Latvijas Banka has set the 2025–2027 priorities for resolution and compensation schemes, and they served as a basis for the approved plan of action for 2025. The planned activities include inspections of market participants as well as other activities to ensure effective resolvability of financial institutions and the protection of the interests of customers – depositors, investors, and insured persons – in the event of a crisis.
Resolution activities cover credit institutions and investment firms subject to the Law on Recovery of Activities and Resolution of Credit Institutions and Investment Firms, while also addressing the development of the new insurance resolution framework. Meanwhile, activities in the area of compensation schemes extend to the participants in the deposit guarantee fund (DGF), the investor protection schemes, and the Fund for the Protection of the Insured.
The plan of action for resolution and compensation schemes foresees that in 2025 Latvijas Banka will conduct one on-site inspection and one horizontal inspection (included in Latvijas Banka's supervision plan), as well as various off-site activities.
The 2025 plan of action for resolution and compensation schemes encompasses four activities.
1. Operationalising the application of resolution tools and updating the action framework for a potential financial crisis situation. This activity comprises several tasks:
- develop draft documents (decisions, draft contracts, procedures, methodologies, etc.) for the application of resolution tools based on the European Commission's structural support project "Technical Support for National Handbooks for Estonia, Lithuania, and Latvia";
- conduct a DGF stress test to verify its ability to disburse guaranteed compensation to depositors in the event of a credit institution's insolvency and to examine its DGF funding options.
2. Contributing to the development of the European Union's new insurance resolution framework. The Insurance recovery and resolution directive is currently in its approval stage. It provides for the implementation of a resolution framework for insurance and reinsurance companies. Following the directive's approval, plans are in place to incorporate it into national legislation, ensuring the new regulation comes into force as of 2027, and establish an operational mechanism for its implementation.
3. Contributing to the enhancement of the European Union's resolution and compensation schemes framework. The primary focus of this activity is the European Union's crisis management and deposit insurance (CMDI) framework, which is currently in its development stage, and its further implementation. The goal of this initiative is to enhance the efficiency of the insolvency prevention system for credit institutions. To find out more on the framework, please visit the European Commission website and the European Parliament website.
4. Enhancing and explaining the operation of compensation schemes. The planned activities include the development of a methodology for determining additional contributions to the DGF, setting the target amount for the DGF, as well as explaining the procedure for disbursing the guaranteed compensation (particularly in complex cases).