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Tuesday 18.02.2020 | Name days: Kintija, Kora

Saeima committee to discuss FCMC’s addition to Bank of Latvia

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On Wednesday, 11 September, Saeima’s Budget and Finance Committee gave Finance Ministry time until autumn 2020 to evaluate the option of adding Finance and Capital Market Commission (FCMC) to the Bank of Latvia.

Looking at amendments to the Law on the Bank of Latvia and the term of the central bank’s governor, parliamentary deputies turned the discussion towards the idea of adding FCMC to the Bank of Latvia. According to the head of the committee Mārtiņš Bondars, this proposal was suggested as the committee’s opinion.

Bondars explained that European Union has multiple models for the governance of the financial sector. For example, sometimes the central bank performs supervision of banking services and sometimes these functions are divided among institutions.

Bondars proposed checking if a small country like Latvia, with its limited human resources, wants to maintain the existing banking supervision model or merge the supervisory institution with the central bank, as it was in 2001, when FCMC was separated from the Bank of Latvia.

Deputy Igors Pimenovs added that FCMC was formed in 2001, because this method offered a more professional supervision for the financial sector. Pimenovs wanted to know the possible benefit from adding FCMC to the bank of Latvia, aside from the argument that Latvia is too small a country. According to the deputy, it is necessary to hear out specialists as to the benefits of combining FCMC and the central bank. Deputy Vjačeslavs Dombrovskis agrees with this.

Ex-finance minister, Saeima deputy Dana Reizniece-Ozola mentioned the need to assess the usefulness of this idea. The politician is worried that the proposal to add FCMC to the Bank of Latvia is voiced in a time when the selection process to find the next head of FCMC is nearing its end. She wants to know if the people who have applied for participation in the selection process have been information of the possible changes.

Bondars said he hopes candidates watch the news and are informed of the decision made by the Saeima’s committee. He also added that in a couple of weeks the committee’s meeting may be attended by the new FCMC leader. Then that person will be informed of committee members’ intention to discuss changes for institutions supervising the country’s financial sector.

Bank of Latvia council member Arvils Sautiņš admitted at the meeting of the commission that the proposal to add FCMC to the Bank of Latvia is nothing new. At the same time, he refrained from commenting on deputies’ proposal, because the addition of FCMC to the bank is a political decision.

«If politicians decide so, we will do this. Logically speaking, if institutions were to be merged, there would be more efficient use of resources. Currently the Bank of Latvia employs around 500 people and FCMC employs 200. Should the two institutions merge, I cannot say if they could reduce the number of their employees, because there are too many unknown factors. It is clear the amount of work with FCMC will not reduce. It will likely increase instead, so there is no reason to expect less work for FCMC,» says the representative of the Bank of Latvia.

FCMC representatives confirmed to deputies of the committee that merge of the institutions could be a rational solution if the point is optimizing work performed by the two institutions.

According to Saeima’s Legal Affairs Office, there are no legal obstacles for the merge of FCMC and the Bank of Latvia, because the legislator has the right to change supervision model at any time.

Saeima’s committee asked Finance Ministry to prepare a report on the possible merge of FCMC and Bank of Latvia and detail possible legislative drafts required to perform this task by 30 June 2020. Currently it is unknown when FCMC could join the Bank of Latvia.

Discussions regarding FCMC’s addition to the Bank of Latvia were first voiced in 2010, when this proposal was mentioned by vice-governor of the Bank of Latvia Andris Ruselis at a meeting with Saeima’s Submissions Committee.

Once the chairperson of FCMC Irēna Krūmane told LETA that more than ten years ago the Bank of Latvia was the party that had initiated the idea of separating the bank’s and other market participants’ supervision from functions of the central bank. This is why the Saeima decided to create a separate and autonomous institution for this purpose – FCMC.

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