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Latvia Takes Steps to Address De-Risking in Compliance

Riga, Latvia - In a bid to tackle de-risking in Latvia, Finance Latvia has proposed a comprehensive approach to facilitate a risk-based approach instead of the current rules-based one.

A Balanced Approach to Adherence and Sustainable Banking

The proposal aims to strike a balance between adherence to highest compliance standards and the need for sustainable banking business models. The commitments outlined in the proposal include:

  • Zero tolerance for financial crime: Ensuring that banks and businesses adhere to strict anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.
  • Promoting a culture of compliance: Encouraging a culture of compliance throughout society, including raising awareness about the importance of targeted financial sanctions and sufficient internal controls among banks and businesses.

Key Aspects of the Proposal

A key aspect of the proposal is to:

  • Raise awareness about the importance of a culture of compliance regarding targeted financial sanctions and the necessity for sufficient internal controls among banks and businesses.
  • Provide more training: Recommending additional training on AML/CTF for banks, businesses, and law enforcement agencies.

Practical Implementation of a Risk-Based Approach

The risk-based approach in practice will involve:

  • Simplified due diligence: Simplified due diligence below a certain threshold corresponding to the level of risk.
  • Ongoing proportionate monitoring: Emphasizing ongoing proportionate monitoring rather than disproportionately relying on Know Your Customer (KYC) procedures.
  • Repealing rigorous requirements and thresholds: Repealing rigorous requirements and thresholds set by the Financial and Capital Market Commission (FCMC), which would ease the cycle of ongoing Enhanced Due Diligence (EDD).

Enhancing Access to Accurate Data

To facilitate access to accurate and qualitative data, the proposal aims to:

  • Establish a national PEP register: Creating an exhaustive national PEP register compliant with FATF recommendations.
  • Provide access to public registries: Providing access to public registries that are meaningful, free of charge, and within one communication channel.

Improving Collaboration and Communication

The proposal also aims to:

  • Establish a special purpose line for foreign investors: Introducing a special purpose line for foreign investors considered as higher-risk customers.
  • Involvement of law enforcement and other relevant state agencies: Involving law enforcement and other relevant state agencies in pre-assessment of the respective foreign investors.

Establishing Consistent Procedures

To ensure consistent procedures, the proposal aims to:

  • Entitle banks to disclose information without prejudice to tipping-off: Allowing banks to disclose information without prejudice to tipping-off.
  • Establish consistent, transparent, and accessible procedures for handling customer complaints: Establishing consistent, transparent, and accessible procedures for handling customer complaints.

Implementing an Effective Inspection Process

Finally, the proposal aims to:

  • Implement a consistent and explained inspection process: Implementing a consistent and explained inspection process through understandable, pre-defined, and published guidance on FCMC inspection approach.
  • Breaking the never-ending auditing cycle: Breaking the never-ending auditing cycle that leads to de-risking.