Protecting Client Investments

General

The European Union Regulation No.600/2014 (MIFIR) and Directive 2014/65/EU (MIFID II), whose provisions are applied as of 3 January, 2018, along with other related laws and regulations form the regulatory basis in the area of investment services and apply to all providers of investment services within the European Union including the Republic of Latvia. The regulation is aimed at enhancing the protection of investor interests as well as the increase of the transparency of financial instrument market. The Financial Instrument Market Law of the Republic of Latvia is developed up in accordance with the requirements of laws and regulations of European Union.

Following the provisions of the Financial Instrument Market Law of the Republic of Latvia (Paragraph 128.2 Section 2), the Bank has developed and approved its Order Execution Policy (reference to policy). The Policy provides for the main principles and measures implemented by the Bank in order to to ensure the best possible results for the customers in transactions with financial instruments, including:

  • criteria the Bank considers when selecting the place of order execution;
  • criteria for the selection of the counterparties for execution of customer’s orders.
The customers must get acquainted and express their consent to the Bank’s Order Execution Policy prior to submission of their orders to the Bank.

There are different storage regimes organized in the Bank for customers’ financial instruments and cash to be used for the provision of investment services. Pursuant to that the customer’s rights to the cash and financial instruments owned by the customer are guaranteed by different centrally organized protection systems in the Republic of Latvia.

Protection of Customer Investments

Following the requirements of Financial Instrument Market Law of the Republic of Latvia (129.1 paragraph section 2), the Bank always keeps financial instruments possessed by its customers off-balance separately from its own funds, and they are deemed assets of third parties held by the Bank. Pursuant to that the provisions on investor protection set forth in the Investor Protection Law of the Republic of Latvia are applied to the customer’ financial instruments.

The Investor Protection Law provides for a compensation for irreversibly lost financial instruments and losses caused by a non-executed investment service in situation when the Bank is unable to meet its obligations to the customer in full and within the prescribed term. However, such compensation is not paid to an investor in case when he or she suffers losses due to changes in the price of financial instruments or if financial instruments have become illiquid.

The compensation to one customer is determined in the amount of 90 per cent of the value of an irreversibly lost financial instrument or losses caused by a non-executed investment service, however, not exceeding EUR 20,000.

The Financial and Capital Market Commission ensures the payment of compensations on the basis of an investor's application. An application for compensation must be submitted within a one-year period following the date the customer becomes aware of the default by the Bank, but no later than in five years following the date of default.

The Investor Protection Law provides for some cases when the compensation for irreversibly lost financial instruments or losses caused by a non-executed investment service is not paid, including when a customer has informed the Bank that he or she is a professional customer.

For further information, please see the website of Financial and Capital Market Commission.

Protection of Customer Deposits

Customers’ cash used for settlement in transactions with financial instruments usually is kept on a cash account specially opened for that purpose, and in certain cases on customer’s current account. In both cases customer’s funds are recorded in the Bank’s balance sheet and are deemed the Bank’s property, which means that in case the Bank becomes insolvent these funds will be included in the list of Bank’s assets and will be utilized for the satisfaction of claims of the Bank’s creditors. The protection system provided for in the Law on Deposit Guarantees of the Republic of Latvia applies to such customer’s funds.

For further information on the protection of deposits, please read here.

Custody Services

Pursuant to the requirements of regulatory documents, financial instruments owned by the Bank's clients are stored in the nominal financial instrument account opened with the transaction partners of the Bank, separately from the financial instruments owned by the Bank, and are not included in the Bank's balance sheet.

The Bank selects a trading platform and a counter party which, in the Bank's opinion, are most suitable to ensure the best result of the transaction for each Order made by the Client on concluding the transaction involving a certain type of Financial Instruments. The best result for the Client is assessed, taking into account the category of financial instruments and assumptions included in the Bank's Policy of Order Execution.