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Regulator says some non-resident banks may leave Latvian market

Since winter, there has been a significant outflow of non-resident deposits from Latvia, and the term "non-residents" should disappear in the Latvian banking sector in the future, Peters Putniņš, chairman of the Financial and Capital Market Commission (FKTK), said in an interview with Latvian Radio June 29. 

He also acknowledged there are some indications that certain non-resident service-oriented banks could stop doing business in Latvia.

"It is understood that there may not be adequate infrastructure available here, sufficient demand, and maybe [such] customers will no longer find Latvia attractive. It is a delicate question whether everyone will find their place. I will say for the time being - I am convinced that most of the former non-resident banks will keep their business in Latvia, it will not be that our banking sector will completely break up or that there will only be Scandinavian banks."

From the point of view of money laundering, the clients of former CIS countries, considered to be the most problematic customers, have made a significant decline in their deposits with Latvian banks this year. At present, their share accounts for about 6% of total deposits with Latvian commercial banks, estimates Putniņš.

Since winter, there has been a significant outflow of non-resident deposits from Latvia as a result of a clampdown on so-called "shell companies" - entities that serve to obscure the ultimate beneficiaries of money laundering schemes and corporate frauds. 

"The prohibition of the shell [companies] plays a certain role, but is not decisive. (..) The political goals that the government has defined - to bid farewell to these cash flows - have been heard by bank customers, bankers and bank managers. This process had already begun well before the ban on shell companies," said the FKTK head.

On Saturday, June 30, the deadline set by FKTK for banks to submit to the supervisor new business plans not reliant upon shell companies ends. Some banks have already submitted such plans. After that, FKTK will discuss these plans with the banks at the beginning of winter, business plans are planned to be incorporated into the FKTK Supervisory Documents.

Putniņš said that the term "non-residents" should disappear in the Latvian banking sector: "Obviously, in the autumn, the term "non-residents" should be completely eliminated. Given the structure of deposits and the structure of customers in banks, the non-residents we are talking about are mostly post-Soviet clients who have used various tools to maintain accounts in our banks. This level will already be very, very low,"Putniņš said.

A year ago, FKTK tried to make a similar switch in terminology in an interview with LSM, though subsequently the term "non-resident" bit back with a vengeance.

Particular attention has been paid to the banking sector after the United States announced in mid-February about the  possible involvement of ABLV Bank in money laundering schemes.  After two weeks, the extraordinary general shareholders' meeting of the bank made a  decision on the self-liquidation , which was later also approved by the bank supervisor

Most of these non-resident monies flow through shell companies, companies without real activity that are used in illegal money laundering schemes. LSM previously published a summary of which Latvian banks are focusing on non-resident servicing.

Following the problems with ABLV, the Saeima in April imposed a prohibition on banks registered in Latvia to cooperate with shell companies and to service their accounts as officials scramble to repair the battered reputation of the Latvian banking sector ahead of a crucial MoneyVal report due for release in July.

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