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POSITION PAPER OF THE REPUBLIC OF LATVIA
Chapter 4: "FREE MOVEMENT OF CAPITAL"
Setting the time frame for the process of adoption and implementation of the European Union's acquis communautaire, the Latvian Government adopted 1 January 2003 as the data on which Latvia will be prepared for accession to the European Union. Latvia accepts and will implement in full acquis communautaire in the area of "Free movement of capital" including acquis communautaire adopted by the EU during 1999, before 1 January 2003. Where it is possible Latvia is ready to adopt and fully implement Community Laws even sooner. Certain provisions of acquis communautaire applicable exclusively to the Member states will be fully implemented as from the date of accession. Latvia has a liberal regime for capital movements that may well be compared to the world's most liberal regimes. No restrictions on convertibility of the national currency exist in Latvia both in respect to the current account and capital account transactions. Foreign investors can freely repatriate their investments and profits after paying due taxes. Both residents and non-residents are allowed to hold foreign currency in cash or open bank accounts in the Latvian or foreign currency without any restrictions. Every Latvian resident may freely use foreign financial services. There are no restrictions for securities transactions or for buying/selling houses. Land market has been liberalised in respect of the EU countries due to the concluded agreements for protecting and promoting investment (the only exception is Ireland). Although liberalisation of the capital flow has been largely accomplished, Latvia is aware of the remaining problems and committed to find a solution no later than by January 1, 2003. The problem areas and the possible solutions are as follows: 1) Direct investment The final remaining restriction within the area of direct investment is laid down in the law on security operations and refers to the receipt of a licence for performing security operations by undertakings where the majority interest belongs to foreign investors. Pursuant to the resolution of 22November 1999 passed by the Council of European Integration amendments to the law on security operations have been worked out whereby the restrictions in respect of foreign investment by the EU Member States in the area of security operations are cancelled. Amendments will take effect in 2000. 2) Real estate market Due to the agreements for protecting and promoting investment concluded with 14 EU Member States, those undertakings where more than 50% of the share capital belongs to natural or legal persons of the respective countries and/or Latvia may acquire land in Latvia without restrictions. The agreement has not been signed with Ireland, the only EU country that refused to sign this bilateral agreement. To ensure full compliance with the EU requirements on liberalisation of the land market, the relevant laws will be amended in 2000. The land market will be liberalised also in respect of self-employed persons of the EU Member States. 3) Restrictions on investment by institutional investors a) private pension funds According to the law on private pension funds, investment abroad (in securities, real estate, and others) shall not exceed 15 percent of the total asset value of a pension fund. This restriction will be reviewed and eliminated by the end of 2003. The World Bank has provided the necessary financial support for an expert currently examining the issue and the assignment will be accomplished by July 2001. The actual duration for approximating the Latvian legislation will depend on the schedule for the legislative alignment stage within the EU. b) insurance companies According to the law on insurance companies and their supervision, insurance companies shall seek permission of the Insurance Supervision Inspectorate to invest abroad more than 10% of the insured technical reserves. Until present this requirement did not hinder investment abroad by insurance companies. Amendments to the law on insurance companies and their supervision will gradually phase out this restriction. The process will be finished by 2003. Payment and Settlement Systems Latvia has transposed into its legislation the most important requirements in the area of payment systems. To ensure compliance with the remaining requirements of the acquis communautaire, Latvia is committed to amend and supplement the existing legislation by 31 December 2001 as follows: Amend the Law "On the Bank of Latvia" whereby oversight of payment systems is introduced in line with Sub-paragraph 4, Paragraph 2, Article 105 of the Treaty establishing the European Community and the Bank of Latvia is granted the right to introduce binding regulations for the participants of payment systems. Supplement the Bank of Latvia's "Regulation for Credit Transfers" whereby the procedure for cross-border credit transfers among Latvia and EU Member States is established pursuant to EC Directive 97/5/EC "On Cross-Border Credit Transfers". In order to ensure full compliance with the EC Directive 98/26/EC "On Settlement Finality", to amend the Law "On Credit Institutions", Law "On Securities", "Regulation for Interbank Settlements Effected by the Bank of Latvia", "Provisions for Accounting of Latvian Government Securities", the Regulation " On Issuing Licences to Legal Persons for Mediation in the Public Circulation of Securities" of the Securities Market Commission and develop the regulation "On Transfer of Securities". The said amendments will establish the procedure for authorising and supervising payment systems, establish settlement and netting finality, introduce a notion of "final and irrevocable settlements" and govern disposal of pledges in case of insolvent participants. Amend the Law "On Credit Institutions" whereby only credit institutions are allowed to issue multi-purpose payment cards; develop the regulation for servicing payment instruments by credit institutions to ensure full compliance with the EU recommendations in respect of electronic payment instruments.
Latvia is aware of the link between payment system issues and the acquis communautaire in the chapters of Economic and Monetary Union and freedom of services. It shall be remarked that the EU requirements on the prevention of laundering of proceeds derived from criminal activity were implemented already in 1998. Taking into account the aforementioned, the Republic of Latvia will not request any derogation or transitional period and proposes the negotiations on chapter "Free movement of capital" be considered as provisionally closed.
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