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Press Release of November 12, 1998

 

 

On November 12, 1998 the Council of the Bank of Latvia approved the new "Regulations for Granting Credit Institution Operating Licences (Permits)". They will replace the "Regulation for Granting Credit Institution Operating Licences (Permits)" approved by the Bank of Latvia Council Resolution No. 31/3 dated March 14, 1996.

In July 1998, the amendments to the Law "On Credit Institutions" came into effect prescribing credit institutions supervision on the basis of consolidated financial statements and allowing the Bank of Latvia to agree with foreign credit institution supervisory bodies on exchange of information required for supervisory purposes. The new "Regulations for Granting Credit Institution Operating Licences (Permits)" have been drafted in compliance with the European Union (EU) Directives "On the Supervision of Credit Institutions on a Consolidated Basis" and "On the Improvement of Credit Institutions Supervision" taking into account said amendments to the Law, as well as supplementing and clarifying the regulations in accordance with the 1st and the 2nd EU Directive "Taking Up and Pursuing of Credit Institutions Activities" and the Basle Core Principles for Effective Banking Supervision.

The new regulations

1) Clarify and supplement the requirements of the Law "On Credit Institutions" that must be met by a newly established credit institution, a foreign bank or a bank registered in Latvia in order to receive a licence or permit to open a bank branch or a representative office.

2) List the documents to be submitted to the Bank of Latvia in order to receive the operating licence (permit) (formerly, there were separate lists of documents in addition to the regulation).

3) Set out the procedures for review of applications, decision making and issuing of documents at the Bank of Latvia.

4) Contain the requirement to submit the relevant documents to the Bank of Latvia upon registration with the Republic of Latvia Register of Enterprises and other institutions.

As regards consolidated supervision, the regulations clarify and supplement the requirements and specify the documents to be submitted to identify credit institutions' founders and owners, the founders' financial standing and their qualifying holdings in other companies with particular attention to whether the above include credit institutions, financial institutions or financial holding companies. Where such founders or parent undertakings acquire a qualifying holding of at least 20% of the bank's paid up share capital, they must submit a permit issued by the credit or financial institutions supervisory body of their home country, if such permits are required by that country's laws and regulations. The same applies when opening a foreign bank branch in Latvia. Prior to taking a decision to issue the operating licence, sufficient information on the statutory requirements and on credit institutions supervision in the respective foreign country must be made available to the Bank of Latvia. In licensing of credit institutions, the ability of the respective foreign supervisory body to carry out supervision on the basis of consolidated financial statements and its quality are considered of great importance. Such requirements are also set out in the Basle Core Principles on Effective Banking Supervision.

Another improvement in the new regulations are the requirements regarding documents that describe the bank's planned activities and evidence appropriate structure and organization thereto. These requirements have been developed on the basis of the "Guidelines for Establishing of an Internal Control System in Credit Institutions" approved by the Council of the Bank of Latvia. The credit institution's economic motivation and description of its policies and procedures prepared in the prescribed manner will serve as proof that the potential founders have not only the funds, but also understanding of the business and its complexity and that their intentions are fair and serious