Financial Crime World

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Latvia’s Fintech-Friendly Environment and AML Regulations: What You Need to Know

Latvia has become a popular destination for fintech companies, with over 100 fintechs operating in the country, including Mintos, Creamfinance, Twino, Bitfury, and Crasula. The country’s business-friendly infrastructure, such as the Innovation Hub and regulatory sandbox, have made it an attractive location for startups and established companies alike.

However, Latvia has also been strengthening its Anti-Money Laundering (AML) regulations in line with FATF Recommendations and EU AML Directives. As a result, businesses operating in or seeking to enter the Latvian market must navigate a complex AML compliance process.

Who is Affected?

The following types of businesses are subject to Latvian AML regulations:

  • Credit institutions
  • Financial institutions (including insurance service providers)
  • Investment firms
  • Payment institutions
  • E-money institutions, and others
  • Virtual Assets Service Providers (VASPs)

Additionally, branches of financial and credit institutions from other member states of the EEA or third countries are also subject to AML obligations if they operate in Latvia.

Who is the Regulator?

Two main authorities regulate the AML sector in Latvia:

  • The Financial and Capital Market Commission (FCMC), which supervises the financial market and issues regulations
  • The Financial Intelligence Unit (FIU), which collects and analyzes financial data and reports of suspicious transactions, cooperating with Latvian law enforcement authorities to investigate cases of money laundering

AML Obligations for Businesses in Latvia

Under Latvian AML law, businesses must:

  • Implement AML policies and procedures
  • Conduct Customer Due Diligence (CDD), including Enhanced Due Diligence (EDD) where necessary
  • Comply with requirements for customer identification and verification as part of CDD
  • Conduct ongoing monitoring of customers and transactions as part of CDD
  • Appoint a Money Laundering Reporting Officer (MLRO), conduct audits, implement internal controls, and conduct staff trainings
  • Report to the Financial Intelligence Unit (FIU)
  • Retain data about customers and transactions

The FCMC provides Latvian businesses with guidelines on the implementation of AML policies and measures in its Recommendations No. 169.

How to Get Compliant?

Customer Due Diligence

Customer Due Diligence (CDD) is the process of collecting and verifying information about customers during onboarding and throughout the business relationship. CDD includes obtaining information on the purpose and intended nature of the customer’s activity.

Identification of Beneficial Owners

A beneficial owner is a person who directly or indirectly owns more than 25% of a company’s capital/voting rights or otherwise exercises ultimate control over it. Businesses must obtain identity information about beneficial owners from the Enterprise Register. In cases where a beneficial owner cannot be determined, businesses may admit someone from the client’s senior management as the beneficial owner.

Ongoing Monitoring

Businesses in Latvia must implement ongoing verification of the accuracy of obtained KYC data. This is crucial to ensure that the client’s established risk profiles are correct and that the monitoring process is efficient.

Sanctions

If businesses fail to comply with the obligations prescribed by the AML Law, they may be subject to fines of up to €5,000,000 or 10 percent of total annual turnover.

Key Takeaway

Latvia’s AML regulations have broad implications for fiat and crypto businesses both within and outside the country. We will continue to track AML changes in Latvia and update this article on an ongoing basis. Save it to your reading list so you don’t miss any important news.

Let Sumsub help your company stay compliant with KYC/AML requirements in Latvia. Get in touch with us today.