The reform of the institutional framework for financial supervision in Latvia

In late 2021, the Parliament of Latvia endorsed the reform of the institutional framework of the financial supervision following which the Financial and Capital Market Commission, Latvian financial supervisory authority, will be integrated into the Bank of Latvia (BoL). BoL will emerge thereafter as a national central bank with one of the broadest mandates in eurozone covering monetary policy, financial supervision and resolution, and administration of deposit guarantee schemes. This paper explores the impact of the EU integration process on the decision of Latvian authorities to abandon the institutional separation of monetary and supervisory functions in favour of a fully integrated supervisory model. It also assesses the new governance framework of the BoL by drawing parallels with the structural arrangements introduced at the European Central Bank upon the institution of the Single Supervisory Mechanism to guarantee independent exercise of its monetary policy and supervisory tasks.