Opinion of the European Central Bank of 26 February 2021 on the reform of Latvijas Banka (CON/2021/9)
Date: 2021-02-26
Institutions: European Central Bank
Subjects: banking supervision, institutional activity, legal basis, money, payment system, statistics

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 other laws (hereinafter ‘the draft 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  distribution  of  monetary,  financial,  banking, 

payment  systems  and  balance  of  payment  statistics,  rules  applicable  to  financial  institutions  insofar  as 

they materially influence the stability of financial institutions and markets and the specific tasks conferred 

on  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 legislative package 

On  21  November  2019  the  Parliament  of  the  Republic  of  Latvia  adopted  amendments  to  the  Law  on 

Latvijas Banka, requiring the Cabinet 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  legislative  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  banknotes  and  coins.  These  amendments 

mainly reflect existing practices at Latvijas Banka, however, where necessary, they add new powers, for 

example, introducing a sanctioning regime for breaches committed by cash handlers and for breaches of 

national statistical rules. Once the draft law enters into force the Law on Latvijas Banka and the Law on 

Financial and Capital Market 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 legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
 
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2. 

General observations on Latvijas Banka’s reform  

2.1  Under Article 131 of the Treaty each Member State is required to ensure that its national legislation 

including  the  statutes  of  its  national  central  bank  (NCB)  is  compatible  with  the  Treaties  and  the 

Statute of the European System of Central Banks and of the European 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  central  bank  independence, 

guaranteed under Article 130 of the Treaty and Articles 7 and 14.2 of the Statute of the ESCB, is 

fully  respected.  Compatibility  with  those  provisions  is  a  fundamental  aspect  of  the  legal 

convergence  of  a  Member  State,  which  is  examined  in  the  convergence  reports  required  by 

Article 140(1) of the Treaty to assess a country’s readiness to join the euro area2. 

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  Single  Supervisory  Mechanism 

(SSM) established pursuant to Council Regulation (EU) No 1024/20133. 

3. 

Governance reform of Latvijas Banka 

3.1  Change from a two tier governance structure 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 highest decision-making body, while 

the Board of Latvijas Banka is an executive body appointed by the Council to ensure the efficient 

management of Latvijas Banka4. The Council is chaired by the Governor of Latvijas Banka, who is 

appointed  for  a  five–year  term  that  may  be  renewed  once.  The  draft  law  introduces  a  single  tier 

governance  structure,  whereby  the  sole  decision-making  body  performing  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 Council will be composed of seven 

members.  It  will  be  chaired  by  the  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 intended that the draft law will enter into 

force on 1 January 2023, the switch to the single tier governance structure is intended to take place 

earlier  (when  the  amendments  to  the  present  Law  on  Latvijas  Banka  are  passed  by  the 

Parliament), in order to ensure that the change in the governance structure occurs before FKTK’s 

functions are assumed by Latvijas Banka. 

2  

3  

4  

See  paragraph  2.1.  of  Opinion  CON/2018/23.  All  ECB  opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu. 
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). 

Article 23 of the Law on Latvijas Banka. 

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3.1.2  Specific observations on the draft law’s single tier governance structure 

The ECB notes that the Treaty and the Statute of the ESCB do not have specific requirements in 

relation to the levels of governance structure of the NCBs in the 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  the  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 Banka 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 Latvijas Banka’s Council will establish a number of committees, which 

would  be  entitled  to  adopt  binding  administrative  decisions.  According  to  the  draft  law,  a 

Supervisory  Committee,  a  Resolution  Committee  and  a  Cash  Replacement  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 Member States, the Union’s institutions 

and other national, foreign or international institutions and their bodies, and these entities would in 

turn  be  prohibited  from  giving  instructions  or  otherwise  seeking  to  influence  Latvijas  Banka,  the 

members of its Council and the members of the Committees established 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 market participants supervised by Latvijas 

Banka, these include, inter alia, decisions to: a) impose sanctions 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  Supervisory  Committee.  The  Council  of 

Latvijas Banka will determine the composition of the Supervisory Committee, which 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  Resolution  Committee  or  an  employee  of  Latvijas  Banka  responsible  for  Latvijas 

Banka’s tasks in the field of monetary policy formulation and implementation, may be a member of 

the  Supervisory  Committee.  A  decision  taken  by  the  Supervisory  Committee  may  be  challenged 

before  the  Council  of  Latvijas  Banka  in  line  with  the  procedure  stipulated  in  the  Administrative 

Procedure Law.  

The Resolution Committee will be authorised to take decisions stipulated by the laws governing the 

application of resolution tools and the implementation of the compensation disbursement scheme. 

Latvijas Banka will further elaborate the tasks of the Resolution 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. of Opinion CON/2019/36. 

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Latvijas  Banka’s  tasks  in  the  field  of  monetary  policy  formulation  and  implementation  may  be  a 

member  of  the  Resolution  Committee.  A  decision  taken  by  the  Resolution  Committee  may  be 

challenged  before  the  Council  of  Latvijas  Banka  in  line  with  the  procedure  stipulated  in  the 

Administrative Procedure Law.  

The  Cash  Replacement  Committee  will  take  decisions  on  the  replacement  of  damaged  and  unfit 

banknotes  and  coins6  and  apply  sanctions  on  cash  handlers  who  violate  the  requirements 

regarding: a) the processing and recirculation of euro banknotes and coins; b) registration; and c) 

the submission of reports on the handling machines used for processing euro banknotes and coins 

and  the  volume  of  the  euro  banknotes  and  coins  processed  by  these  machines7.  The  draft  law 

does  not  provide  any  further  details  on  the  composition  of  this  committee.  It  is,  however, 

understood that the members of the 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 requirements or procedures, in particular the 

submission deadlines, for preparing or submitting statistical data. The Council of Latvijas Banka will 

determine the composition of such a committee. The draft law does not provide any further details 

on the composition of the eventual committee. It is, however, understood that the members of the 

committee will be employees 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 majority vote of those present. Latvijas 

Banka will establish the rules of procedure for the four committees. 

The draft law provides that Latvijas Banka may also establish committees in other areas, however, 

these committees will not be entitled 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  their  powers  and  carry  out  the 

tasks and duties conferred upon them by the Treaties and the Statute of the ESCB independently8. 

It  is  therefore  necessary  to  assess  whether  the  four  committees  envisaged  in  the  draft  law 

constitute decision-making bodies within the meaning of the Treaties and the Statute.  

The  Cash  Replacement  Committee,  as  well  as  the  committee  dealing  with  statistical  sanctions, 

have  specific  and  narrowly  defined  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  Committees  do  not  constitute  decision-making  bodies  within  the 

meaning of the Treaties and the Statute.  

6  

7  
8  

Article 39(4) of the draft law.  

Article 43(5) of the draft law. 

Article 130 TFEU and Article 7 of the Statute of the ESCB. 

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The  mandates  of  the  Supervisory  and  Resolution  Committees  are  confined  to  supervisory  and 

resolution matters, respectively, and as such do not involve the performance of ESCB-related tasks 

conferred  upon  Latvijas  Banka  by  the  Treaties  and  the  Statute  of  the  ESCB.  Therefore,  these 

Committees do not constitute decision-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  appointment  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 and as a member of its Council. A person may become Governor of 

Latvijas Banka if he/she: (a) is a citizen of the Republic of Latvia; (b) has obtained, as a minimum, 

a  master’s  degree  or  an  equivalent  degree;  (c)  has  adequate  experience  as  the  manager  of  an 

organisation  or  in  a  position  directly  subordinated  to  the  manager;  (d)  is  competent  in  issues 

concerning macroeconomics and financial market analysis; (e) has an unblemished reputation; and 

(f)  meets  the  legal  requirements  to  be  granted  the  first  category  personnel  security  clearance  to 

access official secrets. A person may become a member of the Council 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  adequate  professional  experience 

for  the  position  and  (e)  meets  the  legal  requirements  to  be  granted  the  first  category  personnel 

security clearance to access official secrets. 

The draft law clarifies the role and tasks of the Governor of Latvijas Banka, who is the chairperson 

of the Council of Latvijas Banka and is responsible for organising the work of Latvijas Banka. The 

draft law provides that in the absence of the Governor his or her duties will be carried out by the 

Deputy  Governor  designated  by  the  Governor.  In  the  absence  of  the  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 Article 14.2 of the Statute of the ESCB; 

(c) the member has been found guilty of serious misconduct within the meaning of Article 14.2 of 

the  Statute  of  the  ESCB.  The  draft  law  further  clarifies  that  the  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 following the procedure stipulated in Article 14.2 of the Statute of the 

ESCB,  while a  member of  the  Council of  Latvijas  Banka,  other  than  the Governor,  may  refer  the 

Parliament’s  decision  to  relieve  him/her  from  office  to  the  national  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 office 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  Deputy  Governor  designated by  the 

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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  provisions  on  appointment  criteria  and  grounds  for 

dismissal of the Governor and Council members 

Regarding  the  new  requirements  that  a  person  needs  to  meet  in  order  to  be  appointed  as  the 

Governor or as an ordinary member of the Council of Latvijas Banka, the ECB recalls that Member 

States  are  free  to  set  the  conditions  required  for  appointing  the  members  of  the  decision-making 

bodies of their NCBs, provided that these conditions do not conflict with the features 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 Article 130 of the Treaty and Article 7 of 

the Statute of the ESCB.  

The  ECB  has  given  particular  consideration  to  the  draft  law’s  requirement10  that  the  Governor  or 

the  Council  member  ‘meets  the  legal  requirements  to  be  granted  the  first  category  personnel 

security clearance to access official secrets’. In this respect, the ECB understands that the Law on 

Official Secrets provides that where an official or employee is refused personnel security clearance, 

or their clearance is cancelled, this represents a sufficient reason for considering that this person 

no  longer  fulfils  the  requirements  for  the  position  held/work  to  be  performed,  where  such 

position/work  is  related  to  the  use  or  protection  of  an  official  secret.  Therefore,  following  such  a 

cancellation, the person concerned must be immediately transferred to a position that is not related 

to  an  official  secret,  or,  where  this  is  not  possible,  employment  (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  other  members  of  the  Council  of 

Latvijas Banka because: (a) the draft law contains exclusive grounds for their dismissal; and (b) the 

relevant  provisions  of  the  Law  on  Official  Secrets  apply  to  officials  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 service relationship with Latvijas 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 memorandum 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  only  two  consecutive  terms  of 

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 possibility for two consecutive terms of office 

at Council, irrespective of the position held, whether as an ordinary member, as Deputy Governor 

9  
10  
11  

See paragraph 2.1 of Opinion CON/2020/19. 

See Article 12(3)(6) of the draft law. 

See Article 13(4) of the Law on Official Secrets.  

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or as Governor. In view of the more 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 the draft law.   

3.4.2  Specific observations on the draft law’s provisions on limiting Council members’ term of office 

In  respect  of  the  new  limitations  regarding  the  reappointment  of  the  Council  members,  the  ECB 

takes note of the fact that the draft law applies the new limitation only to those Council members 

appointed after the entry into 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  to  which  the  Council  of  Latvijas 

Banka  establishes  the  remuneration  system  for  its  members  and  for  the  employees  of  Latvijas 

Banka.  It  should  be  noted,  however,  that  the  Law  on  Latvijas  Banka  currently  in  force  does  not 

provide  any  criteria  for  determining  the  remuneration.  The  draft  law  introduces  a  formula  for 

determining the salaries of the members of the Council, including 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 following coefficients: (a) 5.44 to the 

salary of the Governor; (b) 4.91 to the salary of a Deputy Governor of Latvijas Banka; (c) 4.05 to 

the salary of other members of the Council of Latvijas Banka. The salaries of the Governor, Deputy 

Governor and other members of the Council will be set on an annual 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 other members of the Governing Council 

has  already  been  used  in  practice  by  Latvijas  Banka  for  a  significant  period  of  time  in  order  to 

minimise any potential conflicts of interest. Previously the formula had not been laid down by law 

and  was  entirely  at  the  discretion  of  the  Governing  Council  members.  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  reference  remuneration  to  include 

remuneration in the insurance sector. In order to ensure that the actual remuneration of the Council 

members  remains  unchanged,  the  coefficients  proposed  in  the  draft  law  have  been  slightly 

increased compared with those currently applied in practice.  

3.5.2  Specific  observations  on  the  draft  law’s  provisions  on  the  remuneration  of  the  Governor  and 

Council members 

With regard to the remuneration of the members of the Council of 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 coefficients have been calibrated in such a way 

12  
13  

See paragraph 3.3.3. of Opinion CON/2018/17.  

See the ECB Convergence Report 2020, page 24 of the English version.   

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as  to  ensure  that  the  remuneration  remains  largely  unaffected.  However,  given  the  potential 

dynamics of the underlying reference value, i.e., the average gross monthly earnings of employees 

in the financial services and insurance sector, it cannot be excluded that the remuneration of the 

Governor, Deputy Governor and other Council members will be lower compared with their current 

remuneration. Against this background the ECB invites the legislator to consider applying the new 

provisions  on  the  determination  of  such  remuneration  only  to  Governors,  Deputy  Governors  and 

other Council members appointed after the entry into force of the 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 preparation of the financial statements and 

the operation of the internal control system, internal audit and 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  their  professional  duties.  According  to  the  explanatory 

memorandum, this means that at least one member of the Audit Committee may be an employee 

of Latvijas Banka. The members of the Audit Committee will be appointed by the Council of Latvijas 

Banka. It is envisaged that the Audit Committee will become operational by 31 October 2021. 

3.6.2  Specific observations on the draft law’s provisions on establishing an Audit Committee 

The  ECB  welcomes  the  establishment  of  an  independent  Audit  Committee  by  Latvijas  Banka, 

which should further contribute to the good governance of Latvijas 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  Council  will  consist  of  three 

representatives  from  Latvijas  Banka  and  delegated  representatives  from  every  professional 

association  representing  the  financial  market  participants  under  Latvijas  Banka’s  supervision.  Its 

composition will be approved by the Governor of Latvijas Banka. 

The  main 

tasks  of 

the  Consultative  Financial  Market  Council  will  be: 

(a)  providing 

recommendations with  regard  to Latvijas  Banka's  draft  regulations  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 operation of its participants, application 

of resolution tools and implementation of compensation disbursement schemes; and (c) evaluating 

the results of accumulating the compensation disbursement scheme resources and disbursements 

of  compensation  under  those  schemes.  Latvijas  Banka  will  also  have  the  right  to  consult  the 

Consultative  Financial  Market  Council  on  other  issues  related  to  the  implementation  of  Latvijas 

Banka’s tasks.  

3.7.2  Specific observations on the draft law’s provisions on the Consultative Financial Market Council 

It  is  noted  that  a  Consultative  Financial  Market  Council  already  exists  under  the  current  legal 

framework  and  is  consulted  on  similar  matters  by  FKTK.  This  body  has  a  strictly  consultative 

character and its opinions are not binding on FKTK. Under the current legal framework, however, 

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FKTK is obliged to provide explanations in the minutes of the Consultative Financial Market Council 

meeting  as  to  why  it  is  not  following  the  Council’s  recommendations14.  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  Administrative  Procedure  Law  and  the 

jurisprudence of the Constitutional Court.  

The ECB understands that the Consultative Financial Market Council will be a purely consultative 

body  whose  main  tasks  will  be  to  issue  opinions  and  recommendations  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-making processes of Latvijas Banka. In the 

past the ECB has broadly welcomed the establishment of similar consultative bodies, which should 

provide  wide-ranging  expertise  to  Latvijas  Banka,  which  will  be  useful  in  exercising  its  new 

responsibility  for  supervising  the  financial  market15.  Many  supervisory  authorities  hold  regular 

consultations  with  market  participants  on  supervisory  matters  to  maintain  a  feedback  loop  which 

informs the authority of the consequences of its past or intended actions with respect to supervised 

entities.  From  a  governance  perspective,  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  concerns  from  a  confidentiality 

perspective, however, the ECB understands that it is not envisaged that the Consultative Financial 

Market  Council  would  be  consulted  prior  to  the  adoption  of  individual  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  rules  of  Latvijas  Banka  remain  largely 

unchanged compared to the current Law on Latvijas Banka.  

The  nominal  capital  of  Latvijas  Banka  remains  as  it  is  –  EUR  100  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 price list for the services that it provides. 

According  to  the  explanatory  memorandum  this  is  particularly  relevant  with  regard  to  charges  for 

payment  services  and  participation  in  payment  systems,  as  well  as  services  related  to  the 

circulation  of  cash.  This  provision  does  not  apply  to  the  supervisory  fees  of  the  financial  market 

participants as those will continue to be collected under the relevant sectoral laws.  

The  draft  law  maintains  the  current  legal  framework  regarding  Latvijas  Banka’s  accounting 

procedures  and  financial  statements.  Latvijas  Banka  will  continue  to  draw  up  its  financial 

statements  in  accordance  with  the  ECB’s  legal  acts  on  accounting  and  financial  statements. 

Without prejudice to the ECB’s requirements, Latvijas Banka remains entitled to issue internal rules 

establishing additional requirements for the preparation of its financial statements. 

14   
15  

See Article 21(2) of the Law on FKTK. 

See paragraph 7 of Opinion CON/2005/39. 

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The draft law in principle maintains the current legal framework regarding the distribution of Latvijas 

Banka’s  profits,  adding  an  explicit  clarification  that  any  profit  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  both  the  reserve  capital  and  nominal 

capital are insufficient. The Council of Latvijas Banka retains the right to reduce the payment for the 

using  State  capital,  comprising  50 %  of  the  profit  earned  during  the  reporting year  after  covering 

the  losses  accumulated  in  previous  years,  if  any,  where  this  reduction  is  necessary  to  increase 

Latvijas Banka’s reserve capital in relation to the financial risks Latvijas Banka is exposed to when 

carrying out its tasks. Profits are to be distributed to the State 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 provisions on Latvijas Banka’s financial independence 

The  ECB  welcomes  the  provisions  of  the  draft  law  that,  while  maintaining  the  current  legal 

framework  regarding  Latvijas  Banka’s  accounting  procedures,  financial  statements  and,  in 

substance, profit distribution, further strengthen Latvijas Banka’s financial independence by adding 

an explicit clarification that any profit 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  both  the  reserve  capital  and  nominal  capital  are  insufficient. 

Nonetheless, the ECB notes that the mechanism for carrying Latvijas 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  would  not  need  to  be  used  as  a  loss 

offsetting mechanism. 

The  ECB  welcomes  the  liability  regime  introduced  by  the  draft  law,  which  ensures  that  Latvijas 

Banka is only liable for the consequences of the decisions taken independently by Latvijas Banka. 

In  this  respect,  Latvijas  Banka  is  insulated  from  any  losses  arising  from  claims  against  FKTK  for 

decisions taken before its incorporation into Latvijas Banka16.    

5.  

Incorporation of FKTK 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 functions to Latvijas Banka and for FKTK’s 

liquidation, effective on 1 January 2023. FKTK is responsible for: (1) the supervision of the whole 

financial  sector  –  credit  institutions,  insurers,  insurance  intermediaries,  reinsurers,  reinsurance 

intermediaries,  private  pension  funds,  regulated  market  organisers,  depositories,  investment 

brokerage  companies, 

investment  management  companies,  credit  unions,  external  credit 

assessment  institutions  (rating  agencies),  alternative  investment  fund  managers,  payment 

institutions and e-money institutions; (2) the administration of compensation schemes; and (3) the 

resolution  of  credit  institutions  and  investment  firms.  The  existing  scope  and  regulation  of 

supervision,  implementation  of  resolution  and  the  administration  of  compensation  schemes 

16   

For more details see paragraph 5.1.4. of this Opinion.  

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remains  unchanged.  Furthermore,  financial  market  participants  will  continue  to  bear  all  costs 

necessary  for  the  regulation  and  supervision  of  the  financial  market  and  its  participants,  the 

implementation of resolution and the administration of compensation schemes after the transfer of 

these  tasks  to  Latvijas  Banka.  Latvijas  Banka  will  assume  all  of  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  following  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 Prevention of Money Laundering and 

Terrorism  and    Proliferation    Financing  and  with  the  requirements  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 protection of insured and of disbursement to investors under the 

investor protection scheme.  

5.1.2  Draft law’s transitional provisions  

The Council of Latvijas Banka, in cooperation with FKTK’s Council, will establish a Commission to 

deal with matters concerning the incorporation of FKTK into Latvijas Banka. Both institutions will be 

represented on this Commission on a parity basis. The Commission will be chaired by an official of 

Latvijas  Banka,  while  an  FKTK  official  will  act  as  the  chairperson’s  deputy.  This  Commission  will 

serve as a forum to address in detail the practical issues related to incorporating FKTK into Latvijas 

Banka.  The  Commission  will  draw  up  and  implement  a  plan  for  incorporating  FKTK  into  Latvijas 

Banka. This plan will be adopted by the Council of Latvijas Banka 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  associated  with  the  provision  of  these  services.  The  detailed  rules 

regarding  the  provision  of  support  functions  and  the  reimbursement  of  costs  will  be  set  out  in  a 

cooperation  agreement  between  Latvijas  Banka  and  FKTK.  This  approach  will  allow  for  a  timely 

integration  of  support  functions,  provide  additional  time  for  employees  to  adapt  to  new  internal 

processes and IT solutions, and enable the smooth integration of part of FKTK's support staff into 

Latvijas Banka.  

The employment relationships with 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  structure  of  Latvijas  Banka  without  any  changes  being  made,  the 

Commission will prepare a proposal for the integration of FKTK’s basic functions into the structure 

of Latvijas Banka and will prepare a list of employees executing basic functions whose employment 

relationship is to be transferred to Latvijas Banka. 

Latvijas Banka will already take over FKTK’s task of promoting financial literacy and the acquisition 

of economic knowledge on 1 January 2022.  

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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  identified  in  the  assessment  report  of  20 

May  2020,  the  draft  law  stipulates  that  Latvijas  Banka  must  ensure  the  operational  separation  of 

monetary  policy,  supervisory  and  resolution  functions.  This  includes  establishing  an  internal 

structure  whereby  these  tasks  are  carried  out  by  separate  departments  with  separate  reporting 

lines and a clear specification of the powers of the decision-making bodies and their members. Two 

separate  committees  will  be  established  for  supervisory  and  resolution  matters.  Each  of  these 

committees  will  be  chaired  by  a  different  Council  member.  The  members  of  the  Supervisory 

Committee may not also be members of the Resolution Committee and vice versa. Furthermore, 

employees responsible for Latvijas Banka’s monetary policy function may not be members of either 

of  these  two  committees.  Finally,  the  draft  law  provides  that  the  supervisory  and  resolution 

functions 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. Supervisory 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 supervisory task. 

5.1.4  Draft law’s financial arrangements for FKTK’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 obligations. The draft law contains detailed provisions regarding the use 

of the net assets of FKTK as at the moment of its incorporation into Latvijas Banka:  

1)  With regard to any positive net assets a reserve to cover eventual losses related to litigation 

and claims against FKTK will be established; 

2) 

The  remaining  net  assets,  if  positive,  will  be  used  to  reduce  Latvijas  Banka’s  expenses, 

which are covered by financial market participants’ contributions; 

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 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.  

With  regard  to  the  forward-looking  financing  of  expenses  for  supervision,  resolution  and  the 

management  of  deposit  guarantee  and  investor  and  insurance  protection  schemes,  the  draft  law 

provides  that  any  such  expenses  will  be  collected  from  financial  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  performing  his/her  official  (work) 

duties  from  a  standard  based  on  regular  negligence  to  a  standard  based  on  the  commission  of 

deliberate unlawful acts or gross negligence.      

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5.2  Assessment  of  the  conferral  of  new  tasks  on  Latvijas  Banka  against  the  prohibition  of  monetary 

financing 

5.2.1  New tasks conferred on Latvijas Banka 

As noted above, an extensive range of new tasks will be conferred on Latvijas Banka as a result of 

incorporating FKTK, these include: (a) the supervision of all regulated 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, the 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  new  task  conferred  on  Latvijas  Banka, 

namely  promoting  financial  literacy  and  the  acquisition  of  economic  knowledge.  However,  this  is 

not a genuinely new task, as Latvijas Banka has spent decades working on providing information 

and  educational  facilities  to  the  general  public17.  Consequently,  it  is  not  necessary  to  assess 

whether promoting financial literacy and the acquisition of economic knowledge task complies with 

the prohibition of monetary financing18.  

5.2.2  Criteria for assessing the conferral 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  Council  Regulation  (EC)  No  3603/9319 

defines ‘other type of credit facility’ as, inter alia, ‘any financing 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  circumvented.  Therefore,  the  task  of 

financing  measures,  which  are  normally  the  responsibility  of  the  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  obligations  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  assessment  on  whether  the  task  to  be 

undertaken  by  an  NCB  is  a  central  bank  task  or  a  government  task,  i.e.  a  task  within  the 

responsibility  of  the  Member  States.  In  other  words,  adequate  safeguards  must  be  in  place  to 

ensure that the objective of the prohibition on monetary financing, which is to that Member States 

maintain a sound budgetary policy, is not circumvented.  

As part of its discretion in the 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 honour the obligations laid down by 

the Treaty, the Governing Council has endorsed safeguards in the form of criteria for determining 

17  

18  
19  

Regarding the specific activities of Latvijas Banka in this context please see pages 55-57 of Latvijas Banka’s Annual 
Report 2019.  

See the ECB Convergence Report 2020, footnote 72. 

Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying  definitions  for  the  application  of  the 
prohibitions referred to in Articles 104 and 104b (1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 

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what may be considered as falling within the scope of ‘the public sector’s obligations vis-à-vis third 

parties’ within the meaning of Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, 

what constitutes a government 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 Statute of the ESCB. These 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  NCBs  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 precluded per se. However, new 

tasks  that  are  undertaken  by  an  NCB  and  which  are  atypical  of  NCB  tasks  or  which  are  clearly 

discharged on behalf of, and in the exclusive interest of the government or of other public sector 

entities, should be considered government tasks. 

Third, an important criterion for qualifying a new task as an atypical NCB task, or as being clearly 

discharged  on  behalf  of  and  in  the  exclusive  interest  of  the  government  or  other  public  sector 

entities,  is  the  impact  of  the  task  on  the  institutional,  financial  and  personal  independence  of  the 

NCB concerned. 

In particular, the following aspects should be taken into account: 

(a)   whether  the  performance  of  the  new  task  creates  conflicts  of  interest  with  existing  central 

bank tasks which are not adequately addressed, and its performance does not necessarily 

complement those existing central bank tasks. If a conflict of interest arises between existing 

and  new  tasks,  sufficient  safeguards  to  mitigate  that  conflict  should  be  in  place.  The 

complementarity  between  a  new  task  and  existing  central  bank  tasks  should  not  be 

interpreted  broadly  so  that  it  could  lead  to  the  creation  of  an  indefinite  chain  of  ancillary 

tasks. Such complementarity should be examined in relation to the financing of those tasks; 

(b)   whether without new financial 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 institutional set-up of the NCB in the 

light of central bank independence and accountability considerations; 

(d)   whether the performance of the new task harbours substantial financial risks; 

(e)   whether the performance of the new task exposes the members of the NCB decision-making 

bodies  to  political  risks  that  are  disproportionate  and  may  also  have  an  impact  on  their 

personal independence and, in particular, on the guarantee of term 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  Latvijas  Banka  against  the  prohibition  of  monetary 

financing 

Based on the criteria set out above, the following paragraphs assess whether Latvijas Banka’s new 

tasks are in line with the prohibition of monetary financing.  

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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 the Treaty and Article 3.3 of the Statute of the ESCB, the ESCB 

must  contribute  to  the  smooth  conduct  of  policies  pursued  by  the  competent  authorities 

relating  to  the  prudential  supervision  of  credit  institutions  and  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  policies  relating  to  the 

prudential supervision of credit institutions and other financial institutions with the exception 

of  insurance  undertakings.  On  this  basis,  the  Council  has  conferred  tasks  upon  the  ECB 

concerning  the  prudential  supervision  of  credit  institutions  pursuant  to  Regulation  (EU) 

No 1024/2013.  

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 an NCA within the framework of 

the SSM established pursuant to Regulation (EU) No 1024/2013. The remaining tasks to be 

transferred from FKTK to Latvijas Banka concerning the supervision of other financial market 

participants, the resolution of credit institutions and investment firms and the management of 

deposit guarantee and investor and insurance protection schemes are not directly related to 

the tasks conferred upon the ECB 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  deposit  guarantee  and 

investor and insurance protection schemes are not atypical central bank tasks.  

Supervisory  tasks,  and  tasks  relating  to  supervisory  tasks,  are  among  the  tasks  which 

central  banks  exercise20.  Thirteen  out  of  the  nineteen  NCAs  participating  in  the  SSM  are 

NCBs.  The  ECB  has  consistently  favoured  the  involvement  of  NCBs  in  prudential 

supervision.  Past  ECB  opinions  on  draft  national  legislation  reforming  the  institutional 

framework  for  prudential  supervision  in  Member  States  have  noted  that  NCBs  have 

traditionally  been  closely  involved  in  the  prudential  supervision  of  credit  institutions  due  to 

their pivotal role in the financial system, in particular regarding implementing monetary policy 

and ensuring the proper functioning of payment systems21. 

In the past the ECB has also taken the position that the extension 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  stability  of  the  financial  system, 

an  NCB  with  overall  responsibility  for  the  financial  markets  is  likely  to  cope  better  than 

20  
21   

See the ECB Convergence Report 2020, page 32 of the English version.  

See paragraph 2.1.2. of Opinion CON/2006/15. 

15 

 
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several  supervisors,  whose  supervisory  competences  are  limited  to  a  particular  financial 

sector22.  

Resolution tasks may be considered to be central banking tasks, provided that they do not 

undermine  an  NCB’s  independence  in  accordance  with  Article  130  of  the  Treaty23. 

Administrative  resolution  tasks  are  considered  to  be  tasks  related  to  those  referred  to  in 

Article 127(5) of the Treaty, based on the understanding that administrative resolution tasks 

and supervisory tasks complement each other. The ECB has already opined that if an NCB’s 

resolution-related responsibilities are extended to other financial institutions forming part of a 

banking  group,  such  new  tasks  may  also  be  considered  to  be  related  to  tasks  under 

Article 127(5)  of  the  Treaty,  by  analogy  with  the  complementarity  of  an  NCB’s  resolution 

tasks in respect of credit institutions with its existing supervisory and financial stability tasks. 

A number of Member States have conferred on their NCBs a significant 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 allocation of such tasks to NCBs 

provided they do not interfere financially and operationally with the performance of the NCB’s 

ESCB-related tasks24.  

The  ECB  understands  that  resolution  financing  arrangements  in  Latvia  remain  unchanged 

and continue to be governed by the relevant provisions of the Law on the Restoration and 

Resolution  of  Credit  Institutions  and  Investment  Brokerage  Companies25.  Accordingly, 

Latvijas Banka will be responsible for ensuring the accumulation and management of funds 

in the national resolution fund from entities subject to resolution. Latvijas Banka will also be 

entitled  to  use  alternative  sources  of  financing  and  enter  into  loan  or  other  support 

agreements with investment brokerage companies, financial institutions or other third parties 

if the funds in the resolution fund are not immediately available or insufficient to cover losses, 

costs or other expenses26. Finally, Latvijas Banka will be entitled to request a loan from 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 financing prohibition under Article 123 

of  the  Treaty.  Where  an  NCB  acts  as  resolution  authority,  it  should  not,  under  any 

See paragraph 2.3. of Opinion CON/2011/46. 
See paragraph 3.2.3 of Opinion CON/2016/28. 

22  
23  
24   With respect to resolution, the 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  Council  Directives  82/891/EEC,  and  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 resolution 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.  
Articles  121  to  127  of  the  Law  on  the  Restoration  and  Resolution  of  Credit  Institutions  and  Investment  Brokerage 
Companies. 

25  

26  

27  

Article  121.3  of  the  Law  on  the  Restoration  and  Resolution  of  Credit  Institutions  and  Investment  Brokerage 
Companies. 

Article  121.4  of  the  Law  on  the  Restoration  and  Resolution  of  Credit  Institutions  and  Investment  Brokerage 
Companies. 

16 

 
ECB-PUBLIC 

circumstances,  assume  or  finance  any  obligation  of  either  a  bridge  institution  or  an  asset 

management  vehicle.  To  this  end,  national  legislation  should  clarify  that  the  NCB  will  not 

assume or finance any of these entities’ obligations28. 

The  ECB  has  recognised  that  the  management  of  deposit  guarantee  and  investor  and 

insurance  protection  schemes  are  tasks  that  are  complementary  to  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 conferred 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  guarantee  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 tasks creates conflicts of interest with existing 

central bank tasks 

The  draft  law  provides  for  the  operational  separation  of  monetary  policy,  supervisory  and 

resolution functions. This includes the establishment of an internal structure whereby these 

tasks  are  carried  out  by  separate  departments  with  separate  reporting  lines  and  a  clear 

specification of the powers of the decision-making bodies and their members. Two separate 

committees  will  be  established  for  supervisory  and  resolution  matters.  Each  of  these 

committees will be chaired by a different Council member. The members of the Supervisory 

Committee may not also be members of the Resolution Committee and vice versa. Finally, 

the  draft  law  provides  that  the  supervisory  and  resolution  functions  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.  These  provisions  clearly  insulate  the  supervisory  and  the 

resolution tasks from creating conflicts of interest with existing 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  liabilities  of  a  previously 

independent public body, as a result of a national reorganisation 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 bodies, without fully insulating 

the NCB from all financial obligations resulting from the prior activities of such a body, would 

be  incompatible  with  the  monetary  financing  prohibition31.  The  draft  law’s  transitional 

provisions  contain  detailed  rules  regarding  the  use  of  the  net  assets  of  FKTK  as  at  the 

See Opinion CON/2016/6. 

See the ECB Convergence Report 2020, page 34 of the English version.  

28  
29  
30   With respect to prudential supervision, the ECB notes that the provisions on the separation 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 version. 

17 

 
ECB-PUBLIC 

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-looking  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  participants.  Finally,  the 

transitional provisions also provide for the transfer of all employees executing the basic (i.e., 

non-support) functions of FKTK 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, operational capacity, powers and independence necessary to carry 

out  the  functions  relating  to  prudential  supervision,  investigations  and  penalties  set  out  in 

that  Directive  and  in  Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the 

Council33.  According  to  the  recommendations  of  the  Basel  Core  Principles  for  Effective 

Banking  Supervision34  the  supervisor  is  to  have  adequate  resources  for  the  conduct  of 

effective supervision and oversight. In view of the responsibilities of Latvijas Banka within the 

framework  of  the  SSM,  and  also  considering  Latvijas  Banka’s  resources,  the  Latvian 

authorities should take into account the SSM’s need for NCA staff 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 performance 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  currently  allocates  for  the 

performance of its monetary policy and other existing central banking tasks. 

f) 

Extent to which performance of the new tasks fits into Latvijas Banka’s institutional set-up, in 

the light of central bank independence and accountability considerations 

The allocation of the new tasks to Latvijas Banka relating to the supervision and resolution of 

credit and financial institutions and the management of deposit guarantee and investor and 

insurance  protection  schemes  will  be  accompanied  by  the  establishment  of  two  new 

committees that will deal with supervisory and resolution matters respectively. The rules of 

32  

33  

34   

35   

Directive  2013/36/EU  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on access  to  the  activity  of 
credit  institutions  and  the  prudential  supervision  of  credit  institutions  and  investment  firms,  amending  Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 

Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential 
requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  176, 
27.6.2013, p. 1). 

Available on the Bank for International Settlements website at www.bis.org. 

See also paragraph 2.2. of Opinion CON/2018/6.  

18 

 
ECB-PUBLIC 

procedure  adopted  by  Latvijas  Banka’s  Council  will  determine  which  decisions  these 

committees  are  primarily  responsible  for.  The  Council  will  be  the  appeal  body  for  binding 

decisions taken by the committees. While the members of the committees, who are not also 

members  of  the  Council,  will  only  benefit  from  institutional  independence  guarantees,  all 

Council  decisions,  irrespective  of  whether  they  concern  ESCB-related  tasks  or  supervisory 

and resolution tasks, benefit from the same independence guarantees and are subject to the 

same  accountability  regime.  Finally,  the  draft  law’s  provisions  on  avoiding  conflicts  of 

interest,  as  described  in  paragraph  5.1.3.,  sufficiently  insulate  the  performance  of  ESCB 

tasks by Latvijas Banka from the performance of the new tasks proposed to be allocated to 

Latvijas Banka.  

Against this background the ECB  considers that the allocation of the new tasks to Latvijas 

Banka is unlikely to conflict with the institutional set-up of Latvijas Banka.  

g) 

Extent to which the performance of tasks 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  an  employee  or  an 

authorised person of Latvijas Banka, when performing his/her official duties is limited to the 

commission  of  deliberate  unlawful  acts  or  gross  negligence.  Under  the  current  legal 

framework  the  liability  of  FKTK’s  decision-making  bodies  and  staff  is  broader  and  is  not 

confined  to  gross  negligence.  The  draft  law  thus  considerably  mitigates  financial  risks  that 

could arise from the conferral of the new supervisory and resolution tasks on Latvijas Banka.  

h) 

Extent  to  which  the  performance  of  the  new  tasks  exposes  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  to  any  disproportionate 

political risk and has no  impact on their personal independence.  

Conclusion  

The  new  tasks  conferred  by  the  draft  law  on  Latvijas  Banka  relating  to  the  supervision  and 

resolution of credit and financial institutions and the management of deposit guarantee and investor 

and insurance protection schemes can be considered to be central 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. The 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 these new tasks have been limited by 

the  draft  law.  Financial  market  participants  will  continue  to  bear  all  costs  necessary  for  the 

regulation  and  supervision  of  the  financial  market  and  its  participants,  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. Any losses arising from claims against 

FKTK for 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.  Expenses 

19 

ECB-PUBLIC 

incurred  by  Latvijas  Banka  when  performing  its  new  tasks  will  be  covered  by  contributions  from 

financial market participants. The liability of Latvijas Banka will be limited to deliberate unlawful acts 

and  gross  negligence.  Care  has  been  taken  in  the  draft  law  to  ensure  that  the  new  tasks  fit  into 

Latvijas  Banka’s  new  institutional  framework,  and  to  appropriately  manage  conflicts  of  interest 

which  might  arise  in  the  performance  of  Latvijas  Banka’s  tasks  in  the  fields  of  central  banking, 

supervisory, resolution, deposit guarantee and investor and insurance protection schemes.    

6.  

Payment and financial instrument settlement systems 

6.1  Purpose of the draft law’s provisions on payment and financial instrument settlement systems 

Under  the  draft  law  Latvijas  Banka’s  task  of  promoting  the  smooth  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  instrument  settlement  systems 

together with the other Eurosystem central banks, in accordance with the Eurosystem's oversight 

policy  framework.  This  oversight  covers  all  payment  and  financial  instrument  settlement  systems 

operating  in  Latvia.  The  draft  law  clarifies  that  the  task  of  promoting  the  smooth  functioning  of 

payment and financial instrument settlement systems also includes promoting the development of 

means of payment. Latvijas Banka ensures the participation of Latvian financial market participants 

in TARGET2-Latvia in accordance with the ECB’s legal framework, including ECB guidelines, and 

in the electronic clearing system maintained by Latvijas Banka. 

6.2  Specific observations on the draft law’s provisions on payment and financial instrument settlement 

systems 

The ECB welcomes the provisions of the draft law providing a more robust legal basis for Latvijas 

Banka’s  existing  tasks  relating  to  the  smooth  functioning  of  payment  and  financial  instrument 

settlement  systems,  including  the  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 production and delivery of euro banknotes 

and issue euro banknotes pursuant to the Statute of the ESCB and the ECB’s legal acts. Latvijas 

Banka  organises  the  design,  production  and  delivery  of  euro  circulation  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  issuance  approved  by  the  ECB. 

Latvijas  Banka  processes  euro  banknotes  and  coins,  replaces  them  and  withdraws  them  from 

circulation in compliance with the Union’s legal acts, including those of the ECB. 

In  order  to  facilitate  the  availability  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) cooperating with the legal entities involved in 

20 

 
 
ECB-PUBLIC 

cash circulation in Latvia, to develop and implement measures to 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 Banka may refuse to replace damaged 

and  unfit  euro  banknotes  or  coins  submitted  to  Latvijas  Banka  if  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 to 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  unfit  banknotes  or  coins 

accepted for identification.  

7.1.3  The  draft  law  mandates  Latvijas  Banka  to  withdraw  from  circulation  counterfeit  banknotes  and 

coins and illegal reproductions of euro banknotes and coins submitted to Latvijas Banka, pursuant 

to  the  Union’s  legal  acts,  including  those  of  the  ECB.  The  draft  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 legality 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  designating  Latvijas  Banka  as  the  competent 

authority performing the functions of the National Analysis Centre 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 banknotes 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 interaction with cash handlers. In particular, 

Latvijas Banka is mandated to establish: (a) the requirements for 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 submitting 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  and  coins;  (b)  the  registration  of  cash  handlers;  or  (c)  submitting 

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.  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 down measures necessary for the protection of the 

euro against counterfeiting (OJ L 181, 4.7.2001, p. 6). 

21 

 
ECB-PUBLIC 

Such  sanctioning  powers  are  in  line  with  Regulation  (EC)  No  1338/2001  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 committee established by the Council of 

Latvijas Banka.  

7.2  Specific observations on the draft 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  objective  of  strengthening  the 

position  of  cash  as  a  means  of  payment  and  a  store  of  value  accessible  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 general is still an established means of 

payment  providing  for  the  immediate  settlement  of  debts.  Furthermore,  the  ability  to  pay  in  cash 

remains  particularly  important  for  certain  groups  in  society  that,  for  various  legitimate  reasons, 

prefer  to  use  cash  rather  than  other  means  of  payment,  or  who  are  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 institutions and branches operating within 

their territories provide adequate access to cash services, in order to facilitate the continued use of 

cash39.  

Against this background, the ECB would like to suggest clarifying the draft law by explicitly stating 

that  Latvijas  Banka,  in  cooperation  with  the  legal  entities  involved  in  the  circulation  of  cash  in 

Latvia,  will  develop  and  implement  measures  to  ensure  that  there  is  sufficient  euro  cash 

circulating in Latvia40. With regard to the provision mandating Latvijas Banka to prepare 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  clarified  in  the  draft  law  by  introducing 

details regarding the intervals at which the report will be prepared.  

7.2.2  The wording of the draft law41 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  believe  that  genuine  euro  banknotes 

have  been  intentionally  damaged,  they  must  refuse  to  exchange  and  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. Decision ECB/2013/10 provides that 

the only exception to this obligation is when the applicant’s good faith is known or provable. The 

37  

38  
39  
40  
41  
42  

Regulation  (EU)  No  1210/2010  of  the  European  Parliament  and  of  the  Council  of  15  December  2010  concerning 
authentication of euro coins and handling of euro coins unfit for circulation (OJ L 339, 22.12.2010, p. 1). 
See paragraph 9.2.1 of Opinion CON/2020/13.  

See paragraph 9.2.3 of Opinion CON/2020/13.  

See Article 38(5) 3 of the draft law. 

See Article 39(1) of the draft law. 

Decision  ECB/2013/10  of  the  European  Central  Bank  of  19  April  2013  on  the  denominations,  specifications, 
reproduction, exchange and withdrawal of euro banknotes (OJ L 118, 30.4.2013, p. 37).  

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ECB-PUBLIC 

ECB understands that the scope of this provision of the draft law43 is limited to rules applicable to 

the  exchange  of  unfit  and  damaged  banknotes.  It  should  be  ensured  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 taken in accordance with the Union’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 line with the relevant amendments 

the  wording  of  the  draft  law  should  be  updated  to  ensure  that  it  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 euro banknote based on the outcome 

of  an  analysis.  Furthermore,  the  ECB  understands  that  the  requirements  and  procedure  for  the 

acceptance and identification of suspected counterfeit banknotes and coins44 will be set by Latvijas 

Banka in line with the Union’s legal acts, including those of the 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 banknotes and coins fit for circulation the 

ECB understands that this provision is not intended to create an absolute right for members of the 

general public to request and receive any denominations, and would suggest that this interpretation 

be reflected in the draft law.   

7.2.5  In relation to the draft law’s provisions on Latvijas Banka’s interaction with cash handlers, the ECB 

understands that the requirements for the processing and recirculation of euro banknotes and coins 

and for submitting reports on the handling machines used for the processing of euro banknotes and 

coins and on the volume of euro banknotes and coins processed by these machines will be set by 

Latvijas Banka in line with the Union’s legal acts, including those of the ECB.  

7.2.6  Finally, the ECB welcomes the new sanctioning powers of Latvijas Banka for potential breaches of 

cash  handlers  violating  requirements  for:  (1)  the  processing  and  recirculation  of  euro  banknotes 

and  coins;  (2)  the  registration  of  cash  handlers;  (3)  submitting  reports  on  the  handling  machines 

used for the processing of euro banknotes and coins and the volume 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  allocated  to  both  Latvijas  Banka  and  FKTK.  While 

Latvijas  Banka  benefits  from  an  exemption  under  the  Law  on  Statistics,  FKTK  is  currently 

designated as one of the statistical authorities, subject to the requirements of the Law on Statistics. 

Following the incorporation of FKTK into Latvijas Banka, the statistics until now covered by FKTK 

will come under the exemption from the Law on Statistics. Therefore, the draft law provides for a 

43  

44  

See Article 39 of the draft law. 

See Article 40(4) of the draft law. 

23 

 
 
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comprehensive  statistical  framework  that  complies  with  the  basic  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 authorities of the Member States.  

8.1.2  The  draft  law  mandates  Latvijas  Banka  to  collect,  store  and  process  statistical  data  as  well  as 

develop,  compile,  analyse  and  disseminate  statistics  to  ensure  the  fulfilment  of  its  tasks  of,  inter 

alia,  assisting  the  ECB  in  providing  the  statistics  required  for  executing  ESCB  tasks  and 

supervising  credit  institutions  and  assisting  the  Union  institutions  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 establish the requirements and procedures 

for preparing and submitting statistical data and specifying the submission deadline as well as the 

persons  obliged  to  provide  statistical  data  (i.e.,  the  statistical  data  providers)  for  monetary  and 

financial  statistics,  banknote  and  coin statistics,  payment  and  payment  system  statistics,  external 

statistics (including balance of payments and international investment position statistics), financial 

account  statistics,  resolution  and compensation  disbursement  scheme  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 statistical data directly from statistical data 

providers or indirectly from administrative data sources (registers, databases, information systems 

and other information sources). Upon receiving a reasoned request from Latvijas Banka, the holder 

of  an  administrative  data  source  is  obliged  to  provide  statistical  data  to  Latvijas  Banka  free  of 

charge.  

8.1.5  The  draft  law  limits  the  use  of  statistical  data  by  Latvijas  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 information necessary to fulfil Latvijas Banka's 

tasks,  and  the  personal  identification  data  must  be  stored  separately  from  the  anonymised 

statistical data.  

8.1.6  The draft law provides that the duration for storing statistical data is to be established by Latvijas 

Banka. Latvijas Banka must take measures to prevent unauthorised access to statistical data, their 

distortion or dissemination and their unintentional or unauthorised destruction.  

8.1.7  The  draft  law  allows  for  the  use  of  statistics  for  research  or  analytical  purposes,  for  developing 

conceptual  recommendations  or  performing  impact  assessments  of  statistical  data  enabling  the 

indirect identification of the statistical data provider or any other person.  

8.1.8  The draft law enables Latvijas Banka to release certain types of statistical data for exchange within 

the  feedback  loop  as  prescribed  by  Regulation  2016/867  of  the  European  Central  Bank 

24 

ECB-PUBLIC 

(ECB/2016/13)45.  Currently  the  national  legal  framework  does  not  allow  credit  institutions  that 

provide Latvijas Banka with the relevant granular credit data to benefit from Regulation 2016/867 

(ECB/2016/13)  by  receiving  granular  credit  data  from  other  Member  States’  statistical  data 

providers  for  the  purposes  of  the  AnaCredit  project.  The  draft  law  entitles  Latvijas  Banka  to 

determine  the  procedures  for  implementing  exchanges  with  statistical  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 the procedural rules for the application of 

these sanctions. The draft law makes it clear that these sanctioning powers are without prejudice to 

the ECB’s right to impose sanctions under directly applicable Union legal acts, including those of 

the ECB. The sanctioning regime provided for in the draft law concerns only those sanctions that 

Latvijas  Banka  may  impose  for  breaches  of  requirements  in  the  field  of  statistics  that  are  not 

covered  by  the  Union’s  legal  acts,  including  those  of  the  ECB.  The  explanatory  memorandum 

further clarifies that infringements related to supervisory statistical data sanctions 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 Council of Latvijas Banka.  

8.2  Specific observations on draft law’s provisions on statistics 

8.2.1  The ECB understands that Latvijas Banka establishes requirements and procedures for preparing 

and submitting statistical data, the submission deadlines and the 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  of  Latvijas  Banka  to  establish  the  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  statistical  data  has  not  yet  been  decided.  The  ECB  understands  that  in 

accordance with the primacy of the EU law the duration for storing 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  Article  8(3)  of  Regulation  (EC) 

No 2533/9846.  

8.2.4  With  regard  to  the  use  of  statistical  data  enabling  the  indirect  identification  of  a  statistical  data 

provider  or  any  other  person  for  research  purposes,  the  relevant  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  understands  that  the  procedures  of 

Latvijas  Banka  to  be  determined  regarding  access  to  such  statistical  data  for  scientific  research 

purposes will be aligned with Article 8(1) (c) of Regulation (EC) No 2533/98.  

45  

46  

Regulation  (EU)  2016/867  of  the  European  Central  Bank  of  18  May  2016  on  the  collection  of  granular  credit  and 
credit risk data (ECB/2016/13) (OJ L 144, 1.6.2016, p. 44). 

Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the collection of statistical information by the 
European Central Bank (OJ L 318, 27.11.1998, p 8). 

25 

 
ECB-PUBLIC 

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  prescribed  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 European Central Bank47.  

8.2.6  The ECB welcomes the provisions of the draft law that entitle Latvijas Banka to apply sanctions for 

any  provision,  use  or  protection  of  statistical  data  that  violates  statistical  requirements  which  are 

not  covered  by  the  Union’s  legal  acts,  including  those  of  the  ECB.  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  application  of  the  ECB’s  sanctioning 

procedures. Consideration should be given to reflecting this duty 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  currently  a  macroprudential  authority  which  conducts  macroprudential  policy  in 

collegial cooperation with FKTK and the Ministry of Finance, including 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 sector. Following the incorporation of 

FKTK  into  Latvijas  Banka,  Latvijas  Banka  will  undertake  macroprudential  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 policy, which is to promote the stability of the 

financial system as a whole, including by strengthening the financial system's resilience to shocks 

and  by  limiting  the  build-up  of  systemic  risks,  thereby  ensuring  the  sustainable  support  of  the 

economy  by  the  financial  system.  The  draft  law  mandates  Latvijas  Banka  to  both  define  and 

implement macroprudential policy. While defining and implementing macroprudential policy Latvijas 

Banka  must:  (a)  analyse  and  assess  the  overall  stability  of  Latvia'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)  implement  the  macroprudential  policy 

measures  provided  for  in  the  legal  acts  of  the  Union  and  Latvia  and  to  apply  regulatory 

requirements  to  the  financial  market  and  its  participants  in  order  to  mitigate  systemic  risks  and 

strengthen the resilience of Latvia's financial system to shocks. 

47  

Guideline (EU) 2017/2335 of the European Central Bank of 23 November 2017 on the procedures for the collection 
of granular credit and credit risk data (ECB/2017/38) (OJ L 333, 15.12.2017, p. 66). 

26 

 
 
ECB-PUBLIC 

9.1.3  When  defining  and 

implementing  macroprudential  policy,  Latvijas  Banka  may 

issue 

recommendations on the measures needed to strengthen the resilience 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  addressed  to  financial  market 

participants and aimed at limiting the build-up of systemic risks and strengthening the resilience of 

the financial system to shocks.   

9.2  Specific observations on the draft law’s provisions on macroprudential policy 

9.2.1  The  ECB  welcomes  the  clarification  of  Latvijas  Banka’s  macroprudential  mandate.  As  a  national 

macroprudential authority, Latvijas Banka is already responsible for monitoring the development of 

Latvia’s  financial  system  as  a  whole,  and  identifies  and  evaluates  potential  systemic  risks  to 

financial  stability,  analyses  the  resilience  of  financial  institutions  to  withstand  these  risks,  and 

recommends  and  assists  in  introducing  the  necessary  macroprudential  measures  to  promote 

financial stability. The draft law does not confer genuinely new tasks on Latvijas Banka in this area, 

but rather clarifies Latvijas Banka’s macroprudential mandate. Also, as a result of the incorporation 

of FKTK into Latvijas Banka, Latvijas Banka becomes a designated national authority, responsible 

for implementing macroprudential measures that are harmonised at Union level, e.g., determining 

the  countercyclical  capital  buffer  and  systemic  risk  buffer.  Consequently,  it  is  not  necessary  to 

assess  whether  the  conferral  of  new  tasks  on  an  NCB  complies  with  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  countries48.  Some  examples  of 

macroprudential tools, which are outside of the Union’s legal framework, and thus can be applied 

only  where  national  law  provides  a  specific  legal  basis,  include    a  levy  on  non-stable  funding,  a 

loan-to-deposit ratio, and borrower based measures, such as a loan to value ratio, loan to income 

ratio,  limits  on  the  maximum  duration  of  a  loan,  requirements  related  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  macroprudential  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  Latvijas  Banka,  as  the  successor  to  all 

rights  and  obligations  of  FKTK,  will  be  able  to  adopt  such  measures  in  the  future.    Furthermore, 

point 3) of Article 46(1) of the draft law entitles Latvijas Banka 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 respect, by empowering Latvijas Banka to 

48  

49  

See paragraph 2.3 of Opinion CON/2017/11 and the Governing Council’s statement on Macroprudential Policies of 
15 December 2016, which is available on the ECB’s website at www.ecb.europa.eu. 
See  paragraph  3.11  of  Opinion  CON/2020/10,  Recommendation  ESRB/2013/1  of  the  European  Systemic  Risk 
Board of 4 April 2013 on intermediate objectives and instruments of macro-prudential policy (OJ C 170, 15.6.2013, 
p. 1)  and  he  European  Systemic  Risk  Board  handbook  on  operationalising  macroprudential  policy  in  the  banking 
sector, which is available on the ESRB’s website at www.esrb.europa.eu. 

27 

 
apply  such  regulatory  requirements  to  the  financial  market  and  its  participants,  Latvijas  Banka  is 

equipped with ample flexibility to effectively define and implement macroprudential policy. 

ECB-PUBLIC 

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 

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