"On 1 January 2023, a new stage in the supervision of the Latvian financial sector began, as integration provides opportunities to ensure the supervision and development of the financial sector by combining knowledge and competences, infrastructure improvements and capacity, jointly defining and implementing the strategic priorities of Latvijas Banka. We will continue acting as a supervisor which, by engaging in an open dialogue with the financial sector, is able to find new solutions to ensure the sector's improvement and further development."
"The key benefits of the FCMC integration into Latvijas Banka include more efficient management and faster decision-making, improved systemic risk management in the financial sector, reduced administrative burden and more efficient use of resources.
It will also enable more effective supervision and development of the financial sector, thus increasing the public good."
In 2022, work on the integration of the FCMC into Latvijas Banka continued in accordance with the new Law on Latvijas Banka adopted by the Saeima of the Republic of Latvia on 23 September 2021 and amendments to the Law “On Latvijas Banka”, as well as according to the integration plan approved by the Council of Latvijas Banka and the framework of the integration project approved by the FCMC. In compliance with the decision taken by the Saeima of the Republic of Latvia on 23 September 2021, Latvijas Banka took over all the functions of the financial and capital market supervision and development and resolution institution, as well as the provision of compensation disbursement schemes on 1 January 2023.
Already on 1 January 2022, Latvijas Banka took over the function of promoting the financial and economic literacy of the general public from the FCMC, thus facilitating a smoother takeover of the FCMC’s functions, inter alia, by integrating the content of financial literacy and the related IT resources into Latvijas Banka, as well as avoiding duplication of functions. At the beginning of 2022, pursuant to the transitional provisions of the Law on Latvijas Banka, i.e. that all FCMC employees performing the core functions are transferred to Latvijas Banka, a list of FCMC employees who will continue their career at Latvijas Banka in 2023 was developed and approved. In the first half of 2022, particular attention was paid to the formulation of a new organisational strategy and values, designing of the governance framework, as well as review and refinement of all support functions.
In the second half of 2022, the work in the integration process was focused on the development of the processes necessary to perform the new core functions of Latvijas Banka and the development of the regulatory framework, as well as the training and integration of employees, including the conclusion of employment contracts with those FCMC employees who continue their career with Latvijas Banka.
In 2022, substantial preparations were made to ensure that from 1 January 2023, the decision-making process corresponds with the new Law on Latvijas Banka. Taking into account the fact that the Law on Latvijas Banka stipulates that as of 1 January 2023, the Council of Latvijas Banka consists of the Governor of Latvijas Banka, two Deputy Governors and four members of the Council, the Saeima of the Republic of Latvia on 9 June 2022 approved Santa Purgaile as the Deputy Governor of Latvijas Banka and Kristīne Černaja-Mežmale as a member of the Council of Latvijas Banka as of 1 January 2023, and their area of responsibility is supervision.
As required by the Law on Latvijas Banka, two new committees were established – the Supervision Committee of Latvijas Banka and the Resolution Committee of Latvijas Banka, which started their work on 1 January 2023. The Supervision Committee of Latvijas Banka makes decisions in the field of supervision of the financial market and its participants, the Resolution Committee of Latvijas Banka – the decisions required for the application of resolution and the implementation of the compensation disbursement schemes.
In order to promote the involvement of the financial market participants supervised by Latvijas Banka in the area of the regulation and supervision of the financial market and its participants, the application of resolution and the implementation of compensation disbursement schemes, a consultative body – the Consultative Financial Market Council (operating since 1 January 2023) – has been established pursuant to the Law on Latvijas Banka that consists of the delegated representatives of all associations of financial market participants supervised by Latvijas Banka and three representatives of Latvijas Banka.
In the autumn of 2022, the development of the regulations of these newly created committees was completed, as well as the regulation of the Consultative Financial Market Council was amended, and on 14 November 2022, they were approved by the Council of Latvijas Banka.
At the end of the year, particular attention was paid to the practical aspects of integration – solving the issues related to the work environment and fully integrating the record keeping processes.
Pursuant to the transitional provisions of the Law on Latvijas Banka and within the framework of the cooperation agreement, in 2022 Latvijas Banka continued to expand the provision of support function services to the FCMC, particularly in the field of information technologies.
Various stakeholders – financial market participants, the Saeima, the Chancery of the President, the Office of the Prime Minister and the Ministry of Finance – were regularly informed about the progress of the project. At the same time, up-to-date information about the progress of the project was also provided to employees of Latvijas Banka and the FCMC on a regular basis. The most important aspects of the integration of the FCMC into Latvijas Banka were explained to the general public via the mass media.
According to a survey conducted by the public opinion research company Latvijas Fakti in November 2022, 20% of respondents had heard about the integration of the FCMC into Latvijas Banka. 59% of those who had heard about the integration of the two institutions assessed it as a right step and only 9% believed the opposite; the rest of the respondents refrained from expressing their assessment.
At the same time, 51% of all respondents thought that Latvijas Banka was already responsible for the supervision of commercial banks in Latvia in 2022 and only 31% of respondents named the FCMC as the responsible institution.
Chart 1. Have you heard that Latvijas Banka and the supervisory authority, the Financial and Capital Market Commission, will be merged into one institution – Latvijas Banka?
Chart 2. Overall, do you think that merging the Financial and Capital Market Commission and Latvijas Banka into one institution is a right step?
The integration project in 2022 was managed and implemented by Latvijas Banka and the FCMC, mainly using their own resources. External consultants were only engaged to a very limited extent in the process of investigating the organisational culture, as well as defining the strategy and values of the integrated institution.