Opinion of the European Central Bank of 12 June 2019 on the objectives and governance of the Latvian Financial and Capital Markets Commission (CON/2019/22)
Date: 2019-06-12
Institutions: European Central Bank
Subjects: Latvia, appointment of staff, banking supervision, capital market, financial market, institutional activity, national law, public office

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 12 June 2019 

on the objectives and governance of  

the Latvian Financial and Capital Markets Commission  

(CON/2019/22) 

Introduction and legal basis 

On  28  May  2019  the  European  Central  Bank  (ECB)  received  a  request  from  the  Latvian  Minister  for 

Finance for an opinion on  a draft law  amending Law  on the Financial  and  Capital Markets Commission  
(hereinafter the ‘draft law’) 1. 

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 on the third indent of Article 2(1) of Council Decision 98/415/EC2, 
as the draft law relates to the Latvijas Banka and to the specific tasks conferred upon the ECB concerning 

the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. In accordance with 

the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing 

Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1  According  to  its  annotation,  the  draft  law  has  two  aims.  First,  it  changes  the  procedure  for  the 

appointment  of  the  members  of  the  Finanšu  un  kapitāla  tirgus  komisija  (FCMC,  Financial  and 

Capital  Markets  Commission)  Council  by  expanding  the  qualification  requirements,  stating  the 

maximum  terms  of  office  and  prohibiting  office  holders  from  holding  office  for  more  than  two 

consecutive  terms.  Second,  it  strengthens  the  provisions  on  the  prevention  of  money  laundering 

and  financing  of  proliferation  and  terrorism  in  the  financial  and  capital  markets  by  expanding  the 

objectives  and  more  precisely  setting  out  the  FCMC  Council’s  functions.  According  to  the 

annotation,  these  aims  are  in  line  with  the  Organisation  for  Economic  Co-operation  and 
Development’s  short-term  recommendations  issued  for  Latvia3  to  reinforce  the  supervisory  and 
control mechanism for the prevention of financial system abuse. The aims also reflect the findings 
of  the  July  2018  MONEYVAL  mutual  evaluation  report4  on  anti-money  laundering  and  counter-
terrorist financing measures in Latvia.  

1.2  The draft law changes Latvijas Banka’s role in the appointment of the Chair and the members of 

the FCMC Council. The current Law on the Financial and Capital Markets Commission (hereinafter 
‘Law on FCMC’)5 provides that the Chair and Deputy Chair of the FCMC Council are appointed by 

1 
2 

3  
4  
5  

Grozījumi Finanšu un kapitāla tirgus likumā. 

  Council  Decision  98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 

authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
Available on the Organization for Economic Co-operation and Development website at www.oecd.com. 
Available on the Financial Action Task Force’s website at www.fatf-gafi.org. 

Finanšu un kapitāla tirgus komisijas likums, available at www.likumi.lv. 

 
 
 
                                                 
ECB-PUBLIC 

the Parliament upon a joint recommendation of the Governor of Latvijas Banka and the Minister for 

Finance, and that the other FCMC Council members are appointed by the Chair after coordination 

with  the  Governor  of  Latvijas  Banka  and  the  Minister  for  Finance.  The  draft  law  provides  for  the 

Chair  and  all  members  of  the  FCMC  Council  to  be  appointed  by  the  Parliament  upon  a 

recommendation  of  Ministru  kabinets  (Cabinet  of  Ministers).  The  candidates  for  the  positions  of 

Chair and FCMC Council members are to be selected in an open competition and evaluated by a 

commission, which, inter alia, includes a member of Latvijas Banka’s Council.  

1.3  The draft law amends the qualification criteria for candidates for the positions of Chair and FCMC 

Council  members.  In  particular, candidates  for  these  positions  are  required  to  have  all  of  the 

following: (a) a university degree in law, economics or financial management; (b) knowledge of the 

Latvian  language  and  one  foreign  language;  (c)  at  least  five  years’  experience  in  financial  and 

capital  markets  or  the  supervision/prevention  of money  laundering  and  financing  of  terrorism  and 

proliferation;  (d)  compliance  with  requirements  to  receive  a  second  category  special  permit  for 
access to official secrets. The Law on official secrets6 has a provision requiring anyone with access 
to secret information to obtain the second category special permit7. This permit will not be granted 
to any person where, during the course of the examination, it is determined that there are doubts 

that this person is not able to and cannot be relied upon to preserve official secrets. 

1.4  The  draft  law  amends  existing  provisions  relating  to  removing  the Chair  and  FCMC  Council 

members  from  office. The  existing  law  sets  out four reasons  for  Parliament  to  remove  these 

officials from  office:  (a)  upon  the  office  holder’s  own  application;  (b)  where  there  is  a  final 

judgement convicting the office holder of an intentional criminal offence; (c) where the office holder 

is unable to perform his or her duties for more than six consecutive months due to illness or other 

reasons;  and  (d)  upon  a  joint  application  by  the  Governor  of  Latvijas  Banka  and  the  Minister  for 

Finance.  

1.5  The  draft  law  abolishes  the  fourth  ground  for  removal  and  introduces  three  new  grounds  for 

removal:  (d)  where  there  has  been  a  final  decision  that  annuls  a  special  permission  of  access  to 

State  secrets  or  downgrades  the  relevant  category  in  respect  of  the  office  holder;  (e)  where  the 

Chair  of  the  FCMC  Council  applies  for  the  removal  of  an  FCMC  Council  member  who  no  longer 

complies with the criterion of having an impeccable reputation; and (f) where there is an application 

by at least 34 out of the 100 members of Parliament for the removal from office of the Chair of the 

FCMC where he or she no longer complies with the criterion of having an impeccable reputation. 

The draft law also specifies that all six grounds apply not only in relation to the Chair and Deputy 

Chair of the FCMC, but in relation to any FCMC Council member. If a person is to be relieved from 

office under grounds (e) or (f), the circumstances of the case will be evaluated by the commission 

referred to in paragraph 1.3, which, inter alia, includes a member of Latvijas Banka’s Council. The 

decision  of  this  commission  may  be  appealed  to  the  administrative  courts.  In  the  absence  of  an 

appeal  to  an  administrative  court,  or  if  an  administrative  court  has  ruled  in  favour  of  the 

commission’s decision, the final decision on the removal from office on grounds (e) or (f)  is drafted 

by  Ministru  kabinets  and  adopted  by  the  Parliament.  The  decision  of  the  Parliament  is  final  and 

may not be appealed.  

1.6  The draft law contains amendments relating to the composition and term of office of FCMC Council 

6  
7  

Likums “Par valsts noslēpumu”, available at www.likumi.lv. 

See Article 11(2) of the Law of Official Secrets. 

2 

                                                 
ECB-PUBLIC 

members. In particular, the FCMC Council will consist of three members instead of five members, 

as  provided  in  the  current  Law  on  FCMC.  The  term  of  office  of  the  Chair  and  FCMC  Council 

members will be five years, rather than six years as provided in the current Law on FCMC, and a 

person  may  not  serve  more  than  two  consecutive  terms.  In  contrast  to  the  current  provisions, 

FCMC  Council  members may  not  simultaneously  be  FCMC  Council  members and  hold  positions 

as Directors of FCMC departments. 

1.7  The  draft  law  amends  the  objectives,  functions  and  responsibilities  of  the  FCMC  regarding  the 

prevention  of money  laundering,  the  financing  of  terrorism  and  proliferation,  and  compliance  with 

sanctions. The current objectives of the FCMC are to foster the protection of investors, depositors 

and  insured  persons  and  to  foster  the  development  and  stability  of  the  financial  and  capital 

markets. The draft law will add an objective on the prevention of money laundering and financing of 

proliferation  and  terrorism.  The  current  functions  of  the  FCMC  include  the  regulation  of  financial 

and  capital  markets  and  controlling  the  compliance  of  activities  of  their  participants  with  laws, 

FCMC regulations and decisions. The draft law will add to these functions by requiring participants 

in the financial and capital markets to comply with Law on the Prevention of Money Laundering and 
Counter  Terrorism  Financing8  and  Law  on  International  and  National  Sanctions9  in  relation  to 
financial restrictions. 

2. 

Observations  

2.1  The  ECB  takes  note  of  the  changed  role  of  Latvijas  Banka  in  the  appointment  and  removal  from 

office of the Chair and FCMC Council members.  

2.2  Pursuant  to  Article  127(6)  of  the  Treaty  and  Articles  4  and  6  of  Council  Regulation  (EU)  No 
1024/201310,  the  ECB  is  responsible  for  the  effective  and  consistent  functioning  of  the  Single 
Supervisory Mechanism, and the ECB and the national competent authorities (NCAs), including the 

FCMC, are each subject to a duty of cooperation and an obligation to exchange information. Where 

appropriate, and without prejudice to the responsibility and accountability of the ECB for the tasks 

conferred on it by Regulation (EU) No 1024/2013, the NCAs, including the FCMC, are responsible 

for providing  assistance to the ECB, on the terms set out in Regulation (EU) No 468/2014 of the 
European  Central  Bank  (ECB/2014/17) 11,  with  the  preparation  and  implementation  of  any  acts 
relating to the tasks conferred on the ECB under Article 4 of Regulation (EU) No 1024/2013 related 
to credit institutions 12, including assistance in verification activities 13  14. The ECB understands that 

Noziedzīgi iegūtu līdzekļu legalizācijas un terorisma finansēšanas novēršanas likums, available at www.likumi.lv. 
Starptautisko un Latvijas Republikas nacionālo sankciju likums, available at www.likumi.lv. 

8  
9  
10    Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63). 
11    Regulation  (EU)  No  468/2014  of  the  European  Central  Bank  of  16  April  2014  establishing  the  framework  for 
cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent 
authorities and with national designated authorities (SSM Framework Regulation) (OJ L 141, 14.5.2014, p. 1). 
See paragraph 2.1 of Opinion CON/2018/6. 

12   
13   Without prejudice to certain provisions of Regulation (EU) No 1024/2013, NCAs shall carry out and be responsible 
for  certain  tasks  and  adopting  all  relevant  supervisory  decisions  with  regard  to  less significant  credit  institutions  or 
financial  holding  companies.  Wherever  the  ECB  is  assisted  by  NCAs  for  the  purposes  of  exercising  the  tasks 
conferred on it by Regulation (EU) No 1024/2013, the ECB and the NCAs shall comply with the provisions set out in 
the relevant Union acts in relation to the allocation of responsibilities and cooperation between competent authorities 
from different Member States.  

3 

 
                                                 
ECB-PUBLIC 

the  FCMC’s  responsibilities  in  these  respects  will  not  be  affected  by  the  changes  in  the  FCMC’s 

governance under the draft law. 

2.3  As  noted  in  recitals  28  and  29  of  Regulation  (EU)  No 1024/2013 15,  the  supervisory  tasks  not 
conferred on the ECB, which remain with the national authorities, include the prevention of the use 

of the financial system for the purposes of money laundering (ML) and terrorist financing (TF). The 

ECB should cooperate as appropriate, fully with the national authorities, which are responsible for 
supervising  the  measures  to  combat  money  laundering16.  While  the  task  of  supervising  credit 
institutions in relation to the prevention of the use of the financial system for the purposes of ML or 

TF has not been conferred on the ECB, the outcomes of anti-money laundering and countering the 

financing  of  terrorism  (AML/CFT)  supervision  are  important  to  consider  for  the  discharge  of  the 

ECB’s tasks concerning the prudential supervision of credit institutions under Article 127(6) of the 

Treaty and Regulation (EU) No 1024/2013. In particular, the risk of the use of the financial system 

for  ML  or  TF  is  relevant  for  ECB  prudential  supervisory  decisions  concerning  acquisitions  of 

qualifying holdings in supervised entities (including regarding the process of granting authorisations 

to  credit  institutions)  and  fit  and  proper  assessments  of  existing  or  prospective  managers  of 

supervised  entities, as  well as for day-to-day supervision  in the context of the supervisory review 

and  evaluation  process.  Serious  breaches  of  AML/CFT  requirements  can  negatively  affect  the 

reputation of a credit institution and lead to significant administrative or criminal sanctions imposed 

on supervised entities or their staff, and can thus pose a risk for the viability of supervised entities. 

In certain cases, serious breaches of AML/CFT requirements can directly trigger a need for a credit 
institution’s authorisation to be withdrawn17. 

2.4  Taking  account  of  the  foregoing,  the  ECB  notes  that  the  objectives  of  the  FCMC  are  to  be 

expanded and its functions are to be set out more precisely with the intention of strengthening its 
existing mandate to conduct AML/CFT supervision18. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 12 June 2019. 

[signed] 

The President of the ECB 

Mario DRAGHI 

14  

15  

16  

17  
18  

According to the Basel Core Principles for Effective Banking Supervision, the head of a supervisory authority is also 
to be appointed for a minimum term and removed from office during that term only for reasons specified in law, or if 
not physically or mentally capable of carrying out the role, or if found guilty of misconduct. See Basel Committee on 
Banking  Supervision,  Core  Principles  for  Effective  Banking  Supervision  (September  2012),  Principle  2,  Effective 
Criteria 2 and 6, available on the website of the Bank for International Settlements at www.bis.org. 

Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63). 

See also Article 6(2) of Regulation (EU) No 1024/2013 pursuant to which the ECB and NCAs are subject to a duty of 
cooperation in good faith, and an obligation to exchange information. 
See paragraph 1.2 of Opinion CON/2018/55. 

See Articles 45(1), 46, 47 and 56 of the Law on Prevention of Money Laundering and Terrorism Financing. 

4