Date added: : 08.02.2016

Originating of the financial market in Latvia was in place at the beginning of the 1990s, when this activity had not yet been adequately regulated at the legislative level. Since that time, the legislation of the Republic of Latvia has undergone many changes in this field.

So, Latvia became one of the first states that concentrated the management of the entire financial market (banks, insurance organizations, securities market) in one state institution. In 2000, the Law on the Financial and Capital Market Commission (FCMC) was adopted, which created the appropriate state regulator of the financial market.

One of the main regulatory and legal acts that regulate the activity of financial companies in the territory of the Republic of Latvia is the Law "On the Market of Financial Instruments", adopted on November 20, 2003 (entered into force on January 1, 2004).

This law defines the concept of a brokerage company of investments, which is a capital company that provides investment services on a regular basis and professionally. According to paragraph 4 of Article 3 of this law the following services falls under the scope of investment services (the text of paragraph 4 below is in the current version of the Law):

  • acceptance and transfer to execution of orders of investors on transactions with financial instruments;
  • execution of orders of investors on transactions with financial instruments at the expense of investors or third parties;
  • individual management of investors' financial instruments in accordance with the investor's power of attorney (services for managing securities portfolios);
  • the initial placement of financial instruments, if the provider of the investment services does not purchase financial instruments or guarantees their redemption;
  • redemption of financial instruments for initial offering or guaranteeing the repurchase of financial instruments not placed during the initial offering;
  • execution of transactions with financial instruments at the expense of a credit institution or brokerage company of investments;
  • (the item is excluded by the Law of June 15, 2006);
  • provision of consulting services in the field of investment in financial instruments;
  • maintenance of the multilateral trading system.

Stages of obtaining a financial license in Latvia:

I. Company registration;

II. Forming a package of documents required to obtain a license;

III. Applying to the Finance and Capital Market Commission (FCMC);

IV. Obtaining a license and commencing activities.

Let us consider in more detail each of the above steps.

I. Company registration

For the purposes of obtaining a financial license, you must first register the company. You can register it both in the form of a limited liability company (SIA) and in the form of a joint-stock company (AS).

Taking into account the requirements of the legislation for the brokerage company of investments, we will consider the specifics of the company's registration, which will need to be observed when registering for the purpose of obtaining a financial license:

1. Shareholders/founders - founders (shareholders) can be both natural persons and legal entities, regardless of residence. The minimum number of shareholders/founders is 1, the maximum number is unlimited. However, paragraph 5 of Article 106 of the Law "On the market of financial instruments" provides for special requirements to the owners of shares (shareholders) of the investment brokerage company. So, shareholders can only be persons:

  • who have an impeccable reputation;
  • the material position of whom is stable and provides the opportunity to documentarily confirm the legality of the origin of financial resources. In assessing the financial stability of the owner of shares (shareholder), account is taken of the availability of the free capital of such a person, as well as the fact that such person is neither a credit organization nor an insurance company;
  • who have sufficient financial resources, the legality of which can be documented;
  • the identity of whom can be verified.

We also draw your attention to the fact that the Financial and Capital Market Commission has the right to request from any person any information about real beneficial owners if the Commission has Name sufficient grounds to believe that a person has the necessary information.

2. Legal address - must coincide with the address where the management bodies of the company are located (the Board and the Managing board).

3. Name - only Latin and Lettish letters should be used in the name; it should differ from the already registered names of other enterprises, and contain the phrase "joint-stock company" ("akciju sabiedriba") or abbreviation “AS”.

4. Management (valde) - a minimum of 3 members of the management board, who must meet the requirements of the FCMC regulator. According to paragraph 1 of Article106 of the Law "On the market of financial instruments", a member of the management board of a brokerage company of investments may be a person:

  • who is sufficiently competent in the sphere for which he will be responsible in the brokerage company of investments;
  • who has the necessary education and at least three years of professional experience of the relevant work in a commercial company, organization or establishment of an appropriate size;
  • who has an impeccable reputation;
  • who is not deprived of the right to engage in commercial activities.

Paragraph 2 of the above article establishes restrictions on the members of the management board of the investment brokerage company. So the following person can not be a board member:

  • who was convicted for committing an intended criminal act, including for malicious bankruptcy;
  • who was convicted of committing an intended criminal act, although he was released from serving his sentence in connection with prescription, pardon or amnesty;
  • the initiated criminal case for committing an intended criminal act against whom was terminated due to a prescription or amnesty;
  • who was brought to criminal responsibility, but against whom the criminal case was terminated on non-rehabilitative grounds;
  • who deliberately provided false information about himself to the Commission (FCMC) when submitting documents to the Commission for obtaining a license for any activity in the financial and capital market.
  • Board (padome) - is the supervisory institution of the joint-stock company and also represents the interests of shareholders in the interval between shareholders' meetings. In a limited liability company, there are no requirements for the existence of the Board. The Board appoints the managing board and oversees its work. Minimum number of members of the board is 3, maximum is 20. The members of the Board of the investment brokerage company are also subject to special requirements (paragraph 3 of Article 106). Member of the Board can be a person:

- who is competent in matters of financial management;

- who has the necessary education and at least three years of professional experience of the relevant work in a commercial company, organization or establishment of an appropriate size;

- who has an impeccable reputation;

- who is not deprived of the right to engage in commercial activities.

A member of the Board of the investment brokerage company can not be a person:

  • who was convicted for committing an intended criminal act, including for malicious bankruptcy;
  • who was convicted of committing an intended criminal act, although he was released from serving his sentence in connection with prescription, pardon or amnesty;
  • the initiated criminal case for committing an intended criminal act against whom was terminated due to a prescription or amnesty;
  • who was brought to criminal responsibility, but against whom the criminal case was terminated on non-rehabilitative grounds;
  • who deliberately provided false information about himself to the Commission when submitting documents to the Commission for obtaining a license for any activity in the financial and capital market.
  • The authorized capital is 125 000 euros, if the investment brokerage company wishes to provide at least one service of those mentioned in clauses 1, 2, 3, 4 or 8 of paragraph 3 of the Law "On the market of financial instruments" (this paragraph was exactly quoted above) and keep financial instruments and clients’ funds.

The authorized capital must be paid before the registration of the company in full. The authorized capital can not be withdrawn from the account, and it is always, during the whole period of activity of the company, must be maintained on the account in the amount in which it was declared.

Also we draw your attention to the fact that depending on the services that you plan to provide, the amount of the authorized capital may be increased or decreased. So, if you do not plan to keep financial instruments and clients’ funds, then the minimum amount of the authorized capital will be 50,000 euros, and for the market makers (if the services specified in clauses 5, 6 or 9 are planned, paragraph 4 of article 3 of the Law "On the market of financial instruments"), the minimum amount of the authorized capital is set at 730 000 euros.

  1. Account in the bank - the account must be opened in Latvia before the company's registration, as the authorized capital must be paid before registration.
  2. Reporting - the investment brokerage company prepares a report / accounting statements for each year of activity, which includes a balance sheet, off-balance sheet items, calculation of profit or loss, a statement of changes in equity and reserves, a cash flow statement and appendices, as well as management's message of a brokerage company of investments (Article 115 of the Law "On the market of financial instruments").

Annual report / accounting statements of the investment brokerage company are checked by a sworn auditor. If such an audit was not conducted, the meeting of shareholders (participants) of the investment brokerage company is prohibited from approving the annual report / accounting statements.

If the conclusion of the sworn auditor contains notes (objections), dividends can be paid only with the consent of the Commission (Article 118 of the Law "On the Market of Financial Instruments").

For registration of a limited liability company, the following package of documents will be required:

  1. A statement signed by a reliable electronic signature or signature certified by a sworn notary or an official of the Register of Enterprises.
  2. Decision on the establishment, if the company has one founder, or an agreement on the establishment of two or more founders.
  3. The Charter.
  4. A certificate from the bank on the payment of fixed capital (if it is fully or partially paid with money) and an assurance of property investments (if any).
  5. Documents on the value of each property investment with a description of each item of investment, indicating the ownership of property; description of the valuation method (if the total amount of property investments does not exceed 5,700 euros, the founders have the right to estimate the value on their own - in this case, the method is not required); a conclusion on the compliance of the property investment with the type of the company's commercial activity.
  6. A document on the distribution of participants' shares, signed by a reliable electronic signature or, if the registration is in paper form, with a signature certified by a notary or an official of the Register of Enterprises.
  7. Board members' agreement. For the LLC, the creation of a board is not mandatory.
  8. The agreement of the members of the management board signed by a reliable electronic signature or, if the registration takes place in paper form, with a signature certified by a notary or an official of the Register of Enterprises.
  9. The declaration of the board about the legal address.
  10. The agreement of the owner of the real estate to register the legal address of the merchant (if the object belonging to the person whose signature is on the application for registration is located at the legal address, this document is not needed).
  11. A receipt or a copy thereof or a printout from the Internet bank about payment of the state duty.
  12. A receipt or a copy thereof or a printout from the Internet bank about payment of the publication in "Latvijas Vēstnesis".

For registration of the joint-stock company it will be necessary to submit the following package of documents:

  • a statement signed by a reliable electronic signature or signature certified by a sworn notary or an official of the Register of Enterprises;
  • decision on the establishment, if the company has one founder, or an agreement on the establishment of two or more founders;
  • the Charter;
  • a certificate from the bank on the payment of fixed capital (if it is fully or partially paid with money) and an assurance of property investments (if any).
  • documents on the value of each property investment with a description of each item of investment, indicating the ownership of property; description of the valuation method (if the total amount of property investments does not exceed 5,700 euros, the founders have the right to estimate the value on their own - in this case, the method is not required); a conclusion on the compliance of the property investment with the type of the company's commercial activity;
  • the agreement of the Board members signed by a reliable electronic signature or, if the registration takes place in paper form, with a signature certified by a notary or an official of the Register of Enterprises;
  • The agreement of the members of the management board signed by a reliable electronic signature or, if the registration takes place in paper form, with a signature certified by a notary or an official of the Register of Enterprises;
  • The declaration of the board about the legal address;
  • The agreement of the owner of the real estate to register the legal address of the merchant (if the object belonging to the person whose signature is on the application for registration is located at the legal address, this document is not needed);
  • a receipt or a copy thereof, or a printout from the Internet bank about payment of the state duty;
  • A receipt or a copy thereof, or a printout from the Internet bank about payment of the publication in "Latvijas Vēstnesis".

Registration of a limited liability company will take a total of about 1 week (the company itself is registered within 3 days). The registration of the joint-stock company in total will take about 2-3 weeks.

II. Formation of the package of documents required to obtain a license

Article 107 of the Law "On the Market of Financial Instruments" contains a list of documents that must be submitted for obtaining a license. So, in order to obtain a license, the investment brokerage company submits to the Commission an application stating which investment services and collateral investment services it wishes to provide.

Simultaneously with the application, the investment brokerage company submits the following documents:

1. Documents on the members of the management board and the Board.

Notification, which includes the following information:

  • the brokerage company of investments;
  • name, surname, personal code (if any) or year and date of birth;
  • the position;
  • citizenship;
  • education (scientific degree);
  • information on the development of professional skills;
  • whether the relevant person had a criminal record;
  • whether the person concerned was the head of a commercial company recognized insolvent;
  • whether the relevant person was deprived of the right to conduct commercial activities;
  • previous jobs during the last 10 years and a description of job responsibilities.

A copy of that sheet of passport or other legal identity document of the person [name, surname, nationality, personal code (if any) or year and date of birth];

Copies of documents on education;

2. Balance sheet on the condition at the end of the previous month, prepared in accordance with the requirements of regulatory acts governing the preparation of annual reports of investment brokerage companies, and documents certifying compliance with the requirements for the initial capital (for example, a financial report certified by a sworn auditor, a certificate from a credit institution, documents confirming changes in the capital in the current year);

3. Description of the procedures necessary for the creation of an internal audit system for the main elements, policies and investments that are essential for the brokerage company and the quality provision of investment services:

a) a description of the organizational structure of the investment brokerage company with clearly stated responsibilities and powers of the members of the board and management board, as well as precisely defined and distributed tasks of structural units and responsibilities of heads of structural units and their subordinates. If the establishment of branches is envisaged, the investment brokerage company shall also provide a description of the organizational structure of branches and responsibilities of branch managers,

b) the main principles of the accounting policy and organization of accounting, including financial instruments and transactions with financial instruments relating to the cash method of accounting of monetary funds and the organization of accounting,

c) a description of the management information system,

d) rules for the protection of the information system, including rules for the protection of the database of accounting for financial instruments and transactions with financial instruments associated with the database of financial accounting,

e) A description of the internal audit system,

f) a description of the procedures for identifying unusual and suspicious financial transactions by which money laundering derived from illegal activities is carried out, and which can be used to finance terrorism, including procedures that allow to identify clients with the above activities,

g) a description of policies and procedures for managing significant risks of activities,

h) a description of policies and procedures that are provided by the compliance department,

i) draft rules referred to in paragraph 2 of Article 1332 of the Law "On the market of financial instruments" in the event that the investment brokerage company plans to carry out activities to maintain the multilateral trading system;

4. The plan of activity for at least three subsequent years of activity, which in its detailed form reflects the strategy of the brokerage company's activities, financial forecasts (including draft balance sheet, calculation of profit or loss, draft capital adequacy calculation, projected amount of fixed costs per year), descriptions of market research, other information that the investment brokerage company considers necessary and which makes it possible to obtain a clear and reliable view of the proposed activity;

5. Description of the procedure for the provision and monitoring of financial services and supporting (non-core) investment services that the investment brokerage company plans to provide and the license it wants to receive;

  1. a description of the procedure for identifying transactions that were carried out as a result of the use of insider information or for the purpose of manipulating the market;
  2. Description of the policy to prevent conflicts of interest;

6. Information on shareholders (participants) of the investment brokerage company:

a) for individuals - a copy of that sheet of passport or other legal identity document of the person [name, surname, nationality, personal code (if any) or year and date of birth];

b) for legal entities - the name of the company, legal address, number and place of registration. Legal entities registered in foreign countries also provide copies of registration documents,

c) the volume of a significant equity interest in the direct or indirect ownership of shareholders or members / participants of the brokerage company of investments.

We draw your attention to the fact that the Commission has the right to request additional documents for confirmation, which it considers necessary to review the possibility of issuing a financial license.

III. Applying to the Finance and Capital Market Commission (FCMC)

After completing the application, preparing and collecting all the above documents, the application to the Commission can be submitted by an authorized person of the company. The commission considers the application of the investment brokerage company for obtaining a license and takes a decision within three months after receiving all the documents required by the law and issued in accordance with the requirements of regulatory enactments.

IV. Obtaining a license and commencing activities.

Before issuing a license (as well as in the process of supervising the activities of a company that has already been granted a license), the Commission will ask the supervisor of the relevant EU Member State for information about the compliance of the shareholders of the investment brokerage company, as well as information on the reputation and experience of the members of the Board and the managing board, as well as whether these individuals participate in the management of other commercial companies or groups of companies, which may include a brokerage deposit company, and will evaluate the information received.

If a positive decision is taken to issue a license, the Commission will notify the European Securities and Markets Authority that this company has been issued a license.

The Commission does not issue a license to the brokerage company of investments, if:

  • when establishing the brokerage company of investments, the present law and other normative acts are not observed;
  • in case that close relations of the investment brokerage company with third parties pose a threat or may pose a threat to its financial stability or limit the Commission's right to fulfill the statutory functions of supervision;
  • laws and other normative acts of a foreign state that apply to persons who have close relations with a brokerage company of investments restricts the right of the Commission to perform the functions of supervision established by law;
  • the documents submitted by the investment brokerage company contain inaccurate or incomplete information;
  • board members of the investment brokerage company do not meet the requirements established by law;
  • it is impossible to verify the identity, reputation and stability of the financial position of those persons who have a significant stake in the brokerage company;
  • commission states that the funds invested in capital investment brokerage company, obtained through an unusual or suspicious financial transactions or legal origin of these funds is not proven documentarily.