Protection of financial instruments market clients (investors)

As from 1 January 2002, the Investor Protection Law has been in force in Latvia providing a system of protection for investors. In cases when the providers of investment services (banks, investment management companies and investment firms) are incapable of fulfilling their contractual obligations, investors have the right to receive compensation. Failure to meet obligations is compensated at 90% of the irrevocably lost value of financial instruments, or of losses incurred by the non-performance of investment services.

As from 2008, compensation at 90% of the irrevocably lost value of financial instruments, or of losses incurred by the non-performance of investment services was guaranteed for an investor, but not more than EUR 20 000 (LVL 14 056).

Contrary to accumulation of funds, the investor protection mechanism developed by DGF and FPI prescribes that funding meant for compensation has not been accumulated in the fund, but in cases when an investment service provider fails to fulfil obligations, the Commission, on the basis of quarterly reports on financial instruments portfolio submitted by other market participants, calculates proportion of payment by every market participant, investment service provider, in the account opened with the Bank of Latvia for guaranteeing compensations.

If necessary, the Commission organizes and monitors payments of market participants for compensations, examines validity of compensation claims and ensures payment of compensation.
 

The Fund for the Protection of the Insured (FPI)

The Fund for the Protection of the Insured (FPI) was created in 1999 in order to protect the interests of insured persons in case of an insurance company’s bankruptcy.
The assets of the FPI consist of deductions in the amount of 1% of the gross sum of insurance premiums received from physical persons for the classes of insurance specified by law.

Only a policyholder, natural person, may receive insurance indemnity in case of insurer default:
1) for life insurance policies – 100% of the insurance indemnity, but no more than 2 000 lats per insured person;
2) for other classes of insurance as established by law – 50% of the insurance indemnity, but no more than 2 000 lats per insured person.

The Commission organizes the collection of assets in the FPI and the payment of guaranteed insurance indemnity. Whereas the Consultative Council monitors collection of assets in the FPI and the payment of guaranteed insurance indemnity. The guaranteed insurance indemnity is paid only after initiating bankruptcy procedure at the insurance company. The Commission implements the creditor’s right of demand to insurer.