Latvijas Banka is a derived public person. According to the Law on Latvijas Banka, it regulates and supervises the operation of the financial market and its participants, including payment and electronic money institutions.
Latvijas Banka facilitates the protection of the interests of payment service users and electronic money holders and the development and stability of the financial market.
The operation of crypto-asset service providers is established and governed by the Law on Crypto-asset Services and regulations issued pursuant to this Law, other laws and regulatory enactments governing commercial activity, and the directly applicable legal acts of the European Commission (including Regulation (EU) 2023/1114 and the regulatory and implementing technical standards issued on the basis of this Regulation).
Legal acts governing the area of operation of crypto-asset service providers.
Tools used in the supervision process
A forward-looking and risk assessment-based supervision process is carried out through various supervisory approaches to ensure continuous and comprehensive supervision of the operation of crypto-asset service providers by Latvijas Banka.
An off-site analysis of the indicators characterising the operation of crypto-asset service providers is conducted. The analysis focuses on the qualitative and quantitative changes in financial indicators as well as the fulfilment of regulatory requirements and aims to identify and assess the significant risks associated with the operation of each crypto-asset service provider across all areas of its operation.
Off-site and on-site inspections are carried out. They analyse the indicators characterising the operation of crypto-asset service providers and the aspects of their operation. Particular attention is paid to those indicators that characterise the operation of crypto-asset service providers and the aspects of implementing regulatory requirements in which qualitative and quantitative changes could pose new operational risks or deepen the impact of existing risks on the overall operation of crypto-asset service providers and the financial market.
Supervisory measures are initiated and implemented. They focus on preventing operational or compliance deficiencies or shortcomings and non-conformities identified during the risk assessment process or through inspections in order to reduce their negative impact on the operation of crypto-asset service providers and the entire market in a timely manner and facilitate the stability of the operation of crypto-asset service providers and its compliance with the requirements established in regulatory enactments.
To reach the set objectives, perform the specified tasks and facilitate the development of crypto-asset service providers, Latvijas Banka engages in communication-focused collaboration with market participants and ensures cooperation with other national and international institutions.
Supervisory objectives and tasks
According to the Law on Latvijas Banka and in line with the best practices on and the basic principles of the international supervision of market participants, Latvijas Banka regulates and oversees the financial market to promote the protection of investor interests, the sustainable development and stability of the financial market, and the prevention of money laundering and terrorism and proliferation financing.
Latvijas Banka performs a forward-looking and risk assessment-based supervision of the operation of market participants, applying supervisory measures in a timely manner and adhering to the principle of proportionality.
The objective of supervisory measures is to ensure a stable operation of crypto-asset service providers and timely identification of risks, their potential effect and causes to mitigate or prevent the risks of crypto-asset service providers and their impact on the operation of crypto-asset service providers and the entire financial market.
The supervisory priorities of crypto-asset service providers arise from the supervisory priorities of the financial market established by Latvijas Banka:
Risk assessment process
The risk assessment process helps to identify, analyse, and assess the risks inherent in the operation of crypto-asset service providers. The methods used by crypto-asset service providers to manage these risks are assessed. Furthermore, their quality, sufficiency, and compliance with the nature, scope, and complexity of the operation of crypto-asset service providers are also assessed.
Latvijas Banka uses the following tool to assess risks:
It oversees the deviations of the significant financial indicators associated with the implementation of regulatory requirements. This oversight aims to proactively identify situations or trends that may pose a threat to a stable financial operation of a crypto-asset service provider. Under this process, an in-depth analysis of the deviations of various indicators and their correlations and dependencies is carried out to establish additional supervisory and administrative measures, if necessary.