Financial risks
Latvijas Banka manages financial risks for the purpose of reducing the negative impact of possible adverse changes in the financial market factors or counterparty default on the financial position and financial results of Latvijas Banka. When managing financial risks, including the market risk (price, interest rate and currency risks), credit risk and liquidity risk, the acceptable financial risk limits and parameters are taken into consideration to preserve the value of investments ensuring the required liquidity and income generation in the long term (see also the subsection Risk Management of the section Investment Management).
Financial risks of Latvijas Banka relate primarily to its investments in financial instruments, as well as the implementation of the single monetary policy operations associated with Latvijas Banka’s participation in the Eurosystem and sharing of the related risks and financial results. Latvijas Banka’s financial assets are mostly exposed to market risk and credit risk. On the basis of reasonable risk estimates, the Council of Latvijas Banka decides on making provisions for financial risks associated with Latvijas Banka’s investment management and other financial transactions, as well as the use of these provisions should the above risks materialise.
Operational risks
Operational risks are managed to ensure efficient achievement of quality result of a process or project within the specified time frame as well as continuous, appropriate and secure implementation of the process, mitigating a potential negative impact on Latvijas Banka’s capability to accomplish its tasks, on its reputation or financial position and financial performance.
During the operational risk management process, processes and risks are classified, evaluating the impact of risks on the results of processes or projects and, depending on the classification of processes and risks, defining and implementing the most appropriate actions to ensure adequate risk management.
The operational risks of Latvijas Banka are managed within a common operational risks management framework.
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Major operational risks |
Objective of governance |
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Compliance risks |
Ensure the compliance of Latvijas Banka’s operation with legislative acts |
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Business continuity risks |
Mitigate a potential negative impact on the execution of critical processes where their discontinuity may cause negative consequences for Latvia's financial system or adversely affect the implementation of Latvijas Banka's tasks |
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Physical security risks, including risks associated with fire safety and civil protection |
Ensure physical security of persons present on the premises of Latvijas Banka, the premises of Latvijas Banka, transportation of its valuables and the events organised by Latvijas Banka. Priority – protecting life and health of individuals |
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Information security risks |
Prevent unauthorised disclosure or use of confidential information, classifying it by its degree of confidentiality and ensuring appropriate protection |
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Risks related to information systems, including cyber security risks |
Prevent a potential negative impact on availability, security and integrity of the information systems and infrastructure of of Latvijas Banka |
The Operational Risk Management Department maintains a common operational risk management framework, organises the operational risk management process and incident management, as well as provides information on operational risk management in accordance with Latvijas Banka’s legal acts on a regular basis. The risk management process is based on the best practices in the field of risk management and concentrates the resources intended for the management of operational risks, thus creating a more effective model for managing this process.
Operational risk management is coordinated by the Operational Risk Committee of Latvijas Banka.
Latvijas Banka regularly organises training and tests, as well as provides education of employees in the field of risk management to maintain an appropriate level of their know-how and skills.
In 2022, in the field of operational risk management, the focus was on changes in the operational risk management framework related to the integration of the FCMC to ensure the availability of critical financial services, and improvement of physical security risk management continued. In 2022, operational risks were appropriately managed, and the implemented risk mitigation measures reduce these risks to acceptable levels.
At the same time, in accordance with the amendments (adopted by the Saeima of the Republic of Latvia in 2022) to the Law on Latvijas Banka and to the National Armed Forces Law, Latvijas Banka has the right to engage the military police in ensuring the physical security of Latvijas Banka as of 1 November 2022.
Given the rights stipulated by the law, Latvijas Banka and the National Armed Forces concluded an agreement on the engagement of the military police in ensuring the physical security of Latvijas Banka’s premises, escorting and guarding cash transportation and guarding the real estate. The commenced cooperation has provided an opportunity to improve and make the relevant processes more efficient.