According to the Law on Latvijas Banka, the task of regulating and supervising the operation of the financial market and its participants, as well as performing the tasks of a resolution authority in accordance with the Law on Recovery of Activities and Resolution of Credit Institutions and Investment Firms has been allocated to the Bank of Latvia (Latvijas Banka).

The Bank of Latvia is the central bank of Latvia and, as such, operates independently in the formulation and implementation of its decisions. It is neither institutionally nor functionally subordinate to any central or local government authority. Therefore, the purpose of the regulation and supervision conducted by the Bank of Latvia is to identify the existing and emerging risks, as well as their potential impact, in a timely manner in order to protect the interests of investors, depositors, and insured persons, ensure the sustainable development and stability of the financial market, prevent money laundering and the financing of terrorism and proliferation, and ensure the effective implementation of international and national sanctions.

Under the Credit Institution Law, a banking licence is required for activities that qualify as the business of a credit institution. A credit institution is defined, in accordance with Regulation (EU) 575/2013, as an undertaking whose business consists of accepting deposits or other repayable funds from the public and granting credit for its own account. Accordingly, a credit institution may commence operations in Latvia only after obtaining and registering a licence (permit).

Within the framework of the Single Supervisory Mechanism, the banking licence is formally granted by the European Central Bank (ECB), which is the sole authority empowered to issue banking licences in the euro area. The Bank of Latvia, acting as the national competent authority, receives and assesses the application, cooperates with the ECB in the licensing procedure, and facilitates communication between the applicant and the ECB. However, the final decision to grant or refuse the licence is adopted by the ECB.

In addition, if the credit institution aims to open a branch in a third country, the credit institutions of Latvia must also obtain a permit to do so. Such a permit is issued by the Bank of Latvia.

In certain cases, involving the establishment of a branch in Latvia by a credit institution registered in another EU member state, there is no requirement to obtain a separate banking licence (permit) in Latvia. These, however, are considered exceptions, not the general rule in the establishment of branches of the bank of a different EU member state.

Yes, the regulatory regime provides for different authorisations depending on the financial service that is provided by the bank. Generally, a single banking licence authorises a credit institution to carry out the core activities of accepting deposits and granting credit. However, certain specific activities require additional authorisation. As laid out in Regulation (EU) 2023/1114 a credit institution that intends to offer asset-referenced tokens to the public or to seek their admission to trading must comply with specific authorisation requirements laid down in that Regulation. Certain exceptions apply where authorisation is not required. This requirement is also laid out in the Credit Institution Law, pursuant to which a credit institution has the right to issue, to offer to the public, or to admit to trading electronic money tokens, asset-references tokens or to provide crypto-asset services only if it has previously obtained the permit in accordance with Regulation (EU) 2023/1114.

A banking licence permits a credit institution to carry out a wide range of additional financial activities, as set out in Article 1(4) of the Credit Institution Law. These activities include, inter alia, the provision of payment services, the issuance of electronic money, and the provision of investment services and ancillary (non-core) investment services. Under Directive (EU) 2015/2366 (PSD2), a credit institution may provide payment services without obtaining a separate payment institution licence. Furthermore, pursuant to Directive 2009/110/EC (EMD2), a credit institution may issue electronic money without requiring a separate e-money institution licence. Finally, pursuant to Directive 2014/65/EU (MiFID II), a credit institution may provide investment services (including broker-dealer activities), provided that these services are covered by its authorisation and that it complies with the applicable conduct and organisational requirements.

Yes, Latvia’s regulatory framework includes “sandbox”, as well as “license light” support mechanisms, offered by the Bank of Latvia. Accordingly, one such mechanism is the Regulatory Sandbox operated by the Bank of Latvia, which enables both existing and prospective financial market participants to test innovative financial services and assess their compliance with applicable regulatory requirements. The Regulatory Sandbox is open to investment firms, electronic money issuers, payment service providers, crypto-assets providers among many others who want to introduce an innovative financial service or business model, irrespective of whether they are already subject to supervisory oversight or are new to the market.

Additionally, there are lower fees for narrowly scoped payment or e-money services. Where a person intends to provide solely an innovative payment service that requires authorization as a payment institution or an electronic money institution, the fee for the examination of the application documents is set at EUR 450. In addition, the annual fee payable after registration or authorization of such a payment institution or electronic money institution, intended to cover the costs incurred by the Bank of Latvia in the regulation and supervision of the financial market and its participants, is set at EUR 1000 for each of the first three years.

If banks wish to engage in the issuance, custody or administration of services related to crypto-assets, electronic money tokens or asset-referenced tokens the bank must first obtain authorization to do so in accordance with Regulation (EU) 2023/1114. Therefore, a bank may only provide such services if it has submitted an application along with all the necessary documents for authorization. This application shall include, for instance, a description of the applicant crypto-asset service provider’s governance arrangements, proof that members of the management body of the applicant crypto-asset service provider are of sufficiently impeccable reputation and possess the appropriate knowledge, skills and experience to manage that provider among other information laid out in the Regulation (EU) 2023/1114. Consequently, the Bank of Latvia conducts a completeness check of the application and informs the applicant if the application is considered incomplete. If, however, the application is complete, a letter is sent to the entrepreneur notifying them about a review of the application that has been initiated. After the application has been regarded as complete, the Bank of Latvia carries out a substantive assessment of the application, subsequently taking on the decision to grant or refuse authorization to the bank.

After receiving authorization, the bank has the obligation to notify the Bank of Latvia of any changes in its procedure regarding the provision of services, as well as any significant incidents in the process of providing them. Additionally, the bank shall draft reports in accordance with the requirements laid out in Regulation (EU) 2023/1114, as well as notify the Bank of Latvia of any changes in the information and documents submitted to receive authorization.

According to the Deposit Guarantee Law, a “deposit” is defined as a credit balance that has resulted from crediting money into the depositor’s account or from daily transactions of a credit institution and that a deposit taker has the obligation to repay in accordance with the provisions of the law or the terms and conditions of a contract, including a term deposit and a savings deposit. The purpose of the Deposit Guarantee Law is to ensure the safe and stable operation of the deposit guarantee scheme and to promote depositor confidence in the financial sector.

Crypto-assets generally do not qualify as “deposits” within the meaning of the Deposit Guarantee Law, as they do not constitute repayable funds credited to a bank account. Consequently, crypto-assets are not covered by the deposit guarantee scheme. This conclusion is consistent with Regulation (EU) 2023/1114, which requires crypto-asset service providers providing advice on crypto-assets or portfolio management of crypto-assets to inform clients that crypto-assets are not covered by deposit guarantee schemes under Directive 2014/49/EU. The same principle applies to asset-referenced tokens and e-money tokens, which do not benefit from protection under deposit guarantee schemes.

However, following the entry into force of Regulation (EU) 2025/303, any financial market participant seeking authorization to provide crypto-asset services must submit a detailed description of the measures and procedures in place to ensure the segregation of clients’ crypto-assets and funds from those of the crypto-asset service provider. Therefore, although crypto-assets are not considered to be deposits, a certain client asset segregation regime is being implemented.

Article 67(1) of Regulation (EU) 2023/1114 provides for minimum capital requirements only for crypto-asset service providers, requiring them to maintain prudential safeguards equal to the higher of the permanent minimum capital set out in Annex IV of the Regulation or one quarter of their fixed overheads of the preceding year. However, this provision does not apply where the licensed entity is only a credit institution. In that case, capital requirements are governed by Regulation (EU) 575/2013, under which crypto-asset exposures are subject to risk-based capital treatment. Depending on their classification, certain crypto-asset exposures may attract very high risk weights, potentially up to 1 250%.

To obtain a bank license (authorisation), there are multiple steps an entrepreneur must complete:

1) the process begins with the preparation of an application for submission to the Bank of Latvia. At this initial stage of the licensing process, the credit institution does not yet need to be formally established; however, the applicant must provide information on the proposed shareholders and key officials, as well as general details on the planned amount of capital and the source of funds, together with other required documentation;

2) following the preparatory phase, the applicant must submit a duly completed application together with all other information and documents required for authorization. The requirements regarding the content of the application are set out in the Credit Institution Law and the regulatory provisions of the Bank of Latvia. The application must be accompanied by the constitutional documents of the credit institution, as well as information and supporting documentation concerning the founders, shareholders and proposed officials, the business plan, and other relevant materials. The Bank of Latvia assesses the completeness of the application within one month; however, the final timeline also depends on the ECB’s assessment of the completeness of the application file. If the application is deemed incomplete, the Bank of Latvia sends a notification to the applicant specifying the deficiencies that must be resolved. If the application is considered complete, the Bank of Latvia informs the applicant in writing that the substantive assessment of the application for authorization has commenced. The examination of the application is initiated within three months from the confirmation of completeness and must be completed no later than twelve months from that date;

3) the assessment of the application is carried out by the Bank of Latvia and the ECB. During this phase, the applicant shall provide any additional information requested by the Bank of Latvia or the ECB, as well as correct the submitted documents according to the information provided by the Bank of Latvia or the ECB. During the assessment process, the Bank of Latvia consults with the ECB to ensure alignment on a common position regarding the assessment;

4) after the Bank of Latvia completes its assessment of the application, it adopts a decision and submits a draft proposal to the ECB. The ECB then adopts the final decision on granting authorization to carry out the activities of a credit institution. Accordingly, the applicant must accumulate initial minimum capital of EUR 5 million, open an account with the Bank of Latvia, and transfer the funds. If the founder of the credit institution seeks authorization to operate as a special credit institution, an initial capital of EUR 1 million is required. Following the authorization, the Bank of Latvia informs the relevant state institutions and publishes the information on its website and in the relevant databases.

The average duration of the authorisation procedure is 6 to 12 months from the receipt of the application.

A credit institution authorised in another EU member state may commence the provision of financial services in the Republic of Latvia, without establishing a branch, within 30 days of submitting the relevant notification to its home supervisory authority.

Furthermore, as provided in the Credit Institution Law, a financial institution of another EU member state which is controlled by one or more credit institutions may provide financial services in Latvia with or without opening a branch if it conforms with certain criteria:

1) the credit institution or credit institutions which control the financial institution have obtained a license for operation in the member state in accordance with the laws of the member state in which the relevant financial institution operates;

2) the financial institution provides financial services in the territory of its member state in accordance with the laws of the member state in which the relevant financial institution operates;

3) the credit institution or credit institutions which control the financial institution own at least 90 per cent of the voting shares of the financial institution;

4) the credit institution or credit institutions which control the financial institution ensure prudent management of such financial institution in conformity with the requirements of the supervisory authority of the state of domicile of the relevant credit institution or the relevant credit institutions;

5) the credit institution or credit institutions which control the financial institution have publicly revealed information on the fact that they are solidarily liable for the obligations of such financial institution and the supervisory authority of the state of domicile of the relevant credit institution or the relevant credit institutions has not objected against it;

6) activities of the financial institution are subordinated to consolidated supervision of the controlling credit institution or the controlling credit institutions, especially in relation to capital sufficiency, large exposures and participation in other commercial companies.

However, credit institutions from third countries are required to establish a branch in Latvia and ensure compliance with the initial capital requirements laid down in the Credit Institution Law to provide banking services. Accordingly, the provision of cross-border banking services into Latvia without establishing a local presence is subject to significant limitations.

As provided in the Credit Institution Law, a credit institution in Latvia may be founded only as a joint-stock company (akciju sabiedrība). As mentioned previously (see answer to question 9), credit institutions registered in a different EU member state or credit institutions of a third country can operate in Latvia’s jurisdiction via a branch if all of the requirements laid out in the Credit Institution Law are met (for example, the necessity to comply with the initial capital requirements for a branch of a credit institution established in a third country).

Pursuant to the Credit Institution Law, the founding, activities, reorganization and liquidation of a credit institution is primarily governed by the Credit Institution Law, the Commercial Law and the Financial Instrument Market Law. According to the Commercial Law, a joint-stock company must be registered in the Commercial Register and, prior to registration, must submit the required incorporation documents, including the application form, the founding decision or founding agreement, the articles of association, confirmation of payment of share capital, and the written consents of members of the management and supervisory bodies. However, where the joint-stock company is intended to operate as a credit institution, a special rule applies. Prior to its registration in the Commercial Register, the newly founded institution must apply to the Bank of Latvia for the receipt of a banking licence (permit). The credit institution may be registered in the Commercial Register only after the decision granting the licence has been adopted and submitted to the Commercial Register.

Since Latvia is a member state of the EU, the reforms implemented within the EU apply to Latvia as well. As previously considered at EU level, the Council of the EU initiated work on a draft regulation concerning structural measures for credit institutions. Under the proposal, national competent authorities would be empowered – following a detailed, criteria-based risk assessment – to require the separation of certain activities, with the competent authority in Latvia being the Bank of Latvia. A credit institution would not be subject to mandatory separation where it could demonstrate to the supervisor that the relevant risks were adequately mitigated through alternative measures. The proposed rules were intended to apply to credit institutions established in the EU and, in certain cases, to their branches, subject to specific exemptions based on thresholds relating to retail deposits and deposits covered by the EU deposit guarantee scheme. However, the proposal has not been implemented, and the approach to structural separation or ring-fencing at EU level remains subject to ongoing debate.

That said, EU law does contain a limited structural requirement at group level. Article 21b of Directive 2013/36/EU, as amended, requires large third-country banking groups operating in the EU to establish a single intermediate EU parent undertaking where their combined EU assets exceed the prescribed threshold. It does not mandate separation of retail and investment banking activities, but it does impose structural constraints on certain cross-border group structures.

Pursuant to the Credit Institution Law, credit institutions must establish and maintain a comprehensive and effective internal control system proportionate to the nature, scale and complexity of their activities. This includes appropriate policies and procedures for identifying, managing, monitoring and reporting risks arising from the institution’s operations. The internal control system must include a clear organisational structure with a transparent division of duties and responsibilities, effective risk identification, management, supervision and reporting arrangements, internal control procedures, and an appropriate remuneration system, including a gender-neutral remuneration policy. The detailed requirements for such systems are determined by the Bank of Latvia.

Credit institutions are further required to implement prudent strategies and risk management frameworks covering credit, counterparty credit, concentration, securitisation, market, operational and other material risks. They must also maintain contingency and recovery arrangements, including plans for emergency situations, liquidity restoration and the continuity of critical operations.

Article 24 of the Credit Institution Law sets specific eligibility requirements for members of the executive board and key function holders (including the head of internal audit, risk manager, compliance officer, AML/CFT responsible person and company controller). Such persons must have higher education, at least three years’ relevant professional experience, competence in financial management (or management issues, where applicable), an impeccable reputation, and must not have been deprived of the right to perform commercial activities. These positions may not be held by a person whose direct or indirect holding represents 10% or more of the voting shares of the credit institution. The institution must remove any person who no longer meets these requirements.

In addition, remuneration policies for staff whose professional activities materially affect the institution’s risk profile must be aligned with prudent risk management and must not encourage excessive risk-taking.

As noted in the response to Question 13, credit institutions must maintain a governance and organisational framework that ensures a clear allocation of responsibilities, effective management oversight, and comprehensive internal control systems proportionate to the nature, scale and complexity of their activities.

In addition, credit institutions are subject to Regulation (EU) 2022/2554 (DORA), which establishes harmonised requirements on digital operational resilience for financial entities. DORA imposes obligations relating to information and communications technology (ICT) risk management, incident classification and reporting, digital operational resilience testing, and the management of ICT third-party risk. It also requires credit institutions to ensure appropriate contractual safeguards in arrangements with ICT third-party service providers and to implement oversight frameworks, particularly where services are provided by critical ICT third-party providers.

Compliance with these requirements is subject to supervision by the Bank of Latvia. In exercising its supervisory functions, the Bank of Latvia assesses institutions’ governance arrangements, risk management systems and operational resilience frameworks against applicable national law, directly applicable EU legislation and its own regulatory requirements. As part of this process, the Bank of Latvia assesses both current and forward-looking risks, including those identified through stress testing and digital operational resilience testing conducted in accordance with DORA.

A credit institution may engage only outsourcing service providers that possess the requisite qualifications and experience to perform the delegated functions. Where outsourcing concerns investment services, ancillary investment services, or material elements thereof, the institution must, in addition to the requirements of the Credit Institutions Law, comply with the outsourcing rules applicable to investment firms under the Financial Instruments Market Law.

Certain functions may not be outsourced at all, including the statutory obligations of the administrative bodies, the attraction of deposits and other repayable funds, and the issuance of guarantees. Outsourcing does not release the credit institution from liability: the institution remains fully responsible for the outsourced activity as if it were performed internally.

Before receiving a significant outsourced service, the credit institution must submit a substantiated written notification to the Bank of Latvia together with supporting documentation. The service may commence if the Bank of Latvia does not prohibit it within the statutory assessment period. The Bank of Latvia has broad supervisory powers, including the right to request information, inspect the outsourced service provider (including on-site), and prohibit or require termination of an outsourcing arrangement if legal requirements are not met, if supervisory access is restricted, or if risks to customers or financial stability arise.

Credit institutions are subject to the regulatory framework established by the Bank of Latvia through its Regulations on the Use of Outsourcing for Credit Institutions, Payment Institutions and Electronic Money Institutions and must adopt an outsourcing policy and internal procedures governing the use of outsourced services. Outsourcing contracts must be concluded in writing and must contain the elements required by the regulations of the Bank of Latvia. Special rules apply to further outsourcing, which generally requires the credit institution’s consent and notification to the Bank of Latvia.

Where outsourcing involves ICT services, including cloud service providers, additional requirements apply under DORA. Institutions must manage ICT third-party risk, ensure appropriate contractual safeguards (including access, audit and termination rights), classify and monitor critical ICT service providers, and maintain business continuity and exit strategies.

In Latvia, as at EU level, ESG and climate-related regulatory requirements have become an integral part of the prudential framework, significantly influencing banks’ governance, risk management, and supervisory assessment. Credit institutions are required to identify, assess, and manage sustainability risks, including climate-related physical and transition risks, within their overall risk management processes and counterparty assessments. ESG considerations are increasingly embedded in supervisory practices, including within the Supervisory Review and Evaluation Process (SREP).

According to the Bank of Latvia’s 2024 review, supervisory work in this area is ongoing, inter alia, participation in the DG REFORM project on ESG risk management, which assessed the alignment of the Latvian framework with EU requirements and informed supervisory recommendations. At the policy level, the Ministry of Finance continues to assess forthcoming amendments to the Corporate Sustainability Reporting Directive, supporting efforts to streamline requirements and reduce administrative burdens.

The Bank of Latvia’s 2025 sustainability report further highlights key developments in ESG integration. These include the further embedding of its sustainability strategy into investment decision-making; the application of ESG criteria to additional asset classes; the introduction of enhanced climate metrics, including scope 3 greenhouse gas emissions reporting; measurable reductions in the carbon footprint of investment portfolios; improvements in ESG scoring following benchmark adjustments; and continued participation in international initiatives such as the Network for Greening the Financial System and Eurosystem climate policy work.

Under the Credit Institutions Law, credit institutions must maintain an adequate internal control system, including a gender-neutral remuneration policy. The Bank of Latvia has adopted regulations which set out requirements for the remuneration policy and practice, including for such officials or employees of a credit institution whose professional activities have a material impact on the risk profile of the credit institution.

Remuneration arrangements for officers and employees whose activities materially affect the institution’s risk profile must support prudent risk management and may not encourage excessive risk-taking. Furthermore, as a general rule, for the officials or employees of a credit institution whose professional activities have a material impact on the risk profile of the credit institution, variable remuneration may not exceed fixed remuneration, subject to limited statutory exceptions.

Accordingly, where capital buffer or leverage buffer requirements are not met, credit institutions are prohibited from committing to or paying variable remuneration or discretionary pension benefits.

With regard to positions that affect the risk profile of a credit institution, one of the basic principles of remuneration policy states that remuneration policies must also provide for adjustment mechanisms, including the reduction or recovery of variable remuneration (malus and clawback), where remuneration was based on inaccurate performance data, or where the individual contributed to material losses or failed to meet the fit and proper requirements.

Regarding the practical matter, it should be noted that a 2025 review conducted by the Bank of Latvia in relation to less significant institutions identified practical deficiencies, particularly concerning the definition of performance criteria, the setting of measurable objectives, and the documentation of performance assessments.

Latvia has implemented the Basel III framework with respect to regulatory capital primarily through applicable EU legislation and the Credit Institutions Law and other laws. Pursuant to the discretion granted to EU member states under Regulation (EU) 575/2013, Latvian law permits the establishment of a specialised credit institution with an initial capital of no less than EUR 1 million. Pursuant to the Credit Institutions Law, a specialised credit institution is a credit institution that provides financial services within the meaning of the Credit Institution Law and meets at least one of the following criteria: it serves a limited range of customers determined on the basis of territorial scope, employment, or common interests, as understood within the framework of the Law on Savings and Loan Associations; it provides financial services exclusively through digital channels; or its business model is based on the provision of innovative services, namely financial services that are new or significantly improved in the Latvian market context.

Latvia applies a leverage ratio requirement of 3 %, which became legally binding for all credit institutions as of 28 June 2021, in accordance with the applicable EU prudential framework. In addition to this minimum requirement, where the ECB, acting in its banking supervisory capacity, determines that a supervised institution is exposed to an elevated risk of excessive leverage, it may impose an institution-specific Pillar 2 leverage ratio requirement on that institution, supplementing the statutory minimum of 3 %.

Latvia applies the Basel III liquidity requirements through the directly applicable EU prudential framework, in particular Regulation (EU) 575/2013 (CRR). The CRR establishes binding liquidity requirements for credit institutions, including the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR).

Under the LCR framework, credit institutions are required to maintain a liquidity coverage ratio of at least 100 %, calculated as the ratio between the institution’s liquidity buffer and its net liquidity outflows over a 30-day stress period. To meet this requirement, institutions must ensure that the assets included in the liquidity buffer are sufficiently diversified, readily accessible, and capable of being converted into cash within 30 days. The CRR and related delegated regulations specify eligibility criteria and composition limits for Level 1, Level 2A and Level 2B assets, including quantitative caps applicable to Level 2 assets.

In addition, credit institutions must comply with the NSFR requirement of at least 100%, ensuring that available stable funding exceeds required stable funding over a one-year horizon.

These requirements are directly applicable to credit institutions in Latvia and are subject to ongoing supervisory monitoring.

In its capacity as the central bank and the authority responsible for the implementation of monetary policy, the Bank of Latvia may provide support to financial market participants through a range of instruments. Eligible market participants may take part in Eurosystem monetary policy operations in accordance with the applicable ECB legal framework and the rules adopted by the Bank of Latvia, including access to central bank credit against eligible collateral. In addition, in exceptional circumstances, the Bank of Latvia may grant emergency liquidity assistance (ELA) against eligible collateral to a solvent financial market participant subject to supervision by the ECB and the Bank of Latvia where the institution is experiencing temporary liquidity difficulties, with a view to preventing contagion effects or serious disturbances in the financial market.

Pursuant to the Credit Institutions Law, a credit institution is required to prepare public reports to inform the public about its activities and financial performance. In accordance with the aforementioned law, an annual statement must be prepared for each financial year and shall comprise, inter alia, the financial statements, the management report, and a notification of the liability of the management. Furthermore, the credit institution is responsible for ensuring that the annual report and, where applicable, the consolidated annual report, together with the certified auditor’s report and the sustainability report or consolidated sustainability report, where such a report is required, are made publicly available no later than 1 April of the year following the relevant financial year.

In addition to annual reporting, credit institutions are subject to supervisory reporting requirements under Regulation (EU) 575/2013 (CRR). Pursuant to Article 430 of the CRR and the implementing technical standards laid down in Regulation (EU) 2021/451, credit institutions must submit prudential reports (including COREP and FINREP) to the competent authority, generally on a quarterly basis. These reports are submitted to the Bank of Latvia for supervisory purposes and are not fully public.

It is considered good market practice in Latvia for credit institutions to publish quarterly financial statements, and in practice most banks make such interim financial information publicly available to enhance transparency and stakeholder confidence.

The Bank of Latvia exercises consolidated supervision over parent credit institutions incorporated in the Republic of Latvia, as well as EU parent credit institutions established in Latvia, at the level of the consolidated group. Supervision is conducted in accordance with a risk-based approach, under which the Bank of Latvia continuously assesses institutions’ performance, risk exposure, and the quality of governance and management through the supervisory review and assessment process and determines appropriate supervisory measures based on those assessments. Because of consolidated supervision, credit institutions are required to ensure the consistent application of internal control systems across all subsidiaries and to maintain adequate capital at the level of the consolidated group. Within this framework, the Bank of Latvia is empowered to assess the capital adequacy of the group and its subsidiaries, require the holding of additional own funds where necessary to cover material risks, and impose measures to address significant liquidity risks, including setting specific liquidity requirements and remedial organisational measures.

Any person intending to acquire a qualifying holding (at least 10%) in a credit institution, within the meaning of Article 4(1)(36) of Regulation (EU) 575/2013, or to increase an existing qualifying holding so that it reaches or exceeds 20, 33 or 50 % of the share capital or voting rights of a credit institution, or as a result of which the credit institution would become a subsidiary of that person, shall notify the Bank of Latvia in writing in advance. The notification shall indicate the size of the proposed participation, expressed as a percentage of the credit institution’s share capital or voting rights, as applicable.

The information provided for in regulations of the Bank of Latvia which is necessary to assess the conformity of the person with the criteria specified the Credit Institutions Law shall be appended to the notification. The list of information required to accompany the notification shall also be published on the website of the Bank of Latvia. Such information shall include, inter alia, details of the core business activities of the notifying person (including a description of its principal areas of activity and markets, and any dependence on patents, licenses, or material contracts), information on concerted practices (including details of any persons acting in concert with the notifying person in connection with the acquisition or increase of a qualifying holding in a financial institution), as well as information on the planned transaction, the sources of financing, the intended group structure and its impact on supervision, and any other information required depending on the size of the qualifying holding to be acquired or increased.

After receiving the information within 60 working days the Bank of Latvia also assesses the proposed acquirer’s reputation, financial soundness and suitability, the impact of the acquisition on the credit institution’s prudent management and regulatory compliance (including supervisory transparency), and any potential money laundering or terrorism financing risks.

Persons intending to acquire or hold a qualifying holding in a credit institution must meet specific suitability requirements under the Credit Institution Law and the applicable regulatory framework implemented by the Bank of Latvia.

In particular, proposed acquirers must demonstrate an impeccable reputation and appropriate professional competence. Impeccable reputation includes integrity and honesty, as well as the absence of criminal or administrative convictions or other circumstances that could give rise to reasonable doubts as to the person’s reliability. In assessing reputation, due regard is given to the person’s past conduct in commercial activities, particularly within the financial and capital markets.

Professional competence is assessed based on the person’s knowledge, skills and experience, including management competence. This assessment considers prior experience in acquiring and managing shareholdings in other companies, as well as experience in the operation and management of financial institutions, including experience as a controlling shareholder or as a member of a management or supervisory board.

In addition, the proposed acquirer must be financially sound. The Bank of Latvia assesses the person’s financial position and the sustainability of the proposed ownership structure. The assessment also considers whether the acquisition raises concerns relating to compliance with anti-money laundering and counter-terrorism financing requirements.

Latvian law does not lay down any specific rules imposing restrictions on foreign shareholders, either at the stage of the initial authorisation or in the context of the acquisition of a qualifying or significant holding. The assessment of a prospective shareholder is carried out solely based on the general criteria referred to in Question 25, including, inter alia, professional competence, impeccable reputation, and financial stability.

Nevertheless, where the prospective shareholder is a legal person, whose registered office is in a foreign jurisdiction, it is required to provide the Bank of Latvia with additional information. Such information shall include proof of registration or, where such proof is not available, an equivalent document issued by the competent foreign financial sector authorities in respect of the proposed acquirer. Where possible, the applicant shall also submit a statement from the relevant foreign financial supervisory authorities confirming that no legal or regulatory obstacles exist that would prevent the provision of information necessary for the effective supervision of the financial institution. In addition, general information on the regulatory framework applicable to the person in the relevant third country shall be provided. The competent authority may assess additional factors, such as the transparency of the ownership structure and the ability to exercise effective supervision, including cooperation with third-country supervisory authorities.

The identification and designation of global systemically important credit institutions fall within the competence of the Bank of Latvia. Furthermore, the Bank of Latvia conducts an annual assessment to identify and designate other systemically important credit institutions (O-SIIs) and assigns to such institutions an O-SII capital buffer commensurate with their systemic importance. The level of the buffer is determined on an institution-specific basis, reflecting the potential impact of each credit institution on the stability of the financial system.

It should be noted that in 2025, the Bank of Latvia revised its methodology for identifying and recognising O-SIIs. While previously relying on the methodology recommended by the European Banking Authority (EBA), the revised approach is better tailored to the characteristics of financial systems smaller than the EU average. In particular, the updated methodology reduces the disproportionate influence that individual transactions of systemically non-significant institutions may have on the systemic importance assessment in smaller markets. These changes aim to align the practical application of EU prudential requirements with the specific features of the Latvian financial system, ensure that only systemically important institutions are designated as O-SIIs, and allow for greater application of the proportionality principle without undermining overall financial stability. In parallel, the Bank of Latvia amended the methodology for setting O-SII capital buffer rates, replacing the uniform expected impact model with an interval-based approach. This simplified methodology, which is applied in the majority of EU member states, enhances transparency and facilitates greater comparability of O-SII buffer requirements across the EU.

Liability for non-compliance with the requirements of banking regulations is governed by the Credit Institutions Law, pursuant to which the Bank of Latvia is empowered to impose supervisory sanctions. Such sanctions may include the expression of a public announcement by indicating the person liable for the violation and the nature of the violation; the issuance of a warning, or impose an obligation on the meeting of shareholders, the supervisory board or executive board of the credit institution to dismiss the responsible person such as a member of the executive board or supervisory board, the head of the internal audit service, etc.

Furthermore, the Bank of Latvia may also impose fines (generally between EUR 10 000 and EUR 5 million based on the nature of the violation) or revoke the license (authorization) of the credit institution. In addition, the Bank of Latvia is entitled to apply administrative measures, including requiring the credit institution or the person responsible for the infringement to immediately cease the unlawful conduct, as well as imposing a temporary prohibition on a member of the management board or supervisory board of the credit institution, or on another natural person responsible for the infringement, from performing the duties assigned to them within the credit institution. In addition to the foregoing measures, in specific circumstances described in the Credit Institutions Law, the Bank of Latvia may also prohibit a shareholder from exercising the voting rights attached to all shares held by that shareholder.

Latvian financial sector supervision remains active and enforcement-oriented, with the Bank of Latvia maintaining a strong focus on AML/CTF, sanctions compliance, prudential risks, and operational resilience. For 2026, the Bank of Latvia has planned 12 on-site inspections, including dedicated reviews in the areas of AML/CTF, sanctions and ICT, underscoring the continued intensity of supervisory oversight. Enforcement action remains frequent, with administrative fines and binding remedial measures imposed for compliance deficiencies. Recent most significant examples include a November 2024 settlement reducing Rietumu Banka’s AML fine (after the settlement the fine from EUR 5.85 million was reduced to approximately EUR 1.9 million), as well as significant penalties imposed on LPB Bank (EUR 2 million) and Signet Bank (EUR 0.6 million) for weaknesses in internal controls and AML compliance in 2021. Since 2022, more than 600 criminal proceedings related to sanctions violations have been initiated, with over 100 new cases in 2024 alone, and criminal cases concerning large-scale money laundering offences continue before the courts.

The Bank of Latvia supervisory strategy for the next three years prioritises the resilience, transparency, and customer-oriented provision of financial services. Considering the significant growth of credit institutions’ loan portfolios in 2025, supervision in 2026 will focus on credit underwriting standards, loan portfolio quality, lifecycle risk management, and profitability under changing economic conditions. Enhanced attention will also be given to insurers’ claims settlement practices as a key driver of consumer trust. In parallel, AML and sanctions supervision will continue to follow a risk-based approach, with particular emphasis on sanctions circumvention risks, alongside planned horizontal reviews addressing tax crime risk management across banks and selected non-bank financial institutions.

The Latvian legal framework provides for a range of mechanisms to protect customer assets and cash deposits held with credit institutions, including a statutory deposit guarantee scheme, investor protection measures, confidentiality requirements, and special procedures applicable in cases of insolvency or bank resolution under the EU recovery and resolution framework.

Under the Deposit Guarantee Law, each depositor is entitled to guaranteed compensation of up to EUR 100 000 per deposit taker. In certain situations – such as deposits resulting from the sale of residential property, social benefits, or compensation for damages – natural persons may benefit from additional temporary protection of up to EUR 200 000 for a period of three months. In the case of joint deposits, each depositor is entitled to compensation corresponding to his or her share.

Statutory exclusions apply, meaning that certain deposits are not covered by the guarantee scheme, notably deposits held by financial institutions and other professional market participants, as well as funds linked to money laundering or other cases stipulated in law.

Latvian law also provides enhanced protection in the event of a credit institution’s insolvency, in particular through the segregation of third-party assets, which do not form part of the institution’s insolvency estate. This includes, inter alia, pension scheme assets and other specially protected funds.

Where a credit institution incorporated in Latvia is the EU parent undertaking, it is required to prepare and submit a group recovery plan covering the entire group, including recovery measures at both the parent and subsidiary levels. Credit institutions that are not part of a group subject to consolidated supervision are required to prepare and maintain an individual recovery plan setting out the measures to be taken to restore their financial position following a significant deterioration, which must be submitted to the Bank of Latvia. Furthermore, recovery plans must be reviewed at least annually and following any material changes to the institution’s legal form, organisational structure, business activities, or financial position, and must be drawn up on the basis that no State aid is available.

Upon receipt, the Bank of Latvia, in coordination with supervisory authorities in EU member states where significant branches are established, assesses whether the proposed measures can restore or preserve the financial stability of the institution or group and can be implemented promptly without causing material adverse effects on the financial system. In this assessment, the Bank of Latvia considers the institution’s capital structure, funding sources, organisational arrangements, and risk profile, including any elements that may adversely affect resolvability. Where material deficiencies are identified, the Bank of Latvia may require the institution or parent undertaking to remedy them within a specified period and may request further revisions where necessary. If deficiencies persist or are not adequately addressed, the Bank of Latvia may require the institution to propose changes to its business operations or, failing that, may instruct the institution to take such measures as it considers necessary and proportionate, having regard to the seriousness of the deficiencies and their potential impact on the institution’s activities.

Separately, resolution plans are prepared by the resolution authority – the Bank of Latvia. Resolution plans identify critical functions, assess resolvability, determine the preferred resolution strategy, and specify the minimum requirement for own funds and eligible liabilities. A resolution plan must be drawn up without assuming the availability of State aid, emergency liquidity assistance, or central bank liquidity assistance provided under non-standard collateralisation, tenor, or interest rate terms. A resolution plan shall be reviewed at least once a year and updated when material changes have occurred in the legal form or organisational structure of the institution or in its commercial activity or financial position that could significantly affect the effectiveness of the plan or require amendments to it.

As part of the resolution planning process, the resolution authority may identify impediments to resolvability and require the institution to take remedial measures, such as changes to legal structure, funding arrangements, governance, or operational continuity arrangements.

Accordingly, Latvian banks are subject to both recovery planning (prepared by the institution and reviewed by supervisors) and resolution planning (prepared by the resolution authority), with ongoing supervisory assessment and the power to require corrective measures where plans are inadequate or resolvability concerns are identified.

In Latvia, the bail-in tool is governed by the Law on Recovery of Activities and Resolution of Credit Institutions and Investment Firms. The tool applies to the liabilities and capital instruments of a credit institution that do not qualify as Common Equity Tier 1, Additional Tier 1, or Tier 2 capital and that are not otherwise excluded from the scope of internal recapitalisation. With regard to liquidity stress, the instrument may be applied where the statutory conditions are met, including the requirement that the credit institution is in, or is likely to be in, financial difficulty. Under the applicable legal framework, financial difficulty is defined to include liquidity-related problems. Thus, where a credit institution experiences liquidity difficulties within the meaning of the law and the remaining conditions for resolution are satisfied, the internal recapitalisation tool may, in principle, be applied.

Under Article 53 of the Law on Recovery of Activities and Resolution of Credit Institutions and Investment Firms, the Bank of Latvia may apply the bail-in tool in resolution proceedings in order to recapitalise a failing institution so that it can restore compliance with licensing requirements and continue its authorised activities, thereby maintaining market confidence. The bail-in tool may also be used to convert or write down liabilities that are transferred to a bridge institution or in connection with the sale of business or asset separation tools. Bail-in may be applied where it is expected to achieve the resolution objectives and restore the institution’s long-term viability; where this is not the case, it may be used in combination with other resolution tools.

A mere breach of liquidity requirements (e.g., a breach of LCR) would not automatically trigger bail-in. However, if liquidity difficulties are so severe that the institution is deemed to be failing or likely to fail within the meaning of the law, and the other resolution conditions are satisfied, bail-in may in principle be applied as part of the resolution strategy.

In Latvia, gone-concern loss-absorbing capacity requirements apply under the Law on Recovery of Activities and Resolution of Credit Institutions and Investment Firms, which implements the EU BRRD framework.

All institutions are subject to a minimum requirement for own funds and eligible liabilities (MREL), which must be met at individual and, where applicable, consolidated resolution group level. The requirement is determined by the resolution authority (the Bank of Latvia) on an institution-specific basis, taking into account the institution’s size, risk profile, business model and resolution strategy, and is intended to ensure sufficient loss-absorption and recapitalisation capacity in resolution.

For global systemically important institutions (G-SIIs), the regime incorporates the EU total loss-absorbing capacity (TLAC) standard pursuant to Regulation (EU) 575/2013 (CRR). Thus, G-SIIs are subject to binding TLAC requirements in addition to the broader MREL framework.

Latvian laws and regulations governing credit institutions set specific standards of responsibility and care for the management of a credit institution, as well as specific criteria for persons holding managerial positions. As a general matter, bank managers are subject to the overarching rules on the liability of merchants, pursuant to which members of the management board and the supervisory board are required to perform their duties with the diligence of a respectable and accurate manager.

In addition, the Credit Institutions Law subjects members of the management body and other key function holders to specific prudential requirements, including fit and proper criteria and ongoing supervisory assessment. Under this framework, management may be removed from office for breaches of banking legislation, may be subject to significant administrative sanctions, including fines of up to EUR 5 million, and may incur criminal liability in specific circumstances, including where they knowingly grant or agree to grant an unjustified right of first refusal to a creditor or knowingly cause a credit institution to become insolvent.

As stated in the answer to Question 29, regarding the matter of supervisory developments over the next three years, the supervisory priorities of the Bank of Latvia will centre on enhancing the financial and operational resilience of financial market participants in response to emerging risks and ongoing geoeconomic and regulatory developments, while simultaneously promoting the accessibility, transparency, and customer-orientation of financial services. Considering the growing significance of alternative investments, the Bank of Latvia will review valuation methodologies and related risks to strengthen investor protection and market transparency. Supervision of issuers and investment firms will emphasise corporate governance, data quality, sustainability, capital adequacy, liquidity risk management, internal control frameworks, and the protection of customers’ interests, including in cross-border activities. In the fintech segment, priorities will include safeguarding customer funds, reinforcing governance arrangements, ensuring compliance with the Digital Operational Resilience Act (DORA), and supporting the implementation of new payments-related regulatory frameworks.

From a regulatory perspective, it should be noted that in late 2025 the Bank of Latvia reduced capital buffer requirements for other systemically important institutions (O-SIIs), thereby aligning EU prudential standards more closely with the structure of the Latvian market by concentrating buffers on institutions of genuine systemic relevance and easing capital constraints on lending. In addition, the introduction of a “solidarity contribution” applicable from 2025 to 2027 represents a significant regulatory development. This measure imposes a 60% levy on the portion of a bank’s net interest income exceeding by more than 50% the average level recorded between 2018 and 2022. Its impact has already been substantial, as reflected in preliminary data indicating that the aggregate profit of the Latvian banking sector declined by 35.2% in the first quarter of 2025 compared with the corresponding period in 2024, largely because of the new contribution.