Category: Latvia

The capital market in Latvia is rather small, with limited capitalization in both the stock and bond markets. As of December 31, 2015, 26 Latvian companies’ equity securities, 42 corporate debt securities, 12 Government Treasury bill and bond issues, and 5 investment funds were listed on the only licensed stock exchange in Latvia – Nasdaq Riga.

Nasdaq Riga was established in 1993 and commenced trading in 1995. Its major shareholder, with a 93% ownership interest, is Nasdaq Nordic Ltd. Nasdaq Riga owns the Latvian Central Depository (the LCD), which is the sole central securities depository in Latvia for public securities.

Nasdaq Riga operates four lists: The Main List, the Secondary List, the Bond List, and the Funds List. However, the LCD provides safe-custody of all publicly issued securities in Latvia and clearing and settlement services for securities trading on Nasdaq Riga, as well as managing corporate actions related to securities. The LCD assigns ISIN and CFI codes for all issues registered with it, and it has established relationships with the Estonian and Lithuanian central depositories and with Clearstream Banking, S.A., which allows LCD’s participants to act as custodians of financial instruments registered with those depositories.

Both Nasdaq Riga and LCD are supervised by Latvia’s Financial and Capital Markets Commission.

The main legal act governing the procedure by which securities are publicly offered in Latvia is the Financial Instruments Markets Law. This also regulates the organization and business of regulated markets, the operation of the central depositary, provision of core and non–core investment services, market abuse prohibitions, the licensing requirements of investment brokerage companies, and the provision of investment services by investment companies from other EU member states within Latvia, as well as by Latvian investment companies in other EU member states.

Unfortunately, the IPO market in Latvia is totally inactive, as it recently went over a decade between issues. At the end of 2015 Citadele banka, which was set up in 2010 from “good” assets salvaged from Parex (Latvia’s largest domestically-owned bank before its collapse in 2008), attempted to raise capital through an IPO with dual listings on Nasdaq Riga and the London Stock Exchange. Unfortunately, the transaction was canceled “due to the volatile situation in equity markets.” The breakthrough came in July 2016, when Latvian high-tech company HansaMatrix was listed on Nasdaq Riga after the company’s private placement of its shares to investors. 

By contrast, the corporate bond market in Latvia is quite active. The growth of the bond market started in 2011, when a number of local Latvian banks issued their bonds. The growth accelerated when Latvenergo, the largest state-owned energy company, entered the market with its first EUR 105-million program for the issuance of bonds. Demand for Latvenergo’s bonds was very high and exceeded supply by more than five times. Latvenergo returned to capital markets with its second issuance program in 2015, when it became the first state-owned company in Eastern Europe to issue so-called “green bonds,” in a total amount of EUR 100-million.

In recent years there have been a number of non-bank lending companies which have issued corporate bonds, although in relatively low amounts. It should be noted that the Financial and Capital Markets Commission has expressed its view that non-bank lending companies might be subject to banking licensing requirements if they raise money on capital markets on a continuous basis by way of public offering and use those funds for lending.

The main player in the bond market remains the Government of Latvia. Historically, domestic Government securities were used both as a financing instrument and with a view to benchmarking the development of a domestic securities market in Latvia. In 2014 the Government started to issue savings bonds, which are non-tradable financial instruments for private individuals. The savings bonds are offered with six- and twelve-month and five- and ten-year maturities.

The Government is also very active in the international capital markets. In 2013 the Government established a Global Medium Term Note program, used for issuance of public benchmark bonds and private placements in the international capital markets.

Strong capital markets and easy access to them is crucial for the sustained growth of the Latvian economy. Therefore, it is important that the relevant stakeholders put all their efforts into improving the capital markets climate in Latvia. 

By Edgars Lodzins, Specialist Counsel, Cobalt Latvia

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The free movement of persons, freedom of establishment, and freedom to provide services are fundamental principles of the European Union.

The 1996 Posted Workers Directive (96/71/EC) provided a framework so that both businesses and workers could take full advantage of the opportunities offered by the single market. However, in 2003 the European Commission evaluated the implementation of the 1996 Posted Workers Directive and identified several problems. 

In order to rectify these problems and to reduce the uncertainty existing in the field of labor law, especially concerning the posting of workers, and as a response to the verdict of the Court of Justice of the European Union in Viking, Laval, and Ruffert, the European Union drafted and adopted Directive 2014/67/EU (the “Posting of Workers Enforcement Directive”), requiring its members to implement it into national regulatory enactments before June 18, 2016.

The aim of the Posting of Workers Enforcement Directive is to strengthen the social dimension of the common market, to protect workers, to improve the conditions of work in cases of posting of workers, and to promote administrative cooperation and exchange of information between the institutions of the EU Member States.

Amendments to the Labor Law of the Republic of Latvia (hereinafter referred to as the “Labor Law”) were drafted in order to transpose certain provisions of the Posting of Workers Enforcement Directive and came into force on June 9, 2016.

Latvia is among those EU Member States that had already included in their Labor Law the obligation on the part of an employer posting workers to Latvia to inform the State Labor Inspectorate (SLI) of the posting in writing. However, this obligation has been supplemented by a requirement that the information be provided to the SLI in the Latvian language. In addition, henceforth, employers will have to submit more information to the SLI in terms of their own identification and contact information, the duration of the posting, the start and end of the working period, etc.

The amendments also transposed the requirements of the Directive relating to the obligation on the part of the employer to ensure that all concluded employment contracts; pay slips; time-sheets indicating the beginning, end, and duration of the daily working time; and proof of payment of wages be kept by the employer’s representative in Latvia. At the request of the responsible authority, the documents must be translated into Latvian. 

Moreover, the Labor Law has been supplemented by a regulation providing that the provisions regarding business trips shall be applicable to postings of workers. Thus foreign employers, when posting workers to Latvia, shall be obliged to pay daily allowances for the business trip in addition to the minimum wage and reimbursement of the expenses in order to ensure equal treatment between Latvian and foreign (posted) workers. In addition to this supplement, amendments to the Labor Law affect subcontracting chains and contractor liability by providing that posted workers who are employed by a subcontractor are entitled to claim unpaid waged from the contractor. Such rights are limited to the minimum wage of the country where the worker is posted. The contractor will have regressive rights towards the subcontractor. This liability currently is only implemented towards contractors in the field of construction (i.e., construction of buildings and specialized construction work). 

Further, amendments to the Labor Law include the previously contested principle that has now been clearly formulated in the Directive, namely, that the employer has to comply with the administrative requirements and submit to the requirements of the supervisory and control institutions of the state where he or she has posted a worker. 

Finally, pursuant to the requirements of the Directive, each state has an obligation to create an Internet database where the employees and employers can find all the necessary information with regard to the laws and regulations in the field of labor law, including the amount of minimum wage in each state. Thus, each employer will have to read through the labor requirements of other states, which will also be shared with the European Commission and other Member States. Currently, this Internet database has not been created in Latvia.

By Andra Rubene, Partner, and Ivita Samlaja, Senior Associate, Tark Grunte Sutkiene

This Article was originally published in Issue 3.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Moving beyond what he calls the “tectonic changes reshaping the Baltic legal markets” — the reshuffled and new alliances that has dominated recent coverage of those markets — Latvian Cobalt Partner Lauris Liepa calls attention to the trends that are reshaping the region’s banking sector as well.

The first trend, according to Liepa, is the consolidation of banks in the region, including this summer’s blockbuster combination of DNB Bank and Nordea across all three Baltic markets. The second trend is the local market regulators which, he reports, are displaying an increasingly scrupulous (“and very very tough”) attitude towards the banks in the region. In Lauris’s mind, the two phenomena are linked.

Starting with the second trend first, Liepa explains that Latvian market regulators “have imposed sanctions on several banks, ranging from public reprimand to a million euros penalty for lack of an appropriate attitude towards their risk assessment policies.” Liepa reports that “sufficient compliance with risk protections were not in place, and they were unable to convince the regulators that they were adequately prepared.”

In addition, the banks, Liepa reports, are forced to compete not only with one another, but with the new market players taking the form of alternative financial services companies. These companies — including the peer-to-peer lending, consumer financing, and money transfer institutions which he says “are popping up all over” — “are putting pressure on banks, and the smaller banks are finding themselves effectively sidelined.” In Liepa’s mind this is a necessary development, as it is beneficial for consumers and over time should make the banks more flexible, thereby strengthening the market. In addition, while of course there is competition between the banks and the alternative market players, Liepa reports that “it is not really black and white,” pointing out that there is also a fair amount of collaboration and learning from each side.

As a result, in Liepa’s mind, all these trends — the development of FinTech industry, the increased scrutiny of the banks, and their consolidation — reflect “that the markets are maturing … just like the legal markets in the region.”

On the subject of legislation, Liepa reports a number of issues ongoing, saying that, “I am impressed at the speed and enthusiasm of the government in elaborating legal framework for the non-banking financial market participants, e.g. Peer-to-peer lenders. We may also see the new regulation of Startup enterprises passed by our Parliament still this year.” Liepa also refers to ongoing reform to Latvia’s insolvency regime, reflecting the “increased intent in politicians to address the country’s reputation for having a generally inefficient insolvency process, resulting in the loss of business.” A functioning and effective system for setting up companies and efficiently arranging their bankruptcies is a sign of a healthy economy, Liepa asserts, and though the improvement of the country’s regime takes place in stops and starts, he laughs, “it is developing, and we’re learning from our mistakes.”

Finally, Liepa reports that there has been “strong growth this year from the perspective of the legal services providers” in Latvia. He describes that as “sort of surprising,” as many clients are reporting less successful financial results — Liepa refers to symptoms of a “mild recession” — but says that so many law firms are diversified that they become “somewhat immune to risks that affect commercial players.”

In “The Buzz” we interview experts on the legal industry living and working in Central and Eastern Europe to find out what’s happening in the region and what legislative/professional/cultural trends and developments they’re following closely.