Latvia's financial regulator objects to government reform plan

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Latvia's financial regulator, the Financial and Capital Markets Commission (FKTK) voiced objections March 27 to an ambitious government plan to reform it functions as part of a general clean-up of the financial sector. 

The government's proposed amendments to the law go against the Basel principles for banking supervision, the LETA newswire reported, citing FKTK itself as a source.

However, the report did no specify exactly which Basel principles FKTK believes would be breached by the new proposals.

"According to FKTK, the latest edition of the bill supported by the government earlier this week only arrived at the commission yesterday. The bill omitted the FKTK's objections and analysis of the legislation," LETA reported.

"The financial sector is a specific economy sector, and state supervision of the sector is based on principles, which stipulate that the financial sector's watchdog is an independent institution, commented FKTK Chairman Peters Putniņš. All changes must be well thought out, and Putnins hopes that an optimum solution will be arrived at that will meet the European Central Bank's Single Supervisory Mechanism," LETA said.

"As the bill is debated in Saeima, it should become clear, which sections of the proposed legislation are acceptable and which are not," LETA added, again apparently indirectly quoting Putniņš.

He also underlined his belief that reforms of the banking sector have already been completed in order to force banks' high-risk customers out and to ensure stability of the sector.

Furthermore the Latvian central bank (LB) told LETA that the amendments to the law on FKTK would impair the commission's autonomy. Under the present system, the head of the regulator is selected by the central bank governor in consulation with the Finance Minister. Putniņš' term in office is due to end in 2022, but Finance Minister Janis Reirs said on Tuesday that a competition would be held for the job before the end of this year.

As reported by LSM, on March 26 the government pressed ahead with its attempts to reform oversight of the financial sector and the method by which the regulator is chosen. Yet now within 48 hours it appears that government and the regulator are at loggerheads over the matter, which will not help to reassure international partners that all is now well within the Latvian financial sector. 

Yesterday, March 26, the government supported amendments to the FCMC Law, according to which a new FCMC council would be nominated by October 1 this year. The government said this was necessary because the FCMC would be delegated more functions. The amendments also stipulate changing the procedure of nominating and appointing the chairperson and members of the FCMC council.

According to the current regulation,. The new version of the FCMC law stipulates that Putnins will be permitted to run for a second term.

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