The protection schemes in Latvia are:
- the Deposit Guarantee Fund (DGF);
- the Fund for the Protection of the Insured (FPI);
- the Scheme for the Protection of the Customers of the Financial Instrument Market (Investors).
The Deposit Guarantee Fund. In 2024, Latvijas Banka continued to improve the framework for depositor protection and the process for the disbursement of guaranteed compensation. Regular stress-testing of the DGF is carried out under the provisions of Section 6 of the Deposit Guarantee Law. In 2024, testing the submission and acceptance of applications for guaranteed compensation by credit institutions was conducted. Stress tests were also conducted on the recipient list for guaranteed compensation of all cooperative credit unions and credit institutions. This was done to assess the ability of these institutions to prepare a list of depositors and submit the required information to Latvijas Banka in the specified format and within the given deadlines. Latvijas Banka conducted three on-site inspections in the area of depositor protection during the reporting year to assess the quality of credit institutions' depositor lists and their regulatory compliance. Based on the results of the inspections, Latvijas Banka provided explanations on how the information should be prepared and requested market participants to make improvements to their internal control systems.
Latvijas Banka continued to participate in the improvement of the unified bank crisis management and deposit insurance framework during the reporting year. The goal of this process is to enhance the efficiency of the insolvency prevention system for credit institutions. To find out more about the process, please visit the European Commission website and the European Parliament website.
Members of the DGF make quarterly contributions to the DGF of 0.05% of the average balance of the deposits covered in the previous quarter, multiplied by the adjustment coefficient calculated using a formula fixed in the laws and regulations. Each year, the DGF evaluates the performance indicators of its members and calculates adjustment coefficients for the contributions to the DGF in accordance with the requirements stipulated in Section 8, Paragraph three of the Deposit Guarantee Law. The average adjustment coefficient for Latvia's credit institutions was 112% in 2024 and 116% in 2023, while being 93% for cooperative credit unions in 2024 and 91% in 2023.
Deposit-takers made regular and one-off contributions of 22.3 million euro to the DGF in 2024.
Latvijas Banka was responsible for the accumulation and management of the DGF in 2024, and its balance at the end of the year was 258.3 million euro. The basic principle when managing DGF assets is to ensure a high level of liquidity. In 2024, DGF assets were invested in short-term, liquid, fixed-income, investment-grade, and euro area government securities with a maturity of up to 12 months. The annual return on investment was 3.53%.
The Fund for the Protection of the Insured. The assets of the FPI consist of the contributions from insurance companies of 0.1% of the total gross insurance premiums received from natural persons for the classes of insurance specified by law. Since its inception, guaranteed compensation of 12 300 euro has been disbursed from the FPI. Since the accumulated holdings of the FPI exceeded the amount stipulated in Section 288 of the Insurance and Reinsurance Law at the end of 2015, contributions to the FPI have been suspended since 2016. At the end of 2024, there were 20.5 million euro in the FPI. The FPI assets were also invested in short-term, liquid, fixed-income, investment-grade, euro area government securities with a maturity of up to 12 months. The annual return on this investment was 3.62% in 2024.
Protection of the customers of the financial instrument market (investors). The investor protection scheme is based on the Investor Protection Law. Compensation for each investor is limited to 20 000 euro, and the disbursement of compensation is ensured by Latvijas Banka. The Investor Protection Law does not provide for the accumulation of any funds for disbursing compensation, but the resources can, if necessary, be provided by the scheme participants or legal entities that have been authorised to provide investment services. In 2024, improvements continued to be made to the legal framework governing the protection of investors. Latvijas Banka approved the Regulation on the Preparation and Submission of the List of Investors Entitled to Compensation to determine the format, content, preparation procedure, and submission frequency of information required from the members of the investor protection scheme regarding investors entitled to compensation.
