Obtaining an EMI licence in Latvia

EMI definition and functions

In light of the convenience and efficacy that electronic money affords in the contemporary digital economy, acquiring an EMI licence in Latvia, alongside other European nations, becomes an indispensable prerequisite for entities operating within this domain. Such licensure ensures adherence to regulatory protocols and streamlines integration into the European financial landscape.

EMIs constitute specialized financial entities engaged in the issuance and processing of electronic money.

EMIs, pivotal components of the modern digital economy, are instrumental in furnishing the infrastructure for electronic payments and financial transactions.

These institutions function within the purview of specific regulations delineating the parameters of their operations. As such, they necessitate specific licensing from regulatory bodies in their respective home countries to uphold stringent standards concerning risk management, cybersecurity, and measures to combat financial fraud and extremism financing. EMI oversight serves to safeguard consumer interests and maintain financial integrity.

Internet banking functionality becomes attainable subsequent to the acquisition of an EMI payment licence in Latvia from authorised entities. Functioning akin to traditional banks, it's imperative to recognise that an EMI does not embody a conventional bank branch. Notably, electronic licences conferred within the European Union enjoy passporting rights, permitting the provision of services across the broader EU economic area.

In addition to electronic money issuance, EMIs may offer an array of ancillary services encompassing payment processing, customer account management, currency exchange, and international fund transfers.

EMI licence in Latvia

EMI licences, facilitating the handling of electronic money, assume pivotal roles within the contemporary FinTech milieu. They bolster the accessibility of financial products, particularly in locales where conventional banking services are scarce or limited, a matter of particular import for emerging markets and digital platforms.

Furthermore, EMIs engender heightened competition within the financial sector by proffering innovative and user-friendly solutions, thereby incentivising traditional banks to innovate and enhance their service offerings. Moreover, they substantially contribute to the development of the digital economy by furnishing the requisite infrastructure for electronic payment utilisation and facilitating the transition towards cashless transactions.

An EMI licence in Latvia confers extensive authorisations, encompassing:

• Issuance of electronic mediums.
• Development of payment instruments.
• Integration of clients' payment cards with their sub-accounts, inclusive of card issuance and collaboration with principal payment systems such as Visa and MasterCard.
• Provision of IBANs.
• Execution of international bank transfers across diverse currencies.
• Facilitation of automated debit transactions in accordance with payment directives.
• Execution of financial transactions, including transfers, utilising cards and other payment mechanisms.
• Provision of acquiring services and other legally sanctioned financial endeavours.

An EMI licence in Latvia boasts indefinite validity, necessitating annual renewal and fee remittance. Licensing proceedings within the digital money domain fall under the purview of the nation's central bank.

EMI versus traditional banking

Entities possessing an AEMI licence in Latvia typically exhibit a more agile and adaptable framework in comparison to conventional banks. Their primary focus lies in delivering electronic payment services and digital financial management, diverging from banks which offer a broader spectrum of financial services encompassing lending, deposit-taking, and investment facilitation. Operational procedures within EMIs frequently embrace automation and digital optimization for transactions, in contrast to the more traditional, paper-centric approach prevalent in banking institutions.

EMIs, by virtue of their narrower operational scope and reduced risk profile, generally face less stringent capitalization requisites than their traditional banking counterparts.

EMI licence in Latvia accentuates wholly digital solutions, affording companies the capability to furnish convenient, efficient, and cost-effective services. Traditional banks, despite actively transitioning towards digital platforms, maintain extensive physical branch networks and uphold traditional financial service models.

Varieties of payment licences in Latvia

EMIs in Latvia are endowed with two principal categories of licences: a limited EMI licence and a full EMI licence, each delineating distinct digital prerequisites.

Conversely, a limited EMI licence in Latvia empowers institutions to conduct transactions sans volume restrictions, inclusive of international transactions. To attain full accreditation, a substantially augmented authorized capital outlay is necessitated compared to its smaller counterpart, requiring a minimum authorized capital of €350K. Furthermore, entities aspiring for a full licence must adhere to more rigorous compliance standards, encompassing adherence to AML/KYC protocols.

Ergo, the selection between a small-scale and full-fledged Latvian authorized electronic money licence hinges upon the scale and ambit of the enterprise, alongside the willingness to fulfil diverse financial and regulatory mandates.

Legislative and regulatory landscape

The legislative framework governing the operations of EMIs in Latvia encompasses a suite of statutes and regulations constituting the legal bedrock for EMI operations, whilst safeguarding the interests of all stakeholders within the financial sphere.

The regulatory oversight of EMI activities in Latvia rests upon several pivotal laws and legal edicts, chief among which is the Payment Services and Electronic Money Act. Aligned with the regulatory paradigms established by EU, this legislation delineates the legal framework governing EMI operations, encompassing licensing protocols, capital requisites, management imperatives, and operational security standards.

Latvia's legislative framework concerning EMIs has been meticulously crafted in consonance with EU regulatory benchmarks, including the PSD2 and the Electronic Money Directive, thereby ensuring regulatory harmonisation and affording EMIs the latitude to operate within the broader economic area.

The primary regulatory authority overseeing EMI licensing within Latvia is the nation's Central Bank. Tasked with ensuring compliance with EMI regulations, the Bank directs its scrutiny towards financial robustness, operational resilience, and customer safeguarding measures.

Furthermore, the Bank wields the authority to promulgate and enforce supplementary standards and directives pertaining to unique facets of EMI operations, encompassing document management protocols, internal process audits, and risk mitigation strategies.

EMIs operating within Latvia are beholden to international AML and CFT regulations, necessitating the implementation of stringent customer due diligence measures and transaction scrutiny mechanisms.

Fundamental prerequisites for obtaining an EMI licence in Latvia

Prospective applicants for such a licence in Latvia must satisfy specific criteria to secure licensure. Foremost, applicants must not be subject to sanctions or regulatory constraints imposed by EU authorities. Management personnel are required to possess requisite qualifications, including tertiary education in management, law, or economics, alongside a minimum of one year's pertinent work experience and an unblemished professional reputation.

Moreover, among the founding members of the entity, at least one individual must be of legal majority age and possess an unassailable business reputation.

Concerning financial criteria, the entity's authorized capital must adhere to prescribed standards, with a min of €350K mandated for a full EMI licence in Latvia, accompanied by substantiation of the capital's provenance.

To adhere to e-money standards and regulatory stipulations, organisations must centralise their operational processes, encompassing controls and financial transactions, within their principal establishment domiciled in Latvia.

Licensure procedure

Registering for an EMI licence in Latvia entails a multiphased process, necessitating meticulous preparation and adherence to stringent regulatory mandates.

Phase 1. Formulating a business plan

Preparation for licensure involves conducting comprehensive market analysis and crafting a cogent business strategy.

The development of a business plan for securing an electronic money institution licence in Latvia encompasses several crucial elements:

• Summary: providing a concise overview of the business plan, encompassing the enterprise's mission, vision, core objectives, and strategic directives.
• Company description: elaborating on the business entity, including its legal structure, historical background, geographical presence, and the spectrum of services or products offered.
• Market analysis: conducting thorough market research, evaluating competitors, identifying target demographics, and discerning market dynamics to ascertain growth opportunities.
• Organizational structure and management: outlining the management hierarchy of the licensed entity in Latvia, delineating key personnel, their qualifications, expertise, and organizational chart.
• Products and services: detailing the electronic financial services rendered by the company in Latvia, elucidating distinctive features, benefits, and risk assessments.
• Marketing and sales strategy: devising strategies for promoting services/products, delineating sales plans, pricing mechanisms, distribution channels, and promotional tactics.
• Operational plan: mapping out operational processes encompassing product development, operational management, logistics, and supply chain oversight.
• Financial projections: furnishing detailed financial forecasts spanning projected balance sheets, income statements, cash flow analyses, alongside delineating funding sources and capital augmentation plans.
• Risk assessment and mitigation strategies: identifying potential business risks and formulating strategies to manage and mitigate them effectively.
• Supplementary documentation: inclusive of resumes of key personnel, contracts, legal instruments, technical product specifications, and ancillary documents fortifying the business plan.

The business plan must encompass a minimum projection of three financial years.

Phase 2. Establishment of a company in Latvia

Official registration of the company constitutes a pivotal phase, as the absence of legal standing precludes application for an EMI licence in Latvia.

This process entails several steps:

• Selection of legal entity: determining the legal form of the company, considering options such as closed joint-stock company or limited liability company, contingent upon business model specifics and strategic objectives.
• Company name registration: selecting a unique appellation for the company and registering it with pertinent governmental bodies in Latvia.
• Preparation of constituent documentation: drafting and assembling a comprehensive set of corporate documents, inclusive of the company charter and articles of incorporation, in compliance with Latvian legislation.
• Registration in State Register: liaising with the Trade Register of Latvia to officially register the company holding an AEMI licence in Latvia, encompassing submission of requisite applications, accompanying materials, and remittance of registration fees.

These measures ensure the lawful and efficacious establishment of the company, constituting a pivotal determinant for successful licensure in the electronic money domain in Latvia.

Phase 3. Compilation of essential documentation

During this phase, the licensee is mandated to compile a dossier comprising:

• Management structure.
• AML/KYC protocols.
• Capital confirmation documentation.
• Evidence of clear criminal records for c-level management and founders/beneficiaries.

In preparing requisite documentation for licensing the EMI payment system in Latvia, emphasis is placed on devising an effective risk management strategy and formulating a robust compliance regimen. This entails a gamut of measures to identify, assess, and mitigate diverse risk categories encompassing financial, operational, legal, and reputational realms. Tailored control plans and procedures are formulated for each risk category, encompassing internal governance mechanisms, contingency planning, and continual monitoring and reporting to ensure prompt and decisive responses to evolving circumstances.

AML and KYC processes are pivotal components of the compliance framework. A Latvian payment institution must devise meticulous protocols for customer identification and verification, transaction monitoring, and mandatory reporting of suspicious activities. All operational protocols and procedures must meticulously adhere to regulatory requisites to ensure the legality and transparency of the company's operations.

It is imperative that all documentation remains current, accurately reflects the company's operational scope, and aligns with Latvian regulatory standards.

Phase 4. Submission of application to the Bank

Upon completion of documentation, the next step entails submission of an application to the Bank.

An application for an EMI licence in Latvia entails completion of an official form provided by the Central Bank. The application furnishes basic information about the company, its directors, proprietors, and delineates proposed activities in the digital money services domain.

The Bank of Latvia levies an application processing fee, contingent upon licence type, necessitating remittance prior to submission. Documentation verifying fee payment is appended to the application package.

Depending on regulatory requisites, applications may be lodged either electronically or in hard copy format. It is imperative to retain copies of all documents and payment receipts.

Phase 5. Evaluation of application by the regulatory authority

Upon receipt, the Bank initiates the application review process. Throughout this phase, the regulator may solicit supplementary information or clarifications on submitted documents. Timely responses to the Bank queries are imperative to forestall licensing delays. A pivotal facet of the evaluation entails an appraisal of the qualifications and integrity of the company's management cadre and key personnel, alongside an assessment of the institution's financial robustness.

Phase 6. Issuance of decision by the Bank

Upon conclusion of the application review, the Bank of Latvia renders a decision regarding the issuance of an EMI licence in Latvia. In the event of a favourable outcome, the company receives official notification and licensure, enabling commencement of operations. In instances of refusal, the Bank furnishes rationales for its decision, affording the applicant an opportunity to effect requisite adjustments and resubmit the application.

The regulator is afforded a three-month timeframe from documentation submission to render a licensing verdict. Identification of errors or inconsistencies may extend the review period, prompting Central Bank requisition for supplementary documentation or amendments. Subsequently, a new three-month review cycle ensues.

Companies securing authorization to engage in electronic money operations in Latvia are mandated to systematically furnish reports to regulatory authorities and uphold compliance with prevailing legal requisites. This encompasses periodic audits and vigilance over operational activities.

The entirety of the licensing process, encompassing document preparation, personnel recruitment, typically spans six to twelve months.

Securing an electronic money licence in Latvia is an intricate and multi-faceted endeavour, necessitating profound comprehension of local legislation and European regulatory frameworks. Methodical documentation preparation, adherence to stringent regulatory benchmarks, and successful completion of licensing stages necessitate a professional approach and meticulous planning.