.svg)
The Bank of Latvia is taking an active role in mitigating disputes between commercial banks and their clients by encouraging the use of its mediation service.
This initiative aims to address cases where businesses or individuals face difficulties in opening or maintaining bank accounts, even as systemic issues in the Latvian financial sector have reportedly subsided.
De-risking and de-banking occur when financial institutions limit or sever ties with certain clients due to perceived compliance or regulatory concerns.
Although they are no longer seen as a widespread problem in Latvia, the central bank has said that isolated incidents have continued to arise.
In response, the Bank of Latvia is positioning itself as a neutral mediator to help resolve disputes between financial institutions and their clients.
The regulator told Vixio that the mediation process applies to all market participants, including e-money firms and payment institutions.
It said that both individuals and legal persons are encouraged to utilise it, meaning that it could be applicable to payments and e-money institutions from both perspectives.
“Access to financial services is a topical issue in many countries, including Latvia, influenced by both geopolitical events and regulatory requirements,” a spokesperson for the regulator commented.
“Various measures have been taken to promote access to financial services, such as explanations to market participants, examples of good and bad practices for market participants, and mediation processes.
Mediation
The structured mediation process that the Baltic country is promoting is designed to facilitate agreement-oriented negotiations between banks and their clients.
The initiative is open to all customers of Latvian-registered banks, including branches of foreign financial institutions, regardless of business sector or financial standing.
According to the central bank, mediation is particularly useful when difficulties in bank-client relationships hinder access to financial services.
This includes disputes over lending decisions, pricing policies, transaction monitoring and customer due diligence requirements.
Clients dissatisfied with a bank’s communication or service levels are also encouraged to seek mediation as a means of resolving their concerns.
“Experience shows that in most cases it is possible to find a solution,” commented Santa Purgaile, deputy governor of the central bank, in a media statement.
She added that this “is important in the specific case, but even more important on a broader scale, because the Bank of Latvia provides instructions and explanations to other commercial banks”.
“At the same time, it is a basis for assessing the application of the regulation in practice and, in case of shortcomings, correcting it or identifying other types of issues to be resolved."
Ready for PSD3/PSR
This mediation process could be beneficial in terms of readying both the authority and the market for incoming EU payment services legislation.
The Payment Services Regulation (PSR) has much higher expectations, laying out what national competent authorities need to do.
It bolsters the existing requirements under the revised Payment Services Directive (PSD2)
The European Commission's proposal, still under negotiation, limits banks' ability to refuse or close accounts for payments and e-money firms.
If a bank does so, it must notify the entity and justify its decision based on specific risks. The entity can appeal to the national competent authority.
This will place more pressure on national competent authorities to ensure fairness, and Latvia is perhaps getting ahead of the new rules with this.
The Latvian approach also aligns with work taking place in the US, although it favours diplomacy over enforcement. In addition, the US has been more focused on individuals than firms at agency level.
For example, the US Consumer Financial Protection Bureau (CFPB) issued a draft rule last year targeting financial firms that penalised consumers for exercising free speech, such as posting negative reviews or expressing political or religious beliefs.
Instances of these practices, such as a 2022 case involving PayPal’s controversial amendments to its user agreement and allegations of financial institutions de-banking individuals based on their personal views, appear to be among the drivers for this new proposal.
