Of the three Baltic States, Latvia is the most demanding when it comes to regulator requirements for banks. This is largely because of its banking market’s state. Nevertheless, requirements are not inadequate, Nordea bank head in Latvia Janis Buks said in an interview.
He mentions that Latvia’s market is best characterized with two types of banking systems. «Axe chops, splinters fly in every direction – by regulating the non-resident sector, those splinter fly towards the resident sector, unfortunately,» – Buks said. He does say requirements are adequate; there is nothing out of the ordinary. He added that banks have to combat money laundering, corruption and tax avoidance as it is.
«Regulators work with no compromises. If a market participant wishes to cooperate with a regulator, their relations are cooperative. If not, there is no cooperation to speak of,» – Buks described the situation.
He adds that Estonian colleagues describe Latvian Finance and Capital Market Commission as an intimidating figure. «Perhaps this is good, as these matters would otherwise be left unchecked. If market participants do not have strict principles to follow, we end up in such a situation,» – Buks said.
Last year, legislators established a new duty for banks in the field of customer service – to identify politically important figures and monitor their financial transactions. When asked how many politically important figures there are among Nordea clients, Buks said there aren’t many.
«It was additional work for us to identify such people. It also confused people whose relatives are politically important figures. Data checks in Latvia also create serious problems, as there is no unified database to help keep track of all political figures. Banks have to check names to make sure they are the same. This requires enormous resources,» – said the bank’s head.
There are only a handful of non-residents among Nordea clients. The bank has a very strict policy in this field – non-residents have to be actual people and their activities have to be transparent. The bank also has to know the actual beneficiaries, Buks explained.
He mentioned that the bank is also obligated to monitor politically important figures, non-residents and high-risk industries – such as construction. All payments performed in high-risk industries have to be checked manually. This requires a lot of resources.
Buks admits that the banking industry could become a very expensive business model if such strict regulations persist. If monitoring causes an increase in costs for banks, it is necessary to reduce them in other positions. This is why the bank decided to station support functions in an office on Vienibas Gatve, Riga, reducing costs for office rent on Valdemara Street by EUR 1 million.
Nordea shareholders have expressed a demand to halt growth of costs. If fees or taxes are increased to ensure the function of the Finance and Capital Market Commission, it is necessary to reduce costs somewhere else. This includes optimization of the network of offices by reducing the circulation of cash money. The bank is also unable to increase wages to its employees at the intended amount. «This is, unfortunately, the reality. We’re working hard at all times to reduce costs,» – Buks said.