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Wednesday 22.01.2020 | Name days: Austris
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Proposal to merge FKTK and Bank of Latvia makes it to third reading in Saeima

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economy, FKTK, Bank of Latvia, SaeimaOn Tuesday, 12 November, Saeima’s Budget and Finance Committee decided to submit to the Saeima amendments to the Law on the Bank of Latvia for the third reading. These amendments, among other things, provide for the merging of the Bank of Latvia and the Finance and Capital Market Commission (FKTK).

Law amendments provide for the Cabinet of Ministers submitting to the Saeima a legislative draft by 31 October 2020 that would outline the bank’s management structure and operations. It is also planned to ensure the merging of FKTK and the Bank of Latvia with respect of monetary policy, as well as the independence of finance and capital market participants’ supervisory and regulatory functions.

Law amendments also provide for reducing the total number of board members for the Bank of Latvia from six to four.

It is also planned to limit the election terms for the governor, his vice and council members of the Bank of Latvia, stating that people can remain in these posts for not more than two consecutive terms. The legislative draft clarifies that in the event of one of the aforementioned officials leaving their post, a new person is chosen to replace them for a full five-year term.

The aforementioned legislative draft needs to be coordinated with the European Central Bank, which does not object to amendments. At the same time, in a letter sent to Latvia by then the governor of ECB Mario Draghi it is mentioned that the legislative draft about the merging of FKTK and the Bank of Latvia, which is planned to be developed fully by 31 October 2020, still needs to be coordinated with ECB.

Saeima committee’s chairman Mārtiņš Bondars had previously explained that the European Union has many different financial sector management models. For example, in some countries the central bank performs supervision of other banks, whereas in other countries this function is divided. Bondars invites to see if such a small country like Latvia, which has limited human resources should preserve its current bank supervision model or if it is more useful to merge the central supervisory institution with the central bank, as it was prior to 2001, when FKTK was first separated from the Bank of Latvia.

Bank of Latvia council member Arvils Sautiņš had previously said the proposal for merging FKTK with the Bank of Latvia is nothing new. This is why it is no surprise this topic is put on the forefront again. At the same time, he was reluctant to comment on Saeima deputies’ proposal, because the merging of FKTK and the Bank of Latvia is a decision for politicians to make.

Representatives from FKTK also admit there may be rational justifications behind the idea, especially if this is about optimizing both institutions. At the same time, the bank supervisor stresses that there is more and more work for FKTK.

According to information from Saeima’s Legal Affairs Office, there are no legal barriers for the merging of FKTK and the Bank of Latvia. Nevertheless, Saeima’s lawyers recommend taking into account justified reasons, cost optimization and other issues when developing law amendments.

Read also: Latvia appoints Purgaile as new financial watchdog head

The discussion regarding the possible merging of FKTK and the Bank of Latvia had surfaced in the past. In 2001 such a proposal was mentioned during a meeting of the Saeima Submissions Committee bythen the vice-governor of the Bank of Latvia Andris Ruselis.


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