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Latvia’s central bank has jumped ahead of the EU’s soon-to-be-passed Instant Payments Regulation (IPR), and has said that fintech companies will be granted access to the Baltic country’s retail payment system.
The Council of Latvijas Banka, Latvia’s central bank, has approved an initiative that will enable non-bank payment service providers (PSPs), and in the future also crypto-asset service providers, to open an account with Latvijas Banka for the segregation of their customer funds.
Likewise, Latvijas Banka will provide non-bank payment service providers with the possibility to directly participate in the Electronic Clearing System (EKS), therefore facilitating the development of payment services in Latvia.
These changes, which were approved on December 15, are stepping ahead of EU regulation.
For example, the agreed final text for the IPR amends the 1998 Settlement Finality Directive (SFD) and grants direct access to payment systems for payment and e-money firms.
Additionally, revisions to payment services regulation in the EU that were unveiled in June propose that in addition to commercial banks, central banks will also be allowed to provide account services to non-bank PSPs, at their discretion.
What are the changes in Latvia?
In Latvia, it is planned that the possibility to open an account for separate holding of customer funds in euro with Latvijas Banka will be provided to payment and electronic money institutions licensed within the European Economic Area (EEA) and to crypto-asset service providers (CASPs) licensed in accordance with the European Union's Markets in Crypto-Assets Regulation (MiCA).
Providing these institutions with the possibility to open an account with Latvijas Banka will strengthen the protection of their customers, the regulator said.
In addition to the above, Latvijas Banka will provide non-bank payment service providers with the possibility to directly participate in the EKS — Latvijas Banka's payment system ensuring the processing of retail payments across the Single European Payments Area (SEPA).
The central bank said that as a result of this “all Latvia's payment service providers will be given equal opportunities facilitating the development of payment services in Latvia”.
Latvijas Banka and the Ministry of Finance agreed on the necessary changes in the national regulatory framework for the implementation of both initiatives.
Before promoting the initiatives, Latvijas Banka also analysed the needs of financial sector participants, and has consulted with industry representatives.
The changes will now go on to be introduced in June this year.
“An innovation-supporting infrastructure is one of the cornerstones for the development of the fintech environment and innovative financial services and one of the recommendations outlined in Latvia's fintech sector development strategy,” the central bank said in a statement.
“A secure and developed financial sector is one of the strategic priorities of Latvijas Banka.”
Latvia is not the first country to introduce changes like this. For example, payments and e-money institutions have direct access to Lithuania’s CENTROlink, which was launched in 2015.
As of last year, 148 PSPs were participating in the system, including 19 from different EEA states.
In addition, direct access has been granted at the Magyar Nemzeti Bank in Hungary.
