Financial sector supervision

The priorities for 2025 set by Latvijas Banka for the supervision of the financial market and its participants were operational and financial resilience, the sustainability of business models during an economic transition, and risks related to market functioning. Operational and financial resilience covers a number of key aspects, including profitability resilience, credit risk management, ICT and AML/CFT resilience, as well as data quality assurance across processes. The sustainability of business models in the transition economy, in turn, requires increased attention in terms of compliance with sustainability requirements and resilience to the risks posed by climate change, while maintaining competitiveness and financial stability. In the context of market activity risk, the price-benefit ratio of financial products is essential, as well as their suitability for different customer groups and compliance with the requirements of regulatory enactments. In accordance with these priorities, Latvijas Banka determined individual supervisory focus directions for each financial market segment and, taking into account the macroeconomic and geopolitical environment and external circumstances, carried out their supervision.

Licensing developments

The year 2025 in the Latvian financial sector marked the beginning of the development of a new regulated market segment. In particular, crypto-asset service providers complemented the current range of licensed financial service providers. During the reporting year, Latvijas Banka issued a licence to two crypto-asset service providers: Nexdesk SIA and BlockBen SIA. The crypto-asset service providers segment shows a marked increase in the demand for operating permits due to multiple applications in the licensing process as well as in the pre-licensing consultation phase.

In the segment of crowdfunding service providers, the number of market participants continued to grow steadily. This was facilitated by the interest of both domestic and foreign service providers in starting operations in Latvia. In 2025, Latvijas Banka licensed three new crowdfunding service providers: SIA Ascend Finance, CSP Growth Solution SIA, and FLOW SIA. This indicates a positive development and growth trend in this segment.

In the credit institutions segment, there was no change in licensing in 2025, i.e. the composition of market participants remained unchanged.

Changes affected the cooperative credit unions segment. In 2025, Latvijas Banka revoked the licence of Cēsis Cooperative Credit Union, cooperative credit union LAKRS KS, Rūjiena Cooperative Credit Union, and Sala Cooperative Credit Union, taking into account the decisions of the respective entities to terminate their operations.

In the insurance segment, after a prolonged period, a new market participant started their operations. In 2025, Latvijas Banka issued a licence to AS Sincera Insurance to insure land vehicles (other than railway) and miscellaneous financial loss. At the request of the companies themselves, the registration of the following four insurance brokers was annulled: SIA Maximus brokers, limited liability companies Apdrošināšanas veikals, Reinsons un partneri SIA, and limited liability company REGOR BROKERIS. In two cases, the insurance brokers themselves had taken a decision to cancel their entry in the Register of Insurance and Reinsurance Brokers maintained by Latvijas Banka because they were no longer engaged in insurance distribution. In one case, the insurance brokerage company was reorganised by merging with another insurance brokerage company, while in another case, the company intended to change the mode of insurance distribution.

A growing interest in payment services activity was observed in 2025. Latvijas Banka issued licences to three electronic money institutions: SIA GR8 PAY, AP OPERATIONS SIA, and SIA Pace FS. At the company's own request, the registration of SIA RĪGAS KARTE was cancelled. Several entities are assessing licensing opportunities in this segment and the number of payment institution licences issued in 2026 is expected to increase, given that the new interpretation of the definition of e-money published by the EC effectively narrows the scope of e‑money.

In the area of investment services, following the decision to reorganise the company, at the end of 2025 Signet Pensiju Pārvalde IPAS was added to SIGNET ASSET MANAGEMENT LATVIA IPS. In 2025, Latvijas Banka also registered six new alternative investment fund managers: SIA AIFP Buildit Latvia, SIA Fox Capital Management, SIA Outlast Fund AIFP, Alphinox Fund Management AIFP SIA, BAD COMPANY AIFP SIA, and SIA GrowLab AIFP. However, the registrations of two alternative investment fund managers, SIA Realto AIFM and SIA EcoEnergy, were cancelled at the initiative of the companies themselves.

Microprudential supervision and compliance monitoring

Prudential supervision of credit institutions

At the end of 2025, in Latvia there were:

• 10 credit institutions;
• 4 branches of credit institutions established in other EU Member States;
• 21 cooperative credit unions.

Chart 1. Assets of credit institutions and cooperative credit unions (end of 2025; millions of euro)

 

Supervisory priorities of credit institutions

In 2025, in line with Latvijas Banka's supervisory priorities and focus directions, the focus of prudential supervision of credit institutions was on:

• operational and financial resilience, including profitability resilience, credit risk management and asset quality, data, and reporting quality, as well as compliance with the requirements of the Digital Operational Resilience Regulation (DORA).
• sustainability of the business model in the transition economy, including the quality of strategic planning, the assessment, and integration of sustainability risks into the strategic objectives of credit institutions, as well as the availability of financial services.

When determining supervisory priorities and focus directions, as well as planning supervisory activities, Latvijas Banka took into account the level of risks in the credit institution segment, as well as internal and external circumstances, which are still largely related to uncertainty, geopolitical, and geoeconomic tensions.

The Supervision Plan provided for a series of horizontal off-site activities carried out by the Credit Institutions Supervision Department with the aim of strengthening the resilience of the financial sector and promoting its responsible and sustainable development. The most significant of these were:

• identification of good practices with regard to the setting of management reserves;
• a horizontal assessment of the role of the Council, the Risk Manager, and the Risk Control Function in the credit decision-making process of less significant credit institutions;
• a horizontal review of the data quality framework for less significant credit institutions;
• a request for information on the sustainability data available to less significant credit institutions, their integration into information systems, and the processes for assessing and managing the materiality of the sustainability risks associated with their activities.

Supervisory Review and Evaluation Process (SREP)

The annual SREP was successfully implemented in 2025. As part of this, the Credit Institutions Supervision Department carried out a comprehensive risk assessment. In order to make the most efficient and prudent use of limited supervisory resources, the annual risk assessment was carried out applying a risk tolerance framework, proportionality as well as a risk-based approach. This allowed for focus to be placed on the specific challenges and riskier areas of each individual credit institution.

In the SREP of the reporting year, Latvijas Banka paid special attention to the following aspects of credit institutions:

• the quality of management and the robustness of the internal control system, including:
• the adequacy of resources and the allocation of roles within management bodies (board and council);
• risk culture;
• compliance with DORA requirements and monitoring guidelines on climate-related risks;
• shortcomings in the processing and reporting of risk data previously identified in the supervisory work;
• credit risk and its management, including:
• the quality of credit portfolios;
• addressing deficiencies previously identified in the context of monitoring;
• the growth of credit portfolios;
• the uncertainty of the macroeconomic and geopolitical environment;
• operational risk and IT risk management, including:
• cyber resilience;
• business continuity.

Overall, the results of the assessment point to the robustness of the risk profile of credit institutions, as well as their resilience to potential shocks. Despite persistent macroeconomic uncertainty and falling interest rates, credit institutions have been able to maintain stable capital and liquidity ratios. Geopolitical and geoeconomic risks, digital and technological risks, and changing regulation continue to be major challenges.

Latvijas Banka determined the following for nine credit institutions (including credit institutions directly supervised by the ECB within the SSM):

• new quantitative requirements:
• the own funds requirements to cover the inherent and potential risks of their activities;
• recommended capital buffer requirements (P2G);
• qualitative requirements and recommendations.

The overall SREP score is set on a scale from 1 to 4 and the following risk scores have been endorsed for credit institutions in Latvia (including credit institutions directly supervised by the ECB's SSM):

Chart 2. Risk assessment under SREP 2025

 

Within the SREP, credit institutions are subject to certain qualitative requirements and recommendations aimed at strengthening compliance with the requirements of laws and regulations, as well as promoting the operational resilience and long-term stability of credit institutions. In recent years, the number of qualitative requirements and recommendations has significantly decreased. This reflects improvements in credit institutions' internal control systems and risk management, as well as their overall readiness to comply not only with regulatory requirements but also with supervisory expectations.

Single Supervisory Mechanism

In 2025, Latvijas Banka continued its active participation in the ECB's SSM, ensuring a risk-based approach to the supervision of credit institutions. In cooperation with the ECB, Latvijas Banka supervised both significant and less significant credit institutions within the SSM.

Within the ECB's SSM, Latvijas Banka continued to provide significant support to the ongoing supervision of the three largest Latvian credit institutions: Swedbank AS, AS SEB banka, and Citadele banka AS. This supervision was carried out in joint supervisory teams, in which Latvijas Banka's supervisory experts cooperated closely with the ECB's SSM counterparts, participating in day-to-day off-site supervision of credit institutions, risk assessment, dialogues with credit institutions, and the preparation of supervisory decisions.

Latvijas Banka's experts continued their active participation in the ECB's SSM working groups, contributing to the development of a unified supervisory approach and the harmonisation of the regulatory framework in the European Banking Union.

Latvijas Banka's representative on the ECB's SSM Supervisory Board participated in decisions on significant credit institutions and supervisory methodologies in the euro area. Overall, in 2025, the ECB's SSM adopted 2 549 supervisory decisions. These covered the assessment of the suitability of credit institution officials, own funds issues, the approval and review of internal models, supervisory reviews, as well as SREP.

In addition to individual decisions on individual credit institutions, the ECB's SSM Supervisory Board also adopted a number of horizontal decisions. Decisions related to improving the effectiveness of supervision are particularly noteworthy. In 2025, attention was also paid to the impact of geopolitical risks on the credit institution segment, the ECB SSM stress test 2025, the introduction of DORA requirements in the supervisory framework, the strengthening of credit risk assessment, and the integration of climate-related and environmental risks in supervisory processes.

Supervision over cooperative credit unions

In 2025, under the supervision of the cooperative credit unions segment, increasingly important focus was given to promote the development of this segment. Latvijas Banka developed possible scenarios for the development of the Latvian cooperative credit unions segment and presented them to the cooperative credit unions and the Saeima Budget and Finance (Taxation) Commission. In February 2025, an expert discussion "Latvian cooperative credit unions. How large is their development potential?" was organised by Latvijas Banka to promote an open discussion on the unused development potential of cooperative credit unions segment. As a result, on 5 June 2025, the Saeima adopted amendments to the Law on Savings and Loan Associations, developed by the Ministry of Finance in cooperation with Latvijas Banka and a segment of cooperative credit unions, so that the cooperative credit unions that can and wish to do so, can start lending to legal persons.

At the same time, Latvijas Banka, having listened to representatives of cooperative credit unions and in general searching for ways to reduce the administrative burden, improved the prudential regulation of the cooperative credit unions segment. It facilitated the process of re-approval of cooperative credit unions' officials, reduced the requirements for the establishment of an internal control system, and the requirements for the review of policies and procedures, as well as other documentation. From now on, cooperative credit unions will be divided into significant and less significant cooperative credit unions according to asset size. Those whose balance sheet assets have an average value of more than EUR 5 million in the four years preceding the respective financial year will become significant, which could be the case for two Latvian cooperative credit unions. Less significant cooperative credit unions will have additional incentives to reduce administrative burdens, such as no need to develop an operational strategy. In addition, the framework includes new requirements – the obligation to comply with the requirements for the prevention of conflicts of interest and to ensure the improvement of staff knowledge in order to promote the compliance and development of cooperative credit unions.

In order to explain the essence, purpose, and most important changes of the improved regulation, Latvijas Banka organised two informative seminars for cooperative credit unions.

In November 2025, Latvijas Banka participated in a meeting organised by Cēsis Municipality with cooperative credit unions registered and operating in Cēsis Municipality. The meeting discussed further possible development directions and topicalities of cooperative credit unions of Cēsis Municipality in the context of changes in regulatory enactments.

One cooperative credit union already used the opportunity included in the amendments to the Law on Savings and Loan Associations at the end of 2025 and started lending to legal entities.

Supervision of insurance undertakings

At the end of 2025, there were 18 insurers operating in Latvia:

• 2 life insurance undertakings;
• 5 non-life insurance undertakings;
• 4 branches of life insurers from EU Member States;
• 7 branches of non-life insurers from EU Member States.

73 insurance and reinsurance brokers were included in the Register of Insurance and Reinsurance Brokers maintained by Latvijas Banka, which is 4 less than at the end of 2024. There were also branches of insurance and reinsurance brokers from 6 EU Member States in Latvia.

In the insurance segment, written premiums in Latvia increased by 4.1% in 2025 compared to 2024, while the claims paid out decreased by 1.7%. The inflation-induced impact on insurance services eased in 2025, resulting in a more moderate growth rate of insurance premiums than in previous years, while the level of claims even declined slightly.

The volume of premiums written outside of Latvia by all seven insurance undertakings registered in Latvia, mainly in Lithuania, Estonia, Poland, and France, increased by 21.2% in 2025 compared to 2024. The significant increase in the operations outside Latvia was also driven by the new insurance company that received licences in 2025. As the level of claims increased more moderately, the performance of insurance undertakings improved.

Chart 3. Gross premiums written and claims paid out by insurers (amount; millions of euro; annual growth; %)

 

In 2025, the four largest types of insurance – health, property, land vehicle, and compulsory civil liability insurance of motor vehicle owners (MTPL) – accounted for 74.2% of total premiums written in Latvia's insurance market.

Chart 4. Gross premiums written by insurers in Latvia by type of insurance (amount; millions of euro; annual growth; %)

 

Latvia experienced the most significant increase in 2025 compared to 2024 in the following:

 

MTPL insurance premiums decreased by 6.3%, whereas claims paid out increased by 9.8%. Meanwhile, total claims decreased by 33.0% in property insurance and by 6.7% in land vehicle insurance, due to a lower number of insurance events as a result of a more moderate natural disaster experience compared to the significant losses caused by natural disasters in 2023 and 2024.

Chart 5. Solvency capital ratios of insurance undertakings (%)

In 2025, all seven insurance undertakings registered in Latvia were profitable, with a sum of EUR 59.8 million. Their solvency capital ratio remained stable above the minimum requirement and reached 146% at the end of 2025 (the lower limit is 100%).

Managing the impact of climate-related risks

The risks posed by climate change are also becoming a major challenge for the insurance segment. For example, the number of insurance claims for losses caused by natural disasters in property insurance has increased significantly in recent years. There were 543 applications in 2017, 3 081 in 2022, 4 455 in 2023, and as many as 17 005 in 2024. Therefore, in 2025, Latvijas Banka continued to assess the impact of these risks and the resulting increased uncertainty on insurers and policyholders.

During the reporting year, Latvijas Banka:

• compiled data on the amount of losses caused and claims paid as a result of natural disasters in property insurance in order to assess their impact on insurers and policyholders;
• assessed the governance processes of insurance undertakings with regard to the climate-related risk identification and potential impact assessment process, analysing the degree of integration of climate-related risks into the risk management processes of insurance undertakings;
• assessed the practices and effectiveness of the use of reinsurance in mitigating the potential impact of risks within the risk tolerance accepted by undertakings.

Insurance undertakings implement sound and effective risk management in strengthening their operational activities and financial resilience, which includes both a comprehensive own risk and solvency assessment process, and the effective application of reinsurance and risk transfer policies, including by mitigating the potential impact of climate-related risks.

With regard to customers, insurers have already started work on defining and explaining more precise insured events, as well as providing information to customers in a more understandable and friendly language, including the conversion of insurance terms and conditions into a plain language, in order to adapt to changing risks.

Insurance products meeting the needs of customers

Insurers are obliged to design products aimed at meeting the needs of customers and to regularly verify the compliance of products with the target market and the demands and needs of the customer. For customers to receive adequate insurance protection, it is important for insurers to build efficient product development, management, and monitoring processes, as well as to strengthen trust by offering clear and understandable information about insurance products and the service provider.

In 2025, Latvijas Banka:

• continued the assessment of the value of the life insurance with savings products offered by insurers to customers by analysing the performance of the investments and the evolution of the customer's costs related to the product in the previous period;
• assessed the offer of travel insurance products to customers by analysing the relevance of those products to the demands and needs of customers and their distribution process;
• carried out an off-site inspection of the activities of insurance brokers using the mystery shopper method in order to assess the quality of services and customer service.

Insurers regularly assess and compare the performance of investment options and review the provision of life insurance with savings products to customers. As a result, Latvijas Banka has identified two positive trends:

• the return on investment for clients has improved;
• total costs for customers continue to decrease.

In the distribution of travel insurance products, Latvijas Banka identified certain risks:

• insufficiently identified customer needs or incomplete information provided to the customer increases the risk that the customer buys an unsuitable insurance product;
• in some cases, the identified high distribution commissions create the risk that the value of travel insurance products will not be reasonable for the customer.

Latvijas Banka invited insurers to critically evaluate their travel insurance product distribution strategies in order to promote the quality of insurance products and their distribution.

The recommendations provided by Latvijas Banka after the inspection and identified good practices will help insurance brokers to improve the quality of customer service and to find out more precisely the demands and needs of customers in order to prepare the most suitable insurance offer for them. This will promote mutual trust and more effective cooperation with customers.

In the insurance segment, Latvijas Banka also continued its work on promoting the effectiveness of the regulatory and supervisory environment for insurers. The assessment of the regulatory framework made it possible to identify areas and individual aspects where regulatory requirements for insurers could be reduced. Latvijas Banka prepared relevant proposals for amendments to laws and regulations.

Supervision of the second pillar pension managers

At the end of 2025, 7 state-funded pension scheme fund managers operated in the Latvian financial market, offering 34 investment plans of different risk levels to the participants of the 2^nd pension pillar. Most of the plans, 17, were high-risk investment plans with an equity stake of up to 100% in the portfolio.

The total net assets of the state-funded pension scheme increased by 14% in 2025. Growth was slower than in 2024. On the one hand, it was affected by a lower return on investment and, on the other hand, by a reduction in the contribution rate from 6% to 5% of the gross wage.

Chart 6. Developments in net assets of the state-funded pension scheme (millions of euro)

 

Compared to the results of 2023 and 2024, the 2025 yields for the investment plans of the state-funded pension scheme were lower and associated with higher fluctuations. The most significant factor was the uncertainty surrounding US economic policy and monetary decisions, which had an impact on global financial markets. Market volatility and the depreciation of the US dollar against the euro had a negative impact on the value of investments denominated in US dollars. Given that some investment plans have portfolios with significant exposure to US stocks and bond markets, the combination of these factors was also reflected in the return on investment plans of the state-funded pension scheme. At the same time, it should be stressed that such fluctuations are inherent in financial markets and that, in the long-term, investment performance is determined by the cyclical nature of the economy and the capacity of the markets to recover.

Chart 7. Return on state-funded pension plans (%)

 

At the end of 2025, 47% of the assets of the state-funded pension scheme were invested in the United States. These investments consisted mainly of equities and equity funds, with a particularly high share in high-risk investment plans where the US market plays a dominant role.

Investments in Latvia accounted for 7.5% of total assets of the scheme, or EUR 753 million. Of this amount, 32% was invested in government debt securities, 26% through investment funds (mainly alternative investment funds investing in real estate), and 23% in corporate debt securities. This indicates that investments in the Latvian market are concentrated mainly in relatively low-risk financial instruments and with limited exposure to equity instruments.

Chart 8. Share of investments by country (as of 31 December 2025; %)

 

On 1 August 2025, amendments to the Law on State Funded Pensions entered into force, introducing  a new procedure for calculating the permanent part of the management fee (fixed commission) for investment plans. According to the new regulation, the fixed commission may not exceed 0.6% per annum if the total assets of the investment plans managed by the fund manager do not exceed EUR 100 million. If the amount of assets under management exceeds this threshold, the 0.6% limit for each additional step of EUR 100 million is reduced by 7.5% until it reaches 0.2% per annum.

This progressive cap on the fixed commission is in line with the principle of economies of scale. As the amount of assets under management increases, the maximum commission allowed decreases. The reform of the fixed commission cap was one of the main factors contributing to the reduction in management expenses in 2025. According to Latvijas Banka's calculations, participants had saved at least EUR 2.64 million between the entry into force of the reform and the end of 2025.

The decrease in management expenses was also influenced by investment performance. Although all investment plans ended 2025 with positive returns, most did not reach the level of excess return required for the application of the variable commission. Consequently, fund managers did not receive performance-based component of the remuneration, which further reduced the total expenses of the participants.

Overall, these factors indicate that the regulatory changes and market conditions in 2025 benefited members of the state-funded pension scheme by reducing costs while maintaining positive investment performance.

Chart 9. Investment plan management expenses (%)

 

On 1 July 2024, the requirement regarding the obligation of fund managers in the state-funded pension scheme to assess whether the investment plan chosen by the participant of the scheme corresponds to his or her age, as well as to inform the participant at least once a year about non-compliance detected and recommend a plan more appropriate to his or her age, came into force. The introduction of this requirement is gradually improving the age-appropriateness of investment plans. The proportion of participants who have opted for a plan that fits their life cycle is increasing.

Chart 10. Participants in the state-funded pension scheme by type of plan (as of 31 December 2025; %)

 

In addition, pension savings are positively affected in the long-term by arrangements whereby new scheme members are automatically included in their age-appropriate investment plans. It promotes a more consistent application of the life-cycle approach and thus a more age-appropriate choice of risk level in the long-term.

Supervision of private pension funds managing third pillar pensions

The net asset value of private pension funds reached EUR 1 billion in the first half of 2025 and, continuing to grow, increased to EUR 1.15 billion at the end of the year. Growth was supported both by an increase in members' contributions and positive pension plan investment performance.

Chart 11. Developments in net assets of the private pension funds (millions of euro)

 

Members' contributions reached EUR 164.3 million in 2025, an increase of 21.1% compared to 2024. At the same time, following a sharp decline at the beginning of the year, financial markets gradually recovered and pension plans across all risk categories ended the year with positive returns. The average annual return of pension plans was 5%, with high-risk plans delivering the strongest performance (6.6%), followed by medium-risk plans (4.5%) and low-risk plans (4.3%).

Chart 12. Annual returns of private pension plans (%)

 

An increasing share of pension plan members choose to invest in high-risk pension plans. While low-risk plans still account for a relatively high share of assets (41%), the share of net assets in high-risk plans has almost tripled over the last five years, from 10% at the end of 2020 to 27% at the end of 2025. By choosing higher-risk plans, participants increase the chances of accumulating more in the long-term.

Management costs of private pension plans continued to decrease and reached 0.75% in 2025, the lowest level in the history of private pension funds. Both competition between pension funds and the increasing net assets of pension plans contributed to the decrease in management costs.

Chart 13. Management costs of private pension plans (%)

 

During the year, there were changes in the offer of pension plans. Two medium-risk pension plans merged and a new high-risk pension plan was launched, expanding the range of passively managed pension plans.

At the end of 2025, 7 private pension funds offered a total of 21 pension plans: 9 high-risk, 5 medium-risk, and 7 low-risk plans. The number of participants in pension plans reached 460 thousand at the end of 2025. Of these, 124 thousand participants were over 55 years of age, which is the age from which participants are entitled to receive savings. However, more than two thirds of these members continue to contribute and choose not to withdraw their savings immediately.

Supervision of alternative investment funds and their managers

At the end of 2025, there were 31 AIF managers operating in Latvia, including 28 registered and 3 licensed AIF managers. In 2025, there was an active registration of new managers – 6 new AIF managers were registered, of which 3 were established with the support of public funding from AS Attīstības finanšu institūcija Altum, intended to promote the development of start-ups.

The predominant investment strategy for AIF in 2025 was the private equity investment strategy, but there was significant growth of real estate AIF, which increased by 56% compared to 2024. AIF of other strategies offering investment in debt securities, including corporate bonds, fund of funds, and infrastructure development facilities, also increased slightly.

Chart 14. Net assets of AIF by investment strategy (millions of euro)

 

AIF investments were mostly concentrated in the Baltic States, with the strongest share in Latvia, rising from 65% in 2023 to 70% in the following two years. Investments in Estonia increased by 5 percentage points in 2025, while investment in Lithuania decreased by 3 percentage points.

Chart 15. AIF investments by country (%)

 

Supervision of UCITS

At the end of 2025, there were 2 management companies of undertakings for collective investment in transferable securities () operating in Latvia, which managed 10 UCITS, including: 5 bond UCITS, 3 mixed UCITS, and 2 equity UCITS.

Although the UCITS market in Europe continued to grow in 2025, in Latvia, the net asset value of UCITS at the end of the reporting year decreased by 30% compared to the end of 2024 and stood at EUR 108.24 million. The significant decrease in value is explained by the liquidation of three UCITS.

Chart 16. Net assets by UCITS type (millions of euro)

The average return of the UCITS remained positive in 2025, but decreased for all types of UCITS compared to 2024. Higher yields of 6.6% continued to be reported by equity UCITS, while yields for bond UCITS were negative at -0.5%.

Chart 17. Return of (%)

 

The share of investments in Latvia increased to 11% of the total assets of the UCITS in 2025, and to 6% in the other Baltic States. The US remained the leading destination for UCITS investments, accounting for 28% of total investment at the end of 2025.

 

Chart 18. Geographical distribution of UCITS investments (as of 31 December 2025; %)

In 2025, as part of its off-site supervision, Latvijas Banka joined the single EU-wide common supervisory action (CSA) organised by ESMA to investigate to what extent UCITS management companies have established effective compliance and internal audit functions. Both Latvian UCITS management companies participated in this CSA. In the light of efforts made in previous years to strengthen the governance system, no significant breaches or violations were identified. During the annual strategic meeting, Latvijas Banka discussed the measures to be taken for improvements with market participants.

Supervision of payment institutions and electronic money institutions

The segment of payment institutions and electronic money institutions changed in 2025. Latvijas Banka issued three operating licences: To AP OPERATIONS SIA, SIA Pace FS, and SIA GR8 PAY. On the initiative of a market participant, however, one operating licence was withdrawn. As a result, a total of 14 institutions (10 electronic money institutions and 4 payment institutions) were operating in this segment at the end of the reporting year.

Overall, the risk level for this segment remained moderately low. For the effectiveness of supervision and more accurate risk assessment at Latvijas Banka, a methodology for regular risk assessment has been introduced by each market participant and is constantly being improved.

The most significant risks in this segment remained moderately high and included financial risks such as liquidity, business model, profitability, and capital adequacy risks, as well as compliance with the regulatory framework, ICT resilience, fraud, ML/TPF, and sanctions risks. High risks with a critical impact on this segment were generally absent in 2025.

Fintech (including the payment institutions and electronic money institutions segment) is characterised by dynamism and innovation, often ahead of classical governance structures and risk control mechanisms. From its cooperations to date, Latvijas Banka has often observed that fintech market participants demonstrate a start-up culture regardless of the company's maturity and direction of activity. Companies often focus on business development and growing its volume, devoting insufficient resources to checking the effectiveness of internal control systems, business continuity planning, regular identification of risks, and sufficient management. Therefore, the definition and planning of the 2025 supervisory priorities for this segment took into account the overall level of risk in the segment and the resulting supervisory intensity by area, as well as the supervisory proportionality principle.

Supervision in 2025 focused on:

• separate custody and protection of clients' funds;
• solvency and financial soundness, as well as capital adequacy;
• annual strategic interviews on the execution of business plans, operational activities, risk management, and corporate governance.

The main risks continued to be related to the separate holding of client funds in credit institutions. Latvian market participants comply with the regulatory requirement to protect customer funds. The segregation of customer funds is invariably the most important focus of supervision, which includes the supervision of compliance with the requirements for the protection of customer funds laid down in the regulation on Latvian market participants. The most common method of protecting customer funds in the Latvian market is still to keep customer funds in a separate account in a credit institution. However, the framework also allows for other methods, such as investment in safe, liquid, low-risk assets, but only a few market participants have opted for such a model to protect customer funds. Although market participants choose a diversified approach to the storage of customer funds, using both the services of several credit institutions and the above-mentioned investment in low-risk assets, there is a concentration of customer funds in Latvian credit institutions. The amount of segment liabilities to customers has been stable year after year, and the coverage of liabilities to customers is sufficient.

The capital adequacy of the segment as a whole meets its requirements, demonstrating the ability of business models to adapt to external conditions and develop profitable business lines. However, this situation is mainly characterised by market participants with a stable, long-term unchanged strategy. For new entrants and those who have changed their strategy, capital adequacy poses greater challenges. Specifically, the need to attract external financing. Developments in the capital ratios of market participants are monitored on a regular basis – the ratios are reviewed on a quarterly basis.

In 2025, a number of significant regulatory changes entered into force, including providing non-bank payment service providers with the right to access payment operating systems, including Latvijas Banka's ESA system. This requires the adjustment of the accounting and segregation of customers' funds in order to ensure both the fulfilment of the requirements of the Law on Payment Services and Electronic Money and a sufficient balance on the accounts of the ESA system for the execution of payments. The actual entry of the first non-bank payment service provider into the ESA system took place on 11 April 2025. Major regulatory amendments related to the provision of instant payment services in the EU also entered into force in 2025. The segment had to introduce a verification of the IBAN and the name of the payee. The implementation of the Instant Payments Regulation is gradual and will end by 9 April 2027, when it will also be mandatory for payment institutions and electronic money institutions to ensure both the receipt and transmission of instant payments. To verify the segment's compliance with the regulatory requirements, Latvijas Banka conducted a self-certification survey of market participants on compliance with the Instant Payments Regulation at the end of 2025. Its results will be summarised in the first half of 2026.

In 2025, there was also an increased focus on how this market segment adheres to corporate governance principles. At the beginning of the year, an informative seminar was organised for market participants, and at the end of the year, Latvijas Banka conducted a remote survey in the field of corporate governance, the results of which will be summarised in the first half of 2026.

Payments (excluding e-money) made in the payment institutions and electronic money institutions segment decreased slightly in 2025 compared to 2024. The market is still relatively small and the majority of it is made up of a limited number of market participants, so changes in one institution may affect the segment as a whole. Despite this, the gross revenues of payment institutions and electronic money institutions related to the provision of payment services remain broadly stable and increased in 2025.

 

Chart 19. Payments made in electronic money institutions and payment institutions, excluding payments in e-money (millions of euro)

 

Chart 20. Revenues of electronic money institutions and payment institutions from the provision of services (millions of euro)

The level of electronic money payments has shown an increasing trend in recent years. Payments increased by more than EUR 15 million (40%) in 2024 compared to 2023 and by more than EUR 4 million (8.6%) in 2025 compared to 2024. Meanwhile, the average amount of electronic money in circulation increased by 62.5% in 2025 compared to 2024.

Chart 21. E-money circulation in electronic money institutions (millions of euro)

Chart 22. Liquid assets and current liabilities of electronic money institutions and payment institutions (millions of euro)

 

The solvency ratios for this segment were, overall, above regulatory requirements at the end of 2025. The own funds met the requirements set by the institutions on an individual basis. The overall gross earnings performance of payment institutions and electronic money institutions stabilised, reflecting the sustainability and resilience of market participants' business models. Overall, during the reporting year, the market showed strong development trends and the planned increase in business volume.

Supervision of crowdfunding service providers

At the beginning of 2025, three crowdfunding service providers were operating in Latvia, while during 2025, Latvijas Banka issued three more operating permits. This brought the total number of crowdfunding service providers to six at the end of the year. All new operating permits were issued to facilitate the granting of loans and were received by SIA Ascend Finance, FLOW SIA, and CSP Growth Solutions SIA.

In the field of supervision, Latvijas Banka continued to focus, as a matter of priority, on investor protection issues, with an emphasis on verifying compliance with the requirements laid down in the legislation for crowdfunding service providers with regard to the disclosure and provision of information. Similarly to the previous year, Latvijas Banka found that crowdfunding service providers generally complied with the requirements imposed on them.

In its annual strategic interviews, which, as in 2024, also took place in 2025 with participants in this segment, Latvijas Banka mainly assessed the issues of the risks they face and how they manage these risks, as well as the implementation of their strategic plans. When assessing the risks affecting the functioning of this segment, crowdfunding service providers highlighted, as a key factor, the lack of quality investment opportunities in the market and the lack of awareness among potential project owners and investors about the functioning of crowdfunding service providers as well as the existing competition in alternative funding, which is often influenced by project owners making choices in favour of other forms of fundraising. In order to provide investors with a wider choice of projects to be financed, market participants assess options and conduct market research to attract project owners in other EU Member States. At the same time, there has been an increase in the share of foreign investors. Meanwhile, with regard to the impact of geopolitical risks, market participants noted various aspects: on the one hand, there has been an adjustment, while on the other hand, both investors and project owners remain cautious. Market participants also continued to note a number of desirable legislative changes to facilitate the activities of crowdfunding service providers and make them more efficient.

In view of the significantly higher number of crowdfunding service providers, it can be concluded that the segment continues to gain the confidence of the participants involved in it – investors and project owners – and its further development is expected.

The development trend of the segment is also directly characterised by an increase in the volume of projects funded. The total amount of funding raised on crowdfunding platforms reached EUR 47.2 million in 2025. Compared to 2024, it increased by 56% or EUR 16.9 million (EUR 30.3 million was raised in 2024 and EUR 2.1 million in 2023).

By type of investor, investment by non-sophisticated investors continued to dominate in 2025, but their share decreased from 96.1% to 71.5% compared to 2024, mainly at the expense of an increase in the share of investment by professional investors from 2.6% in 2024 to 24% in 2025. Investments by sophisticated investors also showed a slight increase, from 1.3% in 2024 to 4.5% in 2025.

Chart 23. Investments by type of investor (%)

In terms of investor country, in 2025, the largest amount of financing – EUR 14.3 million – continued to be provided by Latvian investors, but their share of investment decreased from 53.1% to 30.2% of the total investment compared to 2024, while the investment amount decreased by EUR 1.8 million. Latvian investors were followed by Luxembourg investors with EUR 11.4 million or 24.1%, German investors with EUR 8.5 million or 18%, Cypriot investors with EUR 3.9 million or 8.3%, and British investors with EUR 2.3 million or 5% of total investments. Investments made by investors from other countries did not reach at least 3% of total investments, but together they accounted for EUR 6.8 million or 14.4% of total investments.

Chart 24. Investments by investor country (millions of euro)

 

Supervision of crypto-asset service providers

The reporting year saw rapid growth in crypto-assets. As of 2 January 2025, Latvijas Banka started accepting applications for authorisation to operate in accordance with the requirements of the Markets in Crypto-Assets Regulation (MiCA). Latvijas Banka introduced a pre-licensing process for crypto-asset service providers and received several applications during the year, which demonstrates the growing interest of companies in obtaining a licence. At the end of 2025, the first two licences of crypto-asset service providers were issued in Latvia, enabling services to be provided both in Latvia and other EU Member States. Local companies as well as companies from Poland, Lithuania, Spain, Germany, Türkiye, Canada, Great Britain, and other countries have shown interest in the licence of a crypto-asset service provider. This demonstrates Latvia's potential to attract international crypto-asset service providers.

During the reporting year, electronic money institutions showed an interest in issuing e-money tokens or stablecoins. Latvijas Banka continues consultations with potential issuers of e-money tokens.

In 2025, Latvijas Banka sent nine notifications to ESMA on a white paper for crypto-assets other than asset-referenced tokens or e-money tokens.

Challenges in this segment were created by the need for crypto-asset service providers providing a transfer service of crypto-assets with e-money tokens to obtain an additional licence from a payment institution. The need for a dual licence has posed a number of challenges in terms of additional capital requirements, revenue and expenditure calculations, and supervisory fees. Latvijas Banka, taking into account the requirements laid down in the Payment Services Directive, the Law on Payment Services and Electronic Money and Latvijas Banka's regulations and the practices of other EU Member States, started work during the reporting year on amending its regulations and adapting its reporting requirements.

Latvian crypto-asset service providers are currently operating in a complete, EU-harmonised and supervised market, laying the foundations for a stable, safe, and competitive financial market segment at both the local and EU level, with robust regulation in place and expert support available.

Supervision of foreign exchange trading companies

At the end of 2025, 15 foreign exchange trading companies and 38 foreign exchange cash buying and selling venues were operating in Latvia, mainly concentrated in Riga.

The volume of foreign exchange transactions (buying and selling) carried out by foreign exchange trading companies in 2025 exceeded both 2023 and 2024 figures, pointing to moderate but stable growth over a three-year period. In 2025, foreign exchange transactions amounted to EUR 204.4 million, which was EUR 7.2 million or 3.7% more than in 2024 (EUR 197.2 million) and EUR 2.3 million or 1.2% more than in 2023 (EUR 202.1 million).

In the reporting year, as in previous years, the most popular foreign currencies (both purchased and sold) were: US dollars, whose exchange transactions (purchase and sale) totalled EUR 118.6 million or 58.0% of the total amount, British pounds with transactions of EUR 27.0 million or 13.2% of the total amount, and Russian roubles with transactions equalling EUR 21.8 million or 10.7% of the total amount.

Chart 25. Volume of purchases and sales of US dollars (USD), British pounds (GBP), and Russian roubles (RUB) (millions of euro)

Some companies continued to face difficulties in exchanging Scandinavian currencies in 2025, including their return to the issuing countries. Given these difficulties, as well as efforts to find a solution to them, a coordinated evaluation was carried out at the EU level. Its purpose was to collect information on the volume of stocks of these currencies that currently cannot be returned by currency trading companies to the issuing countries.

During the reporting year, strategic interviews were organised with currency trading companies to identify segment development trends, key challenges, and risks. Economic, political, and geopolitical uncertainties were identified as the most important risks. The impact of those risks was mainly reflected in changes in the number of customers and, consequently, in fluctuations in the volume of transactions.

Some companies noted that a decline in demand for traditional currency exchange services was observed during the reporting period, which was attributable to a decrease in cash circulation and a shift of customers towards automated solutions.

Due to irregularities identified during an on-site inspection, a decision was taken in 2025 to suspend the provision of currency trading services by one company. Legal obligations were imposed on the company to eliminate the non-compliance of its activities with the requirements of the laws and regulations governing the risk of ML/TPF and the risk of sanctions within the prescribed time limits. At the end of the reporting year, the company had taken a number of measures to strengthen the internal control system, including improved procedures and processes, and the decision on the imposed operational restriction was revoked.

Latvijas Banka's support instruments for financial technology development

In 2025, Latvijas Banka continued to provide advisory support to potential fintech market participants, facilitating clear and timely communication on the compliance of business models with licensing requirements, supervisory conditions, and other regulatory issues.

In 2025, Latvijas Banka's experts provided a total of 97 consultations to potential market participants. The main interest (51 consultations) concerned licensing arrangements and requirements for the provision of crypto-asset services and issuance of tokens. This was of interest to companies that are planning to start operations in accordance with the new MiCA regulation and assess Latvia as a potential home country for conducting their business. 37 consultations were provided on obtaining a licence for a payment institution and an electronic money institution and 4 on the provision of crowdfunding services. In addition, certain non-licensing issues were also examined, such as the possibility of connecting to Latvijas Banka's ESA system and making direct payments in the Single Euro Payments Area (SEPA).

Through the consultation option, potential market participants have the possibility to receive support in the pre-licensing phase, including on the formulation of the idea as well as the preparation and evaluation of documents.

The central event in the field of fintech in 2025 was the Latvian Fintech Forum, which was organised by Latvijas Banka in cooperation with the Investment and Development Agency of Latvia and the Riga Investment and Tourism Agency for the fourth time on 30 September 2025. The forum brought together around 300 fintech ecosystem participants, supervisors, and policy makers from the Baltic States and other European countries to discuss the development of fintech.

The primary target audience of the forum were existing and potential participants of the fintech ecosystem, cooperation partners, financial institutions, legal advisory service providers, IT developers, and representatives of other sectors.

Chart 26. Visitors to the Latvia Fintech Forum 2025 by professional field (%)

 

The forum examined and analysed both aspects of the strategic development of fintech and practical issues for market participants, including licensing, supervision, payment services, and connection to the ESA system, etc.

During the forum, interested parties were able to receive answers to questions about the support mechanisms available to fintech start-ups in Latvia and Riga. There were also presentations by eight start-ups from the financial sector.

Development of the capital market

The number of issuers continued to grow in 2025, with 23 regulated market issuers admitted to trading on the Latvian capital market and 24 issuers admitted to trading on the alternative market (First North) at the end of the year.

Chart 27. Issuers of regulated and alternative markets (number; 2025 compared to 2024)

 

^{Source:https://nasdaqbaltic.com.}

The total amount of regulated market capitalisation at the end of 2025 was EUR 2 billion, while the total alternative market capitalisation at the end of 2025 reached EUR 496.3 million. The total capitalisation of the stock market as a percentage of GDP was 1.42%, while the capitalisation of the bond market as a percentage of GDP was 4.57%. Regulated market capitalisation increased in 2025 compared to 2024 (+6.5%), mainly based on the bond segment. Although there was a slight decrease in capitalisation in the alternative market, the data confirm that the market structure is becoming more resilient, with stable growth in the share segment. Meanwhile, the regulated market shows steady growth in both segments, which compensates for fluctuations in the alternative market and ensures the overall development of the market.

Chart 28. Regulated and alternative market capitalisation in 2025 (amount; euro; 2025 compared to 2024)

<sup>Source: https://nasdaqbaltic.com.
* GDP for 2025 calculated according to Latvijas Banka's forecasts +1.7% of GDP in 2024 current prices, see https://www.bank.lv/en/operational-areas/task-monetary-policy/forecasts.</sup>

The total turnover of the regulated market reached EUR 37.3 million in 2025, an increase of 16% compared to 2024. The total turnover of the alternative market was EUR 41.5 million. Despite some downturns, market dynamics in 2025 confirmed a change in a healthy structure: growth in the regulated market compensated for fluctuations in the alternative market. Investor activity in stock transactions continued to increase in both markets, indicating increasing interest and confidence in the domestic capital market.

Chart 29. Regulated and alternative market turnover (volume; millions of euro; 2025 compared to 2024)

^{Source: https://nasdaqbaltic.com.}

The total number of transactions in both bonds (+9.9%) and shares (+10.6%) continued to increase in 2025. This indicates an overall recovery in market activity. The regulated market continued to play a dominant role, accounting for more than 90% of all transactions in both segments and reflecting stable investor confidence. At the same time, the rapid growth of transactions in the alternative market, particularly in shares (+84.8%), points to a growing interest in more dynamic and younger issuers.

Chart 30. Transactions executed on the regulated and alternative markets (number; 2025 compared to 2024)

^{Source: https://nasdaqbaltic.com.}

In order to facilitate market development, Latvijas Banka carried out a number of activities in 2025.

• On 12 February 2025, the fifth Latvian Capital Market Forum "From Strategic Decisions to Investor Confidence" took place. The forum brought together industry experts, investors, business representatives, and policy makers to promote discussions on the opportunities offered by the capital market and on what is needed to attract private and institutional investors to the Latvian capital market, and what more can be done to accelerate the development of the Latvian capital market in order to make the most of its potential.
• At the forum, Latvijas Banka presented its new 10-step programme for the development of the Latvian capital market 2.0. The programme includes concrete measures to promote both public and private investment and a viable and dynamic capital market, as well as to ensure effective regulation and the improvement of financial literacy.
• The Securities Sandbox established by Latvijas Banka continued its activities during the reporting year. By the end of 2025, eight companies had received support and tested their willingness to raise financing on the Latvian capital market. A participant of the Securities Sandbox, SIA Rīgas ūdens, successfully raised EUR 20 million in its first public offer of European green bonds in the summer of 2025. At the beginning of 2026, the decision to prepare for a public listing of shares on the stock exchange was also taken by a member of the Securities Sandbox, SIA Rīgas namu pārvaldnieks.

 

Capital market supervision

On 1 January 2025, the requirements of the Law on Sustainability Disclosures, adopted in autumn 2024, entered into force:

• an obligation for all large undertakings that were not previously subject to the requirement to prepare a non-financial statement for a sustainability report;
• an obligation for undertakings that were already required to prepare a non-financial statement to include a sustainability report in their management report when submitting their annual report for the year 2024.

The requirement aims to provide both publicly available and comparable information, and to understand the impacts of an undertaking's activities on sustainability factors such as environmental, social, human rights, and governance. The Law on Sustainability Disclosures lays down the obligation of the subject of the law (undertaking) to prepare a sustainability report and a consolidated sustainability report (if any) as part of the undertaking's annual report and to include them in the undertaking's management report. The sustainability reporting should be prepared in accordance with the European Union sustainability reporting standards.

In light of the above, in 2025, Latvijas Banka carried out checks on the 2024 sustainability reports prepared by issuers.

In addition to the above, Latvijas Banka carried out the supervision of issuers, focusing on the following activities:

• timely checks on regulated disclosures;
• in-depth reviews of annual and interim reports;
• checks on the consistency of the information published by issuers;
• checks of the 2024 corporate governance reports;
• verification of the submission of remuneration reports;
• study of the remote conduct of shareholders' meetings of joint stock companies and the practice of voting prior to the shareholders' meeting;
• monitoring of share buy-back transactions.

In 2025, Latvijas Banka initiated three administrative processes. One was launched for the non-publication of the audited annual report. A fine of EUR 6 000 was imposed on the issuer. A second administrative procedure against a financial instruments market participant was initiated for failure to submit a notification regarding the acquisition and loss of a significant holding. A fine of EUR 40 000 was imposed on the operator. A third administrative procedure against a financial instruments market participant was initiated for failure to submit a notification regarding the failure of a person closely associated with the person exercising management functions to submit transactions in the issuer's financial instruments, and failure to submit a notification regarding the acquisition and loss of a significant holding. A fine of EUR 27 500 was imposed on the operator. In addition, Latvijas Banka issued six remarks to issuers in 2025 regarding the late disclosure of regulated information.

Development of investment services

The number of licensed investment firms remained unchanged in 2025, with a total of 10 market participants continuing to operate under a licence issued by Latvijas Banka. At the end of 2024, there was no change in their distribution according to the amount of initial capital. Some investment firms developed the activity by extending the product scope of the licence or cross-border activity, while some investment firms extended the scope of the licence to additional investment services or side-packages.

Chart 31. Number of investment firms by amount of initial capital

The total assets of this segment reached EUR 22.5 million on 31 December 2025, an increase of 17.7% year-on-year. This was mainly due to an increase in intangible assets linked to increased investments in IT development. Claims on MFIs also accounted for a large part of the assets.

Chart 32. Size and structure of the investment firms' assets (amount; millions of euro; 2025 compared to 2024)

In order to strengthen financial resilience and customer service capacity, the paid-up share capital of investment firms was increased by EUR 19.5 million in 2025. Capital and reserves, on the other hand, increased by 1.1%.

Chart 33. Capital and reserves of investment firms (amount; millions of euro; 2025 compared to 2024)

Despite the adverse sentiment and volatility in financial markets in 2025, as well as the high level of uncertainty, the number of investment firm clients and the amount of assets held continued to grow. Namely, the total number of investment firms' customers reached 411 thousand at the end of 2025, an increase of 4.1% compared to the end of the previous year.

Chart 34. Number of investment firms' customers (number; thousands; 2025 compared to 2024) 

The sales volume of financial instruments at the end of 2025 reached EUR 887.8 million. During the year, the assets under management reached EUR 545.1 million, while assets in custody increased by 22.8% and reached EUR 875.1 million.

Chart 35. Financial instruments sold

Chart 36. Assets under management and in custody (amount; millions of euro)

 

Despite investor confidence, investment firms ended 2025 with a loss of EUR 3.8 million, and the average return on equity (ROE) of the investment firm segment was negative in 2025 (-30.8%). Such indicators were due to investments made at improving efficiency in IT systems. At the same time, net commission income, which accounts for the most significant part of investment firms’ revenue, increased by 18.4% year-on-year and reached EUR 21.1 million.

Regulatory compliance remained high, with a capital adequacy ratio (158.3%) and a liquidity ratio (455.2%) well above the minimum requirement (100%).

 

Chart 37. Profit

 

Chart 38. Profitability and regulatory requirement indicators

 

Supervision of investment firms

In order to ensure a reasonable regulatory environment which is proportionate to the size of the market and to make the requirements for market participants clear and unambiguous, a Simplification and Burden Reduction Project was launched in 2025, including a number of initiatives to improve the framework for the functioning of investment firms.

Work on implementing the updated requirements of the Markets in Financial Instruments Directive (MIFID II) continued with a view to promoting the quality of financial services and products, strengthening the protection of customers' interests, as well as enhancing customers' confidence in the financial sector and providing the necessary clarifications on their application in practice. In the financial stability and capital requirements of investment firms or prudential area, the review process of the Investment Firms Regulation and Investment Firms Directive continued to be studied and explained to market participants.

In order to ascertain how investment firms comply with the requirements of the regulatory enactments regarding remuneration policies and practices, Latvijas Banka conducted a remote thematic review of the compliance of the investment firms' remuneration policies and practices at the individual level with the regulatory enactments. After the results of the inspection were compiled, investment firms received information on the shortcomings identified and recommendations for the improvement of remuneration policies and practices.

To promote transparency and strengthen investor protection, Latvijas Banka conducted a financial market survey and informed the public about the unlicensed investment service providers identified therein, which offer financial services without the necessary authorisation.

In addition, Latvijas Banka carried out the supervision of investment firms, focusing in 2025 on the following activities:

• remote thematic checks of investment firms on ensuring the sustainability knowledge and competence of their staff;
• verification of the reporting of securities financing transactions;
• verification of the reporting of derivative contracts;
• remote thematic checks of investment service providers on compliance with sustainability disclosure requirements;
• ensuring the compliance of the actions or activities of market participants;
• SREP:

As a result of the SREP, the Supervisory Committee of Latvijas Banka decided to impose a number of supervisory measures and recommendations on two investment firms.

Supervision of the trading venues for financial instruments and the Central Securities Depository

The year 2025 was intense in the operations of AS Nasdaq Riga due to the activity of large bond issuances, as well as new bond issuers' market entry.

Supervision of the regulated market – AS Nasdaq Riga – and the multilateral trading facility or alternative market First North in 2025 focused on:

• pre-trade and post-trade disclosures;
• cooperation on the market integration of issuers;
• ensuring appropriate trading of financial instruments;
• assessment of regulation compliance and decisions of AS Nasdaq Riga.

According to the results of the activities carried out, AS Nasdaq Riga ensured the circulation of public information and market transparency.

Supervision of the central securities depository Nasdaq CSD SE in 2025 focused on:

• annual compliance assessment under Article 22 of the Central Securities Depository Regulation (financial stability, business risk, capital requirements, operational risk, business continuity risk, legal risk, evaluation of the functioning of the securities settlement system, operation of links, incident management, cyber resilience, recovery plan, internal control system, governance, availability of depositary services, depositary links, outsourcing, disclosure, and depositary procedures in case of a participant's insolvency). As a result of the assessment, recommendations were made to the depositary;
• improvement of the risk assessment methodology of the central securities depository;
• regular off-site supervision activities (evaluation of reports and other information submitted, meetings with the responsible employees of Nasdaq CSD SE);
• cooperation within the Supervisory College of Nasdaq CSD SE with the supervisory authorities and central banks of Lithuania, Estonia, and Iceland (two meetings of the Supervisory College took place).

Supervision of trading in financial instruments and investor activities

Monitoring of trading in financial instruments and investor activities in 2025 focused on:

• monitoring the trading of financial instruments;
• reviewing reports submitted by market participants on suspicious transactions and orders;
• substantive testing of suspicious transactions (market manipulation, insider dealing);
• cooperation and exchange of information with supervisory authorities of other countries;
• timely and correct submission of investor statements.

Transparency of investment communication

There are particular risks with the dissemination of investment-related information via social media. Missing or incorrect information can have significant financial consequences for consumers. ESMA has published a fact sheet addressed to financial influencers. The fact sheet explains the minimum legal and material requirements to be met when providing information on financial products.

In order to ensure additional protection of the interests of Latvian customers, Latvijas Banka in 2025:

• carried out a thematic review of the authors of digital content (influencers) distributing investment-related information on social media, aimed at identifying and assessing the practices of investment service providers using the authors of digital content in their public relations and communication activities, as well as the compliance of the content distributed by the authors of digital content with regulatory requirements. The review assessed the cooperation of investment service providers, including credit institutions and investment firms, with the authors of digital content, as well as the investment-related information disseminated by the selected authors of digital content on social media;
• held a remote seminar for investment service providers to provide up-to-date information on communication in the field of investment services provision;
• held an open discussion entitled "Finance + influencers = finfluencers. We in the middle. How to navigate?" during the Financial Literacy Week 2025 .

Monitoring of information and communication technologies and security risks

Latvijas Banka's progress in implementing the digital operational resilience framework

In order to provide the legal preconditions for the application of the requirements for digital operational resilience of the financial market and the use of artificial intelligence, the Law on Digital Operational Resilience and Use of Artificial Intelligence in Financial Markets was adopted and entered into force on 1 October 2025. The purpose of the law is to ensure that financial sector institutions are able to operate safely and continuously, also in cases of digital disruptions, cyber-attacks, or technological risks. The framework identifies the financial market participants to whom the full and simplified digital operational resilience requirements apply. The law also prescribes the use of artificial intelligence in the field of finance to ensure responsible, transparent, and safe use of technologies.

During the reporting year, Latvijas Banka developed digital operational resilience requirements for financial market participants that are not subject to the requirements of the Digital Operational Resilience Regulation (DORA), including small AIF managers, insurance intermediaries, and credit unions. Latvijas Banka's Regulation No 409 of 5 January 2026 "Requirements in the field of operational continuity and resilience for financial market participants not subject to Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022 on digital operational resilience for the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014, (EU) No 909/2014 and (EU) 2016/1011" entered into force on 15 January 2026. The Regulation aims to ensure a common approach and action on digital operational resilience requirements, also for small financial market participants, thereby strengthening the cybersecurity and digital operational resilience of the financial sector. This is completed so that all financial market participants are able to operate safely also in case of cyber threats or technological disruptions. The requirements for financial market participants shall be applied considering the principle of proportionality and a risk-based approach, taking into account the scope of activity, the number of staff, the type of services provided, as well as their complexity and the overall level of IT use.

Progress by Latvijas Banka in the implementation of the regulation on the use of artificial intelligence

On 1 August 2024, the first EU comprehensive AI framework, the Artificial Intelligence Act (AI Act), entered into force and is directly applicable in all EU Member States. The AI Act sets out a series of harmonised rules and tasks to be carried out by EU Member States in order for the requirements referred to therein to be implemented in national law by 2 August 2026. The requirements for the use of artificial intelligence laid down in the AI Act shall apply to financial market participants in accordance with Article 2 of the AI Act.

Given that most of the requirements of the AI Act will apply from 2 August 2026, Latvijas Banka participated in the implementation of several supervisory, analytical, and practical implementation support measures related to the AI Act during the reporting year, both in the EC thematic working sub-groups at the EU level and in the European System of Financial Supervision, which consists of three supervisory authorities: ESMA, EBA, and EIOPA. Latvijas Banka prepared and published the supervisor's expectations regarding the use of artificial intelligence in credit institutions, including the need for robust governance and control in view of the gradual application of the requirements of the AI Act.

Explanations on the application and supervision of the AI Act in relation to the use of artificial intelligence in the financial sector and related guidelines have been published on the website of Latvijas Banka, linking them to broader aspects of digital operational resilience and ICT risk management in the financial market in the context of DORA.

Cyberspace of the European Union

According to data provided by the European Union Agency for Cybersecurity, in 2025 cyber incidents in the EU financial sector amounted to 4.7% of all cyber incidents for which data have been collected. They are characterised by highly targeted attacks to disrupt access to services. The threat structure was dominated by distributed denial-of-service (DDoS) attacks accounting for 83.5% of fixed incidents in the financial sector, significantly exceeding the proportion of cybercrime cases (14.8%), and state-supported or state-interested activities (1.7%). This suggests that the financial sector is particularly exposed to publicly visible, fast-track, and scalable activities, the main aim of which is to disrupt the functioning of services and create mistrust in the financial system as a whole. In 2025, Latvijas Banka did not receive reports of major ICT-related incidents caused by successful unauthorised access or intrusion into the systems of financial market participants.

The number of cyber incidents in the financial sector reached 11% of the high-impact incidents reported to the European Union Agency for Cybersecurity under the Security of Network and Information Systems Directive.

Overall, the risk profile of the financial sector points to increased operational and reputational risk due to the large scale of DDoS attacks and the critical role of banking services in day-to-day settlements.

ICT security and cyber risks in Latvian cyberspace

Cyber incidents in Latvia in 2025 included events that compromised processed data or the availability, authenticity, integrity, and confidentiality of services offered by, or accessible through, network and information systems. In addition, indirect risks related to supply chains and external service providers, which are used by attackers as the most convenient way to access the target infrastructure, increased. Since Russia's full-scale invasion of Ukraine, not only are cyberattacks increasing in scale but also in complexity, while attackers are increasingly adapting to defensive measures. This in turn contributes to the development of appropriate technological protection solutions and the strengthening of digital operational resilience capacities.

Focus areas for ICT risk monitoring in the financial sector

ICT incident management

2025 was the first full reporting period during which financial market participants fully applied the DORA requirements for reporting major ICT-related incidents, as well as the related regulatory technical standards, including the Regulation on the Content and Time Limits for Reports.

In accordance with DORA requirements, Latvian financial market participants are obliged to report major ICT-related incidents without undue delay by submitting an initial notification, an interim report, and a final report within the set deadlines. The framework aims to ensure timely information to supervisors, as well as to promote a common approach and a high level of digital operational resilience in the financial sector.

In the first half of 2025, the number of major ICT-related incident reports was relatively low. This reflected differences in the scale and service profile of institutions, as well as a gradual adaptation to the new reporting requirements. During the year, reporting discipline and understanding of materiality criteria improved significantly. This was facilitated by Latvijas Banka's explanatory work on DORA requirements and supervisory expectations, as well as practical experience in identifying and classifying incidents.

Financial market participants are increasingly aware of the thresholds for significant incidents and the principles for the application of the reporting obligation. Reporting major ICT-related incidents is not a formal administrative obligation but part of an effective ICT risk management framework. At the same time, where an incident does not reach the materiality threshold, market participants shall be able to reasonably assess its impact and, where necessary, inform the relevant competent authorities responsibly.

Readiness to report ICT-related incidents

In July 2025, Latvijas Banka carried out an inspection of the readiness of financial market participants to report major ICT-related incidents in accordance with DORA requirements. The results of the inspection showed that the majority of market participants (74.5%) had set up internal procedures for identifying, classifying, and reporting such incidents, but in some cases clarifications were needed as regards the application of the materiality thresholds and the respect of deadlines. 18.2% of financial market participants were not ready to report major ICT-related incidents.

Through focused monitoring activities, work was carried out with relevant market participants to improve internal procedures and fine-tune reporting processes. This resulted in more uniform and timely reporting in the second half of the reporting year, as well as clearer incident classification practices.

Extent of major ICT-related incidents

Latvijas Banka received 12 reports on major ICT-related incidents in 2025 (10 in 2024 for payment services only; submitted by payment service providers).

Chart 39. Major ICT-related incidents (number)

 

In nine cases, reports were submitted by credit institutions or their affiliated undertakings. This indicates a high level of maturity of reporting in this segment. In other financial market segments, the achievement of materiality thresholds may be objectively less frequent, taking into account the scale of the services, the number of customers, and the size of the transactions.

The impact of the incidents mostly took the form of temporary unavailability of certain financial services to customers. In one case, the services of the institution were completely unavailable for a period of time. No cases of significant threat to financial stability or systemic disruption of financial markets were identified in 2025.

The operational actions of market participants to prevent incidents and restore services, as well as timely information to customers through their websites, mobile applications, and social media platforms is a positive development.

An analysis of the reports on major ICT-related incidents during the reporting year shows that the greatest impact was related to the stability and availability of ICT services provided by third parties. This reaffirms the dependence of the financial sector on external service providers, including the cloud, and infrastructure solutions they offer.

Incidents in this area in 2025 were related to:

• downtime or technical disruption of ICT services provided by third parties;
• internal system configuration or software errors;
• disruptions of infrastructure components.

Chart 40. Causes of ICT-related incidents (number)

Two of the reported cases had a significant operational impact. In one case, the market participant's infrastructure was affected at the level of the data centre, leading to a wider unavailability of services for a period of time. In the second case, the impact was related to the disruption of a global ICT service provider, which had an impact on the international availability of services for several hours.

In both cases, the situation was immediately controlled, business continuity plans were activated, and restoration measures were implemented, thus limiting the duration and extent of the impact of the incident. No consequences were identified that would pose a systemic risk to financial market stability.

Target verification of the classification of major ICT-related incidents

In 2025, Latvijas Banka carried out a target verification of compliance of the classification, reporting of, and lessons learned from major ICT-related incidents with the requirements of DORA and related implementing technical standards.

The verification assessed the following aspects:

• application of incident classification criteria;
• arrangements for the preparation of initial, interim, and final reports;
• mechanisms for meeting deadlines;
• the lessons learnt and their documentation;
• the relevance and interlinkage of internal procedures.

The bulk of the verification consisted of an analysis of documentation submitted by operators, including policies, procedures and registers, and practical cases.

A negative signal is the fact that a significant part of market participants updated the incident management and reporting procedures directly after receiving the request sent by Latvijas Banka for the purpose of target verification. This indicates that, in some cases, the maintenance and regular review of procedures is not sufficiently integrated into day-to-day management practices.

It is a positive fact that a small number of serious infringements were detected. Several market participants received remarks about the inadequacy of the documentation, and Latvijas Banka set deadlines for remedying the deficiencies. In four cases, the identified deficiencies were assessed as significant and in the other cases as non-conformities of medium or low importance.

Assessing the quality of the actual reports and the results gathered in July 2025 on the ability to fully apply the requirements of DORA and related implementing technical standards, it can be concluded that around 58–71% of market participants were able to meet all requirements without significant gaps. It should be noted that these data also include non-initiated or inactive financial market participants that have a negative impact on the overall indicator.

Supervision of ICT third-party service providers and submission of a register of information

Pursuant to Article 28 of DORA, financial market participants are obliged to keep a register of information on ICT services provided by third parties and to submit it at the request of the competent authority. The purpose of the register of information is to provide transparent and structured information on financial institutions' dependencies on ICT third-party service providers, including the identification of third parties involved in critical and important functions, as well as the assessment of concentration and systemic risks.

In 2025, the first verification of the submitted register of information data was carried out in line with the requirements of the implementing technical standards. In the case of significant institutions, the register of information data were submitted on a consolidated basis, in cooperation with the ECB within the SSM. Less significant institutions and participants of other financial market segments submitted the register of information data directly to Latvijas Banka.

As a result of the inspection, Latvijas Banka found the following:

• 40% of all cases assessed were compliant with the validation by both Latvijas Banka and EBA, indicating a relatively robust data quality base;
• 26% of all cases assessed were compliant with the validation by Latvijas Banka, but not with the validation by EBA, which points to discrepancies in the interpretation of EBA rules, in the data model, or in the use of the taxonomy;
• 7% of all cases assessed did not correspond to any validation checks, indicating significant input, structural or technical errors and the need to strengthen pre-submission checks and internal controls;
• in 27% of cases, the register of information data are not submitted to Latvijas Banka as they are submitted to the ECB on a consolidated basis within the SSM (in the case of significant institutions).

The analysis of the register of information data in 2025 provided a comprehensive picture of the structure and concentration of ICT services provided by third parties to market participants in Latvia.

Chart 41. Register of information data breakdown by number of contracts in 2025

The results of the check show that, by number of contracts, the register of information is dominated by support and standardised services (e.g. provision of services related to helpdesk support and first-level support in the event of an ICT-related incident, software licences, infrastructure components). In the context of DORA, this points to a broad involvement of third parties in the day-to-day operation and, consequently, to the need to consistently apply risk management requirements for ICT services provided by third parties throughout the supply chain.

As a result of the analysis carried out, the completeness of the information register data regarding sub-service providers and multi-level cloud infrastructure solutions is a critical prerequisite for the full assessment of concentration and systemic risks.

Chart 42. Register of information data breakdown by total cost of contracts in 2025 (millions of euro)

 

Analysis of the register of information data on the cost of ICT services provided by third parties shows that concentration is more pronounced in categories such as ICT operational management (provision of services related to configuration, maintenance, installation, capacity management, and business continuity management of infrastructure (systems and hardware, except network)), ICT development, and cloud services (especially software as a service). In the context of DORA, these are segments with a potentially higher impact on critical or important functions and should be analysed in depth as a matter of priority: contractual conditions, incident management, audit rights, supplier exit strategies, and concentration risk mitigation.

In 2025, Latvijas Banka organised two thematic seminars and implemented additional activities to explain the technical requirements of the register of information and to answer frequently asked questions.

Targeted review of digital operational resilience

In 2025, Latvijas Banka carried out an in-depth assessment of digital operational resilience aspects as part of the monitoring process, implementing a targeted deep dive assessment in the area of digital operational resilience. This activity covered less significant credit institutions and investment firms. The review focused on the existence and quality of the ICT risk management framework, business continuity and recovery plans, as well as digital operational resilience testing practices.

During the review, Latvijas Banka found that the planning of digital operational stress tests in several institutions was not sufficiently structured or risk-based. Testing activities are often carried out in a fragmented manner or in response to specific events, rather than as part of a systematic and risk-based plan. In some cases, reliance was found mainly on internal tests carried out by the authorities themselves, without the involvement of independent or external verification elements.

On the positive side, most institutions have developed business continuity and recovery plans and are operational in crisis situations. During the dialogues, financial market participants confirmed that these plans are updated and based on identified critical functions. However, Latvijas Banka did not find a sufficient link between the identification of critical functions, resilience targets (e.g. restoration time objective (RTO), restoration point objective (RPO)), and actual testing practices in all cases. In the investment firms segment, business continuity and recovery plans focus more on the renewal of IT systems, paying insufficient attention to the digital operational resilience of business processes.

A lack of human resources and expertise in digital operational resilience and testing was identified in several institutions. Operators should pay more attention to both the regularity of testing and the ability to perform more complex or scenario-based tests.

The target review assessed readiness to perform in-depth testing, including scenario-based or threat-led penetration testing. Latvijas Banka found that only some institutions envisaged such a testing approach, but that it was not systematically implemented in practice.

Taking into account the DORA requirements for digital operational resilience testing, Latvijas Banka drew the attention of market participants to the need to develop in-depth testing mechanisms, especially in relation to the resilience of critical functions and complex cyber threat scenarios.

The review also assessed the existence and quality of the ICT security and ICT risk management framework. Overall, the institutions have established policy and procedure-level documents, but digital operational resilience issues are not always fully integrated into the overall risk management framework.

The review highlighted the need to ensure a clear link between the following:

• ICT risk assessment;
• identification of critical functions;
• testing planning;
• incident management mechanisms.

Monitoring the risk of money laundering, terrorist and proliferation financing, and sanctions

The purpose of monitoring AML/TPF risk and sanction risk is to ensure that adequate and effective control mechanisms are in place in the financial sector to prevent the use of the financial market for money laundering and breach of sanctions. This is also essential to enable financial institutions to cooperate with other financial institutions around the world, to reduce the cost of international payments and speed up payment execution. If the control systems put in place by a financial institution are not effective, other financial institutions may refuse to cooperate with it, as such cooperation may expose those financial institutions to the risk of being involved in money laundering and breach of sanctions.

Evaluation of MONEYVAL

The most important developments in the field of AML/CFT in 2025 were the finalisation of the MONEYVAL evaluation process and the approval of the report by the FATF and MONEYVAL plenary in June 2025. Two years ago, Latvia, as the first country to do so, applied for a new evaluation round. The report was published in February 2026. A total of around 800 participants from 200 countries took part in its evaluation. This assessment is a very important international demonstration of the country's ability to fight financial crime.

The report underlines that, in the focus areas of Latvijas Banka, the awareness of financial sector risks is data-based and compliant, measures applied by supervisory authorities are based on risk assessment conclusions, Latvijas Banka has a clear understanding of the risks faced by financial institutions, and supervisory effectiveness is high. In the largest segment of the financial market, i.e. credit institutions, risks have significantly decreased. Compliance in all sectors has been supported by an efficient supervision process, and training and communication offered by supervisors. This has been the priority of Latvijas Banka in recent years, as a common understanding of regulatory requirements forms the basis of a risk-based approach in practice.

With this evaluation, Latvia has laid a stable foundation for developing a secure, accessible, and innovative financial sector that is closely integrated with Europe and trusted by strategic partners and investors.

Availability of financial services

Since 2020, Latvijas Banka (formerly the FCMC), as the national supervisor of the financial sector, has systematically reviewed the regulation, significantly changed its inspection approach, and carried out extensive educational work. According to a 2025 survey, 85% of Latvian entrepreneurs do not experience problems in cooperating with Latvian commercial banks.

A positive trend has been observed since 2020, with a decrease in the number of cases where customers are refused a business relationship or it is terminated. The number of refused or terminated business relationships is only 0.2% of the total number of customers served in the segment of credit institutions.

 

Chart 43. Number of refused or terminated business relationships and refused occasional transactions (number)

 

In order to address specific cases where customers encountered problems in obtaining financial services, Latvijas Banka organised several mediation processes between the customer and the credit institution concerned in 2025.

Inspections and their results

In 2025, Latvijas Banka carried out seven on-site inspections in the area of AML/TPF risk and sanction risk management: in three credit institutions, two investment firms, one electronic money institution, and one AIF manager. The inspections carried out identified certain weaknesses in the institutions' internal control systems, including customer due diligence and transaction monitoring processes, in particular the application of a risk-based approach in practice according to the type of activity of the institution. In all cases where deficiencies were identified, Latvijas Banka required that a remedial plan be drawn up. In light of the infringements identified during the 2024 inspections, Latvijas Banka imposed a warning on one payment service provider operating on the basis of freedom of establishment in Latvia in 2025 and suspended one currency trading company for a period of time.

During the reporting year, financial institutions regularly submitted the procedures developed for the development of a new product or service to Latvijas Banka. Following the assessment of these procedures, Latvijas Banka issued recommendations to remedy the deficiencies in order to ensure the most effective functioning of the internal control systems of financial institutions as early as possible.

Changes in the regulatory framework

Improving the legal framework for operation of financial market participants

A simple, effective, and understandable legal framework is a prerequisite for the successful development of a financial sector; therefore, its improvement is an integral part of the daily work of Latvijas Banka, which is closely related to both strengthening the stability of the financial system and creating an environment for sustainable growth. Given that the regulation of financial services is harmonised in many areas, work on the improvement of regulation and initiatives at the European level is also essential, as part of which Latvijas Banka pays particular attention to proportionality aspects, including preparing proposals for improvements to the regulatory framework that would promote the development of small and dynamic segments of the financial sector and market participants, ensuring a proportionate and appropriate regulatory environment for them.

In 2025, the legal framework for the activities of financial market participants continued to be improved by amending national legislation at the initiative of Latvijas Banka, as well as implementing the requirements of EU directives and guidelines issued by EU institutions and ensuring the application of EU regulations. In order to effectively monitor the application of the framework, supervisory methodologies also continued to be refined by introducing a risk tolerance framework.

Key activities in 2025

Initiative to simplify the regulatory framework for the EU financial sector and promote competitiveness

In 2025, the EC launched a simplification initiative to boost the EU's international competitiveness (including reducing the administrative burden for the private sector as a whole by 25% and for small and medium-sized enterprises by 35%) by fundamentally reviewing the effectiveness of the application of the legislation. In 2025, the EC published 10 so-called Omnibus proposals under this initiative, which are expected to reduce administrative costs by almost EUR 12 billion. One of these proposals, the ESG Omnibus, provides EUR 4.5 billion in administrative cost savings from reducing the burden of sustainability disclosures (under the Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive, including by reducing the amount of information to be disclosed and setting a higher threshold for the disclosure obligation (reducing the number of financial market participants covered by around 80%). A separate directive adopted as a matter of urgency postpones the start-up date for disclosures to those financial market participants that were initially subject to this obligation in the context of the 2025 and 2026 financial statements until 2028. On 11 February 2026, the EC launched a targeted public consultation on the competitiveness of the EU banking sector, which also covers areas such as the competitiveness of the banking sector at the EU and global level, the EU single market and the banking union, as well as the complexity and effectiveness of the existing regulatory framework. The EC will include the results of the consultation when drafting a report on the competitiveness of the EU banking sector, which is expected to be published in 2026.

In addition to the changes to the regulatory framework proposed by the EC, the European Supervisory Authorities for the financial sector are developing their proposals to simplify requirements and processes in parallel. The EBA plays an important role in increasing the effectiveness of prudential supervision of the banking sector and has identified in its 2025 October report 25 priority measures to improve the supervisory environment, among which the following can be highlighted:

• a review of the criteria for the designation of small and non-complex institutions subject to proportionately relaxed requirements in a number of areas;
• a targeted review of the materiality of the second and third tiers of its mandate (L2 and L3) for the issuance of an EU framework to ensure a stable, efficient, and secure functioning and supervision of the Single Rulebook for the banking sector, while not creating undue detail of requirements and administrative burdens;
• making the supervisory data reporting framework more efficient by excluding less useful data points, improving the coordination of data requests, and ensuring higher predictability of changes to reporting requirements and sufficient time for their implementation in the IT systems of market participants.

ESMA and EIOPA also made significant contributions to the preparation and implementation of proposals to increase the efficiency of the financial sector in 2025. As a follow-up to the previous work on optimising data collection processes, ESMA submitted a document with a proposal for integrated fund data collection on 23 June 2025 for public consultation, with an opinion to be issued to the EC in Q2 2026. This initiative aims to eliminate fragmentation in the supervision of capital markets and reduce overlaps between different reporting regimes. On 8 April 2025, EIOPA published its strategic approach to reducing administrative burdens, which includes a significant shortening of the Solvency II Guidelines, a simplification of reporting templates, and a review of the frequency of stress tests. On 10 July 2025, EIOPA also launched a public consultation on amendments to supervisory reporting and disclosure requirements to reduce the administrative burden of reporting by insurers and reinsurers.

In December 2025, the Governing Council of the ECB, for its part, endorsed the recommendations of the High-Level Group on Simplification established nine months earlier to reduce administrative burdens and simplify banks' prudential regulation, supervision, and reporting processes. Several proposals seek to optimise the structure of capital requirements by merging the existing layers of capital buffers into two distinct categories and by clarifying the role of capital instruments of different quality (AT1, Tier2) in the framework of capital requirements. It also encourages the introduction of a simplified regime for smaller banks, significantly extending the existing proportionality framework, as well as the development of an integrated bank data reporting framework that harmonises supervisory practices across the EU.

In 2025, Latvijas Banka actively participated in the drafting of documents on several strands of the simplification initiative.

• A proposal for possible improvements to the current O-SII identification methodology was prepared and discussed with the EC, the ECB, and the EBA, which would allow for more accurate identification in countries with relatively small (against the size of the economy) banking sectors. In Latvia, these improvements were already put into practice through the annual identification of O-SIIs and the setting of the O-SII capital buffer requirement applicable to them in December 2025. A revision of the O‑SII identification methodology at the EU level would make it possible to ensure a more proportionate approach also in other areas of bank regulatory requirements where it is used, including the identification of small and non-complex institutions and the application of lighter requirements within the SRM.
• Experts of Latvijas Banka actively participated in the work of the EBA and ESMA in the development of amendments to the investment firms prudential framework, including the development of a conceptual opinion paper with significant proposals for additional amendments regarding proportionality in the application of prudential requirements to Class 2 investment firms.
• There was involvement in the ECB SSM and EBA reporting simplification projects aimed at reviewing the scope of both the reporting required by the implementing technical standards and the data requests at the national level by analysing existing data and identifying data that are less used in supervision or available from other sources, with a view to reducing reporting requirements and costs by around 25%4Report on the efficiency of the regulatory and supervisory framework.pdf
  . Work on reducing the reporting burden at the national level is ongoing and data needs are assessed with particular care through amendments to the Regulations. At the same time, information is being prepared for the inclusion of data requested at the national level in the EU public inventory register, where information on regular and ad hoc data requests made by EU Member States at the national level will be available to all interested parties.

Latvijas Banka actively participated in the development of regulatory simplification and competitiveness support measures promoted by EIOPA. They are intended to streamline insurance market regulation and reduce administrative burdens, while not compromising policyholder protection or financial stability.

• Reform of reporting and disclosure under Solvency II Directive: in July 2025, EIOPA launched a consultation on amendments to supervisory reporting and disclosure requirements. These amendments aim to reduce the reporting burden on insurers. As a result, the total number of reporting templates and data points would be significantly reduced, especially for small and non-complex undertakings.
• Recommendations on the proportionality framework: in early 2025, EIOPA issued technical advice to the EC on the introduction of the new Proportionality Regime for Solvency II, outlining how small and non-complex companies can benefit from reduced requirements.
• EIOPA's guidelines were revised and draft amendments to technical standards were developed in order to simplify them and reduce the administrative burden for companies.

Implementation of the amendments to the Directive on access to the activity of credit institutions and the prudential supervision of credit institutions (CRD VI)

Amendments to CRR and CRD VI were adopted in 2024 to implement the internationally recognised Basel standards on banking supervision (Basel III) in the EU. The amendments to CRR are directly applicable already from 1 January 2025. Several methods for calculating capital requirements were significantly changed in CRR which allows credit institutions to use more risk-sensitive approaches for the calculation of capital requirements and, consequently, the majority of credit institutions registered in Latvia to reduce capital requirements. In order to implement CRD VI, in 2025 Latvijas Banka, in cooperation with the Ministry of Finance, prepared proposals for amendments to the Credit Institution Law, the Law on Investment Firms, the Law on Latvijas Banka, and the Law on Prevention of Conflict of Interest in Activities of Public Officials.

These amendments provide for:

• a review of prudential requirements, including by clarifying the impact of the output floor on own funds requirements, increasing the focus on ESG risks in the prudential framework, setting requirements for the operation of a branch of a foreign credit institution, complementing supervisory powers, and setting out new supervisory tools;
• reducing the reporting burden for small and non-complex credit institutions.

Implementation of amendments to Solvency II Directive

The implementation of amendments to Solvency II Directive was initiated, which provide for amendments to the Insurance and Reinsurance Law, as well as several regulations of Latvijas Banka. The review of the Solvency II supervisory regime improves the prudential framework for EU insurers to improve proportionality, competitiveness, and long-term investment capacity. As a result of the reform, the reporting and administrative burden is reduced, especially for small and non-complex companies, while maintaining strong policyholder protection. The reform adapts key elements of technical provisions such as the risk buffer and the volatility adjustment to better reflect long-term guarantees and market conditions, as well as strengthens supervisory convergence, crisis management, and macroprudential supervision across the EU insurance market.

Implementation of AIFMD II

In 2025, in order to transpose the requirements of AIFMD II, Latvijas Banka, in cooperation with the Ministry of Finance, drew up proposals for amendments to the Law on Alternative Investment Funds and Managers Thereof and the Law on Investment Management Companies in order to fully implement the requirements of AIFMD II into Latvian law. AIFMD II aims to reduce the risks associated with the management of funds, to provide supervisors with greater transparency in the activities of managers, and to strengthen investor protection. The main changes planned are:

• certain requirements for managers of funds involved in lending, including concentration and leverage limits;
• enhanced liquidity risk management requirements for open-ended funds, including the mandatory use of liquidity instruments;
• stricter delegation requirements, with more monitoring information and more scrutiny of delegated functions;
• a wider choice of custodian;
• standardised provision of information on the operation of the funds.

In 2026, work will continue on the progress of amendments to these laws for approval by the Saeima.

Development of an institutionalisation project for the management of 3^rd pension pillar funds5Taking into account UCITS directive and IORP directive.

The project is aimed at consolidating the 3^rd pillar pension management system into a single pension manager in order to reduce the administrative burden and costs, increase operational efficiency and transparency, as well as to achieve higher profitability for pension system participants, strengthening the competitiveness of the market and the quality of supervision.

In 2025, amendments to the Private Pension Fund Law, the Law on State Funded Pensions, and the Law on Investment Management Companies were developed for the implementation of the project in order to establish a clear legal framework for consolidated activities and requirements for pension managers. In cooperation with the Ministry of Finance, work will continue in 2026 on the progress of amendments to these laws for approval by the Saeima.

Implementation of the risk tolerance framework in supervisory processes

Latvijas Banka continued to work on the improvement of supervisory processes, focusing on the efficiency and simplification of the processes. In 2025, the supervisory culture framework was strengthened, which provides for a risk-based, effective, and integrated supervisory approach.

A new concept of risk tolerance was also developed and implemented – a supervisory approach that allows supervisors to focus resources on the most important or current tasks and areas with higher risk and to give lower priority to other tasks.

A number of new supervisory processes were also introduced during the reporting year, including those strengthening the digital operational resilience of the financial market.

An enabling environment for innovative and safe financial services

Innovation development and solutions in the Latvian financial market

For the fifth year in a row, Latvijas Banka has been collecting information on the innovative solutions used by Latvian financial market participants, providing valuable insight into their technological transformation and allowing for the understanding of how widely and efficiently innovations are used in the financial sector.

187 respondents (84% of all market participants) participated in the 2025 survey on innovation. 55% of survey participants reported using innovative fintech solutions. Aggregated five-year data show steady growth, with only 44 companies using innovation in 2021 and 102 already in 2025.

For several years, the most active use of innovative solutions has been made by insurance brokers and insurance companies, as well as credit institutions. These segments demonstrate the utmost flexibility and readiness to adapt their services to the digital needs of their customers.

Chart 44. Number of market participants using an innovative solution in the provision of financial services

A significant trend in 2025 was the levelling of financial market segments: insurers and credit institutions were the most innovative in 2021, but almost all market segments were already innovating in 2025. This demonstrates that innovation is no longer a competitive advantage but a necessity, especially in view of customers' demand for fast, flexible, and transparent services.

Survey data also show a growing interest among companies in setting up in-house innovation teams – units responsible for finding, testing, and deploying new technological solutions. In the 2025 survey, 34 market participants indicated that they had set up a dedicated team within their organisation to explore or deploy innovative fintech solutions. This leads to the conclusion that not only the number of companies using innovations increased in the Latvian financial market in 2025, but also their readiness to work systematically on developing innovations.

 

Chart 45. Technologies most frequently used by financial market participants (number)

The results of the 2025 survey show that the trend to use new and innovative business models has been established in the Latvian financial market. Businesses are increasingly revisiting their traditional operating principles, introducing more flexible and customised approaches.

There has been a breakthrough in the use of AI solutions in the Latvian financial market in recent years. In 2021 and 2022, AI was mainly mentioned as a forward-looking direction, but it is now being used by a large number of market participants.

Chart 46. Technologies most frequently used by financial market participants (number)

 

The results of the 2025 survey show that the number of market participants using AI solutions has doubled compared to the previous year.

Chart 47. Market participants using artificial intelligence solutions for the provision of financial services (number)

Artificial intelligence solutions, such as ChatGPT or Copilot, are mainly used for everyday tasks as well as for marketing, customer service, product design, and development. Some market participants pointed to the use of AI tools for anticipating changes in investment strategy, fraud prevention, transaction monitoring as well as creditworthiness assessment.

Latvian financial market participants have contributed to significant practical benefits in 2025 by introducing AI solutions in their processes and services. According to market participants, they have observed the greatest benefits of artificial intelligence in increased business process automation, productivity, increased information processing speed, and resource optimisation. Companies note that the use of AI technologies has helped to significantly increase operational efficiency and reduce costs. However, AI technologies also pose significant challenges in terms of data security, governance, and transparency.

Market participants consider potential data leaks and privacy breaches, opacity of model operation as well as increased risk of cyber-attacks as the most important security risks and threats to the use of AI. At the same time, ethical aspects are also important. Without sufficient data quality and transparency, AI decisions can be discriminatory. In addition, there is a risk that over-reliance on AI solutions may lead to a loss of competence and decision-making control in companies.

Market workers take a variety of measures to ensure data protection and security in the context of AI. They are making increased use of data encryption technologies to protect sensitive information from unauthorised access. Training of employees on data security is being expanded to ensure that customer and company data are handled appropriately. Many companies put robust access control systems that allow for the accurate regulation of who has the right to access data and the management of algorithms in place.

In general, companies underline that investments in data security and governance related to the use of AI are becoming an essential part of strategic risk management.

Challenges in dealing with artificial intelligence

According to the survey, in 2025, the biggest challenges for market participants in dealing with AI were mainly limited resources, insufficient expertise, and data quality and security issues. These factors have a significant impact on the effective deployment and sustainable use of AI solutions.

While the uptake of innovation and the use of AI continue to grow, 39 companies reported in the 2025 survey that they face barriers that prevent or hinder the uptake of innovative solutions in certain market segments. For the most part, business representatives highlighted the lack of staff and resources in the company to develop innovations, as well as the regulatory burden that prevents the development of innovations more widely.

Survey data show that market players face a number of risks in deploying innovations. One of these concerns is the compatibility of technologies and the challenges of integrating legacy IT systems. Numerous companies continue to rely on platforms that lack compatibility with contemporary API architectures or AI solutions. This greatly complicates the integration of innovations and makes their development more costly. These challenges may be more pronounced in larger companies with a longer track record.

Data security and regulatory challenges also pose additional risks. Innovative solutions often outpace the legislative process. This creates uncertainty as to which technical or procedural standards need to be complied with. This aspect is particularly important when introducing AI solutions, where risks relate not only to data protection but also to ethical and transparency issues.

Use of innovation and AI in the supervision of financial market participants

Supervision technologies, or SupTech, is a specialized direction of Latvijas Banka's activities in order to ensure technologically advanced supervision.

In 2025, the Financial Technology Supervisory Department continued to develop a unified data processing solution that, with fewer human resources, ensures the receipt and processing of high-quality large-scale data for the performance of the supervisory analytics and decision-making function. One of the key elements is the internationally recognised and widespread use of the Extensible Business Reporting Language (XBRL) standard, which not only allows for the harmonisation of supervisory data reports used in the EU, but also ensures an identical approach at the national level. In 2025, more than 20 monitoring reports were produced, and market participants were provided with automated processing data input forms when they did not produce data in the technical XBRL format.

To improve the effectiveness of day-to-day supervision, a Virtual Monitor Workplace was developed, which allows joint work on different types of supervisory information.

Practical innovations are an integral part of the development of supervisory technologies, therefore Latvijas Banka expanded the use of cloud services in supervision by developing internal guidelines for safe use and introducing additional cloud services. This will facilitate a movement towards collaborative or shared solutions with market participants in the future.

The use of cloud services is closely linked to the deployment of AI solutions in day-to-day monitoring processes. In 2025, Latvijas Banka started a broad integration of AI into supervision. A number of AI assistants, which can be used in a secure manner and process not only public but also restricted information, were put in place, but they are only the first steps in the overall integration of AI into different supervisory processes, including licensing and prudential supervision.

Already today, AI assistants reduce the time spent on individual activities tenfold, e.g. when preparing a document compliance assessment or when searching for specific information in large-scale documents. The practical application already makes it possible to assess that these solutions also bring additional quality improvements.

Assistants introduced by the Financial Technology Supervisory Department in 2025 help to obtain a summary of the documents to be analysed, assess their compliance with regulatory requirements, prepare an analysis of financial indicators, identify and assess risks, as well as whether the document to be analysed has been prepared using AI. AI has great potential in supervisory work, therefore Latvijas Banka intends to incorporate a roadmap for the implementation of artificial intelligence into the next period's supervisory technology strategy.

Latvijas Banka has started work on the development of the next period's supervisory technology strategy. The main directions of the strategy, which will determine what types of projects and activities Latvijas Banka will carry out in order to ensure effective, timely, and high-quality supervision, will be:

• the use of AI at every stage of the efficiency- and quality-enhancing monitoring process;
• a convenient environment for timely analysis of market participant supervision data;
• convenient and full-fledged supervisory process management solutions;
• convenient solutions for market participants for cooperation with Latvijas Banka;
• coordinating the development of systems stemming from EU centralised decisions;
• improving the application of technologies used in the supervision process as well as enhancing technological skills.