The Latvian government on Tuesday approved the proposed merger of the country’s financial supervision authority with the central bank, local media reported.
According to the Finance Ministry’s plan, the merger of the Financial and Capital Market Commission (FCMC) with the Bank of Latvia might be completed in 2022 or 2023.
Citing a risk-benefit analysis, the ministry’s representative told a cabinet meeting that merging the financial supervision authority with the central bank would be useful and result in a significant public benefit, while the potential risks would be manageable.
The merger is expected to increase the efficiency of macro and micro-prudential surveillance and streamline decision-making and appeals processes.
The two institutions’ combined operational costs could be reduced by roughly 3.4 percent as a result of the merger, which is also expected to promote more coordinated and effective development of the Latvian financial sector.
The most serious risks associated with the merger include a greater concentration of influence in the financial system and a potential conflict of interest between monetary policy and macro and micro-prudential surveillance.
The Finance Ministry indicated, however, that the risks can be managed by implementing preventive measures, including an adequate distribution of functions, rights and responsibilities, as well as by ensuring proper internal legislative controls.
The FCMC was established in July 2001 to supervise Latvia’s banks, credit unions, insurance companies and insurance brokerage companies, the actors in the financial instruments market, as well as private pension funds, payment institutions and electronic money institutions.