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Latvijas Banka, the Central Bank of Latvia, has issued new regulatory rules in a bid to consolidate compliance requirements for customer due diligence (CDD).
Effective as of September 20, the new regulation consolidates several previous rules into a single, comprehensive framework, making compliance more straightforward for financial institutions.
The regulation is expected to enhance the overall efficiency of Latvia’s anti-money laundering (AML) efforts, while reducing the regulatory burden by empowering financial institutions to tailor their due diligence processes based on individual customer risk profiles.
CDD requirements have been simplified, giving financial market participants the opportunity to more widely use a risk assessment-based approach and individually determine appropriate CDD measures and deadlines.
"The availability of financial services is a priority of the Bank of Latvia. We are working in several directions, one of which is the simplification of regulation, where it is still possible,” said Santa Purgaile, deputy president of Latvijas Banka.
Purgaile said that during the development of these regulations, the central bank discussed various aspects of the availability of financial services with entrepreneurs, investors and the financial sector itself, so that the requirements of the regulations correspond to “genuine efforts” to prevent the risks of money laundering or circumvention of sanctions.
“The approach based on risk assessment works in practice and honest business operations and investment inflows are not restricted."
More general requirements
The rules provide for general principles that financial market participants must take into account when determining the client's risk, as well as research measures that directly depend on the client's inherent risk.
They aim to ensure that, in compliance with the basic principles established in them, the deadline for the in-depth study will be able to be determined by the financial market participants themselves.
The compliance requirements no longer provide prescriptive definitions for determining a group of interconnected clients.
However, they include a general requirement, as part of the in-depth investigation of the client, when an increased risk is detected, to evaluate whether the client and its transactions are connected with other clients of the same financial market participant.
Institutions must then apply the necessary research measures to understand any connection.
In addition, the central bank says that the new rules do not separately provide for the clarification of the client's connection with Latvia.
This requirement has previously been applied excessively, in various situations, prompting cases of de-risking and financial exclusion.
Updating and revising
The new regulation targets financial entities outlined in Article 45(1) of the Anti-Money Laundering (AML) Act, including payments and e-money firms, detailing their obligations to identify client risks, conduct customer research and deploy IT solutions for risk management.
The revised rules replace earlier Financial and Capital Market Commission (FKTK) regulations, including those addressing payment service provider research, correspondent banking relations and enhanced due diligence measures.
