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Monday 06.04.2020 | Name days: Filips, Vīlips, Zinta, Dzinta

Kazāks: FKTK merge with the Bank of Latvia has more advantages than disadvantages

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Bank of Latvia, FKTK, reform, merge, economy, supervision

Mārtiņš Kazāks

The merge of the Bank of Latvia and Finance and Capital Market Commission (FKTK) has more advantages than disadvantages. Nevertheless, in this case it is important to separate monetary policy and financial market monitoring functions, as well as ensure reserves of the Bank of Latvia are not affected in litigations with the supervisory institution, said governor of the Bank of Latvia Mārtiņš Kazāks.

«It is necessary to perform a detailed assessment. Still, there are more potential benefits. One is associated with information exchange – it can be made faster and more efficient. The same applies to views and possibilities of influencing the development of the financial services market in the future. I believe this would be more useful this way. Latvia’s economy is small, so there is also the matter of qualified specialists. A single institution can find a way to achieve a much better synergy in relation to different kinds of competences,» said Kazāks, adding that the cost reduction topic is no less important.

He does stress, however, that a potential merge of both institutions also creates risks, which have to be taken into account when making decisions.

«The most important factor – monetary policy and financial market supervision have to be clearly separated functions. There needs to be a very clear and very well-functioning Wall of Chine separating them,» stresses the governor of the central bank.

Kazāks also notes that the Bank of Latvia manages the country’s strategic investments and gold reserves, but the financial sector’s regulator in engaged in litigations over decisions market participants do not agree with.

«I allow the desire to sue the Bank of Latvia, which manages large investments, including Latvia’s gold, may increase more. This is why it is necessary to clearly define that by overtaking the financial sector’s supervision function all of the state reserves are put at risk,» stresses Kazāks.

He notes that this may make the merging process very complicated. To make this decision, it is necessary to hold a discussion and assessment to balance risks with benefits.

«If it is decided that both institutions should be merged, this will mean amending the Law on the Bank of Latvia. Based on the current plan, the legislative draft needs to be submitted to the Saeima by 31 October. Hopefully the decision will have been made before the end of 2020. Additionally, both institutions have to be able to secure quality for their own functions so that the merging of both institutions is reasonable, well-organized and well-communicated. This cannot be done overnight – the process needs to be well-coordinated,» said Kazāks, adding that in any case both institutions are unlikely to end up under the same roof sooner than 2022.

The head of the central bank admits FKTK has done a lot of good in market supervision. «At the same time, if we look at the current finance market situation, we have to admit that there have been failures. Money laundering prevention cases have not been sufficiently well-supervised,» adds the governor of the Bank of Latvia.

Read also: Latvia is doing everything to avoid getting grey-listed, says Kazāks

He also says FKTK’s communication with the finance sector has not been good enough lately.

«Unfortunately, we can see in many cases banks choose to avoid risks instead of managing risks. There will always be unclear situations, the market will exaggerate. However, the situation in Latvia has gone too far. This is why it is good to see the new FKTK head to have named this topic as one of her priorities – discussing what is permitted and what is not, what should be done and what should not. Banks should learn to manage risks to avoid situations when financial institutions choose not to take risks,» says Kazāks.

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