Latvia has amended its Credit Institutions Law, which significantly lowers the barrier for market entrants. The amendments reduce the initial starting capital required to obtain a banking licence from €5 million to €1 million.
“The specialised banking licence unlocks significant operational capabilities, including core banking services, deposits, loans, and leasing and payment services. Licensed banks can also offer investment services, crypto-asset services, and electronic money services,” says Inese Hazenfusa, Partner at Law Firm TEGOS, one of the Baltics’ largest business law firms with over 200 lawyers across the Baltic states.
The licence also passports the fintech’s services across the EU.
Clear eligibility criteria
TEGOS began as a traditional banking and finance law firm, but has since expanded to offer services in more innovative fields. “We now work with all types of financial services companies, including crypto, e-money, and payment institutions,” says Inese.
One of TEGOS’s primary functions is to act as a partner that helps translate a fintech’s business ideas into the necessary documentation required for licensing. It provides guidance throughout the licensing period, as well as ongoing consulting after licensing.
Applying for the new licence isn’t as easy as accumulating €1 million in share capital, Inese tells NFM. Companies must comply with certain criteria: They must have a clear business concept, offer their services digitally, and serve a “closed network” of clients. “This isn’t intended as a licence to enable companies to serve anyone and everyone,” says Inese.
The final criterion is that the fintech must bring something innovative to the table. “If you can meet those criteria, you’re then on equal footing as all the major players,” Inese says.
Last chance: Get your tickets for Baltic Fintech Days May 13
Fintech boom actively supported by the Bank of Latvia
The current drive to make Latvia a fintech hub is a direct result of the combined effort between the Bank of Latvia and the government. As a result, TEGOS is seeing more financial players coming to Latvia than ever before.
The Bank of Latvia is putting plenty of effort into informing and educating market entrants. These days, a lot of information is on the regulator’s website. “Now, we invite potential entrants to look at the website first,” Inese says. “The bank is really welcoming.”
Latvia’s risk-based approach to AML has opened the doors wide
In 2018, Latvia found itself at the centre of international attention following the collapse of ABLV bank. Latvia’s third-largest bank was accused of institutionalised money-laundering by the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.
Latvia responded decisively. An overhaul of the country’s anti-money laundering framework followed, reshaping the financial sector. These reforms were critical in ensuring that Latvia is not placed on a “grey list” by MONEYVAL, Europe’s permanent monitoring body for AML and terrorist financing. Latvia thus also gained a reputation for being an immensely stringent country to enter because of its strict AML requirements.
Last chance: Get your tickets for Baltic Fintech Days May 13
“The country has since adopted a new approach to AML, now focusing on a more risk-based approach when assessing clients and transactions,” says Inese.
The approach is working. MONEYVAL’s latest report was immensely positive, explicitly stating, “Latvian authorities effectively identify and investigate money laundering cases, prioritising them according to their evolving risk profile.”
“This is the other significant contributor to the growing number of fintechs in Latvia,” Inese says.
