Latvijas Banka has set the 2024–2026 priorities for resolution and the compensation scheme, and they served as a basis for the approved plan of action for 2024. The plan foresees on-site inspections of market participants and other activities.
Resolution activities cover credit institutions and investment firms subject to the Law on Recovery of Activities and Resolution of Credit Institutions and Investment Firms. Meanwhile, activities in the area of the compensation scheme cover the participants of the deposit guarantee fund, the investor protection system and the Fund for the Protection of the Insured.
According to the priorities for resolution and the compensation scheme, in 2024 Latvijas Banka will carry out three on-site inspections (included in the general supervision framework of Latvijas Banka) and various off-site activities to ensure effective resolvability of the above institutions and the protection of the interests of customers – depositors, investors and insured persons – in the event of a crisis.
The 2024 plan of action in the area of resolution and compensation scheme encompasses five activities.
1. Updating the resolution plans for credit institutions and investment firms and setting the minimum requirements for own funds and liabilities according to the business models and risks of credit institutions and investment firms.
2. Operationalising the application of the resolution tools. This activity will be carried out within the framework of the European Commission's structural support project "Technical support for national handbook for Estonia, Lithuania and Latvia". In the course of the project, working documents (decisions, draft contracts, procedures, methodologies, etc.) for the application of the resolution tools are to be drawn up.
3. Updating the action framework for a potential financial crisis. This activity comprises several tasks:
- conduct a stress test for cross-border resolution,
- conduct a stress test for the deposit guarantee fund with the aim of testing the guaranteed compensation payout functions and the funding facilities of the deposit guarantee fund,
- enhance the functionality of the investor protection system and, pursuant to the requirements laid down in the Investor Protection Law, draw up provisions on disclosing information on protection measures to investors and on preparing information on disbursement of compensations.
4. Participating in the process of drafting the new insurance resolution framework of the European Union. According to the plan, the Directive on the recovery and resolution of insurance and reinsurance undertakings (IRRD) will be implemented in the national legislation following its approval and an operational mechanism will be created for the implementation of the new resolution framework.
5. Participating in the process of enhancing the European Union crisis management and deposit insurance framework (CMDI). The objective of the process is to make the system more efficient for the prevention of credit institutions' insolvency. To find out more on the process, please visit the European Commission website and the European Parliament website.