompensation disbursement scheme. 
Latvijas Banka will further elaborate the tasks of the Resoluti on Committee. The Committee will be 
chaired by a member of the Council of Latvijas Banka appointed by the Council. No one who is 
either a member of the Supervisory Committee or an employee of Latvijas Banka responsible for 
 
5  See paragraph 2.4. o f Opinion CON/2019/36. 
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4 Latvijas Banka’s tasks in the fi eld of monetary policy formulat ion and implementation may be a 
member of the Resolution Committee. A decision taken by the Res olution Committee may be 
challenged before the Council of Latvijas Banka in line with th e procedure stipulated in the 
Administrative Procedure Law.  
The Cash Replacement Committee will take decisions on the repla cement of damaged and unfit 
banknotes and coins6 and apply sanctions on cash handlers who violate the requireme nts 
regarding: a) the processing and recirculation of euro banknote s and coins; b) registration; and c) 
the submission of reports on the handling machines used for pro cessing euro banknotes and coins 
and the volume of the euro banknotes and coins processed by the se machines7. The draft law 
does not provide any further detai ls on the composition of this  committee. It is, however, 
understood that the members of t he committee will be employees of Latvijas Banka.  
The Council of Latvijas Banka may establish a committee to take  decisions imposing sanctions on 
statistical data providers for failure to comply with the requi rements or procedures, in particular the 
submission deadlines, for prepar ing or submitting statistical d ata. The Council of Latvijas Banka will 
determine the composition of such a committee. The draft law do es not provide any further details 
on the composition of the eventual committee. It is, however, u nderstood that the members of the 
committee will be employee s of Latvijas Banka. 
Meetings of the four committees will be valid if more than half  of the committee’s members 
participate in the meeting, and decisions will be passed by a m ajority vote of those present. Latvijas 
Banka will establish the rules o f procedure for the four commit tees. 
The draft law provides that Latvijas Banka may also establish c ommittees in other areas, however, 
these committees will not be entit led to adopt binding external  administrative decisions. 
3.2.2 Specific observations on the draft law’ s provisions on establishing committees 
All members of an NCB’s decision-making bodies must exercise th eir powers and carry out the 
tasks and duties conferred upon them by the Treaties and the St atute of the ESCB independently8. 
It is therefore necessary to assess whether the four committees  envisaged in the draft law 
constitute decision-making bodi es within the meaning of the Tre aties and the Statute.  
The Cash Replacement Committee, as well as the committee dealin g with statistical sanctions, 
have specific and narrowly defi ned mandates, as described above , which do not involve the 
performance of ESCB-related tasks conferred upon Latvijas Banka  by the Treaties and the Statute 
of the ESCB. Therefore, these Co mmittees do not constitute deci sion-making bodies within the 
meaning of the Treaties and the Statute.  
 
6  Article 39(4) of the draft law.  
7  Article 43(5) of the draft law. 
8  Article 130 TFEU and Article 7 of the Statut e of the ESCB. 
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5 The mandates of the Supervisory and Resolution Committees are c onfined to supervisory and 
resolution matters, respectively , and as such do not involve th e performance of ESCB-related tasks 
conferred upon Latvijas Banka by  the Treaties and the Statute o f the ESCB. Therefore, these 
Committees do not constitute decis ion-making bodies within the meaning of the Treaties and the 
Statute. 
3.3 Appointment criteria and grounds for dismissal of  the Governor and Council members of Latvijas 
Banka 
3.3.1 Purpose of the draft law’s provisions on appointm ent criteria and grounds for dismissal of the 
Governor and Council members 
The draft law introduces requirements that a person must comply  with in order to be appointed as 
the Governor of Latvijas Banka an d as a member of its Council. A person may become Governor of 
Latvijas Banka if he/she: (a) i s a citizen of the Republic of L atvia; (b) has obtained, as a minimum, 
a master’s degree or an equivalent degree; (c) has adequate exp erience as the manager of an 
organisation or in a position directly subordinated to the mana ger; (d) is competent in issues 
concerning macroeconomics and financial market analysis; (e) ha s an unblemished reputation; and 
(f) meets the legal requirements to be granted the first catego ry personnel security clearance to 
access official secrets. A person may become a member of the Co uncil of Latvijas Banka if he/she 
is: (a) a citizen of the Republic of Latvia; (b) has obtained, as a minimum, a master’s degree or an 
equivalent degree; (c) has an unblemished reputation; (d) has a dequate professional experience 
for the position and (e) meets the legal requirements to be gra nted the first category personnel 
security clearance to access official secrets. 
The draft law clarifies the role and tasks of the Governor of L atvijas Banka, who is the chairperson 
of the Council of Latvijas Banka and is responsible for organis ing the work of Latvijas Banka. The 
draft law provides that in the absence of the Governor his or h er duties will be carried out by the 
Deputy Governor designated by the Governor. In the absence of t he Governor and both Deputy 
Governors, the duties of the Governor will be carried out by a member of the Council of Latvijas 
Banka designated by the Governor.  
According to the draft law a member of the Council of Latvijas Banka may only be relieved of their 
office before the expiry of the term of the office (five years,  renewable once) in the following cases: 
(a) the member has submitted their resignation; (b) the member no longer fulfils the conditions 
required for performing their duties within the meaning of Arti cle 14.2 of the Statute of the ESCB; 
(c) the member has been found gu ilty of serious misconduct with in the meaning of Article 14.2 of 
the Statute of the ESCB. The dra ft law further clarifies that t he Governor of Latvijas Banka may 
refer the Parliament’s decision to relieve the Governor himself /herself from office to the Court of 
Justice of the European Union fo llowing the procedure stipulate d in Article 14.2 of the Statute of the 
ESCB, while a member of the Council of Latvijas Banka, other th an the Governor, may refer the 
Parliament’s decision to relieve him/her from office to the nat ional court in line with the 
Administrative Procedure Law. If the Governor of Latvijas Banka  has been relieved from office 
before the end of his/her term of office, or his/her term of of fice has expired before the start of the 
term of a new Governor, the duties of the Governor – other than  the responsibilities of a member of 
the Governing Council of the ECB – will be carried out by a Dep uty Governor designated by the 
ECB-PUBLIC  
6 Parliament, or in his/her absence – by a member of the Council of Latvijas Banka designated by 
the Parliament.  
3.3.2 Specific observations on the draft law’s pr ovisions on appointment criteria and grounds for 
dismissal of the Governor and Council members 
Regarding the new requirements that a person needs to meet in o rder to be appointed as the 
Governor or as an ordinary member of the Council of Latvijas Ba nka, the ECB recalls that Member 
States are free to set the condi tions required for appointing t he members of the decision-making 
bodies of their NCBs, provided t hat these conditions do not con flict with the feat ures of central bank 
independence embedded in the Treaties9. The ECB considers that the newly introduced 
appointment criteria for the Governor and other members of the Council do not conflict with the 
requirement of central bank independence as laid down in Articl e 130 of the Treaty and Article 7 of 
the Statute of the ESCB.  
The ECB has given particular consideration to the draft law’s r equirement10 that the Governor or 
the Council member ‘meets the legal requirements to be granted the first category p ersonnel 
security clearance to access official secrets ’. In this respect, the ECB understands that the Law on 
Official Secrets provides that w here an official or employee is  refused personnel sec urity clearance, 
or their clearance is cancelled,  this represents a sufficient r eason for considering that this person 
no longer fulfils the requirement s for the position held/work t o be performed, where such 
position/work is related to the use or protection of an officia l secret. Therefore, following such a 
cancellation, the person concerned must be immediately transfer red to a position that is not related 
to an official secret, or, where this is not possible, employme nt (service) relations must be 
immediately terminated with him/her.11 The ECB understands, however, that these provisions of 
the Law on Official Secrets do not apply to the Governor and ot her members of the Council of 
Latvijas Banka because: (a) the draft law contains exclusive gr ounds for their dismissal; and (b) the 
relevant provisions of the Law on Official Secrets apply to off icials and employees while the 
Governor and the members of the Council are appointed officials  who are not employees of 
Latvijas Banka and are not in a se rvice relationship with Latvi jas Banka. 
3.4 Limiting Council members’ term of office 
3.4.1 Purpose of the draft law’s provisions on limiting Council members’ term of office 
The draft law provides that the same person may hold the office  of a member of the Council for no 
more than two subsequent terms. According to the explanatory me morandum the intention of the 
draft law is to introduce a more strict limitation because the provisions of the current Law on 
Latvijas Banka Law are understood to apply the limitation only with regard to a specific position on 
the Council, this would mean that a Council member may serve on l y  t w o  c o n s e c u t i v e  t e r m s  o f  
office as an ordinary member of the Council, however he or she could then serve two further terms 
as Governor. The draft law now proposes to limit the possibilit y for two consecutive terms of office 
at Council, irrespective of the position held, whether as an or dinary member, as Deputy Governor 
 
9  See paragraph 2.1 of Op inion CON/2020/19. 
10  See Article 12(3)(6) of the draft law. 
11  See Article 13(4) of the Law on Official Secrets.  
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7 or as Governor. In view of the mo re restrictive nature of this limitation compared to the law currently 
in force, the transitional provisions of the draft law specify that the new limitation will apply only to 
those Council members appointed after the entry into force of t he draft law.   
3.4.2 Specific observations on the draft law’s provisio ns on limiting Council members’ term of office 
In respect of the new limitati ons regarding the reappointment o f the Council members, the ECB 
takes note of the fact that the draft law applies the new limit ation only to those Council members 
appointed after the entry int o force of the draft law12.   
3.5 Remuneration of the Governor and Council members  
3.5.1 Purpose of the draft law’s provisions on the remuneration of the Governor and Council members 
The draft law preserves the current legal framework according t o which the Council of Latvijas 
Banka establishes the remunerati on system for its members and f or the employees of Latvijas 
Banka. It should be noted, however, that the Law on Latvijas Ba nka currently in force does not 
provide any criteria for deter mining the remuneration. The draf t  l a w  i n t r o d u c e s  a  f o r m u l a  f o r  
determining the salaries of the members of the Council, includi ng the Governor of Latvijas Banka, 
which must be set based on the average gross monthly salary of employees in the financial and 
insurance sector for the previous calendar year, applying the f ollowing coefficients: (a) 5.44 to the 
salary of the Governor; (b) 4.91 to the salary of a Deputy Gove rnor of Latvijas Banka; (c) 4.05 to 
the salary of other members of the Council of Latvijas Banka. T he salaries of the Governor, Deputy 
Governor and other members of t he Council will be set on an ann ual basis, for the period from 1 
April of each year to 31 March of the following year. According  to the explanatory memorandum 
this formula for indexing the salaries of the Governor and othe r members of the Governing Council 
has already been used in practice by Latvijas Banka for a signi ficant period of time in order to 
minimise any potential conflicts  of interest. Previously the fo rmula had not been laid down by law 
and was entirely at the discretion of the Governing Council mem bers. The explanatory 
memorandum states that the formula has been slightly changed to  take into account the 
incorporation of FKTK into Latvijas Banka, by extending the ref erence remuneration to include 
remuneration in the insurance se ctor. In order to ensure that t he actual remuneration of the Council 
members remains unchanged, the coefficients proposed in the dra ft law have been slightly 
increased compared with those cu rrently applied in practice.  
3.5.2 Specific observations on the draft law’s prov isions on the remuneration of the Governor and 
Council members 
With regard to the remuneration of the members of the Council o f Latvijas Banka the ECB notes 
that Member States may not seek to influence the members of the  NCB’s decision-making bodies 
by amending national legislation affecting their remuneration, which, as a matter of principle, 
should apply only to future appointments.13 The ECB understands that the impact of the draft law 
on the actual remuneration of the Governor, Deputy Governor and  other members of the Council 
will be very limited, if any, due to the fact that the coeffici ents have been calibrated in such a way 
 
12  See paragraph 3.3.3. of Op inion CON/2018/17.  
13  See the ECB Convergence Report 2020, page 24 of the English ver sion.   
ECB-PUBLIC  
8 as to ensure that the remuneration remains largely unaffected. However, given the potential 
dynamics of the underlying reference value, i.e., the average g ross monthly earnings of employees 
in the financial services and insurance sector, it cannot be ex cluded that the remuneration of the 
Governor, Deputy Governor and other Council members will be low er compared with their current 
remuneration. Against this background the ECB invites the legis lator to consider applying the new 
provisions on the determination of such remuneration only to Go vernors, Deputy Governors and 
other Council members appointed a fter the entry into force of t he draft law.  
3.6 Establishment of an Audit Committee 
3.6.1 Purpose of the draft law’s provisions on establishing an Audit Committee 
An Audit Committee will be established to oversee the preparati on of the financial statements and 
the operation of the internal control system, internal audit an d external auditors of Latvijas Banka. 
The Audit Committee will consist of at least three members and a majority of its members must be 
independent in the discharge of t heir professional duties. Acco rding to the explanatory 
memorandum, this means that at least one member of the Audit Co mmittee may be an employee 
of Latvijas Banka. T he members of the Audi t Committee will be a ppointed by the Council of Latvijas 
Banka. It is envisaged that the Audit Committee will become ope rational by 31 October 2021. 
3.6.2 Specific observations on the draft law’s pr ovisions on establishing an Audit Committee 
The ECB welcomes the establishment of an independent Audit Comm ittee by Latvijas Banka, 
which should further contribute  to the good governance of Latvi jas Banka. 
3.7 Consultative Financial Market Council 
3.7.1 Purpose of the draft law’s provisions on a Consultative Financial Market Council 
The draft law provides for the establishment of a Consultative Financial Market Council to facilitate 
the involvement of financial market participants under Latvijas  Banka’s supervision in matters of 
direct relevance for them. The Consultative Financial Market Co uncil will consist of three 
representatives from Latvijas Banka and delegated representativ es from every professional 
association representing the fi nancial market participants unde r Latvijas Banka’s supervision. Its 
composition will be ap proved by the Governor  of Latvijas Banka.  
The main tasks of the Consultative Financial Market Council wil l be: (a) providing 
recommendations with regard to Latvijas Banka's draft regulatio ns on supervision, resolution and 
investor protection; (b) providing an opinion on Latvijas Banka ’s planned annual expenditure on 
regulation and supervision of the financial market and the oper ation of its participants, application 
of resolution tools and implement ation of compensation disburse ment schemes; and (c) evaluating 
the results of accumulating the compensation disbursement schem e resources and disbursements 
of compensation under those schemes. Latvijas Banka will also h ave the right to consult the 
Consultative Financial Market Council on other issues related t o the implementation of Latvijas 
Banka’s tasks.  
3.7.2 Specific observations on the draft law’s provisio ns on the Consultative Financial Market Council 
It is noted that a Consultative Financial Market Council alread y exists under the current legal 
framework and is consulted on similar matters by FKTK. This bod y has a strictly consultative 
character and its opinions are not binding on FKTK. Under the c urrent legal framework, however, 
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9 FKTK is obliged to provide expl anations in the minutes of the C onsultative Financial Market Council 
meeting as to why it is not following the Council’s recommendat ions14. There is no similar 
requirement in the draft law. However, the ECB understands that  Latvijas Banka is under a legal 
obligation to provide such explanations pursuant to the Adminis trative Procedure Law and the 
jurisprudence of the Constitutional Court.  
The ECB understands that the Consultative Financial Market Coun cil will be a purely consultative 
body whose main tasks will be to issue opinions and recommendat ions to Latvijas Banka in its 
fields of competence. The Consultative Financial Market Council  will not, under any circumstances, 
be able to directly or indirectly intervene in the decision-mak ing processes of Latvijas Banka. In the 
past the ECB has broadly welcomed the establishment of similar consultative bodies, which should 
provide wide-ranging expertise t o Latvijas Banka, which will be  useful in exercising its new 
responsibility for supervis ing the financial market15. Many supervisory authorities hold regular 
consultations with market participants on supervisory matters t o maintain a feedback loop which 
informs the authority of the con sequences of its past or intend ed actions with respect to supervised 
entities. From a governance perspe ctive, such consultations can  help to maintain high and 
consistent supervisory standards. The submission of individual supervisory decisions to the 
Consultative Financial Market Council would raise serious conce rns from a confidentiality 
perspective, however, the ECB und erstands that it is not envisa ged that the Consultative Financial 
Market Council would be consulted prior to the adoption of indi vidual binding administrative 
decisions addressed to market participants.  
 
4.  Financial independence of Latvijas Banka  
4.1 Purpose of the draft law’s provisions on Latvijas Banka’s financial independence 
Under the draft law the financial reporting and accounting rule s of Latvijas Banka remain largely 
unchanged compared to the curren t Law on Latvijas Banka.  
The nominal capital of Latvijas Banka remains as it is – EUR 10 0 million. Latvijas Banka will 
maintain its own independent budget approved by the Council of Latvijas Banka. In addition, the 
draft law grants Latvijas Banka the right to determine the pric e list for the services that it provides. 
According to the explanatory memorandum this is particularly re levant with regard to charges for 
payment services and participati on in payment systems, as well as services related to the 
circulation of cash. This provision does not apply to the super visory fees of the financial market 
participants as those will conti nue to be collected under the r elevant sectoral laws.  
The draft law maintains the current legal framework regarding L atvijas Banka’s accounting 
procedures and financial statements. Latvijas Banka will contin ue to draw up its financial 
statements in accordance with t he ECB’s legal acts on accountin g and financial statements. 
Without prejudice to the ECB’s requirements, Latvijas Banka rem ains entitled to issue internal rules 
establishing additional requirements for the preparation of its  financial statements. 
 
14   See Article 21(2) of the Law on FKTK. 
15  See paragraph 7 of Op inion CON/2005/39. 
ECB-PUBLIC  
10 The draft law in principle mai ntains the current legal framewor k regarding the distribution of Latvijas 
Banka’s profits, adding an explicit clarification that any prof it earned during the reporting year is 
calculated after covering losses accumulated in previous years and that losses are covered from 
Latvijas Banka's profit carried forward in situations where bot h the reserve capital and nominal 
capital are insufficient. The Coun cil of Latvijas Banka retains  the right to reduce the payment for the 
using State capital, comprising 50 % of the profit earned durin g the reporting year after covering 
the losses accumulated in previous years, if any, where this re duction is necessary to increase 
Latvijas Banka’s reserve capital in relation to the financial r isks Latvijas Banka is exposed to when 
carrying out its tasks. Profits are to be distributed to the St ate budget within 3 days of the approval 
of the annual report by the Council of Latvijas Banka.  
4.2 Specific observations on the draft law’s prov isions on Latvijas Banka’s financial independence 
The ECB welcomes the provisions of the draft law that, while ma intaining the current legal 
framework regarding Latvijas Bank a’s accounting procedures, fin ancial statements and, in 
substance, profit distribution, further strengthen Latvijas Ban ka’s financial independence by adding 
an explicit clarification that any profit earned during the rep orting year is calculated after covering 
losses accumulated in previous years and that losses are covere d from Latvijas Banka's profit 
carried forward in situations where both the reserve capital an d nominal capital are insufficient. 
Nonetheless, the ECB notes that the mechanism for carrying Latv ijas Banka’s profit forward could 
also be applied after Latvijas Banka’s reserve capital has been  used for the purpose of covering 
the losses. In this manner Latvijas Banka’s nominal capital wou ld not need to be used as a loss 
offsetting mechanism. 
The ECB welcomes the liability regime introduced by the draft l aw, which ensures that Latvijas 
Banka is only liable for the consequences of the decisions take n independently by Latvijas Banka. 
In this respect, Latvijas Banka is insulated from any losses ar ising from claims against FKTK for 
decisions taken before its incorp oration into Latvijas Banka16.    
 5.  Incorporation of FKT K into Latvijas Banka  
5.1 Purpose of the draft law’s provisions on incorporating FKTK into Latvijas Banka 
5.1.1 Draft law’s conferral of new tasks on Latvijas Banka 
The draft law provides for the transfer of all of FKTK’s functi ons to Latvijas Banka and for FKTK’s 
liquidation, effective on 1 January 2023. FKTK is responsible f or: (1) the supervision of the whole 
financial sector – credit institutions, insurers, insurance int ermediaries, reinsurers, reinsurance 
intermediaries, private pension funds, regulated market organis ers, depositories, investment 
brokerage companies, investment management companies, credit un ions, external credit 
assessment institutions (rating agencies), alternative investme nt fund managers, payment 
institutions and e-money institut ions; (2) the administration o f compensation schemes; and (3) the 
resolution of credit institutions and investment firms. The exi sting scope and regulation of 
supervision, implementation of  resolution and the administratio n of compensation schemes 
 
16   For more details see paragraph 5.1.4. of this Opinion.  
ECB-PUBLIC  
11 remains unchanged. Furthermore, financial market participants w ill continue to bear all costs 
necessary for the regulation and supervision of the financial m arket and its participants, the 
implementation of resolution an d the administration of compensa tion schemes after the transfer of 
these tasks to Latvija s Banka. Latvijas Banka will assume all o f FKTK’s liabilities, however, the 
draft law provides for several layers of protection that aim to  insulate Latvijas Banka from any 
financial consequences.  
It is envisaged that the follow ing new tasks will therefore be conferred upon Latvijas Banka as a 
result of incorporating FKTK: (a) supervision of all regulated financial and capital market 
participants, including their compliance with the Law on the Pr evention of Money Laundering and 
Terrorism and  Proliferation  Financing and with the requiremen ts of the Law on International 
Sanctions and national sanctions of the Republic of Latvia with  respect to financial restrictions; (b) 
the resolution of credit institutions and investment firms; (c)  the management of the deposit 
guarantee fund, the fund for the pr otection of insured and of d isbursement to investors under the 
investor protection scheme.  
5.1.2 Draft law’s transiti onal provisions  
The Council of Latvijas Banka, i n cooperation with FKTK’s Counc il, will establish a Commission to 
deal with matters concerning the incorporation of FKTK into Lat vijas Banka. Both institutions will be 
represented on this Commission on a parity basis. The Commissio n will be chaired by an official of 
Latvijas Banka, while an FKTK official will act as the chairper son’s deputy. This Commission will 
serve as a forum to address in det ail the practical issues rela ted to incorporating  FKTK into Latvijas 
Banka. The Commission will draw up and implement a plan for inc orporating FKTK into Latvijas 
Banka. This plan will be adopted by the Council of Latvijas Ban ka in close cooperation with FKTK’s 
Council.   
From July 2021 Latvijas Banka may provide support functions to FKTK. FKTK will reimburse 
Latvijas Banka for the costs asso ciated with the provision of t hese services. The detailed rules 
regarding the provision of support functions and the reimbursem ent of costs will be set out in a 
cooperation agreement between Lat vijas Banka and FKTK. This app roach will allow for a timely 
integration of support functions, provide additional time for e mployees to adapt to new internal 
processes and IT solutions, and enable the smooth integration o f part of FKTK's support staff into 
Latvijas Banka.  
The employment relationships wit h employees executing basic (i. e., non-support) functions within 
FKTK (sections A and B according to the Eurosystem's Functions Grid) will be transferred to 
Latvijas Banka. Since it is not possible to ensure the transfer  of the existing departments and job 
titles of FKTK into the structur e of Latvijas Banka without any  changes being made, the 
Commission will prepare a propos al for the integration of FKTK’ s basic functions into the structure 
of Latvijas Bank a and will prepare a list of employees executin g basic functions whose employment 
relationship is to be trans ferred to Latvijas Banka. 
Latvijas Banka will already take o ver FKTK’s task of promoting financial literacy and the acquisition 
of economic knowledge on 1 January 2022.  
ECB-PUBLIC  
12 The draft law provides that each institution will bear its own costs arising from the process of 
incorporation. 
5.1.3 Draft law’s provisions on preventing conflicts of interest 
Taking into account risks and risk  mitigation measures identifi ed in the assessment report of 20 
May 2020, the draft law stipulates that Latvijas Banka must ens ure the operational separation of 
monetary policy, supervisory and resolution functions. This inc ludes establishing an internal 
structure whereby these tasks ar e carried out by separate depar tments with separate reporting 
lines and a clear specification of the powers of the decision-m aking bodies and their members. Two 
separate committees will be established for supervisory and res olution matters. Each of these 
committees will be chaired by a different Council member. The m embers of the Supervisory 
Committee may not also be members of the Resolution Committee a nd vice versa. Furthermore, 
employees responsible for Latvijas Banka’s monetary policy func tion may not be members of either 
of these two committees. Finally, the draft law provides that t he supervisory and resolution 
functions must be carried out i n such a way that they neither i nterfere with, nor are determined by, 
the tasks relating to the Euro system's monetary policy. Supervi sory tasks must not interfere with or 
affect monetary policy tasks, i.e. the performance of monetary policy tasks must not be affected by 
the needs of the su pervisory task. 
5.1.4 Draft law’s financial arrangements for FK TK’s incorporation into Latvijas Banka 
Latvijas Banka will take over the property and financial assets  of FKTK and will be the legal 
successor to its rights and obli gations. The draft law contains  detailed provisions regarding the use 
of the net assets of FKTK as at t he moment of its incorporation  into Latvijas Banka:  
1) With regard to any positive net assets a reserve to cover ev entual losses related to litigation 
and claims against FKTK will be established; 
2) The remaining net assets, i f positive, will be used to reduc e Latvijas Banka’s expenses, 
which are covered by financial m arket participants’ contributio ns; 
3) If the remaining net assets are negative or become negative after establishing the reserve to 
cover eventual losses related to litigation and claims against FKTK, the financial market 
participants’ contributions will be increased. 
Any losses arising from claims against FKTK in relation to deci sions taken before its incorporation 
into Latvijas Banka, and for which no reserve was established a t the time of the incorporation, will 
be covered from t he State budget.  
With regard to the forward-looking financing of expenses for su pervision, resolution and the 
management of deposit guarantee and investor and insurance prot ection schemes, the draft law 
provides that any such expenses will be collected from financia l market participants. Finally, the 
draft law changes the liability regime to which Latvijas Banka is subject for losses incurred by a 
third party as a result of actions performed by a member of the  Council of Latvijas Banka, an 
employee of or a person authorised by Latvijas Banka, when perf orming his/her official (work) 
duties from a standard based on regular negligence to a standar d based on the commission of 
deliberate unlawful acts o r gross negligence.      
ECB-PUBLIC  
13 5.2 Assessment of the conferral of new tasks on Lat vijas Banka against the prohibition of monetary 
financing 
5.2.1 New tasks conferred on Latvijas Banka 
As noted above, an extensive rang e of new tasks will be conferr ed on Latvijas Banka as a result of 
incorporating FKTK, these include: (a) the supervision of all r egulated financial and capital market 
participants, including credit institutions; (b) the resolution  of credit institutions and investment 
firms; and (c) the management of the deposit guarantee fund, th e fund for the protection of insured 
and of disbursements to investors under the investor protection  scheme. It may appear from the 
drafting of the transitional provisions that there is another n ew task conferred on Latvijas Banka, 
namely promoting financial liter acy and the acquisition of econ omic knowledge. However, this is 
not a genuinely new task, as Latv ijas Banka has spent decades w orking on providing information 
and educational facilities to the general public17. Consequently, it is not necessary to assess 
whether promoting financial liter acy and the acquisition of eco nomic knowledge task complies with 
the prohibition of monetary financing18.  
5.2.2 Criteria for assessing the conferra l of new tasks of ESCB NCBs against the prohibition of monetary 
financing 
The ECB emphasises that a proposed conferral of new tasks on an  NCB participating in the ESCB 
must be assessed against the prohibition on monetary financing under Article 123 of the Treaty. 
For the purposes of that prohibition, Article 1(1)(b)(ii) of Co uncil Regulation (EC) No 3603/9319 
defines ‘other type of credit fa cility’ as, inter alia, ‘any fi nancing of the public sector’s obligations vis-
à-vis third parties’.  
Ensuring that Member States implement a sound budgetary policy is one of the key objectives of 
the prohibition on monetary financing, which may not be circumv ented. Therefore, the task of 
financing measures, which are normally the responsibility of th e Member States, and which are 
financed from their budgetary sources rather than by the NCBs, must not be entrusted to NCBs. To 
decide what constitutes financing of the public sector’s obliga tions vis-à-vis third parties – which 
may be interpreted as providing central bank financing outside the scope of central bank tasks – it 
is necessary to carry out, on a case-by-case basis, an assessme nt on whether the task to be 
undertaken by an NCB is a centra l bank task or a government tas k, i.e. a task within the 
responsibility of the Member States. In other words, adequate s afeguards must be in place to 
ensure that the objective of the prohibition on monetary financ ing, which is to that Member States 
maintain a sound budgetary policy, is not circumvented.  
As part of its discretion in t he exercise of its duty – on the basis of Article 271(d) of the Treaty and 
Article 35.6 of the Statute of the ESCB – to ensure that NCBs h onour the obligations laid down by 
the Treaty, the Governing Council has endorsed safeguards in th e form of criteria for determining 
 
17  Regarding the specific activitie s of Latvijas Banka in this co ntext please see pages 55-57 of Latvijas Banka’s Annual 
Report 2019.  
18  See the ECB Convergence Report 2020, footnote 72. 
19  Council Regulation (EC) No 3603/93 of 13 December 1993 specifyi ng definitions for the application of the 
prohibitions referred to in Ar ticles 104 and 104b (1) of the Tr eaty (OJ L 332, 31.12.1993, p. 1). 
ECB-PUBLIC  
14 what may be considered as falling within the scope of ‘the publ ic sector’s obligations vis-à-vis third 
parties’ within the meaning of Article 1(1)(b)(ii) of Regulatio n (EC) No 3603/93 or, in other words, 
what constitutes a gov ernment task, as follows: 
First, central bank tasks are, in particular, those tasks that are related to the tasks that have been 
conferred upon the ECB and the NCBs by the Treaty and the Statu te of the ESCB. T hese tasks are 
mainly defined in Article 127(2), (5) and (6), and Article 128( 1) of the Treaty, as well as in Article 22 
and Article 25.1 of the Statute of the ESCB. 
Second, pursuant to Article 14.4 of the Statute of the ESCB NCB s may perform ‘functions other 
than those specified in [the Statute of the ESCB]’, new tasks, i.e. tasks that are not related to tasks 
that have been conferred upon the ECB and the NCBs, are not pre cluded per se. However, new 
tasks that are undertaken by an NCB and which are atypical of N CB tasks or which are clearly 
discharged on behalf of, and in the exclusive interest of the g overnment or of other public sector 
entities, should be consi dered government tasks. 
Third, an important criterion for qualifying a new task as an a typical NCB task, or as being clearly 
discharged on behalf of and in the exclusive interest of the go vernment or other public sector 
entities, is the impact of the task on the institutional, finan cial and personal independence of the 
NCB concerned. 
In particular, the following aspe cts should be taken into accou nt: 
(a)  whether the performance of the new task creates conflicts of interest with existing central 
bank tasks which are not adequately addressed, and its performa nce does not necessarily 
complement those existing centra l bank tasks. If a conflict of interest arises between existing 
and new tasks, sufficient safeguar ds to mitigate that conflict should be in place. The 
complementarity between a new task and existing central bank ta sks should not be 
interpreted broadly so that it could lead to the creation of an  indefinite chain of ancillary 
tasks. Such complementarity shou ld be examined in relation to t he financing of those tasks; 
(b)  whether without new financia l resources the performance of  the new task is disproportionate 
to the NCB’s financial or organisational capacity, and may have  a negative impact on the 
capacity to properly perform the existing central bank tasks; 
(c)  whether the performance of the new task fits into the inst itutional set-up of the NCB in the 
light of central bank independence and accountability considera tions; 
(d)  whether the performance o f the new task harbours substanti al financial risks; 
(e)  whether the performance of the new task exposes the member s of the NCB decision-making 
bodies to political risks that are disproportionate and may als o have an impact on their 
personal independence and, in particular, on the guarantee of t erm of office set out in Article 
14.2 of the Statute of the ESCB. 
5.2.3 Assessment of the conferral of new tasks on Lat vijas Banka against the prohibition of monetary 
financing 
Based on the criteria set out above, the following paragraphs a ssess whether Latvijas Banka’s new 
tasks are in line with the pr ohibition of monetary financing.  
ECB-PUBLIC  
15 a) Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the 
Statute of the ESCB  
Pursuant to Article 127(5) of t he Treaty and Article 3.3 of the  Statute of the ESCB, the ESCB 
must contribute to the smooth conduct of policies pursued by th e competent authorities 
relating to the prudential supervision of credit institutions a nd the stability of the financial 
system. Pursuant to Article 127(6 ) of the Treaty and Article 25 .2 of the Statute of the ESCB, 
the Council may confer specific tasks upon the ECB concerning p olicies relating to the 
prudential supervision of credit institutions and other financi al institutions with the exception 
of insurance undertakings. On this basis, the Council has confe rred tasks upon the ECB 
concerning the prudential supervision of credit institutions pu rsuant to Regulation (EU) 
No 1024/2013.  
As a result of the transfer to Latvijas Banka of FKTK’s tasks r elating to the prudential 
supervision of credit instituti ons, Latvijas Banka will become an NCA within the framework of 
the SSM established pursuant t o Regulation (EU) No 1024/2013. T he remaining tasks to be 
transferred from FKTK to Latvijas Banka concerning the supervis ion of other financial market 
participants, the resolution of credit institutions and investm ent firms and the management of 
deposit guarantee and investor and insurance protection schemes  are not directly related to 
the tasks conferred upon the EC B and the NCBs by the Treaty and  the Statute of the ESCB. 
b) Tasks which are atypical of central bank tasks  
Latvijas Banka’s new tasks in the fields of the supervision and  resolution of credit institutions 
and other financial market participants and the management of d eposit guarantee and 
investor and insurance protection schemes are not atypical cent ral bank tasks.  
Supervisory tasks, and tasks rel ating to supervisory tasks, are  among the tasks which 
central banks exercise20. Thirteen out of the nineteen NCAs participating in the SSM ar e 
NCBs. The ECB has consistently favoured the involvement of NCBs  in prudential 
supervision. Past ECB opinions on draft national legislation re forming the institutional 
framework for prudential superv ision in Member States have note d that NCBs have 
traditionally been closely involved in the prudential supervisi on of credit institutions due to 
their pivotal role in the financial system, in particular regar ding implementing monetary policy 
and ensuring the proper functioning of payment systems21. 
In the past the ECB has also taken the position that the extens ion of an NCB’s supervisory 
tasks to non-banking supervision is compatible with ESCB tasks.  Faced with the increased 
blurring of traditional borders between the banking, securities  and insurance sectors and the 
resulting new challenges to prudential supervision and the stab ility of the financial system, 
an NCB with overall re sponsibility for the fi nancial markets is  likely to cope better than 
 
20  See the ECB Convergence Report 2020, page 32 of the English ve rsion.  
21   See paragraph 2.1.2. o f Opinion CON/2006/15. 
ECB-PUBLIC  
16 several supervisors, whose supervisory competences are limited to a particular financial 
sector22.  
Resolution  tasks  may be considered to be centra l banking tasks, provided that t hey do not 
undermine an NCB’s independence in accordance with Article 130 of the Treaty23. 
Administrative resolution tasks are considered to be tasks rela ted to those referred to in 
Article 127(5) of the Treaty, based on the understanding that a dministrative resolution tasks 
and supervisory tasks complement each other. The ECB has alread y opined that if an NCB’s 
resolution-related responsibilities are extended to other finan cial institutions forming part of a 
banking group, such new tasks may also be considered to be rela ted to tasks under 
Article 127(5) of the Treaty, by analogy with the complementari ty of an NCB’s resolution 
tasks in respect of credit instit utions with its existing super visory and financial stability tasks. 
A number of Member States have conferred on their NCBs a signif icant role in the resolution 
of credit and financial institutions, either as the resolution authority itself or as a competent 
supervisory authority. The ECB has generally accepted the alloc ation of such tasks to NCBs 
provided they do not interfere financially and operationally wi th the performan ce of the NCB’s 
ESCB-related tasks24.  
The ECB understands that resolut ion financing arrangements in L atvia remain unchanged 
and continue to be governed by the relevant provisions of the L aw on the Restoration and 
Resolution of Credit Institutions and Investment Brokerage Comp anies25. Accordingly, 
Latvijas Banka will be responsible  for ensuring the accumulatio n and management of funds 
in the national resolution fund from entities subject to resolu tion. Latvijas Banka will also be 
entitled to use alternative sour ces of financing and enter into  loan or other support 
agreements with investment brokerage companies, financial insti tutions or other third parties 
if the funds in the resolution fund are not immediately availab le or insufficient to cover losses, 
costs or other expenses26. Finally, Latvijas Banka will be entitled to request a loan fr om the 
resolution financing mechanisms of other Member States27. 
In this context the ECB notes that the financing by an ESCB NCB  of any resolution fund or 
financial arrangement is not in line with the monetary financin g prohibition under Article 123 
of the Treaty. Where an NCB acts as resolution authority, it sh ould not, under any 
 
22  See paragraph 2.3. of Op inion CON/2011/46. 
23  See paragraph 3.2.3 o f Opinion CON/2016/28. 
24  With respect to resolution, t he ECB notes that Article 3(3) of  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 C ouncil Directives 82/891/EEC, an d Directives 2001/234/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 
1309/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190) 
provides that authorities which are also competent authorities for banking supervision purposes may only 
exceptionally be designated as r esolution authorities, and only  subject to adequate structural arrangements being in 
place to ensure operational independence and avoid conflicts of  interest between the supervision function and other 
functions of the authority concerned.  
25  Articles 121 to 127 of the Law on the Restoration and Resolutio n of Credit Institutions and Investment Brokerage 
Companies. 
26  Article 121.3 of the Law on the Restoration and Resolution of Credit Institutions and Investment Brokerage 
Companies. 
27  Article 121.4 of the Law on the Restoration and Resolution of C redit Institutions and Investment Brokerage 
Companies. 
ECB-PUBLIC  
17 circumstances, assume or financ e any obligation of either a bri dge institution or an asset 
management vehicle. To this end, national legislation should cl arify that the NCB will not 
assume or finance any of t hese entities’ obligations28. 
The ECB has recognised that the management of deposit guarantee  and investor and 
insurance protection schemes are tasks that are complementary t o an NCB’s supervisory 
tasks29. In Latvia, this is clear from the fact that these tasks have been performed by FKTK 
ever since its creation in 2001.  
c) Tasks clearly discharged on behalf of and in the exclusive interest of the government  
For the same reasons as described in point b), the tasks confer red upon Latvijas Banka by 
the draft law in relation to the supervision and resolution of credit institutions and other 
financial market participants and the management of deposit gua rantee and investor and 
insurance protection schemes are not tasks discharged on behalf  of and in the exclusive 
interest of the government. 
d) Extent to which the performance of the new ta sks creates conflicts of interest with existing 
central bank tasks  
The draft law provides for the operational separation of moneta ry policy, supervisory and 
resolution functions. This includes the establishment of an int ernal structure whereby these 
tasks are carried out by separat e departments with separate rep orting lines and a clear 
specification of the powers of the decision-making bodies and t heir members. Two separate 
committees will be established for supervisory and resolution m atters. Each of these 
committees will be chaired by a different Council member. The m embers of the Supervisory 
Committee may not also be members of the Resolution Committee a nd vice versa. Finally, 
the draft law provides that the supervisory and resolution func tions must be carried out in 
such a way that they neither interfere with, nor are determined  by, the tasks relating to the 
Eurosystem's monetary policy. Thes e provisions clearly insulate  the supervisory and the 
resolution tasks from creating co nflicts of interest with exist ing central bank tasks30. 
e) Extent to which the performance of the new  tasks is disproportionate to Latvijas Banka 
financial or organisational capacity  
National legislation which requires an NCB to take over the lia bilities of a previously 
independent public body, as a resu lt of a national reorganisati on of certain tasks and duties, 
for example, in the context of a transfer to the NCB of certain  supervisory tasks previously 
carried out by the State or independent public authorities or b odies, without fully insulating 
the NCB from all financial obligations resulting from the prior  activities of such a body, would 
be incompatible with the m onetary financing prohibition31. The draft law’s transitional 
provisions contain detailed rules regarding the use of the net a s s e t s  o f  F K T K  a s  a t  t h e  
 
28  See the ECB Convergence Report 2020, page 34 of the English ver sion.  
29  See Opinion CON/2016/6. 
30  With respect to prudential supervision, the ECB notes that th e provisions on the separat ion between monetary policy 
and supervision under Article 25 of Council Regulation (EU) No 1024/2013 apply directly to the ECB, not to national 
competent authorities.  
31  See the ECB Convergence Report 2020, page 34 of the English ver sion. 
ECB-PUBLIC  
18 moment of its incorporation into  Latvijas Banka (see paragraph 5.1.4). Any losses arising 
from claims against FKTK in relation to decisions taken before its incorporation into Latvijas 
Banka, and for which no reserve was established at the time of the incorporation, will be 
covered from the State budget. The ECB welcomes this provision as it clearly insulates 
Latvijas Banka from FKTK’s financial obligations thus ensuring compliance with the 
monetary financing prohibition. With regard to the forward-look ing financing of expenses 
arising out of Latvijas Banka’s new supervisory, resolution and  deposit guarantee and 
investor and insurance protection schemes management tasks, the  draft law provides that 
any such expenses will be collected from financial market parti cipants. Finally, the 
transitional provisions also provide for the transfer of all em ployees executing the basic (i.e., 
non-support) functions of F KTK to Latvijas Banka.  
Taking into account the new responsibilities of Latvijas Banka within the framework of the 
SSM, the ECB notes that Article 4(4) of Directive 2013/36/EU of  the European Parliament 
and of the Council32 requires Member States to ensure that the competent authorities  have 
the expertise, resources, oper ational capacity, powers and inde pendence necessary to carry 
out the functions relating to prudential supervision, investiga tions and penalties set out in 
that Directive and in Regulation (EU) No 575/2013 of the Europe an Parliament and of the 
Council33. According to the recommendations of the Basel Core Principles  f o r  E f f e c t i v e  
Banking Supervision34 the supervisor is to have adequate resources for the conduct o f 
effective supervision and oversight. In view of the responsibil ities of Latvijas Banka within the 
framework of the SSM, and also con sidering Latvijas Banka’s res ources, the Latvian 
authorities should take into account the SSM’s need for NCA sta ff on joint supervisory teams 
and inspection teams and the more intense supervision expected for less significant 
institutions35. 
Against this background, it does not appear that the performanc e of the new tasks conferred 
upon Latvijas Banka would be disproportionate to Latvijas Banka ’s financial or organisational 
capacity, and should not affect the resources Latvijas Banka cu rrently allocates for the 
performance of its monetary policy and other existing central b anking tasks. 
f) Extent to which performance of the new tasks fi ts into Latvijas Banka’s institutional set-up, in 
the light of central bank independen ce and accountability considerations  
The allocation of the new tasks to Latvijas Banka relating to t he supervision and resolution of 
credit and financial institutions and the management of deposit  guarantee and investor and 
insurance protection schemes w ill be accompanied by the establi shment of two new 
committees that will deal with s upervisory and resolution matte rs respectively. The rules of 
 
32  Directive 2013/36/EU of the Eu ropean Parliament and of the Cou ncil of 26 June 2013 on access to the activity of 
credit institutions and the pr udential supervision of credit in stitutions and investment  firms, amending Directive 
2002/87/EC and repealing Directiv es 2006/48/EC and 2006/49/EC ( OJ L 176, 27.6.2013, p. 338). 
33  Regulation (EU) No 575/2013 of the European Parliament and of t he Council of 26 June 2013 on prudential 
requirements for credit institut ions and investment firms and a mending Regulation (EU) No 648/2012 (OJ L 176, 
27.6.2013, p. 1). 
34   Available on the Bank for Intern ational Settlements website at www.bis.org. 
35   See also paragraph 2.2 . of Opinion CON/2018/6.  
ECB-PUBLIC  
19 procedure adopted by Latvijas Banka’s Council will determine wh ich decisions these 
committees are primarily respons ible for. The Council will be t he appeal body for binding 
decisions taken by the committees. While the members of the com mittees, who are not also 
members of the Council, will only benefit from institutional in dependence guarantees, all 
Council decisions, irrespective of whether they concern ESCB-re lated tasks or supervisory 
and resolution tasks, benefit from the same independence guaran tees and are subject to the 
same accountability regime. Fina lly, the draft law’s provisions  on avoiding conflicts of 
interest, as described in paragraph 5.1.3., sufficiently insula te the performance of ESCB 
tasks by Latvijas Banka from the performance of the new tasks p roposed to be allocated to 
Latvijas Banka.  
Against this background the ECB considers that the allocation o f the new tasks to Latvijas 
Banka is unlikely to conflict wit h the institutional set-up of Latvijas Banka.  
g) Extent to which the performance of ta sks could incur substantial financial risks  
With regard to Latvijas Banka’s liability regime the draft law provides that the liability for 
actions performed by a member of Latvijas Banka’s Council, or a n employee or an 
authorised person of Latvijas Banka, when performing his/her of ficial duties is limited to the 
commission of deliberate unlawful acts or gross negligence. Und er the current legal 
framework the liability of FKTK’s decision-making bodies and st aff is broader and is not 
confined to gross negligence. The draft law thus considerably m itigates financial risks that 
could arise from the conferral of the new supervisory and resol ution tasks on Latvijas Banka.  
h) Extent to which the perfor mance of the new tasks expose s members of Latvijas Banka’s 
decision-making bodies to disproportionate political risks and has an impact on their 
personal independence  
The performance of the new tasks conferred on Latvijas Banka by  the draft law does not 
expose the members of Latvijas Banka’s decision-making bodies t o any disproportionate 
political risk and has no  impac t on their personal independenc e.  
Conclusion  
The new tasks conferred by the draft law on Latvijas Banka rela ting to the supervision and 
resolution of credit and financial institutions and the managem ent of deposit guarantee and investor 
and insurance protection schemes can be considered to be centra l bank tasks. With regard to the 
prudential supervision of credit institutions, Latvijas Banka’s  tasks complement the ECB’s 
prudential supervisory tasks within the framework of the SSM. T he remaining tasks are not atypical 
of central bank tasks, and have been conferred upon a number of  other ESCB NCBs. The financial 
risks facing Latvijas Banka as a result of the assumption of th ese new tasks have been limited by 
the draft law. Financial marke t participants will continue to b ear all costs necessary for the 
regulation and supervision of the financial market and its part icipants, the implementation of 
resolution and the management of deposit guarantee and investor  and insurance protection 
schemes after the transfer of these tasks to Latvijas Banka. An y losses arising from claims against 
FKTK for decisions taken before i ts incorporation into Latvijas  Banka, and for which no reserve was 
established at the time of the incorporation, will be covered f rom the State budget. Expenses 
ECB-PUBLIC  
20 incurred by Latvijas Banka when performing its new tasks will b e covered by contributions from 
financial market participants. T he liability of Latvijas Banka will be limited to deli berate unlawful acts 
and gross negligence. Care has been taken in the draft law to e nsure that the new tasks fit into 
Latvijas Banka’s new institutional framework, and to appropriat ely manage conflicts of interest 
which might arise in the performance of Latvijas Banka’s tasks in the fields of central banking, 
supervisory, resolution, depos it guarantee and investor and ins urance protection schemes.    
 
6.  Payment and financial inst rument settlement systems 
6.1 Purpose of the draft law’s provisions on payme nt and financial instrument settlement systems 
Under the draft law Latvijas Banka’s task of promoting the smoo th functioning of payment and 
financial instrument settlement systems is regulated in greater  detail than under existing law. The 
draft law provides that the promotion of the smooth functioning  of payment and financial instrument 
settlement systems includes the oversight of payment systems in  order to assess their efficiency 
and security. Latvijas Banka oversees payment and financial ins trument settlement systems 
together with the other Eurosystem central banks, in accordance  with the Eurosystem's oversight 
policy framework. This oversight  covers all payment and financi al instrument settlement systems 
operating in Latvia. The draft la w clarifies that the task of p romoting the smooth functioning of 
payment and financial instrument settlement systems also includ es promoting the development of 
means of payment. Latvijas Banka ensures the participation of L atvian financial market participants 
in TARGET2-Latvia in accordance with the ECB’s legal framework,  including ECB guidelines, and 
in the electronic clearing syst em maintained by Latvijas Banka.  
6.2 Specific observations on the draft law’s provisio ns on payment and financial instrument settlement 
systems 
The ECB welcomes the provisions of the draft law providing a mo re robust legal basis for Latvijas 
Banka’s existing tasks relating to the smooth functioning of pa yment and financial instrument 
settlement systems, including t he oversight of payment systems,  in order assess their efficiency 
and security.  
 
7.  Issue and circulation of euro banknotes and coins  7.1 Purpose of the draft law’s provisions on the issue and circulation of euro banknotes and coins 
7.1.1 The draft law empowers Latvijas Banka to organise the pro duction and delivery of euro banknotes 
and issue euro banknotes pursuant to the Statute of the ESCB an d the ECB’s legal acts. Latvijas 
Banka organises the design, produ ction and delivery of euro cir culation coins, including euro 
commemorative coins, and collector coins, and issues the above coins in compliance with the 
Union’s legal acts and according to the volume of euro coin iss uance approved by the ECB. 
Latvijas Banka processes euro banknotes and coins, replaces the m and withdraws them from 
circulation in compliance with the Union’s legal acts, includin g those of the ECB. 
In order to facilitate the avai lability of euro cash in Latvia,  Latvijas Banka is tasked with: (a) 
monitoring, analysing and estimating the future circulation of cash in Latvia; (b) preparing a report 
on cash circulation and availability in Latvia; and (c) coopera ting with the legal entities involved in 
ECB-PUBLIC  
21 cash circulation in Latvia, to develop and implement measures t o ensure euro cash circulation in 
Latvia. 
7.1.2 The draft law provides that Latvijas Banka withdraws from  circulation unfit euro banknotes and 
coins submitted to it and replaces them with fit ones pursuant to the Union’s legal acts, including 
those of the ECB. In line with this legal framework, Latvijas B anka may refuse to replace damaged 
and unfit euro banknotes or coins submitted to Latvijas Banka i f their appearance, in Latvijas 
Banka’s opinion, has been altered intentionally or by a process  that could reasonably be expected 
to have such an effect. The draft law mandates Latvijas Banka t o lay down the requirements and 
procedure for the acceptance, identification and replacement of  damaged and unfit banknotes and 
coins. The draft law further mandates Latvijas Banka’s Council to establish a committee 
empowered to take decisions on the replacement of damaged and u nfit banknotes or coins 
accepted for identification.  
7.1.3 The draft law mandates Latvijas Banka to withdraw from ci rculation counterfeit banknotes and 
coins and illegal repro ductions of euro bank notes and coins sub mitted to Latvijas Banka, pursuant 
to the Union’s legal acts, including those of the ECB. The draf t law further provides that in the 
cases stipulated by the Union’s legal acts, including those of the ECB, Latvijas Banka must provide 
a written confirmation of the l egality of the euro banknote or coin reproduction if so requested. The 
draft law mandates Latvijas Banka to lay down the requirements and procedure for the acceptance 
and identification of banknotes and coins that are suspected of  being counterfeit.  
7.1.4 The draft law codifies existing arrangements by designati ng Latvijas Banka as the competent 
authority performing the functions of the National Analysis Cen tre and the Coin National Analysis 
Centre in the Republic of Latvia in line with Articles 4 and 5 of Council Regulation (EC) 
No 1338/200136.  
7.1.5 The draft law mandates Latvijas Banka to replace euro ban knotes and coins fit for circulation and 
to lay down the requirements and procedure for the replacement of euro banknotes and coins fit for 
circulation.  
7.1.6 The draft law establishes a regime for Latvijas Banka’s i nteraction with cash handlers. In particular, 
Latvijas Banka is mandated to establish: (a) the requirements f or the processing and recirculation 
of euro banknotes and coins; (b) the requirements and procedure  for the registration and operation 
control of cash handlers; and (c) the requirements for submitti ng reports on the handling machines 
used for the processing of euro banknotes and coins and on the volume of the euro banknotes and 
coins processed by these machines.  
7.1.7 Finally, the draft law mandates Latvijas Banka to issue a  warning or impose a penalty ranging from 
EUR 1 000 to 10 000 on cash handlers violating the requirements  for: (a) the processing and 
recirculation of euro banknotes a nd coins; (b) the registration  of cash handlers; or (c) submitting 
reports on the handling machines used for the processing of eur o banknotes and coins and on the 
volume of the euro banknotes and coins processed by these machi nes. The right to apply 
sanctions to cash handlers is new as it is not foreseen in the legal framework currently in force. 
 
36   Council Regulation (EC) No 1338/2001 of 28 June 2001 laying dow n measures necessary for the protection of the 
euro against counterfeiting (O J L 181, 4.7.2001, p. 6). 
ECB-PUBLIC  
22 Such sanctioning powers are in line with Regulation (EC) No 133 8/2001 and Regulation (EU) 
No 1210/2010 of the European Parliament and of the Council37. It is envisaged that decisions on 
the application of these sanctions would be adopted by a commit tee established by the Council of 
Latvijas Banka.  
7.2 Specific observations on the dra ft law’s provisions on the issue and circulation of euro banknotes 
and coins 
7.2.1 The ECB understands that the draft law aims to contribute  to the availability of cash to a 
satisfactory extent throughout Latvia. The ECB welcomes the obj ective of strengthening the 
position of cash as a means of payment and a store of value acc essible to all groups of the 
population. As previously noted by the ECB, although electronic  payment instruments are 
increasingly used and the use of cash is declining, cash in gen eral is still an est ablished means of 
payment providing for the immediate settlement of debts. Furthe rmore, the ability to pay in cash 
remains particularly important for certain groups in society th at, for various legitimate reasons, 
prefer to use cash rather than ot her means of payment, or who a re unable to use digital 
technology. Cash could play an important role in the event of a  disruption affecting payment 
systems, even though cash machines and other service points may  also be affected as these are 
dependent on interaction with the account holding institutions38. It is important that all Member 
States take appropriate measures  to ensure that credit institut ions and branches operating within 
their territories provide adequat e access to cash services, in order to facilitate th e continued use of 
cash39.  
Against this background, the ECB would like to suggest clarifyi ng the draft law by explicitly stating 
that Latvijas Banka, in cooperat ion with the legal entities inv olved in the circulation of cash in 
Latvia, will develop and implement measures to ensure that ther e is sufficient  euro cash 
circulating in Latvia40. With regard to the provision mandating Latvijas Banka to prep are a report on 
cash circulation and availability in Latvia the ECB understands  that the preparation of this report is 
a regular/on-going activity, and recommends that this is clarif ied in the draft law by introducing 
details regarding the intervals at which the report will be pre pared.  
7.2.2 The wording of the draft law 41 needs to be strengthened in order to align it with Article 3(3 )(a) of 
Decision ECB/2013/10 of the European Central Bank42, as this legal act does not provide for any 
discretion, where NCBs know or have sufficient reason to believ e that genuine euro banknotes 
have been intentionally damaged, they must refuse to exchange a nd must withhold the euro 
banknotes, in order to avoid the return of such euro banknotes into circulation or to prevent the 
applicant from presenting them to another NCB for exchange. Dec ision ECB/2013/10 provides that 
the only exception to this obligation is when the applicant’s g ood faith is known or provable. The 
 
37  Regulation (EU) No 1210/2010 of the European Parliament and of the Council of 15 December 2010 concerning 
authentication of euro coins and handling o f euro coins unfit f or circulation (OJ L 339, 22.12.2010, p. 1). 
38  See paragraph 9.2.1 o f Opinion CON/2020/13.  
39  See paragraph 9.2.3 o f Opinion CON/2020/13.  
40  See Article 38(5) 3 of the draft law. 
41  See Article 39(1) of the draft law. 
42  Decision ECB/2013/10 of the European Central Bank of 19 April 2 013 on the denominations, specifications, 
reproduction, exchange and withdrawal of euro banknotes (OJ L 1 18, 30.4.2013, p. 37).  
ECB-PUBLIC  
23 ECB understands that the scope of this provision of the draft l aw43 is limited to rules applicable to 
the exchange of unfit and damaged banknotes. It should be ensur ed that any decisions on the 
replacement of damaged or unfit banknotes, which the draft law mandates a committee nominated 
by Latvijas Banka to take, are t aken in accordance with the Uni on’s legal acts, including those of 
the ECB in particular Decision ECB/2013/10.   
7.2.3 With regard to the reproduction of euro banknotes the ECB  would like to draw attention to the fact 
that Decision ECB/2013/10 was amended at the end of 2020. In li ne with the relevant amendments 
the wording of the draft law should be updated to ensure that i t is in line with Decision 
ECB/2013/10, for example, the ECB does not confirm the legality  of a reproduction of euro 
banknotes, but rather consents to  exempt a reproduction of a eu ro banknote based on the outcome 
of an analysis. Furthermore, the ECB understands that the requi rements and procedure for the 
acceptance and identification of  suspected counterfeit banknote s and coins44 will be set by Latvijas 
Banka in line with the Union’s legal acts, including those of t he ECB. Moreover, the competences 
to exempt a reproduction in line with Article 2(5) of Decision ECB/2013/10 should be clarified to 
take into account cases where a reproduction is not produced in  the territory of Latvia.  
7.2.4 With regard to Latvijas Banka’s mandate to replace euro b anknotes and coins fit for circulation the 
ECB understands that this provision is not intended to create a n absolute right for members of the 
general public to request and rece ive any denominations, and wo uld suggest that this interpretation 
be reflected in the draft law.   
7.2.5 In relation to the draft law’s provisions on Latvijas Ban ka’s interaction with cash handlers, the ECB 
understands that the r equirements for the pr ocessing and recirc ulation of euro banknotes and coins 
and for submitting reports on the handling machines used for th e processing of euro banknotes and 
coins and on the volume of euro banknotes and coins processed b y these machines will be set by 
Latvijas Banka in line with the Union’s legal acts, including t hose of the ECB.  
7.2.6 Finally, the ECB welcomes the new sanctioning powers of L atvijas Banka for potential breaches of 
cash handlers violating require ments for: (1) the processing an d recirculation of euro banknotes 
and coins; (2) the registration of cash handlers; (3) submittin g reports on the handling machines 
used for the processing of euro banknotes and coins and the vol ume of euro banknotes and coins 
processed by these machines. 
 
8.  Statistics  
8.1 Purpose of the draft law’s provisions on statistics 
8.1.1 The collection of statistics is currently a task allocate d to both Latvijas Banka and FKTK. While 
Latvijas Banka benefits from an exemption under the Law on Stat istics, FKTK is currently 
designated as one of the statistical authorities, subject to th e requirements of the Law on Statistics. 
Following the incorporation of FKTK into Latvijas Banka, the st atistics until now covered by FKTK 
will come under the exemption fr om the Law on Statistics. There fore, the draft law provides for a 
 
43  See Article 39 o f the draft law. 
44  See Article 40(4)  of the draft law. 
ECB-PUBLIC  
24 comprehensive statistical framework that complies with the basi c principles of the two statistical 
systems at the European level – of the ESCB and of the European  Statistical System composed of 
Eurostat and the statistical aut horities of the Member States.  
8.1.2 The draft law mandates Latvijas Banka to collect, store a nd process statistica l data as well as 
develop, compile, analyse and diss eminate statistics to ensure the fulfilment of its tasks of, inter 
alia, assisting the ECB in providing the statistics required fo r executing ESCB tasks and 
supervising credit institutions and assisting the Union institu tions and bodies responsible for the 
supervision of financial market participants, financial market infrastructures, the application of 
resolution tools, ensuring compensation disbursement schemes or  the promotion of the stability of 
the financial system.  
8.1.3 The draft law further provides that Latvijas Banka must e stablish the requirements and procedures 
for preparing and submitting statistical data and specifying th e submission deadline as well as the 
persons obliged to provide statistical data (i.e., the statisti cal data providers) for monetary and 
financial statistics, banknote and coin statistics, payment and  payment system statistics, external 
statistics (including balance of payments and international inv estment position statistics), financial 
account statistics, resolution and compensation disbursement sc heme statistics, financial stability 
statistics, supervisory statistics as well as other statistics required for carrying out Latvijas Banka's 
tasks.  
8.1.4 The draft law provides that Latvijas Banka obtains the st atistical data directly from statistical data 
providers or indirectly from administrative data sources (regis ters, databases, information systems 
and other information sources). Upon receiving a reasoned reque st from Latvijas Banka, the holder 
of an administrative data source is obliged to provide statisti cal data to Latvijas Banka free of 
charge.  
8.1.5 The draft law limits the us e of statistical data by Latvi jas Banka to the fulfilment of its tasks as 
defined by the draft law. The draft law requires Latvijas Banka  to anonymise personal data 
immediately after their receipt, verification and joining with other statistical data, except where the 
personal data are required to ensure the statistical informatio n necessary to fulfil Latvijas Banka's 
tasks, and the personal identific ation data must be stored sepa rately from the anonymised 
statistical data.  
8.1.6 The draft law provides that the duration for storing stat istical data is to be established by Latvijas 
Banka. Latvijas Banka must take measures to prevent unauthorise d access to statistical data, their 
distortion or dissemination and  their unintentional or unauthor ised destruction.  
8.1.7 The draft law allows for the use of statistics for resear ch or analytical purposes, for developing 
conceptual recommendations or pe rforming impact assessments of statistical data enabling the 
indirect identification of the st atistical data provider or any  other person.  
8.1.8 The draft law enables Latvijas Banka to release certain t ypes of statistical data for exchange within 
the feedback loop as prescribed by Regulation 2016/867 of the E uropean Central Bank 
ECB-PUBLIC  
25 (ECB/2016/13)45. Currently the national legal framework does not allow credit institutions that 
provide Latvijas Banka with the relevant granular credit data t o benefit from Regulation 2016/867 
(ECB/2016/13) by receiving granul ar credit data from other Memb er States’ statistical data 
providers for the purposes of the AnaCredit project. The draft law entitles Latvijas Banka to 
determine the procedures for imp lementing exchanges with statis tical data providers of granular 
credit data available within  the AnaCredit feedback loop.   
8.1.9 The draft law regulates the  sanctions that Latvijas Banka  is entitled to apply for violations of the 
provision, use and protection of  statistical data, as well as t he procedural rules for the application of 
these sanctions. The draft law ma kes it clear that  these sancti oning powers are without prejudice to 
the ECB’s right to impose sanctions under directly applicable U nion legal acts, including those of 
the ECB. The sanctioning regime provided for in the draft law c oncerns only those sanctions that 
Latvijas Banka may impose for breaches of requirements in the f ield of statistics that are not 
covered by the Union’s legal act s, including those of the ECB. The explanatory memorandum 
further clarifies that infringements related to supervisory sta tistical data sancti ons will be imposed in 
accordance with the requirements  of the sectoral laws governing  the activities of the respective 
financial market participants. The adoption of decisions on the  imposition of sanctions in the field of 
statistics may be delegated to a  committee established by the C ouncil of Latvijas Banka.  
8.2 Specific observations on dra ft law’s provisions on statistics 
8.2.1 The ECB understands that Latvijas Banka establishes requi rements and procedures for preparing 
and submitting statistical data, the submission deadlines and t he statistical data providers without 
prejudice to the ECB’s regulatory  powers in accordance with the  primacy of the EU law.  
8.2.2 With regard to the right o f Latvijas Banka to establish t he duration for storing statistical data, the 
consulting authority is invited to follow developments in this regard at the ESCB level, as the 
duration for storing statistica l data has not yet been decided.  The ECB understands that in 
accordance with the primacy of  the EU law the duration for stor ing statistical data established by 
Latvijas Banka may not be shorter than any period determined by  the ECB.  
8.2.3 Regarding the duty of Latvijas Banka to take measures to prevent unauthorised access to 
statistical data, their distortion or dissemination, as well as  accidental destruction, the ECB 
understands that this will be performed in accordance with Arti cle 8(3) of Regulation (EC) 
No 2533/9846.  
8.2.4 With regard to the use of statistical data enabling the i ndirect identification of a statistical data 
provider or any other person for research purposes, the relevan t provisions of Regulation (EC) 
No 2533/98 grant such access only to scientific research bodies  and with the explicit prior consent 
of the authority which provided the information. The ECB unders tands that the procedures of 
Latvijas Banka to be determined regarding access to such statis tical data for scientific research 
purposes will be aligned with Art icle 8(1) (c) of Regulation (E C) No 2533/98.  
 
45  Regulation (EU) 2016/867 of the European Central Bank of 18 Ma y 2016 on the collection of granular credit and 
credit risk data (ECB/2016/13) ( OJ L 144, 1.6.2016, p. 44). 
46  Council Regulation (EC) No 2533/ 98 of 23 November 1998 concerni ng the collection of statistical information by the 
European Central Bank (OJ L 318, 27.11.1998, p 8). 
ECB-PUBLIC  
26 8.2.5 The ECB welcomes that the draft law grants Latvijas Banka  the right to release certain types of 
statistical data for exchange within the feedback loop prescrib ed by Regulation 2016/867 
(ECB/2016/13). The ECB understands  that the procedures for such  exchange will be consistent 
with the requirements of Article 11 of this Regulation and with  the relevant provisions of Guideline 
(EU) 2017/2335 of the Eu ropean Cent ral Bank47.  
8.2.6 The ECB welcomes the provisions of the draft law that ent itle Latvijas Banka to apply sanctions for 
any provision, use or protection of statistical data that viola tes statistical requirements which are 
not covered by the Union’s legal  acts, including those of the E CB. This further strengthens the 
statistical reporting framework. The ECB takes this opportunity  to note that NCBs are under an 
obligation to inform and consult with the ECB regarding the app lication of the ECB’s sanctioning 
procedures. Consideration should be given to reflecting this du ty to cooperate when applying ECB 
sanctions in the draft law. 
 
9.  Macroprudential policy  9.1 Purpose of the draft law’s provisions on macroprudential policy   
9.1.1 Latvijas Banka is current ly a macroprudential authority w hich conducts macroprudential policy in 
collegial cooperation with FKTK and the Ministry of Finance, in cluding within a mutually established 
framework for cooperation through the Macroprudential Council. The Ministry of Finance, as the 
leading State administrative authority in the financial sector,  implements the policy of the financial 
sector and develops regulatory requirements in the financial se ctor. Following the incorporation of 
FKTK into Latvijas Banka, Latv ijas Banka will undertake macropr udential policy decisions in 
cooperation with the Ministry of Finance, while the Ministry of  Finance will continue to implement 
financial sector policy.  
9.1.2 The draft law defines the objective of macroprudential po licy, which is to promo te the stability of the 
financial system as a whole, including by strengthening the fin ancial system's resilience to shocks 
and by limiting the build-up of s ystemic risks, thereby ensurin g the sustainable support of the 
economy by the financial system. The draft law mandates Latvija s Banka to both define and 
implement macroprudential poli cy. While defining and implementi ng macroprudential policy Latvijas 
Banka must: (a) analyse and asse ss the overall stability of Lat via's financial system as well as 
identify, monitor and assess its systemic risks; (b) prepare a report on financial stability containing 
an assessment of the financial system stability; and (c) implem ent the macroprudential policy 
measures provided for in the l egal acts of the Union and Latvia  and to apply regulatory 
requirements to the financial market and its participants in or der to mitigate systemic risks and 
strengthen the resilience of Latvi a's financial system to shock s. 
 
47  Guideline (EU) 2017/2335 of the European Central Bank of 23 No vember 2017 on the procedures for the collection 
of granular credit and credit ris k data (ECB/2017/38) (OJ L 333 , 15.12.2017, p. 66). 
ECB-PUBLIC  
27 9.1.3 When defining and implementing macroprudential policy, La tvijas Banka may issue 
recommendations on the measures needed to strengthen the resili ence of the financial system to 
shocks and limit the build-up of systemic risks. The draft law also enables Latvijas Banka to 
establish financial system sustainability promoting measures ad dressed to financial market 
participants and aimed at limiting the build-up of systemic ris ks and strengthening the resilience of 
the financial system to shocks.   
9.2 Specific observations on the draft la w’s provisions on macroprudential policy 
9.2.1 The ECB welcomes the clarification of Latvijas Banka’s ma croprudential mandate. As a national 
macroprudential authority, Latvijas Banka is already responsibl e for monitoring the development of 
Latvia’s financial system as a whole, and identifies and evalua tes potential systemic risks to 
financial stability, analyses the resilience of financial insti tutions to withstand these risks, and 
recommends and assists in introducing the necessary macropruden tial measures to promote 
financial stability. The draft law does not confer genuinely ne w tasks on Latvijas Banka in this area, 
but rather clarifies Latvijas B anka’s macroprudential mandate. Also, as a result of the incorporation 
of FKTK into Latvijas Banka, Latvijas Banka becomes a designate d national authority, responsible 
for implementing macroprudential measures that are harmonised a t Union level, e.g., determining 
the countercyclical capital buffer and systemic risk buffer. Co nsequently, it is not necessary to 
assess whether the conferral of new tasks on an NCB complies wi th the prohibition of monetary 
financing.  
9.2.2 From a financial stability perspective, the ECB welcomes the implementation of a legislative 
framework for borrower-based measures in all euro area countrie s48. Some examples of 
macroprudential tools, which are outside of the Union’s legal f ramework, and thus can be applied 
only where national law provides a specific legal basis, includ e  a levy on non-stable funding, a 
loan-to-deposit ratio, and borrower based measures, such as a l oan to value ratio, loan to income 
ratio, limits on the maximum dur ation of a loan, requirements r elated to the loan repayment 
calculation method, and other instruments aimed at safeguarding  the stability of the financial 
system as a whole, strengthening its resilience and preventing and mitigating systemic risks49.  
9.2.3 The draft law does not specify a comprehensive macroprude ntial tool kit. The ECB understands 
that measures of a macroprudential character have been taken by  FKTK based on Article 34.2 (4) 
and Article 55 of the Law on Credit Institutions and that Latvi jas Banka, as the successor to all 
rights and obligations of FKTK, will be able to adopt such meas ures in the future.  Furthermore, 
point 3) of Article 46(1) of the draft law entitles Latvijas Ba nka to apply regulatory requirements to 
the financial market and its participants in order to mitigate systemic risks and to strengthen the 
resilience of Latvia’s financial system to shocks. In this resp ect, by empowering Latvijas Banka to 
 
48  See paragraph 2.3 of Opinion CON/ 2017/11 and the Governing Cou ncil’s statement on Ma croprudential Policies of 
15 December 2016, which is availa ble on the ECB’ s website at www.ecb.europa.eu . 
49  See paragraph 3.11 of Opini on CON/2020/10, Recommendation ESR B/2013/1 of the European Systemic Risk 
Board of 4 April 2013 on interm ediate objectives and instrument s of macro-prudential pol icy (OJ C 170, 15.6.2013, 
p. 1) and he European Systemic Risk Board handbook on operation alising macroprudential policy in the banking 
sector, which is available on the ESRB’s website at www.esrb.europa.eu . 
ECB-PUBLIC  
28 apply such regulatory requirements to the financial market and its participants, Latvijas Banka is 
equipped with ample flexibility to effectively define and imple ment macroprudential policy. 
 
This opinion will be published on the ECB’s website.  
  
Done at Frankfurt am Main, 26 February 2021. 
 [signed] 
 
The President of the ECB Christine LAGARDE