How to obtain an authorisation?
Obtaining an authorisation is a regulated process whereby you can become a participant of Latvia's financial market and commence business after obtaining an authorisation.
A legal person that has received a licence from Latvijas Banka has the right to provide investment and ancillary investment services according to the Law on Investment Firms.
For the purposes of Section F of the Financial Instrument Market Law (FIML), an investment firm (IF) means an investment firm registered in the Republic of Latvia and a branch of an investment firm of a foreign country, as well as an investment firm that is registered in another Member State and that provides investment services on a regular and professional basis.
An IF has no right to conduct commercial activities which are not related to the provision of investment services, ancillary investment services, other financial services or the professional activity of an insurance broker that is a legal person.
- Persons involved in the management of an IF have impeccable reputation, appropriate education and professional experience and competence in financial management matters pursuant to the requirements of Section 8 of the Law on Investment Firms. A person who is competent in company's management matters may also act as the person responsible for compliance with the requirements for the prevention of money laundering and terrorism and proliferation financing.
- Stockholders (shareholders) meet the requirements of the Law on Investment Firms (only the following persons may be stockholders (shareholders) of an IF who have a qualifying holding: whom it is possible to identify, who have an impeccable reputation and who have financial stability and the lawfulness of the acquisition of financial resources of which may be proved by documentary evidence. In assessing the financial stability of stockholders (shareholders) if a person is not a credit institution or an insurance company, it is taken into account whether the person has sufficient free capital).
- The chairperson of the executive board and at least one more member of the executive board are competent in investment matters.
- The head office is located in the same Member State where the IF's registered office is.
- The initial capital requirements have been fulfilled and the own funds requirements have been complied with during the future actions:
- Directive (EU) 2019/2034 of the European Parliament;
- the initial capital of an IF required pursuant to Article 15 of Directive 2014/65/EU for the authorisation to provide any of the investment services or perform any of the investment activities listed in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU shall be EUR 750 000;
- the initial capital of an IF required pursuant to Article 15 of Directive 2014/65/EU for the authorisation to provide any of the investment services or perform any of the investment activities listed in points (1), (2), (4), (5) and (7) of Section A of Annex I to Directive 2014/65/EU, where that firm is not permitted to hold customer money or securities belonging to its customers is EUR 75 000;
- the initial capital of an IF required pursuant to Article 15 of Directive 2014/65/EU for investment firms other than those referred to in Paragraphs 1, 2 and 4 of this Article is EUR 150 000;
- the initial capital of an IF authorised to provide investment services or perform the investment activity listed in point (9) of Section A of Annex I to Directive 2014/65/EU, where that IF engages in dealing on own account or is permitted to do so, is EUR 750 000.
Stages of the process for obtaining an authorisation
Learn what entrepreneurs need to do and know at each stage of obtaining an authorisation, what Latvijas Banka does and what the application review deadline is.
Preparation for the submission of an application: the familiarisation stage, during which Latvijas Banka organises a meeting with the respective entrepreneur to discuss their planned activities. At this stage, the company does not necessarily have to be established yet.
What does an entrepreneur do
- Prepares information on the company's stockholders (shareholders)/the structure of the company and officials.
- Prepares information on the amount of initial capital and the source of the origin of funds.
- Drafts the action plan that reflects information on the planned business model, the procedure for providing services, organisation of the payment flow, information on customers and the countries where the services are to be provided.
- Starts drafting the necessary documents.
What does Latvijas Banka do
- Provides advice on the applicable regulation.
- Conducts an initial assessment of the business project and procedures.
- Assesses whether it is possible to continue the process for obtaining an authorisation.
- Provides advice on the documents to be submitted.
Take into account
Documents to be submitted
- a description of the service and its provision (for example, a presentation);
- an action plan (with a detailed description);
- CVs of the potential officials;
- CVs of the potential stockholders (shareholders), information on the type, amount and origin of an IF's capital funding, information on the financial stability of the potential stockholders (shareholders) (summary of assets and liabilities).
Costs
Latvijas Banka provides assistance with preparing an application and offers advice free of charge.
Submission of an application: prepare an application detailing the investment services and ancillary investment services that the company intends to provide.
What does an entrepreneur do
- Submits a fully completed application along with all necessary information and documents in accordance with the requirements of Section 10 of the Law on Investment Firms.
- Receives information from Latvijas Banka on the commencement of the review process of the application for an authorisation or on any deficiencies that may need to be addressed in the submitted application.
- Provides the necessary additional explanations.
What does Latvijas Banka do
- Within 25 working days, conducts a completeness check of the application (substantive assessment of the application has not yet been initiated).
- If the application is incomplete, Latvijas Banka notifies the entrepreneur by letter containing information on the identified deficiencies that need to be addressed.
- If the application is complete, Latvijas Banka sends a letter to the entrepreneur informing them that the review of the application for authorisation has been commenced.
- Latvijas Banka appoints a project manager and ensures the entrepreneur's access to the project management tool to help track the progress of the process.
Take into account
- We encourage you to utilise advice offered by Latvijas Banka before submitting your application.
- Make sure that the documents to be submitted are complete and of high quality.
- Check whether all the necessary documents have been submitted (refer to the list of documents to be submitted).
List of documents to be submitted
1. An application detailing the investment services and ancillary investment services it intends to provide.
2. An action plan (for three following years), containing:
- the business model (detailed description covering all aspects, clearly outlining the essence of the service and referring to the relevant section of the Financial Instrument Market Law specifying the respective investment services and ancillary investment services);
- how will the proposed business model ensure compliance with all requisite provisions for providing investment services, encompassing information disclosure (including the requirements of Regulation 2017/565 and Regulation 2017/1129), conflict of interest management, as well as the requirements under the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing and the Law on International Sanctions and National Sanctions of the Republic of Latvia (including those concerning the evaluation of lenders and borrowers), throughout the entirety of the operational framework;
- the principles for assessing loan quality when preparing the description of operational activities, as well as when preparing the description of operational expenses under various scenarios (if included in the business model);
- the weaknesses and threats inherent in the chosen business model, examining their potential impact on development scenarios and exploring how the strengths and opportunities of the selected business model correlate with the projected number of customers/the average amount invested by a customer;
- whether the company plans to organise a secondary market, a description thereof;
- a detailed description of the distribution of financial instruments in a manner that allows for the assessment of their compliance with the criteria outlined in Paragraph 13 of the European Securities and Markets Authority (ESMA) guidelines ESMA/2015/1787 of 4 February 2016;
- the method by which the issued financial instruments will be organised and offered to customers (by type, region or other criteria);
- the method by which the issued financial instruments will be offered to customers for purchase (via an issue prospectus or an offer document);
- a detailed description of risks, including all potential risks and basic information on their management (e.g. customer complaint risk, sanction risk, IT risk, settlement risk, etc.);
- a description of operational activities;
- a description of the company processes involved in providing investment services, specifying those that will be automated and those that will be performed manually. This includes providing more detailed instructions to employees on the procedure for delivering investment services. For automated processes, procedures should outline the essence of the process, output data sources, the impact of source data on the algorithm results/conclusions, and the subsequent utilisation of those results;
- for processes intended for outsourcing, procedures should include references to the outsourcing agreements and describe cooperation between the company's employees and outsourcing service providers;
- three development scenarios;
- financial forecasts for the next three operational years (either specified in the action plan or provided separately in the appendix thereto).
- description of how the cash flows related to operations are organised within the IF.
- information on the registration of the Special Purpose Vehicle (SPV) (if included in the IF's business model), the country of registration and the cooperation model, alongside the elements of cash flow control to manage the risk of money laundering.
3. Financial stability matters
The requirements for sources of capital laid down in Regulation (EU) 2017/1943 envisage the provision of:
- details on the use of private financial resources for capital including the origin and availability of those funds;
- details on access to capital sources and financial markets including details of financial instruments issued or to be issued (if applicable);
- any relevant agreements and contracts regarding the capital raised (if applicable);
- information on the use or expected use of borrowed funds (if any) including information identifying the relevant lenders and details of maturities, terms, pledges and guarantees, along with information on the origin of the borrowed funds (or funds expected to be borrowed) where the lender is not a supervised financial institution;
- details on the planned means of transferring financial resources to the investment firm's account;
- supporting documents for the available free capital and financial stability of stockholders (with a qualifying holding) and beneficial owners, providing the information specified in the FCMC's Regulation No 92.
4. Firm's share capital and capital adequacy calculation
- Regulation (EU) 2019/2033 of the European Parliament and of the Council on the prudential requirements of investment firms.
- Directive (EU) 2019/34 of the European Parliament and of the Council on the prudential supervision of investment firms.
5. Governance of a firm
- Basic information on the members of the executive board or supervisory board (if any), the head of the internal audit service, the risk manager, the person responsible for controlling the compliance of the operation, the controller of the firm, the person responsible for the fulfilment of the requirements for the prevention of money laundering and terrorism and proliferation financing, the employee responsible for the management of sanctions risk, the head of a branch of a foreign investment firm or a branch of an investment firm in another Member State in accordance with the requirements laid down in Article 4 of Regulation (EU) 2017/1943.
- Assessment of the suitability of members of the executive board or supervisory board (if formed) and persons performing core functions:
- the institution performs the individual assessment of suitability in compliance with Article 4(a) of Regulation (EU) 2017/1943 and the Financial and Capital Market Commission's Regulation No 94 "Regulation on the Assessment of the Suitability of Members of the Executive Board or Supervisory Board and Persons Performing Core Functions" of 14 July 2020;
- the institution performs the assessment of collective compliance according to the Financial and Capital Market Commission's Regulation No 94;
- the institution develops the necessary procedure and appropriately documents the assessment of the suitability of the employee responsible for the fulfilment of the requirements for the prevention of money laundering and terrorism and proliferation financing (ML/TPF) and the assessment of the suitability of the member of the executive board responsible for monitoring the field of the prevention of ML/TPF according to the requirements laid down in Paragraph 2.1 of Section 10 and Section 10.1 of the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing and the requirements for the necessary competence, education and professional work experience laid down in Paragraph one of Section 8 of the Law on Investment Firms.
6. Policies and procedure related to the internal control system, including:
- the description of the organisational chart of an investment firm that explicitly discloses the obligations and powers of the members of the supervisory board (if formed) and the executive board as well as the employees responsible for the fulfilment of the requirements for the prevention of ML/TPF and for sanctions, and clearly defines and divides the tasks performed by the organisational units and the obligations of the managers and employees of the organisational units providing investment services or ancillary investment services. Where an investment firm intends to establish branches, it also submits a description of the organisational chart of its branches and of the obligations of the managers and employees of the branches providing investment services or ancillary investment services;
- the key principles of the accounting policy and organisation of accounting, including accounting of financial instruments and funds related to transactions in financial instruments;
- the description of the management information system;
- the rules for protecting the information system, including the rules for protecting the database of accounting of financial instruments and funds related to transactions in financial instruments;
- the description of the internal audit system;
- the description of policies and procedures whereby significant operational risks are managed;
- the description of policies and procedure whereby a firm ensures compliance of its operation.
7. Documents necessary to establish the internal control system for the management of ML/TPF and sanctions risk (the above elements of the internal control system can be included in one or several policies and procedures depending on the size, operational specifics and risk exposure of the institution).
8. Description of the procedure whereby investment services and ancillary investment services are provided and controlled.
9. Description of the procedure whereby the transactions that have been conducted by using inside information or to manipulate the market are identified.
10. Description of the policy for preventing conflicts of interest.
11. Description of the order execution policy.
12. Information on the stockholders (shareholders) of an investment firm, including:
- for natural persons, a copy of the page from the passport or other identification document as established by law that contains personal identification data (first name, surname, citizenship, personal identity number (if any) or year and date of birth);
- for legal persons, the firm's name, legal address, number and place of registration. Legal persons that are registered in a foreign country also submit copies of registration documents;
- the amount of the qualifying holding directly or indirectly acquired by stockholders or shareholders of an investment firm.
13. Document providing a description and explanation as to how the exercise of the rights of a stockholder is included in the strategy of an investment firm in accordance with Section 126.3 of the Financial Instrument Market Law if the investment firm intends to provide portfolio management services by including such shares of a joint-stock company in the portfolio the registered office of which is in a Member State and the shares of which are admitted to trading on a regulated market of the Member State.
Deadline for the examination of an application
Six months following the confirmation that the application is complete and Latvijas Banka has commenced its review. The deadline for the examination of the application may be extended if the information provided in the application is insufficient to take a decision on issuing an authorisation.
Assessment of an application Latvijas Banka carries out a substantive assessment of the application.
What does an entrepreneur do
- Follows the process of examination of the application by using a project management tool.
- Responds to Latvijas Banka's requests for additional information as soon as possible.
- Makes corrections to the submitted documents in line with Latvijas Banka's instructions.
- Participates in the meetings held by Latvijas Banka.
What does Latvijas Banka do
- Carries out a substantive assessment of the application.
- Communicates with the entrepreneur's contact person in case shortcomings have been identified.
- Drafts a letter in case shortcomings have been identified in the application.
- Continues examining the application in line with the submitted additions.
- Completes the examination of the application.
Take into account
- Follow the course of the examination of the application.
- Provide additional explanations and make the necessary corrections as soon as possible.
- Representatives of the entrepreneur, rather than only consultants (if engaged), are also invited to participate in the meetings held by Latvijas Banka.
Costs
No additional costs associated with the examination of documents during the examination stage of the application are involved.
Receipt of a licence: Latvijas Banka completes the examination of the application and takes a decision to grant or refuse to grant a licence.
What does an entrepreneur do
- Prepares to obtain a licence and start operating in accordance with the business plan and procedures.
- If a licence has been granted, designates users of Latvijas Banka's data reporting system for future communication with Latvijas Banka and submission of performance reports.
What does Latvijas Banka do
- Drafts a decision to grant or refuse to grant a licence.
- Informs the entrepreneur of the decision taken.
- If a licence has been granted, publishes information on Latvijas Banka's website and in the register of the European Securities and Markets Authority.
What should be taken into account
- Legal acts published on Latvijas Banka's website and binding on the specific participant of the financial market segment.
- Information for reporting agents published on Latvijas Banka's website.
- Information related to electronic data reporting to Latvijas Banka.
Costs
No additional costs associated with obtaining a licence during the stage of obtaining a licence are involved.
Supervision: Latvijas Banka supervises the operation of a company in accordance with the requirements of the Financial Instrument Market Law.
What does an entrepreneur do
- Responds to Latvijas Banka's requests.
- Drafts reports in accordance with the requirements of laws and regulations.
- Notifies Latvijas Banka of any changes in the documents issued to receive a licence
- Reports significant incidents in the process of providing investment services.
- Becomes acquainted with the investment firm's curator designated by Latvijas Banka.
What does Latvijas Banka do
- Designates the investment firm's curator.
- Assesses compliance of the operation of an investment firm with the requirements of laws and regulations.
- Requests additional information on the operation and performance indicators of an investment firm.
- Examines the reports submitted and supervisory information.
- Cooperates with the European Securities and Markets Authority with regard to supervisory issues.
Take into account
- In case of uncertainties, contact the curator designated by Latvijas Banka.
- Submit reports and the requested supervisory information on a regular basis.
- Notify of any changes in the process of provision of services as well as of changes in the documents submitted to receive a licence, including in case of any changes in the structure of officials or stockholders (shareholders).
Costs
After a licence is granted, the investment firm pays Latvijas Banka up to 1% (inclusive) of the average quarterly gross revenue from the transactions of the investment firm, but no less than 2845 euro per year.
More about the supervision process of investment firms
Meeting with prospective market participants
Latvijas Banka's specialists offer advice to prospective market participants to facilitate a better understanding of the regulatory requirements for the licensing of investment service providers, as well as to identify potential challenges in developing new and innovative products or business models.
Our specialists offer:
- clarifications of certain aspects associated with regulatory requirements;
- advice on the application of the regulation.
Apply for consultation
Please apply in advance to agree on the meeting time by e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone +371 67 022 300.
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