Latvijas Banka manages strategic, financial, and operational risks. Latvijas Banka's risk management goal and basic principles are set out in the Risk Management Policy of Latvijas Banka adopted by the Council of Latvijas Banka.
Strategic risks
Latvijas Banka manages strategic risks to minimise potential negative impacts on its strategic development directions and core tasks.
The strategic risk management process assesses risks related to geopolitical, political, or economic developments both in Latvia and globally. It also considers the definition and achievement of Latvijas Banka's strategic development directions, the prioritisation of tasks, and the allocation of resources during the formulation of Latvijas Banka's strategy and work plans. Additionally, the process addresses decision-making that can impact the implementation of Latvijas Banka's strategic development directions and the fulfilment of its tasks.
Strategic risk assessment is an integral part of the periodic review of Latvijas Banka's strategic directions, as well as the management of financial and operational risks.
Financial risks
Latvijas Banka's objective is to preserve the value of investments over the medium and long term, ensure adequate liquidity, generate income, and adhere to sustainability principles (see also the Risk Management sub-section in the Investment Management section). Latvijas Banka manages investments and executes the Eurosystem's unified monetary policy operations, making it primarily exposed to the following financial risks: market risk (price, interest rate, and currency risks), credit, and liquidity risks.
Adverse changes in financial market factors or a counterparty default can negatively impact Latvijas Banka's financial position and operational financial results. To mitigate the potential adverse impact of financial risks, Latvijas Banka manages these risks by establishing limits and parameters. On the basis of reasonable risk estimates, the Council of Latvijas Banka decides on provisions for financial risks associated with Latvijas Banka's investment management and other financial transactions, as well as the use of these provisions if the risks above materialise.
Recognising the long-term potential impact of climate change on Latvijas Banka's financial performance, Latvijas Banka has implemented a climate change risk management framework. As the sector evolves, adjustments are anticipated in Latvijas Banka's climate change risk management framework, the composition of its financial assets, and the disclosure of sustainability parameters.
Operational risks
Latvijas Banka manages operational risks with the objective of ensuring high-quality outcomes for processes and projects within defined timeframes, while maintaining the continuous, secure, and efficient execution of operations. This approach aims to minimise potential adverse effects on Latvijas Banka's ability to fulfil its tasks, protect its reputation, preserve financial standing, and safeguard operational financial results. All operational risks are addressed within a unified and comprehensive operational risk management framework.
In 2024, operational risk management at Latvijas Banka focused on strengthening the institution's operational resilience and management of cybersecurity and information security risks, with careful consideration of existing risks and ongoing technological advancements. In 2024, operational risks were effectively managed, with the implementation of targeted mitigation measures keeping risk exposure within acceptable levels.
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Major operational risks |
Objective of governance |
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Compliance risks, including the prevention of conflicts of interests, anti-corruption controls, protection of personal data, prevention of money laundering as well as terrorism and proliferation financing, and ensuring the protection of the work environment |
To ensure compliance with the requirements in the legal acts governing the operation of Latvijas Banka and its staff, as well as their conduct in executing their official duties and responsibilities. |
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Business continuity risks |
To mitigate potential adverse effects on the execution of critical processes, the disruption of which could have significant repercussions for the Latvian financial system or hinder the effective fulfilment of Latvijas Banka's tasks. This includes ensuring the uninterrupted execution of critical processes or the prompt and complete restoration of them in the event of any disruption or interruption, as well as the efficient management of incidents. |
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Physical security risks |
To ensure the physical security of individuals on the premises of Latvijas Banka and of the premises themselves, including the transportation of valuables and of events organised by Latvijas Banka. The priority is to protect the life and health of individuals. |
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Information security risks |
To prevent unauthorised disclosure or misuse of confidential information, classifying that information by its degree of confidentiality and ensuring appropriate protection for it is essential. It is equally important to ensure that these protective measures do not hinder Latvijas Banka in providing non-classified information to its cooperation partners and the public. |
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Risks related to information systems, including cyber security risks |
To reduce any potential negative impact on the availability, security, and integrity of Latvijas Banka's information systems. Latvijas Banka classifies its information systems according to their criticality to the Bank's operations, as well as the confidentiality, integrity, and availability requirements of the data they process. Each classification level is assigned corresponding to physical and logical security. |
Latvijas Banka manages operational risks across processes and projects by classifying the processes and risks and assessing how those risks could affect the outcomes of the process or project, and by using this classification to decide on and execute the most effective actions for ensuring appropriate risk management. The Operational Risk Management Department is in charge of maintaining a common operational risk management framework, organising the processes of operational risk management and incident management, as well as providing regular information on operational risk management as required by Latvijas Banka's legal acts. The Operational Risk Management Committee of Latvijas Banka coordinates operational risk management at the bank.
Latvijas Banka educates its employees on risk management, aiming to ensure the continuous development and maintenance of relevant knowledge and skills. To support this, regular training sessions and tests are conducted.