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LEGAL ACTS OF THE REPUBLIC OF LATVIA
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The translation of this document is outdated.
Translation validity: 28.03.2019.–19.10.2021.
Amendments not included: 23.09.2021., 30.09.2021., 30.09.2021.
Text consolidated by Valsts valodas centrs (State Language Centre) with amending laws of:

16 February 2017 [shall come into force on 17 March 2017];
28 February 2019 [shall come into force on 28 March 2019].

If a whole or part of a section has been amended, the date of the amending law appears in square brackets at the end of the section. If a whole section, paragraph or clause has been deleted, the date of the deletion appears in square brackets beside the deleted section, paragraph or clause.

The Saeima 1 has adopted and
the President has proclaimed the following Law:

Law on Recovery of Activities and Resolution of Credit Institutions and Investment Brokerage Companies

Chapter I
General Provisions

Section 1. (1) The following terms are used in this Law:

1) [16 February 2011];

2) asset separation tool - the mechanism for effecting a transfer by a resolution authority of assets, rights, and liabilities of an institution under resolution to an asset management company;

3) asset management company - a legal person in which a qualifying holding is held by one or several direct or indirect administration authorities and which is under control of the Financial and Capital Market Commission and has been established in order to obtain and hold assets, rights, or liabilities of one or several institutions under resolution or a bridge institution;

4) eligible liabilities - the liabilities and capital instruments that do not qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 instrument and that are not excluded from the scope of application of the bail-in tool of the institution or the financial company referred to in Section 2, Paragraph two, Clause 2, 3, or 4 of this Law (hereinafter also - the institution or financial company);

5) recovery capacity - the capability of an institution to restore its financial position following a significant deterioration;

6) emergency liquidity assistance - funds provided by the central bank of the Member State or the European Central Bank to a solvent institution or financial company facing temporary liquidity problems. The assistance referred to in this Clause is not a part of the monetary policy;

7) relevant capital instruments - Additional Tier 1 instruments or Tier 2 instruments;

8) foreign institution - a company the headquarters of which is located outside the Member State and which, if it would perform commercial activity in the European Union, would be regarded to be an institution within the meaning of this Law;

9) foreign parent company - a parent company, a parent financial holding company, or a parent mixed financial holding company which performs commercial activity abroad;

10) foreign resolution procedure - an action that is performed under the law of a foreign country to manage the insolvency of a foreign institution or a foreign parent company and that is comparable, in terms of objectives and anticipated results, to the resolution actions specified in this Law;

11) central bank facilities - financial assistance provided to an institution or financial company within the framework of the monetary policy of the central bank of the Member State;

12) European Union parent company - a European Union parent institution, a European Union parent financial holding company, or a European Union parent mixed financial holding company;

13) European Union subsidiary - an institution which performs commercial activity in a Member State and which is a subsidiary of a foreign institution or a foreign parent company;

14) financial contracts include the following:

a) securities contracts, including contracts for the purchase, sale or loan of securities, a group of securities, or an index of securities and option contracts;

b) commodities contracts, including contracts for the purchase, sale or loan of a commodity for future delivery and options on a commodity;

c) futures and forward contracts for the purchase, sale, or transfer of any other commodity, property, service, right for a specified price at a future date;

d) swap agreements, option contracts relating to interest rates, foreign exchange agreements, such derivative agreements which are related to climate change, and also any agreement or transaction similar to the contracts referred to in this Sub-clause;

e) inter-bank borrowing agreements where the term of the borrowing is up to three months;

f) master agreements for any of the contracts or agreements referred to in Sub-clauses "a", "b", "c", "d", and "e" of this Clause;

15) core business lines - business lines and associated services which represent material sources of revenue, profit, or franchise value for an institution or for a group;

16) group - a parent company and its subsidiaries;

17) group financing arrangement - financing arrangement or arrangements of the Member State of the group-level resolution authority;

18) group-level resolution authority - the resolution authority in the Member State in which the consolidating supervisor is situated;

19) group resolution plan - a plan which is developed for group resolution;

20) group resolution - either of the following:

a) the taking of resolution action at the level of a parent company or of an institution subject to consolidated supervision;

b) the coordination of the application of resolution tools and the implementation of resolution powers by resolution authorities in relation to group companies that meet the conditions for resolution;

21) group company - a legal person which is within the group;

22) bail-in tool - the mechanism for effecting the implementation by a resolution authority of the write-down and conversion powers in relation to liabilities of an institution under resolution;

23) institution - a credit institution or an investment brokerage company which complies with the requirements of Section 120, Paragraph one, Clause 3 of the Financial Instrument Market Law;

24) termination right - a right to terminate a contract, a right to accelerate, set-off, or net obligations or any similar provision that suspends, modifies, or extinguishes an obligation of a party to the contract or a provision that prevents an obligation under the contract;

25) instruments of ownership - shares, instruments that confer ownership, instruments that are convertible into or give the right to acquire shares or other instruments of ownership, and instruments representing interests in shares or other instruments of ownership;

26) conversion rate - the factor that determines the number of shares or other instruments of ownership into which a liability of a specific class will be converted, by reference either to a single instrument of the class in question or to a specified unit of value of a debt claim;

27) critical functions - activities or services the discontinuance of which in one or more Member States could lead to the disruption of provision of services that are essential to the national economy or to disrupt financial stability due to the size, market share, external and internal interconnectedness, complexity or cross-border activities of an institution or group, with particular regard to the substitutability of those activities or services;

28) crisis prevention measure - the implementation of rights to eliminate deficiencies or impediments to performance of resolution actions, the application of an early intervention measure, the appointment of a temporary administrator, or the implementation of the write-down or conversion powers;

29) crisis management measure - a resolution action or the appointment of a special manager or an authorised representative;

30) contractual bail-in tool - an instrument which in conformity with the terms of the contract is written down or converted to the extent required before other eligible liabilities are written down or converted, and in the case of insolvency proceedings it ranks below other eligible liabilities and cannot be repaid until other eligible liabilities outstanding at the time have been settled;

31) winding up - the realisation of assets of an institution or financial company;

32) micro, small and medium-sized enterprise - a commercial company in conformity with the criterion with regard to annual turnover arising from annual financial statement of the company used in Annex I to Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (Text with EEA relevance) (hereinafter - Regulation No 651/2014);

321) national resolution fund - the fund the means of which is comprised of the contributions made and accumulated by institutions;

33) transfer powers - the powers to transfer shares, other instruments of ownership, debt instruments, assets, rights or liabilities of an institution under resolution, or any combination of those items to a recipient;

34) secured liabilities - a liability where the right of the creditor to payment or other form of enforcement is secured by a charge, pledge or lien, or collateral arrangements including liabilities arising from repurchase transactions and other title transfer collateral arrangements;

35) write-down and conversion powers - the powers to perform activities which are directed towards the reduction of the relevant capital instruments or eligible liabilities or the conversion thereof into capital instruments or other instruments of ownership in accordance with the procedures laid down in this Law;

36) resolution action - a decision to place an institution or financial company under resolution, the application of a resolution tool, or the implementation of one or more resolution powers;

37) resolution authority - the Financial and Capital Market Commission or the resolution authority of another Member State which is authorised to apply resolution tools and to implement resolution powers;

38) conditions for resolution - the conditions referred to in this Law for the performance of resolution action;

381) resolution plan - a plan in which resolution actions are provided for which are applied to an institution or financial company if it conforms to the resolution conditions;

39) institution under resolution - an institution, a financial institution, a financial holding company, a mixed financial holding company, a mixed-activity holding company, a parent financial holding company in a Member State, a European Union parent financial holding company, a parent mixed financial holding company in a Member State, or a European Union parent mixed financial holding company, in respect of which a resolution action is taken;

40) resolution - the application of a resolution tool in order to achieve one or more of the resolution objectives referred to in this Law;

41) significant branch - a branch the activity of which in a Member State is considered to be significant in a financial market;

42) bridge institution tool - the mechanism for transferring shares or other instruments of ownership issued by an institution under resolution or assets, rights, or liabilities of an institution under resolution to a bridge institution;

43) debt instruments - bonds and other transferable securities, instruments creating or acknowledging a debt, and instruments giving rights to acquire debt instruments, including the claims referred to in Section 139.3 of the Credit Institution Law and Section 154 of the Financial Instrument Market Law arising from the issued debt securities;

44) cross-border group - a group having group companies which are performing commercial activity in more than one Member State;

45) recipient - the company to which shares, other instruments of ownership, debt instruments, assets, rights or liabilities, or any combination of those items are transferred from an institution under resolution;

46) netting arrangement - an arrangement under which a number of claims or obligations can be converted into a single claim under which, on the occurrence of an enforcement event, the obligations of the parties are accelerated so as to become immediately due or are terminated;

47) set-off arrangement - an arrangement under which two or more claims or obligations owed between the institution under resolution and a counterparty can be set off against each other;

48) systemic crisis - a disruption in the financial system with the potential to have serious negative consequences for the national economy;

49) sale of business tool - a mechanism for effecting a transfer by a resolution authority of shares or other instruments of ownership issued by an institution under resolution, or assets, rights, or liabilities, of an institution under resolution to a purchaser that is not a bridge institution;

50) State aid - aid to commercial activity within the meaning of the Law on Control of Aid for Commercial Activity;

51) legal framework of State aid - legal framework within the meaning of Section 4 of the Law on Control of Aid for Commercial Activity;

52) single resolution - the competence of the Single Resolution Board to develop a resolution plan and to take the decision to apply resolution actions in respect of the subjects referred to in Article 7(2) and (5) of Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (Text with EEA relevance) (hereinafter - Regulation No 806/2014);

53) Single Resolution Fund - the Fund the funds of which are established by the contributions of the national resolution funds of the Member States and the funds of which are used by the Single Resolution Board in accordance with Article 76 of Regulation No 806/2014;

54) Single Resolution Board - the authority which is established as a European Union agency in accordance with Article 42 of Regulation No 806/2014.

(2) Other terms used in this Law shall conform to the terms used in Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (Text with EEA relevance) (hereinafter - Regulation No 575/2013) and Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (Text with EEA relevance) and Regulation No 806/2014.

[16 February 2017; 28 February 2019]

Section 2. (1) The purpose of this Law is to ensure that application of recovery and resolution measures in respect of institutions and financial companies promote stable activity of the financial system, and also to protect the interests of investors and to reduce the possibility to use the State budget funds for saving of institutions and financial companies.

(2) This Law prescribes the application of recovery measures and resolution actions:

1) for the institutions in respect of which a resolution plan is not developed and the decision to apply a resolution action within the framework of a Single Resolution is not taken;

2) for the financial institutions which are credit institutions, investment brokerage companies, or subsidiaries of the companies referred to in Clauses 3 and 4 of this Paragraph if consolidated supervision of the parent company applies to such subsidiaries in accordance with Regulation No 575/2013;

3) for the financial holding companies, mixed financial holding companies, and mixed-activity holding companies registered in the European Union;

4) for the parent financial holding companies in the Republic of Latvia, European Union parent financial holding companies registered in the Republic of Latvia, parent mixed financial holding companies in the Republic of Latvia, and European Union parent mixed financial holding companies registered in the Republic of Latvia;

5) for the branches of foreign institutions in the Republic of Latvia in the cases provided for in this Law.

(21) In addition to that specified in Paragraph two of this Section, this Law provides for the procedures by which the Financial and Capital Market Commission shall participate in the Single Resolution and provide the information to the Single Resolution Board necessary for the development of the resolution plan and for the taking of the decision to apply the resolution actions within the framework of Single Resolution, and implement the decisions taken by the Single Resolution Board.

(3) Upon applying this Law, the Financial and Capital Market Commission shall take into account the nature, scope of commercial activity, the composition of stockholders or shareholders, the legal form, risk profile, field of activity, and complexity of the institutions and financial companies referred to in Paragraph two of this Section, and their significance in the financial system.

(4) The Credit Institution Law and the Financial Instrument Market Law shall be also applied to the institution or financial company to which this Law is applied in the case when recovery measures and resolution actions are carried out in respect of it, insofar as it has not been laid down otherwise in Regulation No 806/2014 and in this Law.

[16 February 2017]

Section 3. (1) A resolution plan shall be developed, the decision to apply recovery measures and resolution actions in respect of the subjects referred to in Section 2, Paragraph two of this Law, and the implementation thereof in the Republic of Latvia shall be carried out by the Financial and Capital Market Commission, taking into account the requirements of this Law, the regulatory provisions issued by the Financial and Capital Market Commission, Regulation No 806/2014, and other directly applicable legal acts of the European Union, and also in conformity with with the guidelines issued by the European Banking Authority.

(2) Upon taking decisions in accordance with this Law, the Financial and Capital Market Commission shall take into account the possible influence of insolvency in all Member States in which the relevant institution or group is operating, and shall reduce adverse effect on the financial stability of these countries.

(3) The Financial and Capital Market Commission shall inform the Ministry of Finance and Latvijas Banka of decisions which it plans to take in accordance with this Law, and shall receive:

1) the coordination of the Ministry of Finance before taking of such decisions which have a direct fiscal impact;

2) the coordination of Latvijas Banka before taking of such decisions in the case of taking of which systemic crisis could arise.

(4) The Financial and Capital Market Commission has the right to issue regulatory provisions in accordance with the purpose of this Law and the field of activity and in conformity with the guidelines issued by the European Banking Authority.

[16 February 2017]

Section 4. (1) Taking into account the impact that the potential insolvency of the institution and the nature, scope of its commercial activity, the composition of stockholders or shareholders, its legal form, risk profile, and significance in the financial system in general could have on financial markets, institutions, financing conditions, or national economy, the Financial and Capital Market Commission is entitled, according to its competence, to determine reliefs for the following requirements:

1) the contents of recovery and resolution plans and the frequency of updating thereof;

2) the contents of the information to be requested from institutions;

3) the level of detail for the assessment of resolvability provided for in this Law.

(2) Upon implementing the right referred to in Paragraph one of this Section, the Financial and Capital Market Commission shall, where necessary, consult with Latvijas Banka.

(3) Institutions subject to direct supervision by the European Central Bank in accordance with to Article 6(4) of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions or constituting a significant share in the financial system shall draw up their own recovery plans and individual resolution plans shall be applied thereto.

(4) The institution shall be considered to constitute a significant share of the financial system if any of the following conditions is met:

1) the total value of the assets of the institution exceeds EUR 30 000 000 000;

2) the ratio of the total assets of the institution over the gross domestic product of the State exceeds 20 per cent, unless the total value of its assets is below EUR 5 000 000 000.

[16 February 2017]

Chapter II
Recovery Plans

Section 5. (1) Each institution that is not part of a group subject to consolidated supervision shall draw up and maintain a recovery plan specifying measures to be taken by the institution to restore its financial position following a significant deterioration thereof. The recovery plans shall be regarded to be key elements of the internal control system within the meaning of Section 34.1 of the Credit Institution Law and Section 124, Paragraph one, Clause 11 and Paragraph 1.1 of the Financial Instrument Market Law.

(2) A recovery plan of the institution shall be submitted to the Financial and Capital Market Commission.

(3) Institutions shall review their recovery plan at least once a year or after such changes in the legal form or organisational structure of the institution, its commercial activity or financial position which could have a material effect on, or necessitates a change in, the recovery plan.

(4) A recovery plan shall be drawn up without providing for the receipt of State aid therein.

(5) Upon request of the Financial and Capital Market Commission, a recovery plan shall include an analysis of how and when an institution may apply, in the conditions described in the plan, for the use of central bank facilities and shall identify those assets which would be expected to qualify as collateral.

(6) In addition to the requirements laid down in the directly applicable legal acts of the European Union, the Financial and Capital Market Commission shall determine the contents of information to be included in a recovery plan and the procedures for the submission of such plan.

(7) The institution shall include the information on the indicators of the financial position of the institution in the recovery plan upon setting in of which the corresponding recovery actions shall be performed in the plan. The institution shall ensure regular supervision and control of the abovementioned indicators.

(8) [16 February 2017]

(9) The institution shall immediately notify the Financial and Capital Market Commission of the decision to take the measure referred to in the recovery plan.

[16 February 2017; 28 February 2019]

Section 6. (1) The Financial and Capital Market Commission shall, within six months after receipt of a recovery plan, and after consulting with the supervisory institutions of the Member States where significant branches are located, assess the submitted recovery plan, taking into account whether:

1) the implementation of the intended measures is likely to maintain or restore the financial stability of the relevant institution or of the group;

2) the solutions intended can be quickly and efficiently implemented by avoiding any significant adverse effect on the financial system.

(2) Upon assessing the conformity of the recovery plan, the Financial and Capital Market Commission shall take into account the capital structure and financing sources of the institution, the organisational structure and the level of complexity of the risk profile of the institution.

(3) Upon assessing the recovery plan, the Financial and Capital Market Commission shall examine whether all those measures which may adversely impact the resolvability of the institution are indicated in this plan.

(4) If, upon assessing the recovery plan, the Financial and Capital Market Commission detects that there are material deficiencies therein, it shall notify the relevant institution or the parent company of the relevant group and require the institution to remove the detected deficiencies within two months. The Financial and Capital Market Commission is entitled to extend the abovementioned time period for one month.

(5) If the Financial and Capital Market Commission does not consider that the detected deficiencies have been removed in the revised recovery plan, it may assign the institution to make repeated revisions to the plan.

(6) If the institution fails to submit a revised recovery plan or if the Financial and Capital Market Commission detects that the revised recovery plan does not adequately remove the deficiencies indicated in its original assessment, or the institution is not capable to adequately remove the detected deficiencies, the Financial and Capital Market Commission shall request that the institution provides, within a reasonable time period, the information on changes it can make to its commercial activity.

(7) If the institution fails to submit such changes within the time period stipulated by the Financial and Capital Market Commission or if the Financial and Capital Market Commission detects that the actions proposed by the institution would not adequately remove the detected deficiencies, the Financial and Capital Market Commission is entitled assign the institution to take such measures which are considered by the Financial and Capital Market Commission as necessary and commensurate, taking into account the seriousness of the relevant deficiencies and the effect of the measures on the commercial activity of the institution.

(8) The Financial and Capital Market Commission is additionally entitled to request that the institution carries out one or more of the following measures:

1) to reduce the risk profile of the institution, including liquidity risk;

2) to ensure the possibility to implement recapitalisation measures in a timely manner;

3) to review the strategy and structure of the institution;

4) to make amendments to the funding strategy so as to improve the resilience of the core business lines and critical functions;

5) to make changes in the organisational structure of the institution.

[16 February 2017]

Section 7. (1) If an institution registered in the Republic of Latvia is a European Union parent company, it shall draw up a group recovery plan and submit it to the Financial and Capital Market Commission. The group recovery plan shall include a recovery plan for the whole group headed by the European Union parent company registered in the Republic of Latvia at large. The group recovery plan shall determine measures the implementation of which may be required at the level of the European Union parent company registered in the Republic of Latvia and each individual subsidiary.

(2) The Financial and Capital Market Commission is entitled to request that subsidiaries draw up and submit individual recovery plans.

(3) The Financial and Capital Market Commission shall send the group recovery plan to:

1) the supervisory authorities of group companies and college of supervisors;

2) the supervisory authorities in those Member States where significant branches are located insofar as the recovery plan applies to the abovementioned branch;

3) the resolution authorities of subsidiaries.

(4) The group recovery plan shall aim to achieve the stabilisation of the group as a whole or any institution of the group, if it is in a situation of stress, so as to remove the causes of the distress and to restore the stability of the financial position of the group or the relevant institution, concurrently taking into account the financial position of other group companies.

(5) The group recovery plan shall include arrangements to ensure the coordination and consistency of the measures to be taken at the level of the European Union parent company registered in the Republic of Latvia, at the level of the companies referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law, and also the measures to be taken at the level of subsidiaries and significant branches.

(6) The group recovery plan and individual plans of subsidiaries shall include the requirements laid down in Section 5 of this Law, and also arrangements for intra-group financial support adopted in accordance with an agreement for intra-group financial support if such are intended.

(7) The group recovery plan shall include several recovery scenarios.

(8) For each of the scenarios, the group recovery plan shall determine whether there are obstacles to the implementation of recovery measures within the group, including at the level of individual companies covered by the plan, and whether there are substantial practical or legal impediments to the prompt transfer of own funds or the repayment of liabilities or assets within the group.

[16 February 2017]

Section 8. (1) The Financial and Capital Market Commission shall carry out the review of the group recovery plan of a European Union parent company registered in the Republic of Latvia and assess its conformity with the requirements laid down for individual recovery plans together with a college of supervisors and supervisory authorities of significant branches insofar as it applies to the particular significant branch. That review and conformity assessment shall be performed in accordance with the procedure specified for the recovery plans of the institutions not included in the group, taking into account the potential impact of the recovery measures on financial stability in all the Member States where the group operates.

(2) The Financial and Capital Market Commission and the supervisory authorities of subsidiaries shall, upon joint consulting and coordination of opinions, take a joint decision (hereinafter - the joint decision) on:

1) the review and assessment of the group recovery plan;

2) the necessity to develop an individual recovery plan for institutions that are part of the group;

3) the application of the measures specified in Section 6 of this Law.

(3) The involved supervisory authorities shall take the joint decision within four months of the day when the Financial and Capital Market Commission has sent the group recovery plan to them.

(4) If the supervisory authority does not take the joint decision in relation to the review and assessment of the group recovery plan or on any measures that the European Union parent company registered in the Republic of Latvia is required to take, the Financial and Capital Market Commission shall take the decision with regard to the abovementioned matters, taking into account the opinion of other supervisory authorities notified thereto for taking the joint decision within the specified time period. The Financial and Capital Market Commission shall notify the decision to the European Union parent company registered in the Republic of Latvia and to other supervisory authorities.

(5) If any of the supervisory authorities has referred to the European Banking Authority within the time period specified for taking of the joint decision with a request to provide assistance in taking the joint decision in accordance with Article 19 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (hereinafter - Regulation No 1093/2010), the Financial and Capital Market Commission shall defer taking of its decision and implement measures according to the decision of the European Banking Authority. If the European Banking Authority does not take a decision within one month, the decision shall be taken by the Financial and Capital Market Commission.

(6) If supervisory authorities do not take the joint decision within the time period specified for taking of the joint decision on the necessity to develop an individual recovery plan for institutions and on application of the measures specified in Section 6 of this Law at the level of subsidiaries, the supervisory authorities of subsidiaries are entitled to take a decision within the framework of their supervision, unless the Financial and Capital Market Commission or other involved supervisory authority has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010. The supervisory authorities which do not have disagreements may take the joint decision on a group recovery plan covering the group companies under their supervision.

(7) For taking of the joint decision within the specified time period, the Financial and Capital Market Commission is entitled to refer to the European Banking Authority with a request to provide assistance in accordance with that specified in Paragraph six of this Section and in accordance with Article 19 of Regulation No 1093/2010 on assessment of the recovery plan and the measures specified in Section 6 of this Law, and also in accordance with Article 31(c) of Regulation No 1093/2010 in order to receive assistance for taking of the joint decision.

[16 February 2017]

Section 9. (1) The Financial and Capital Market Commission as the supervisory authority of a European Union parent company of another Member State registered in the Republic of Latvia shall participate in taking of the joint decision on assessment of a group recovery plan.

(2) If, within four months from the day when the supervisory authority of a European Union parent company of the Member State has sent a group recovery plan, the joint decision on the review and assessment of the group recovery plan or the decision on any measures to be taken by the European Union parent company of the Member State is not taken, the Financial and Capital Market Commission shall implement measures in conformity with the decision of the supervisory authority of the European Union parent company of the Member State and the joint decision of the European Banking Authority, if any of the involved supervisory authorities has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010 and the European Banking Authority has taken a decision within one month.

(3) If the joint decision on the necessity to draw up an individual recovery plan for institutions and on the application of the measures specified in Section 6 of this Law at the level of subsidiaries is not taken within the specified time period, the Financial and Capital Market Commission has the right to take an individual decision in respect of subsidiaries registered in the Republic of Latvia. If any of the involved supervisory authorities has referred to the European Banking Authority with a request to provide assistance in accordance with Section 19 of Regulation No 1093/2010 on taking of a decision in respect of subsidiaries registered in the Republic of Latvia and the European Banking Authority has taken such decision within one month from the day when the relevant supervisory authority has asked for assistance, the Financial and Capital Market Commission shall implement measures according to the decision of the European Banking Authority.

(4) For the taking of the joint decision within the specified time period, the Financial and Capital Market Commission is entitled to refer to the European Banking Authority with a request to provide assistance in conformity with that specified in Paragraph two of this Section and in accordance with Article 19 of Regulation No 1093/2010 on assessment of the recovery plan and measures specified in Section 6 of this Law, and also in accordance with Article 31(c) of Regulation No 1093/2010 in order to receive assistance for taking of the joint decision.

Section 10. The joint decisions referred to in Section 8 and 9 of this Law and the decisions which are taken by supervisory authorities are considered to be binding on resolution authorities in the relevant Member State, and they shall be applied by the involved supervisory authorities in the relevant Member States.

Chapter III
Resolution Plans

Section 11. (1) The Financial and Capital Market Commission, after consulting the resolution authorities in the territories of those Member States in which any significant branches are located, shall draw up a resolution plan for each institution that is not part of a group subject to consolidated supervision. The resolution plan provides for the resolution actions which the resolution authority may take where the institution meets the conditions for resolution. The Financial and Capital Market Commission shall provide information to the institution on the summary referred to in Paragraph six, Clause 1 of this Section.

(2) The resolution plan shall provide for several scenarios, and also that the event of insolvency may be idiosyncratic or may occur at a time of instability of the entire financial sector. The resolution plan shall be drawn up, without providing for the State aid and emergency liquidity assistance therein.

(3) The institution shall indicate the assets in the resolution plan which are qualified as collateral when applying for the use of central bank facilities of a Member State.

(4) The institutions have an obligation to provide the necessary information to the Financial and Capital Market Commission on drawing up and updating of resolution plans. A resolution plan shall be reviewed once a year and updated after any material changes in the legal form or organisational structure of the institution or in its commercial activity or its financial position which could have a material effect on the effectiveness of the plan or otherwise necessitates a revision of the resolution plan.

(5) The institution shall immediately inform the Financial and Capital Market Commission of any changes which necessitate a revision or update of the resolution plan.

(6) The resolution plan provides for an option for the application of the resolution tools and resolution powers in relation to the institution. The resolution plan shall include:

1) a summary of the key elements of the plan;

2) a summary of the material changes in the institution which have occurred after the latest resolution information was filed;

3) a demonstration of how critical functions and core business lines could be legally and economically separated, to the extent necessary, from other functions so as to ensure continuity upon insolvency of the institution;

4) an estimation of the time period for executing each material aspect of the plan;

5) a detailed description of the assessment of resolvability;

6) a description of any measures to be taken to address or remove impediments to resolvability which have been detected as a result of the assessment;

7) a description of the procedures for the determination of the value and marketability of the critical functions, core business lines, assets of the institution;

8) a detailed description of the arrangements for ensuring that the information required from the institutions necessary for the resolution plan is up to date and at the disposal of the resolution authorities;

9) an explanation by the Financial and Capital Market Commission as to how the resolution options could be financed without the provision of the State aid or emergency liquidity assistance;

10) a detailed description of the different resolution strategies that could be applied according to the different possible scenarios and the applicable timescales;

11) a description of critical interdependencies of the institution with other institutions;

12) a description of options for preserving access to payments and infrastructures of clearing services, and also other infrastructures, and an assessment of the portability of client positions;

13) an analysis of the impact of the plan on the employees of the institution, including an assessment of any associated costs, and a description of the procedures provided for consulting with the staff during the resolution process;

14) a plan for communicating with the media and the public;

15) the minimum amount for own funds and eligible liabilities and a deadline for reaching the abovementioned amount;

16) the minimum amount for own funds and contractual bail-in instruments, if any intended, and a deadline for reaching the abovementioned amount;

17) a description of measures for maintaining the continuous functioning of the operational processes of the institution;

18) any opinion expressed by the institution in relation to the resolution plan, if any received.

(7) The Financial and Capital Market Commission has the right to request that the institution and the financial company maintain detailed records of financial contracts. The Financial and Capital Market Commission is entitled to specify a time period within which the institution and the financial company shall present the records related to financial contracts. The Financial and Capital Market Commission may specify different time periods for different types of financial contracts.

(71) If application of bail-in tool is intended in the resolution plan of the institution drawn up by the Financial and Capital Market Commission, the institution shall identify those clients - commercial companies of the institution or the financial company which exceed the annual turnover criterion of a small and medium-sized enterprise laid down in Annex I to Regulation No 651/2014.

(8) The Financial and Capital Market Commission shall immediately send a resolution plan to the involved resolution authorities of other Member States.

[16 February 2017]

Section 12. The institution has an obligation, upon request of the Financial and Capital Market Commission, to cooperate during the course of development of a resolution plan and provide all the information necessary for the drawing up of the resolution plan and the implementation thereof.

Section 13. (1) The Financial and Capital Market Commission shall, together with the resolution authorities of subsidiaries and after consulting the resolution authorities of significant branches, draw up a group resolution plan for the group of the European Union parent company registered in the Republic of Latvia as a whole, providing for either resolution at the level of the European Union parent company registered in the Republic of Latvia or break up of the group and resolution of the subsidiaries.

(2) The Financial and Capital Market Commission has the right to involve foreign resolution authorities in the drawing up and maintaining of the group resolution plan in the territory of location of which the group has registered its subsidiaries or financial management companies, or significant branches.

(3) The group resolution plan shall identify measures for the resolution of:

1) the European Union parent company registered in the Republic of Latvia;

2) the subsidiaries that are part of the group and that are located in the Member State;

3) the companies which are referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law;

4) the subsidiaries that are part of the group and that are not located in the Member State.

(4) The group resolution plan shall be drawn up on the basis of the information which is provided in accordance with Section 12 of this Law.

(5) The following shall be indicated in the group resolution plan:

1) the resolution actions necessary to be taken in relation to group companies, both through resolution actions in respect of the companies referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law, the parent company and subsidiaries and through coordinated resolution actions in respect of subsidiaries, in the case of different possible scenarios;

2) assessment on how the resolution tool could be applied to group companies established in the Member States, and also measures to facilitate the purchase by a third party of the group as a whole, or separate business lines or activities thereof which are delivered by a number of group companies, or particular group companies;

3) information on cooperation with the relevant foreign state institutions and impact of resolution in the Member States if companies registered in foreign countries are in the composition of the group;

4) information on the measures that are necessary to facilitate group resolution if conformity has been detected for the conditions for resolution;

5) information on other measures in relation to the group resolution;

6) information on the sources of financing of the group resolution actions and cases if an agreement on the financing arrangements and principles for sharing responsibility among providers of financing of the Member States in respect of such financing would be required.

(6) The group resolution plan shall not provide for the State aid and emergency liquidity assistance. The principles for sharing responsibility among providers of financing of the Member States shall be determined on the basis of fair criteria and taking into account the drawn-up financing plan and its impact on the financial stability in all involved Member States.

(7) The assessment of the resolvability of the group is drawn up concurrently with the updated group resolution plan. A detailed description of the assessment of resolvability shall be included in the group resolution plan.

(8) The group resolution plan shall not have a incommensurate impact on any Member State.

Section 14. (1) A European Union parent company registered in the Republic of Latvia shall provide the information to the Financial and Capital Market Commission which it is entitled to request in accordance with Section 12 of this Law and which concerns the European Union parent company registered in the Republic of Latvia and each of the group companies, including also the companies referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law.

(2) The Financial and Capital Market Commission shall send the information received which applies to the European Banking Authority in relation to group resolution plans and each relevant subsidiary or significant branch to the European Banking Authority, the resolution authorities of subsidiaries, the resolution authorities of those Member States in which significant branches are located, the supervisory authorities involved in the college of supervisors and resolution authorities of those Member States under the supervision of which the financial companies referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law are which are performing their commercial activities in the territory of the relevant Member State. The Financial and Capital Market Commission shall not send the information which applies to foreign subsidiaries without a consent of the foreign supervisory authority or resolution authority.

(21) The Financial and Capital Market Commission shall draw up and maintain a group resolution plan upon consulting with the resolution authorities referred to in Paragraph two of this Section. The Financial and Capital Market Commission has the right to involve foreign resolution authorities in the drawing up and maintaining of the group resolution plan in the territory of location country of which the group has registered its subsidiaries or financial management companies, or significant branches.

(3) The Financial and Capital Market Commission shall review a group resolution plan of a European Union parent company registered in the Republic of Latvia and request to update it annually, and also after any change in the legal form or organisational structure, in the business, or in the financial position of the group including any group company, which could have a material effect on the plan.

(4) The resolution plan of the group headed by a European Union parent company registered in the Republic of Latvia shall be taken by the joint decision of the Financial and Capital Market Commission and the resolution authorities of subsidiaries within four months from the day when the Financial and Capital Market Commission has sent the information referred to in Paragraph two of this Section.

(5) If the Financial and Capital Market Commission and the involved resolution authorities fail to take the joint decision within the time period specified for the taking of the joint decision, the decision on a group resolution plan shall be taken by the Financial and Capital Market Commission, taking into account the opinion of other supervisory authorities. The Financial and Capital Market Commission shall submit the decision to the European Union parent company registered in the Republic of Latvia.

(6) If any of the involved resolution authorities has referred to the European Banking Authority within the time period specified for the taking of the joint decision with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010, the Financial and Capital Market Commission shall defer taking of the decision and implement measures according to the decision of the European Banking Authority. If the European Banking Authority does not take a decision within one month, the decision shall be taken by the Financial and Capital Market Commission.

(7) If the joint decision of the involved resolution authorities is not taken within the specified time period, each resolution authority responsible for a subsidiary is entitled to take a decision and to draw up and maintain the resolution plan of the company under its supervision, unless the Financial and Capital Market Commission or other involved supervisory has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2019. The supervisory authorities which do not have disagreements may take the joint decision on a group resolution plan, covering group companies under their supervision.

(8) For the taking of the joint decision within the specified time period, the Financial and Capital Market Commission may refer to the European Banking Authority with a request to provide assistance in conformity with that specified in Paragraph seven of this Section in accordance with Article 19 of Regulation No 1093/2010, unless any of the involved resolution authorities consider that the issue on which agreement is not reached may jeopardise fiscal liability of the Member State of the abovementioned resolution authority, and also in accordance with Article 31(c) of Regulation No 1093/2010 in order to receive assistance in taking of the joint decision.

(9) If the involved resolution authority considers that the issue related to the group resolution plan on which agreement has not been reached may jeopardise the fiscal policy of the Member State of the abovementioned resolution authority, the Financial and Capital Market Commission shall initiate reassessment of the group resolution plan, including assessing the minimum requirements for own funds and eligible liabilities.

(10) The Financial and Capital Market Commission shall send the group resolution plan of the European Union parent company registered in the Republic of Latvia to the involved supervisory authorities.

[16 February 2017]

Section 15. (1) The Financial and Capital Market Commission as the resolution authority of a European Union parent company of another Member State registered in the Republic of Latvia shall participate in taking of the joint decision on a group resolution plan.

(2) If, within four months from the day when the resolution authority of a European Union parent company of another Member State has sent the information submitted by the European Union parent company of another Member State which is significant for the resolution plan of a subsidiary registered in Latvia to the Financial and Capital Market Commission, the joint decision on the group resolution plan has not been taken, the joint decision of the resolution authority of the European Union parent company of another Member State and the European Banking Authority on the resolution plan shall be binding on the Financial and Capital Market Commission if any of the involved supervisory authorities has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010 and the European Banking Authority has taken a decision within one month.

(3) If the joint decision of the involved resolution authorities has not been taken within the specified time period, the Financial and Capital Market Commission is entitled to take an individual decision in respect to the subsidiaries registered in the Republic of Latvia, and also to draw up and maintain the resolution plans of the institutions registered in the Republic of Latvia. The Financial and Capital Market Commission shall explain the justification for the objections against the proposed group resolution plan in the abovementioned decision and shall take into account the opinions of other supervisory authorities and resolution authorities.

(4) If, within the time period specified for the taking of the joint decision, any of the involved resolution institutions has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010 and the European Banking Authority has taken a decision within one month of the day when the relevant resolution authority has referred to assistance, the Financial and Capital Market Commission shall implement measures according to the decision of the European Banking Authority, except for the case when any of the involved resolution authorities detects that the issue to be examined which has been transferred to the European Banking Authority may jeopardise the stability of the financial sector of the relevant Member State.

(5) For the taking of the joint decision within the specified time period, the Financial and Capital Market Commission is entitled to refer to the European Banking Authority with a request to provide assistance in conformity with that specified in Paragraph two of this Section and in accordance with Article 19 of Regulation No 1093/2010 on the assessment of recovery plans, except for the case when any of the involved resolution authorities considers that the issue on which agreement is not reached may jeopardise fiscal liability of the Member State of the abovementioned resolution authority, and also in accordance with Article 31(c) of Regulation No 1093/2010 in order to receive assistance in taking of the joint decision.

(6) If the joint decision has been taken on a group resolution plan and the Financial and Capital Market Commission considers that the issue related to the group resolution plan on which agreement has not been reached may jeopardise the fiscal policy of the Republic of Latvia, the Financial and Capital Market Commission shall request the resolution authority of a European Union parent company of other Member State to initiate reassessment of the group resolution plan, including assessing the minimum requirement for own funds and eligible liabilities.

Section 16.. The joint decision referred to in Sections 14 and 15 of this Law and the decisions which are taken by resolution authorities in the absence of the joint decision shall be regarded to be final and they shall be applied by the involved resolution authorities in the relevant Member States.

Chapter IV
Assessment of Resolvability for the Institution

[16 February 2017]

Section 17. (1) The Financial and Capital Market Commission, after consulting with the resolution authorities in the territories of those Member States in which significant branches are located, shall assess the extent to which an institution which is not part of a group is resolvable without providing the State aid.

(2) The institution shall be deemed to be resolvable if, upon applying the winding up or different resolution tools and powers, it would avoid any significant adverse effect on the financial system of the Republic of Latvia or other Member States to the maximum extent possible, and also broader financial instability or systemic crisis, and the objective of ensuring the continuity of critical functions carried out by the institution would be achieved. The Financial and Capital Market Commission shall notify the European Banking Authority in a timely manner whenever an institution is deemed not to be resolvable.

(3) [16 February 2017]

(4) The resolvability assessment in conformity with this Section shall be made by the resolution authority concurrently with the drawing up and updating of the resolution plan.

[16 February 2017]

Section 18. (1) The Financial and Capital Market Commission shall carry out the group resolution assessment of a European Union parent company registered in the Republic of Latvia together with resolution authorities of subsidiaries and supervisory authorities of subsidiaries, and also the resolution authorities in the territories of those Member States in which significant branches are located.

(2) A group shall be deemed to be resolvable if, upon applying the winding up or different resolution tools and powers in relation to the group entities, it would avoid, to the maximum extent possible, any significant adverse effect on the financial systems of those Member States in which group entities are located, or on the financial systems of other Member States, and also broader financial instability or systemic crisis, and the objective of ensuring the continuity of critical functions carried out by the group companies would be achieved. If the Financial and Capital Market Commission considers that the group resolvability is not possible, it shall inform the European Banking Authority thereof in a timely manner.

(3) The assessment of group resolvability shall be taken into consideration by the resolution colleges.

(4) The Financial and Capital Market Commission shall issue regulatory provisions in which the requirements for the assessment of group resolution are determined.

(5) The assessment of group resolvability in conformity with this Section shall be made concurrently as the group resolution plan..

[16 February 2017]

Section 19. The Financial and Capital Market Commission being the resolution authority of a subsidiary of a European Union parent company of another Member State shall participate in the group resolution assessment of a European Union parent company of another Member State in accordance with Sections 15, 16, and 20 of this Law.

Section 20. (1) If the Financial and Capital Market Commission concludes in the resolution assessment of an institution which is not in the group that there are substantive impediments to the resolvability of the institution, the Financial and Capital Market Commission shall notify that identification to the relevant institution and to the resolution authorities in the territories of those Member States in which significant branches are located.

(2) The development of the resolution plan is suspended until the Financial and Capital Market Commission has approved the measures to remove the substantive impediments to resolvability or has taken a decision to implement one or several measures referred to in Paragraph four of this Section.

(3) Within four months after the day when the institution has received a notification of the Financial and Capital Market Commission on the impediments detected for the resolution of the institution, it shall inform the Financial and Capital Market Commission of the possible measures to reduce or remove the substantive impediments referred to in the notification. The Financial and Capital Market Commission shall assess whether the abovementioned measures efficiently reduce or remove the detected impediments for the resolution of the institution.

(4) If the Financial and Capital Market Commission considers that the possible measures of which the institution has informed it do not efficiently reduce or remove the relevant impediments, the Financial and Capital Market Commission is entitled to take one or several of the following measures:

1) to request the institution to revise any intra-group financing agreements or review the absence thereof, or prepare service agreements to cover the provision of critical functions;

2) to request the institution to limit its maximum exposures;

3) to request specific or regular additional information for resolution purposes;

4) to request the institution to alienate specific assets;

5) to request the institution to limit or cease specific existing and proposed activities;

6) to request the institution to restrict or prevent the development of new or existing business lines or sale of new or existing products;

7) to request changes in the legal form or operational structure of the institution or group company in which the institution or group company has holding, thus ensuring that critical functions may be legally and operationally separated from other functions through the application of the resolution tools;

8) to request the institution or parent company to set up a parent financial holding company in a Member State or a European Union parent financial holding company;

9) to request the institution or financial company to attract new eligible liabilities for the purpose of ensuring the conformity with the minimum requirement for own funds and eligible liabilities;

10) to request the institution or financial company to take other measures for the purpose of ensuring its conformity with the minimum requirement for own funds and eligible liabilities, and also that in respect to eligible liabilities, additional Tier 1 instruments, or Tier 2 instruments which it has issued or attracted any decision of the resolution authority to write down or convert the abovementioned liability or instrument would be effected in accordance with the legal acts of the Member State which apply to the abovementioned liabilities or instruments;

11) if an institution is the subsidiary of a mixed-activity holding company - to request that the mixed-activity holding company sets up a separate financial holding company to control the institution, if it is necessary in order to facilitate the resolution of the institution and to avoid the application of the resolution tools and powers having an adverse effect on the part of the group which is not directly related with the provision of financial services.

(5) Before implementation of the measures specified in Paragraph four of this Section, the Financial and Capital Market Commission, where necessary, together with Latvijas Banka, shall duly consider the potential effect of those measures on the particular institution, on the internal market of financial services, on the financial stability in other Member States - in each separately and as a whole.

(6) The institution has an obligation to submit the plan for the fulfilment of the relevant measure to the Financial and Capital Market Commission within one month after implementation of the measures specified in Paragraph four of this Section.

[16 February 2017]

Section 21. (1) The Financial and Capital Market Commission together with resolution authorities of subsidiaries shall, after consulting with a college of supervisors and resolution authorities in the territories of those Member States where significant branches are located, carry out a group resolution assessment of the European Union parent company registered in the Republic of Latvia in the resolution college in order to take the joint decision on the application of the measures specified in Section 20, Paragraph four of this Law in relation to all institutions that are part of the group.

(2) The Financial and Capital Market Commission, in cooperation with the European Banking Authority, shall prepare and submit a report to the European Union parent company registered in the Republic of Latvia, to the resolution authorities of subsidiaries which will give it to the subsidiaries under their control, and to the resolution authorities in the territories of such Member States in which significant branches are located. The report shall include information on the substantive impediments to efficient application of the resolution tools and use of the resolution powers in relation to the group, and also the information on the impact on the business model of the institution and shall recommend any commensurate and targeted measures that, in the view of the Financial and Capital Market Commission, are necessary or appropriate to remove the abovementioned impediments.

(3) Within four months of the date of receipt of the report, the European Union parent company registered in the Republic of Latvia may submit its observations to the Financial and Capital Market Commission and inform it of possible measures to remove the impediments indicated in the report.

(4) The Financial and Capital Market Commission shall communicate any measure proposed by a parent company of a Member State registered in the Republic of Latvia to the European Banking Authority, the resolution authorities of the subsidiaries, and the resolution authorities in the territories of those Member States in which significant branches are located. The Financial and Capital Market Commission and the resolution authorities of the subsidiaries, after consulting with the supervisory authorities and the resolution authorities in the territories of such Member States in which significant branches are located, shall take the joint decision within the resolution college on the identification of the material impediments and the assessment of the measures proposed by the European Union parent company registered in the Republic of Latvia and the measures requested by the resolution authorities in order to reduce or remove the impediments, taking into account the potential impact of the measures in all the Member States where the group operates.

(5) The joint decision shall be taken within four months of submission of the report referred to in Paragraph four of this Section. The Financial and Capital Market Commission shall notify the decision taken to the European Union parent company registered in the Republic of Latvia.

(6) If the involved resolution authorities have not taken the joint decision within the specified time period, the Financial and Capital Market Commission, taking into account the opinions of other resolution authorities, shall take its own decision on taking of the measures specified in Section 20, Paragraph four of this Law at the group level. The Financial and Capital Market Commission shall notify the decision taken to the European Union parent company registered in the Republic of Latvia.

(7) If any of the involved resolution authorities has referred to the European Banking Authority within the time period for the taking of the joint decision with a request to provide assistance in taking of the joint decision in conformity with Article 19 of Regulation No 1093/2010, the Financial and Capital Market Commission shall defer taking the decision and implement measures in accordance with the decision of the European Banking Authority. If the European Banking Authority does not take a decision within one month, the decision of the Financial and Capital Market Commission shall be applied.

(8) If the joint decision has not been taken, resolution authorities of subsidiaries may specify appropriate measures to remove resolution impediments in respect of the subsidiaries of their jurisdiction, unless the Financial and Capital Market Commission or another involved resolution authority has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010.

(9) The Financial and Capital Market Commission, within the time period for taking of the joint decision, is entitled to refer to the European Banking Authority with a request to provide assistance in conformity with that specified in Paragraph eight of this Section in taking of the joint decision on the measures referred to in Section 20, Paragraph four of this Law in accordance with Article 19 of Regulation No 1093/2010 and Article 31(c) of Regulation No 1093/2010.

Section 22. (1) The Financial and Capital Market Commission as the resolution authority of the subsidiary of a European Union parent company of another Member State which is registered in the Republic of Latvia shall participate in taking of the joint decision on the application of measures specified in Section 20, Paragraph four of this Law in respect of all institutions that are part of the group.

(2) If, within four months from the day when the resolution authority of a parent company of a Member State has sent a report to the Financial and Capital Market Commission on the material impediments to efficient application of the resolution tools and use of the resolution powers in relation to the group, the joint decision has not been taken in accordance with Paragraph one of this Section, the Financial and Capital Market Commission shall take into account the joint decision of the resolution authority of the European Union parent company of another Member State and the joint decision of the European Banking Authority in respect of the group if any of the involved supervisory authorities has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010 and the European Banking Authority has taken a decision within one month.

(3) If the involved resolution authorities have not taken the joint decision within the specified time period, the Financial and Capital Market Commission is entitled to specify appropriate measures for the removal of resolution impediments in respect of the subsidiaries registered in the Republic of Latvia. The Financial and Capital Market Commission shall take into account the opinions of other resolution authorities in the abovementioned decision. The Financial and Capital Market Commission shall notify its decision to the subsidiary registered in the Republic of Latvia and the European Union parent company of an other Member State.

(4) If, within the time period specified for the taking of the joint decision, any of the involved resolution institutions has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010 and the European Banking Authority has taken a decision within one month of the day when the relevant resolution authority has referred to assistance, the Financial and Capital Market Commission shall implement measures according to the decision of the European Banking Authority.

(5) For taking of the joint decision within the specified time period, the Financial and Capital Market Commission is entitled to refer to the European Banking Authority with a request to provide assistance in conformity with that specified in Paragraph two of this Section in taking of the joint decision on the measures referred to in Section 20, Paragraph four, Clauses 7, 8, and 11 of this Law in accordance with Article 19 of Regulation No 1093/2010 and Article 31(c) of Regulation No 1093/2010.

Section 23. (1) The joint decisions referred to in this Chapter are recognised as conclusive and are binding on the Financial and Capital Market Commission.

(2) The drawing up of the group resolution plan for a European Union parent company is suspended until the time when the involved resolution authorities have approved the measures proposed by the European Union parent company or have determined measures themselves for the removal of material resolution impediments.

Chapter IV.1
Cooperation with the Single Resolution Board

[16 February 2017 / See Paragraph 2 of Transitional Provisions]

Section 23.1 The Single Resolution Board shall draw up a resolution plan and take a decision to apply resolution actions within the scope of a single resolution in respect to the subjects referred to in Article 7(2) and (5) of Regulation No 806/2014 if the Cabinet has transferred the drawing up of a resolution plan and taking the decision to apply resolution actions to the Single Resolution Board.

[16 February 2017]

Section 23.2 The Financial and Capital Market Commission shall provide the information to the Single Resolution Board requested by it for the drawing up of resolution plans in respect of the subjects referred to in Article 7(2) and (5) of Regulation No 806/2014 and other information referred to in Article 28 of Regulation No 806/2014. The Financial and Capital Market Commission shall acquire and assess the information provided to the Single Resolution Board in accordance with the procedures laid down in Chapters III, IV, and V of this Law and in the regulatory provisions issued by the Financial and Capital Market Commission which provide for the requirements for the provision of information for the drawing up of a resolution plan.

[16 February 2017]

Section 23.3 The Financial and Capital Market Commission shall, in accordance with Article 11(2) of Regulation No 806/2014, upon suggesting to the Single Resolution Board to determine preferential requirements in respect of the subjects referred to in Article 7(2) and (5) of Regulation No 806/2014 within the scope of a resolution plan or to take the decision not to develop a resolution plan, justify it with information accordingly which has been acquired and assessed in accordance with the procedures laid down in Chapters III, IV, and V of this Law and in the regulatory provisions issued by the Financial and Capital Market Commission which provide for the requirements for the provision of information for the drawing up of a resolution plan.

[16 February 2017]

Section 23.4 The Financial and Capital Market Commission shall immediately inform the Single Resolution Board in accordance with the procedures laid down in Article 13(1) and (4) of Regulation No 806/2014 on each decision taken by the Financial and Capital Market Commission in respect of implementation of early intervention measures, and also on the situation when financial difficulties are detected for the institution or it is foreseen that they would set in.

[16 February 2017]

Section 23.5 The Financial and Capital Market Commission shall perform the resolution action specified in the decision taken by the Single Resolution Board within the scope of the single resolution. Upon carrying out the relevant resolution action specified in the decision of the Single Resolution Board, the Financial and Capital Market Commission shall apply the requirements regarding the implementation of the relevant resolution action laid down in this Law in accordance with Article 29 of Regulation No 806/2014 in respect of the subjects referred to in Article 7(2) and (5) of Regulation No 806/2014.

[16 February 2017]

Chapter V
Intra-Group Financial Support

Section 24. (1) A parent company of a Member State or a European Union parent company, or the financial company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law and its subsidiaries in other Member States or foreign countries which are institutions or financial institutions and to which the consolidated supervision of the parent company applies may enter into an agreement regarding provision of financial support to any other party to the agreement which meets the conditions for early intervention, provided that the conditions laid down in this Chapter are met.

(2) An intra-group financial support agreement shall not affect intra-group financial arrangements, including funding arrangements and the operation of centralised funding arrangements provided that none of activities of the parties to such arrangements meets the conditions for early intervention.

(3) Absence of an agreement shall not affect:

1) the provision of group financial support to any group company that experiences financial difficulties if the institution decides to provide it, assessing on a case-by-case basis according to the group policy, and if it does not cause a risk for the whole group;

2) the operation of the group in a Member State.

(4) Regardless of the intra-group financial agreement the Financial and Capital Market Commission is entitled to impose limitations on intra-group transactions in accordance with the Credit Institution Law due to financial stability considerations or impose an obligation to separate parts of a group or activities performed within a group.

(5) The intra-group financial support agreement may:

1) cover one or more subsidiaries of the group and may provide for financial support from the parent company to subsidiaries, financial support from subsidiaries to the parent company, financial support between subsidiaries of the group which are party to the agreement;

2) provide for financial support upon providing a loan, guarantees, assets for their use as collateral, or any combination of the abovementioned forms of financial support in one or more transactions, including between the beneficiary and a third party.

(6) If, in accordance with the conditions of the intra-group financial support agreement, a group company agrees to provide financial support to another group company, the agreement may include a reciprocal agreement by the group company receiving the support to provide financial support to the group company providing the support.

(7) The intra-group financial support agreement shall specify the principles for the calculation of the consideration for any transaction made according to such agreement. The abovementioned principles shall include a requirement to specify the consideration during the provision of financial support. The agreement, the principles for the calculation of the consideration in relation to the provision of financial support, and other conditions of the agreement shall comply with the following principles:

1) each party must be entering into the agreement voluntarily;

2) upon entering into the agreement and upon determining the consideration for the provision of financial support, each party must be acting in its own best interests, taking into account any direct or indirect benefit that may accrue to a party as a result of provision of the financial support;

3) each party providing financial support must have full disclosure of relevant information from any party receiving financial support prior to determination of the consideration for the provision of financial support and prior to taking of any decision to provide financial support;

4) upon determining the consideration for the provision of financial support, information in the possession of the party providing financial support based on it being in the same group as the party receiving financial support and which is not available to the market may be taken into account;

5) upon determining the principles for the calculation of the consideration for the provision of financial support, any anticipated temporary impact on market prices arising from events external to the group may be taken into account.

(8) The intra-group financial support agreement may only be concluded if, at the time the proposed agreement is made, in the opinion of their respective supervisory authorities, none of the parties meets the conditions for early intervention.

(9) Any right, including claim, or action arising from the intra-group financial support agreement may be implemented only by the parties to the agreement.

[16 February 2017; 28 February 2019]

Section 25. (1) The European Union parent company registered in the Republic of Latvia shall submit to the Financial and Capital Market Commission an application for the receipt of an authorisation for the intra-group financial support agreement. The application shall contain the text of the proposed agreement and indicate the group companies that propose to be parties to the agreement.

(2) The Financial and Capital Market Commission shall immediately forward the application to the supervisory authority of each subsidiary that proposes to be a party to the agreement, with a view to reaching the joint decision.

(3) The Financial and Capital Market Commission shall take the decision to grant an authorisation if the terms of the proposed agreement comply with the conditions for intra-group financial support.

(31) The Financial and Capital Market Commission is entitled to take the decision to prohibit to enter into an agreement on provision of intra financial support if it does not comply with the conditions of Section 28 of this Law.

(4) The Financial and Capital Market Commission and the involved supervisory authorities of subsidiaries shall, within four months of the date of receipt of the application by the Financial and Capital Market Commission, take the joint decision, taking into account the potential impact, and also any fiscal consequences of the execution of the agreement in all the Member States where the group operates, on whether the conditions of the proposed agreement comply with the conditions for intra-group financial support. The Financial and Capital Market Commission shall send the decision taken to the applicant.

(5) If the joint decision is not taken within the time period stipulated by the supervisory authority, the Financial and Capital Market Commission shall take the decision on the authorisation for the proposed intra-group financial support agreement, taking into account the opinions of other supervisory authorities expressed during the time period specified for taking of the joint decision. The Financial and Capital Market Commission shall notify the decision to the applicant and other involved supervisory authorities.

(6) If any of the involved supervisory authorities has referred to the European Banking Authority within the time period specified for the taking of the joint decision with a request to provide assistance in taking of the joint decision in accordance with Article 19 of Regulation No 1093/2010, the Financial and Capital Market Commission shall defer taking the decision and implement measures according to the decision of the European Banking Authority. If the European Banking Authority does not take a decision within one month, the decision shall be taken by the Financial and Capital Market Commission.

(7) For the taking of the joint decision within the specified time period, the Financial and Capital Market Commission may refer to the European Banking Authority with a request to provide assistance in accordance with Article 31(c) of Regulation No 1093/2010 in order to receive assistance in taking of the joint decision.

[16 February 2017]

Section 26. (1) The Financial and Capital Market Commission as the supervisory authority of the subsidiary a European Union parent company of another Member State shall participate in taking of the joint decision on the authorisation for the intra-group financial support agreement proposed by a parent institution of the Member State.

(2) If, within four months from the day when the supervisory authority of the subsidiary of a European Union parent company of another Member State has received an application for the receipt of an authorisation for the intra-group financial support agreement, the joint decision has not been taken, the decision of the supervisory authority of the parent company of the Member State and the European Banking Authority shall be binding on the Financial and Capital Market Commission, if any of the involved supervisory authorities has referred to the European Banking Authority with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010 and the European Banking Authority has taken a decision within one month.

(3) For the taking of the joint decision within the specified time period, the Financial and Capital Market Commission may refer to the European Banking Authority with a request to provide assistance in accordance with Article 19 or Article 31(c) of Regulation No 1093/2010 in order to receive assistance in taking of the joint decision on provision of the authorisation for the intra-group financial support agreement.

Section 27. (1) An intra-group financial support agreement the conclusion of which has been authorised by the supervisory authorities shall be submitted for approval to the meeting of shareholders of every group company that proposes to enter into the agreement. In such case the agreement shall be valid only in respect of those parties whose meeting of shareholders has approved the agreement.

(2) Shareholders of a group company are entitled to authorise the council or board of the group company to take a decision that the group company will provide or receive financial support in accordance with the conditions of the agreement and of this Law.

(3) The council of each company that is party to the agreement shall report each year to the shareholders on the enforcement of the agreement and on the implementation of any decisions taken according to the agreement.

[16 February 2017]

Section 28. A group company is entitled to provide financial support according to the intra-group financial support agreement only if all of the following conditions are met:

1) the support provided will significantly redress the financial difficulties of the group company receiving the support;

2) the provision of financial support has the objective of preserving or restoring the financial stability of the group as a whole or any of the companies of the group and is in the interests of the group company providing the support;

3) the financial support has been granted according to the agreement in which the principles for the calculation of the consideration specified in Section 24, Paragraph seven of this Law are taken into account;

4) on the basis of the information available to the board or council of the group company providing financial support at the time when the decision to grant financial support is taken, that the consideration for the support will be paid and, if the support is given in the form of a loan, that the loan will be reimbursed by the group company receiving the support. If the support is given in the form of a guarantee or any form of security, the same condition shall apply to the liabilities arising for the recipient if the guarantee or the security is enforced;

5) the provision of the financial support would not jeopardise the group company providing the support, its liquidity or solvency;

6) the provision of the financial support would not create a threat to financial stability in the Republic of Latvia or another Member State;

7) the group company providing the support complies, at the time when the support is provided, with the requirements governing the activity laid down for it and the provision of the financial support would not cause the group company to infringe those requirements, unless authorised by the supervisory authority responsible for the supervision on an individual basis of the company providing the support;

8) the provision of the financial support would not undermine the resolvability of the group company providing the support.

[16 February 2017]

Section 29. The decision to provide or accept intra-group financial support according to the agreement shall be taken by the group company providing financial support. The decision shall be reasoned and shall indicate the objective of the proposed financial support and that it complies with the conditions for the provision of the financial support.

Section 30. (1) Before providing support according to an intra-group financial support agreement, the group company that has intended to provide financial support shall notify the following thereof:

1) the Financial and Capital Market Commission;

2) the consolidating supervisor;

3) the supervisory authority of the company receiving the financial support;

4) the European Banking Authority.

(2) The notification shall include the decision taken by the group company registered in the Republic of Latvia on the provision of the intra-group financial support and details of the proposed financial support, including the group financial support agreement.

(3) Within five working days from the date of receipt of the notification, the Financial and Capital Market Commission may agree to the provision of financial support or may prohibit or restrict it if it detects that the conditions for the provision of intra-group financial support referred to in Chapter V of this Law have not been met.

(4) The Financial and Capital Market Commission shall immediately make the decision to approve, prohibit, or restrict the financial support known to:

1) the consolidating supervisor;

2) the supervisory authority of the company receiving the financial support;

3) the European Banking Authority.

(5) The group company which has intended to provide financial support shall send its decision to provide financial support to:

1) the Financial and Capital Market Commission;

2) the consolidating supervisor;

3) the supervisory authority of the company receiving the financial support;

4) the European Banking Authority.

Section 31. (1) If the Financial and Capital Market Commission is a consolidating supervisory authority or if the company receiving the financial support is a group company registered in the Republic of Latvia the supervision of which is carried out by the Financial and Capital Market Commission, a group company registered in another Member State which has intended to provide financial support shall notify the Financial and Capital Market Commission of the intention to provide financial support, and also send the decision to provide financial support.

(2) If the Financial and Capital Market Commission is a consolidating supervisory authority of a group company that intends to provide financial support, the Financial and Capital Market Commission shall immediately send the decision received from the supervisory authority of the group company that intends to provide financial support to other members of a college of supervisors and resolution college to approve, prohibit, or restrict the financial support, and also send the decision of the group company that intends to provide financial support to provide support.

(3) If the Financial and Capital Market Commission as a consolidating supervisory authority, supervising the company receiving the support, of the group company which has intended to provide financial support has objections against the decision of the supervisory authority of the company which has intended to provide financial support to prohibit or restrict the financial support, it is entitled to submit this issue for examination to the European Banking Authority in accordance with Article 31 of Regulation No 1093/2010 within two days.

(4) If the Financial and Capital Market Commission is a supervisory authority of the group company for which the financial support has been refused and if the group recovery plan includes reference to intra-group financial support, the Financial and Capital Market Commission is entitled request the consolidating supervisor to initiate a reassessment of the group recovery plan or, if a recovery plan is drawn up on an individual basis, to request the subsidiary registered in the Republic of Latvia to submit a revised recovery plan.

Section 32. A group company registered in the Republic of Latvia shall publish the information on its website on whether or not it has entered into a intra-group financial support agreement, providing a description of the general terms of the agreement and the names of the group companies that are party to it, and also update the published information at least annually in conformity with the requirements of Articles 431, 432, 433, and 434 of Regulation No 575/2013.

[16 February 2017]

Chapter VI
Early Intervention Measures

Section 33. (1) If the institution infringes or is likely in the near future to infringe the Credit Institution Law or the Financial Instrument Market Law, or the regulatory provisions of the Financial and Capital Market Commission, or the directly applicable legal acts of the European Union, and the financial position of the institution rapidly deteriorates, the Financial and Capital Market Commission has the right to apply the following early intervention measures, determining the time period for the implementation of measures, in addition to the rights laid down for it in other laws and regulations to apply supervisory measures:

1) to request the institution to implement one or more of the measures provided for in the recovery plan or to update such a recovery plan if the circumstances that led to the early intervention are different from the assumptions set out in the initial recovery plan and to implement one or more of the measures provided for in the updated plan within a specific time period;

2) to request the institution to determine measures according to the situation to overcome any problem detected and to prepare an action programme to overcome the abovementioned problems and a timetable for its implementation;

3) to request the institution to convene, or if the board fails to comply with that requirement to convene directly, a meeting of shareholders, in both cases setting the agenda and requesting that certain decisions are considered for adoption by the shareholders;

4) to request one or more members of the board, council, or senior management to be removed or replaced if the relevant persons are found unfit to perform their tasks in accordance with the requirements laid down for them in laws and regulations;

5) to request the institution to prepare a plan for negotiation on restructuring of debt with its creditors according to the recovery plan;

6) to request changes to be made in the business strategy of the institution;

7) to request changes to be made in the organisational structure of the institution;

8) to acquire, including through on-site inspections, all the information necessary in order to update the resolution plan, to prepare for the possible resolution of the institution and for valuation of the assets and liabilities of the institution, and to request that all the necessary information is submitted.

(2) The Financial and Capital Market Commission has the right to request the institution to contact potential purchasers, thus preparing for the resolution of the institution, in conformity with the non-disclosure of information (confidentiality) provisions.

Section 34. (1) Before application of early intervention measures or appointment of an authorised person in the European Union parent company registered in the Republic of Latvia, the Financial and Capital Market Commission shall inform the European Banking Authority, consult with other participants to a college of supervisors, and take a decision to apply early intervention measures or to appoint an authorised person, notifying the European Banking Authority and participants to the college of supervisors thereof. Upon taking the abovementioned decision, the Financial and Capital Market Commission shall take into account the impact thereof on the group companies in other Member States.

(2) If the supervisory authority of a subsidiary of a parent company of a Member State registered in the Republic of Latvia informs the Financial and Capital Market Commission of the intention to apply early intervention measures or to appoint an authorised person, the Financial and Capital Market Commission shall, within three working days, provide the impact assessment of the planned measures on the relevant company, group, or group companies in other Member States.

(3) If more than one supervisory authority of the group company managed by the parent company of a Member State registered in the Republic of Latvia has the intention to apply early intervention measures or to appoint an authorised person, the Financial and Capital Market Commission and other involved supervisory authorities shall consider appointment of one authorised person for all involved companies or application of early intervention measures to several institutions. The Financial and Capital Market Commission and the involved supervisory authorities shall, within five days after the Financial and Capital Market Commission has informed the European Banking Authority and the participants to the college of supervisors thereof, take the joint decision to be notified to the parent company of a Member State registered in the Republic of Latvia.

(4) If the joint decision has not been taken within the specified time period, the Financial and Capital Market Commission may take the decision on the application of early intervention measures or on the appointment of an authorised person for the institutions under supervision thereof.

Section 35. The provisions of the Credit Institution Law and the Financial Instrument Market Law shall be applicable to the right of the Financial and Capital Market Commission to appoint an authorised person in the institution and the procedures for his or her activity.

Section 36. (1) The Financial and Capital Market Commission as the supervisory authority of the subsidiary of a European Union parent company of another Member State shall provide its opinion to the college of supervisors on the supervision measure planned by other supervisory authorities of the group companies or on the appointment of an authorised person in the companies under their supervision.

(2) Before application of early intervention measures or appointment of an authorised person for the subsidiary of a European Union parent company of another Member State registered in the Republic of Latvia, the Financial and Capital Market Commission shall inform the European Banking Authority thereof and consult with other participants to the college of supervisors.

(3) After fulfilment of the provisions of Paragraph two of this Section, the Financial and Capital Market Commission shall, within three days, receive the assessment of the consolidating supervisor on the impact of the measures planned by the Financial and Capital Market Commission on the relevant company, group, or group companies in other Member States and, by having regard to it, take a decision to apply early intervention measures or to appoint an authorised person, notifying the participants to the college of supervisors thereof.

(4) If the Financial and Capital Market Commission has an intention to apply early intervention measures or to appoint an authorised person in respect of the group company of the European Union parent company of another Member State and another supervisory authority of this group in respect of the group company under the supervision thereof, the Financial and Capital Market Commission shall participate in taking of the joint decision to appoint one authorised person for all involved companies or to apply early intervention measures to several institutions.

(5) If the joint decision is not taken within five working days after the supervisory authority of a European Union parent company of another Member State has informed participants to the college of supervisors, the Financial and Capital Market Commission is entitled to take the decision to apply early intervention measures or to appoint an authorised person for the institutions under its supervision.

Section 37. (1) Upon taking the decision referred to in Section 34 and applying Section 35 of this Law, the Financial and Capital Market Commission shall take into account the opinions of other involved supervisory authorities, and also possible impact on the financial stability in other Member States. If any of the involved supervisory authorities has referred to the European Banking Authority until taking of the decisions of the Financial and Capital Market Commission referred to in Sections 34 and 35 of this Law with a request to provide assistance in accordance with Article 19 of Regulation No 1093/2010, the Financial and Capital Market Commission shall defer taking of the decision and implement measures according to the decision of the European Banking Authority. If the European Banking Authority does not take a decision within three days, the decision shall be taken by the Financial and Capital Market Commission.

(2) The Financial and Capital Market Commission is entitled to refer to the European Banking Authority within the time period for taking of the joint decision with a request to provide assistance in taking of the joint decision on the measures intended in the recovery plan, the activities necessary for increasing of capital and liquidity, own funds of the institution, access to sources of the funds intended for emergency cases, the activities intended in the debt restructuring plan, the changes in the strategy of the activity of the institution, and also in accordance with Article 31(c) of Regulation No 1093/2010.

Chapter VII
Resolution Actions and Resolution Tools

Section 38. (1) Upon applying the resolution tools in respect of the institution under resolution, the Financial and Capital Market Commission shall choose the tools the use of which best achieves the following objectives of resolution:

1) to ensure the continuity of critical functions;

2) to avoid a significant adverse effect on the stability of the financial market and to maintain market discipline;

3) to protect State funds by minimising reliance on the State aid;

4) to protect the interests of depositors and investors;

5) to protect client funds and client assets.

(2) The Financial and Capital Market Commission shall seek, to the extent possible, to minimise the costs of resolution and to avoid destruction of value unless necessary to achieve the resolution objectives.

(3) All resolution objectives are of equal significance. Upon selecting and applying resolution actions to be implemented, the Financial and Capital Market Commission shall assess the proportionality of restrictions of the ownership rights of a person.

[28 February 2019]

Section 39. (1) The Financial and Capital Market Commission shall take a resolution action only if all of the resolution conditions are met:

1) the Financial and Capital Market Commission detects that the institution has financial difficulties or, potentially, it will be in financial difficulties;

2) there is no reasonable prospect that measures which may be taken by shareholders or third persons in respect of the institution, supervisory actions which may be taken by the Financial and Capital Market Commission, and the write-down or conversion of the relevant capital instruments would prevent the financial difficulties of the institution within a reasonable time period;

3) the resolution action is necessary in the interests of the company in order to achieve one or more of the resolution objectives, it is commensurate with these objectives, and if the institution would apply insolvency proceedings these resolution objectives would not have been achieved to the same extent.

(2) The previous application of an early intervention measure shall not be considered grounds for taking a resolution action.

(3) The institution or financial company shall be considered to be in financial difficulties or, potentially, will be considered to be in financial difficulties if it meets one or more of the following conditions:

1) the institution or financial company infringes or it is foreseeable that the institution or financial company will, in the near future, infringe the requirements of the laws and regulations governing its activity and that would justify taking of the decision to withdraw the licence (authorisation) for the activity of the institution or financial company, including if the institution or financial company has incurred or is likely to incur losses the compensation of which will significantly decrease own funds of the institution or financial company;

2) the assets of the institution or financial company are less than its liabilities or there are objective elements to support a determination that the assets of the institution or financial company will, in the near future, be less than its liabilities;

3) the institution or financial company is unable to pay its liabilities as they fall due or there are objective elements to support a determination that the institution or financial company will, in the near future, be unable to pay its liabilities as they fall due;

4) State aid is required for the institution or financial company, except for the case when it is provided as:

a) a State guarantee for liquidity facilities provided by Latvijas Banka according to their conditions;

b) a State guarantee of newly issued liabilities;

c) an injection of own funds and purchase of capital instruments at prices that do not confer an advantage upon the institution or financial company, provided that the institution or financial company is not or, potentially, will not be considered to be in financial difficulties and neither the circumstances referred to in Paragraph three, Clauses 1, 2, and 3 of this Section nor the circumstances referred to in Section 77, Paragraph three of this Law have set in at the time the State aid is granted.

(4) The State aid referred to in Paragraph three, Clause 4 of this Section shall be granted only to the institutions in respect of which a case of insolvency proceedings has not been initiated, and only after the decision of the European Commission on the compatibility of the State aid with the internal market of the European Union is received.

(5) Having detected that the institution or financial company complies with the conditions of Paragraph three of this Section, the Financial and Capital Market Commission shall assess the conformity of the institution or financial company with the conditions of Paragraph one of this Section and take a decision on the resolution action to be applied or the decision to commence insolvency proceedings of the institution or financial company, justifying such decision accordingly.

[16 February 2017]

Section 40. (1) The Financial and Capital Market Commission may take a resolution action in relation to the financial institution referred to in Section 2, Paragraph two, Clause 2 of this Law, if the conditions of Section 39, Paragraph one of this Law are met with regard to both the financial institution and with regard to the parent undertaking subject to consolidated supervision.

(2) The Financial and Capital Market Commission may take a resolution action in relation to the financial company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law, if the conditions for the performance of the resolution action are met with regard to both the financial company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law and with regard to one or more subsidiaries which are institutions or where the subsidiary is performing its activity in a foreign country and the supervisory authority has detected that resolution is applicable to it in accordance with laws and regulations of the foreign country.

(3) If the subsidiary company of a mixed-activity holding company is held by a financial holding company, group resolution shall be taken in relation to the financial holding company and shall not be taken in relation to the mixed-activity holding company.

(4) If the financial company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law does not meet the conditions for taking a resolution action, the Financial and Capital Market Commission is entitled take a resolution action with regard to the abovementioned company if one or more of the subsidiaries which are institutions comply with the conditions for taking a resolution action and their assets and liabilities are such that insolvency of such subsidiaries threatens the institution or the group as a whole. Upon assessing whether the conditions for taking a resolution action are met in respect of one or more subsidiaries which are institutions, the resolution authority of the institution and the Financial and Capital Market Commission as the resolution authority of the financial company may by way of joint agreement disregard any intra-group capital or loss transfers, and also the implementation of write-down or conversion powers.

Section 41. (1) Upon applying the resolution tools and implementing the resolution powers, the Financial and Capital Market Commission shall comply with the following principles:

1) the shareholders of the institution under resolution and persons owning other instruments of ownership bear first losses;

2) creditors of the institution under resolution bear losses after the shareholders and persons owning other instruments of ownership;

3) board, council, and senior management of the institution under resolution are replaced, except for those cases when the retention of them, in whole or in part, is considered to be necessary for the achievement of the resolution objectives;

4) board, council, and senior management of the institution under resolution shall provide all necessary assistance for the achievement of the resolution objectives;

5) creditors of the same class are treated in an equitable manner;

6) no creditor shall incur greater losses than would have been incurred if the institution or financial company had been wound up;

7) covered deposits are fully protected;

8) resolution action is taken in accordance with that laid down in this Law.

(2) If the institution is a group company, the Financial and Capital Market Commission shall apply resolution tools and implement resolution powers in a way that minimises the impact on other group companies and on the group as a whole and minimises the adverse effect on financial stability in the Member States, in particular in those where the group operates.

(3) Upon applying resolution tools and implementing resolution powers, the resolution authority shall inform employee representatives and consult with them.

Section 42. (1) When removing the council and board of the institution under resolution, the Financial and Capital Market Commission is entitled to appoint a special manager whose obligation is to take all the necessary measures, including increase of capital, changes in the composition of stockholders and shareholders or transfer of the institution under control of financially and organisationally stable institutions in order to promote achievement of the resolution objectives and to implement resolution actions according to the decision of the Financial and Capital Market Commission.

(2) The requirements laid down for authorised persons in the Credit Institution Law and the Financial Instrument Market Law shall be applied in relation to the procedures for the appointment of a special manager. The legal norms included in the Credit Institution Law and the Financial Instrument Market Law shall be applied in relation to the special manager insofar as it is provided for otherwise in this Law.

(3) The Financial and Capital Market Commission shall publish the information on the appointment of a special manager on its website.

(4) A special manager has all the powers of the meeting of shareholders, board, council, and senior management of the institution which he or she exercises under the control of the Financial and Capital Market Commission. The obligations of the board, council, or senior management of the institution shall not be binding on the special manager insofar as they are not in contradiction with the performance of the obligations of the special manager.

(5) A special manager shall prepare reports on the economic and financial situation of the institution under resolution and on the activities which he or she has performed in performance of his or her duties in the beginning and end of his or her powers, and also upon request of the Financial and Capital Market Commission.

(6) A special manager shall be appointed for the time period which does not exceed one year. That period may be renewed, on an exceptional basis, if the Financial and Capital Market Commission considers that the conditions for the appointment of a special manager continue to be met.

(7) If, along with the Financial and Capital Market Commission, the resolution authority of another Member State also has the intention to appoint a special manager in relation to a company affiliated to a group, the Financial and Capital Market Commission and the relevant resolution authority shall consider the necessity to appoint the same special manager for all the companies concerned.

Section 43. (1) The Financial and Capital Market Commission has the right to apply one or more of the following resolution tools to the institution or financial company which complies with the conditions for the application of resolution:

1) the sale of business tool;

2) the bridge institution tool;

3) the asset separation tool;

4) the bail-in tool.

(2) Upon choosing the applicable resolution tool, the Financial and Capital Market Commission shall consider whether in the case of application of the relevant resolution tool limitation of ownership of creditors, shareholders, and persons owning other instruments of ownership is commensurate with the interests of the company. In the case of application of resolution tools the consideration specified in this Law is due to shareholders of the institution or financial company, persons owning other instruments of ownership, or creditors.

(21) If the decision of the Financial and Capital Market Commission to apply a resolution tool to the institution or financial company would result in losses being borne by creditors or their claims being converted, the Financial and Capital Market Commission shall implement the power to write down and convert the relevant capital instruments before or together with the application of one or more resolution tools.

(3) The asset separation tool may be applied only together with another resolution tool.

(4) If the sale of business tool or bridge institution tool is used to transfer only part of the assets, rights, or liabilities of the institution under resolution, the company the assets, rights, or liabilities of which have been transferred having regard to the resolution objectives, shall be wound up.

(5) The Financial and Capital Market Commission and the relevant financing fund of resolution actions are entitled to receive consideration for any reasonable expenditures incurred in connection with the use of the resolution tools in one or more of the following ways:

1) as a deduction from any consideration received by the institution under resolution or its shareholders, and also persons owning other instruments of ownership;

2) from the institution under resolution, as a preferred creditor;

3) from any proceeds generated as a result of the termination of the operation of the bridge institution or the asset management company, as a preferred creditor.

(6) The right of creditors to appeal the decisions taken, infringing the interests of creditors specified in the laws and regulations governing insolvency proceedings, shall not be applicable to the separation of assets, rights, or obligations of the institutions under resolution for other company by applying a resolution tool, implementing resolution rights, or applying additional financial stabilisation tools.

(7) If the State aid is provided within the scope of resolution, before provision thereof it is necessary to receive the decision of the European Commission on compatibility of the State aid with the internal market of the European Union.

[16 February 2017]

Section 44. (1) If the Financial and Capital Market Commission plans to carry out resolution action in respect of the institution, but the institution, creditor or group of creditors, or administrator submits an insolvency application in another insolvency proceedings to the Financial and Capital Market Commission, the Financial and Capital Market Commission shall take the decision to refuse the application.

(2) If the Financial and Capital Market Commission does not plan to carry out resolution action in respect of the institution, the procedures for the assessment of the justification of the insolvency application of the institution shall be determined by the Credit Institution Law and the Financial Instrument Market Law.

(3) Upon the application of the Financial and Capital Market Commission, the court may initiate insolvency proceedings against the company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law. Upon receipt of the insolvency application of the company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law, the court shall inform the Financial and Capital Market Commission.

(4) After fulfilling the information obligation specified in Paragraph three of this Section, the court may examine the insolvency application of the company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law, if the Financial and Capital Market Commission has notified the court that it is not planning to carry out any resolution action in respect of the abovementioned company, or has not provided a reply within seven days.

Chapter VIII
Valuation

Section 45. (1) Before application of resolution tools or write-down of the relevant capital instruments, or implementation of conversion powers, a person independent from any direct and indirect administration authorities, the Financial and Capital Market Commission, and also the institution or financial company - valuer (hereinafter also - the valuer) - shall prepare a fair and objective valuation of the assets and liabilities of the institution or financial company. The valuation shall be considered to be definitive if all the requirements laid down in this Chapter are met.

(2) If the valuer cannot prepare a valuation in conformity with Paragraph one of this Section, the Financial and Capital Market Commission may carry out a provisional valuation of the assets and liabilities.

(3) In order to achieve the objective of the valuation, it is necessary to carry out the following actions:

1) to acquire information in order to detect whether the conditions for resolution or the conditions for the write-down or conversion of capital instruments are met;

2) to acquire information in order to take the decision on the application of the appropriate resolution action;

3) upon writing down or converting the relevant capital instruments, to acquire information in order to take the decision on the extent of the cancellation or dilution of instruments of ownership and on the extent of the write-down or conversion of relevant capital instruments;

4) when the bail-in tool is applied, to acquire information in order to take the decision on the extent of the write-down or conversion of eligible liabilities;

5) when the bridge institution tool or asset separation tool is applied, to acquire information in order to take the decision on the assets, rights, liabilities, stocks, or other instruments of ownership to be transferred and the decision on the value of any consideration to be disbursed to the institution under resolution or to the shareholders or persons owning other instruments of ownership;

6) when the sale of business tool is applied, to acquire information in order to take the decision on the assets, rights, liabilities, stocks, or other instruments of ownership to be transferred;

7) to ensure that any losses on the assets of the institution or financial company are fully recognised at the moment the resolution tools are applied or the power to write down or convert relevant capital instruments is implemented.

Section 46. (1) The valuation shall be based on prudent assumptions, and also on the default risk and the amount of losses. The valuation does not include an assumption that the State aid and emergency liquidity assistance could be provided to the institution or financial company.

(2) The valuation shall take account of the fact that if any resolution tool is applied:

1) the Financial and Capital Market Commission and the resolution fund may receive consideration for all reasonable expenditures properly incurred from the institution under resolution in accordance with that referred to in Section 43, Paragraph five of this Law;

2) the resolution fund may charge interest or fees in respect of any loans or guarantees provided to the institution under resolution.

(3) The valuation shall be supplemented with the following information as appearing in the accounting records and source documents of the institution or financial company:

1) an updated balance sheet and a report on the financial position of the institution or financial company;

2) an analysis of the structure of the assets and an estimate of the accounting value of the assets;

3) the list of outstanding on-balance-sheet and off-balance-sheet liabilities shown in the accounting records and source documents of the institution or financial company with an indication of the respective credits and priority levels in accordance with the applicable laws and regulation governing insolvency.

(4) In order to acquire the necessary information for taking of the decisions referred to in Section 45, Paragraph three, Clauses 5 and 6 of this Law, the information referred to in Paragraph three, Clause 2 of this Section may be supplemented with an analysis of the structure of assets and liabilities of the institution or financial company and an estimate of the fair value thereof which has been carried out on the day of preparing the valuation and determined on the basis of the International Accounting Standards and International Financial Reporting Standards approved by the European Commission.

(5) The valuation shall indicate the division of claims of creditors in classes in conformity with the priority level thereof in accordance with the laws and regulations governing insolvency and estimate what conditions could be applied to each class of shareholders, persons who own other instruments of ownership, and creditors if insolvency proceedings would be commenced in respect of the institution or financial company. The abovementioned estimate shall not apply to the valuation which is prepared in accordance with Section 96 of this Law.

Section 47. (1) If, due to urgency in the situation, either it is not possible to comply with the requirements of Section 46 of this Law, or Section 45, Paragraph two of this Law is applied, the Financial and Capital Market Commission or valuer shall prepare a provisional valuation. The provisional valuation shall include a reserve for additional losses, justifying it accordingly.

(2) A valuation that does not comply with all of the requirements laid down in this Chapter shall be considered to be provisional until the valuer has prepared a definitive evaluation that is fully compliant with all of the requirements laid down in this Chapter. The definitive valuation may be carried out either separately from the valuation referred to in Section 96 of this Law or simultaneously with it and both valuations may be carried out by the same valuer, but they shall be considered to be two separate valuations.

(3) The objectives of preparation of the definitive valuation shall be:

1) to ensure that any losses on the assets of the institution and financial company are fully recognised in the accounting records of the institution and financial company;

2) to acquire information in order to take the decision to write back claims of creditors or to increase the value of the consideration disbursed in accordance with the requirements of this Law.

(4) If it is detected in the definitive valuation that the net asset value of the institution or financial company is higher than the provisional valuation of the net asset value of the institution or financial company, the Financial and Capital Market Commission is entitled to:

1) implement its right to increase the value of the claims of creditors which have been written down under the bail-in tool or owners of the relevant capital instruments;

2) instruct a bridge institution or asset management company to make further payments of consideration in respect of the assets, rights, or liabilities to an institution under resolution or to the persons who own shares or other instruments of ownership.

(5) A provisional valuation shall be a valid basis for the Financial and Capital Market Commission to apply resolution tools, to take control of the institution under resolution which may become insolvent, or to implement the write-down or conversion power of the relevant capital instruments.

(6) The valuation shall be an integral part of the decision on the application of a resolution tool or on the implement of the resolution power or the write-down or conversion power of the relevant capital instruments.

Chapter IX
Sale of Business Resolution Tool

Section 48. (1) The Financial and Capital Market Commission may transfer to a purchaser that is not a bridge institution shares, other instruments of ownership, assets, rights, or liabilities of an institution under resolution (hereinafter - the sale of business tool) without obtaining the consent of the shareholders or those persons who own other instruments of ownership and without complying with other requirements laid down in laws and regulations in respect of the procedures for the transfer of instruments of ownership, assets, rights, or liabilities.

(2) The sale of business tool shall be applied on the basis of a legal transaction concluded according to civil legal procedures having regard to the valuation made by the valuer, and also in accordance with the legal framework of State aid.

(3) A consideration disbursed by the purchaser for the sale of business shall be disbursed to:

1) the shareholders and persons who own other instruments of ownership, if the sale of business has been effected by transferring the shares of shareholders or instruments of ownership of the persons who own other instruments of ownership of the institution under resolution to the purchaser;

2) the institution under resolution, if the sale of business has been effected by transferring the assets or liabilities of the institution under resolution to the acquirer.

(4) Upon applying the sale of business tool, the Financial and Capital Market Commission is entitled, with the consent of the purchaser, to transfer the assets, rights, or liabilities of the institution under regulation transferred to it back to the institution under resolution, or the shares or other instruments of ownership back to their original shareholders or persons who owned other instruments of ownership, and the institution under resolution and these persons have an obligation to take them back.

(5) If, upon applying the sale of business tool, the purchaser has not obtained a permit for acquiring a qualifying holding, such transfer of shares or other instruments of ownership to the purchaser shall enter into effect under the following conditions:

1) during the assessment period or during the specified divestment period, the voting rights of the purchaser attached to such shares or other instruments of ownership are suspended and vested solely in the Financial and Capital Market Commission which shall have no obligation to use any such voting rights and which shall have no liability whatsoever for using or refraining from using any such voting rights;

2) during the assessment period or during the specified divestment period, the penalties for infringements of the requirements for the acquisition or reduction of a qualifying holding shall not apply to such a transfer of shares or other instruments of ownership;

3) if a permit for acquiring a qualifying holding is issued to the purchaser, the purchaser shall acquire voting rights in relation to shares, other instruments of ownership, assets, rights, or liabilities of the institution under resolution owned by it, upon obtaining the permit to acquire a qualifying holding in the institution under resolution;

4) if the purchaser is prohibited from acquiring a qualifying holding, the Financial and Capital Market Commission is entitled to impose an obligation on the purchaser to divest shares or other instruments of ownership of the institution under resolution owned by it within the specified time period, and, if the purchaser fails to divest them, to apply penalties for infringements of the requirements for the acquisition of a qualifying holding;

5) if the purchaser fails to divest such shares or other instruments of ownership within the divestment period specified by the resolution institution, the Financial and Capital Market Commission is entitled to impose on the purchaser penalties and other measures for infringements of the requirements for the acquisition or reduction of a qualifying holding provided for in the Credit Institution Law and the Financial Instrument Market Law.

(6) The purchaser may continue to use the rights of the institution under resolution to provide financial services in another Member State and to acquire qualifying holding and membership rights to payment systems, regulated market organisers, investor compensation schemes, and deposit guarantee schemes of the institution under resolution, if the purchaser meets the membership criteria and the requirements for the acquisition of a qualifying holding in such systems. If the purchaser does not meet the membership criteria or the requirements for the acquisition of a qualifying holding for a relevant payment, clearing or settlement system, regulated market organiser, investor compensation scheme, or deposit guarantee scheme, the Financial and Capital Market Commission is entitled to determine the time period, not exceeding 24 months, during which the purchaser may use the membership and access rights of the institution under resolution to the abovementioned systems and which the Financial and Capital Market Commission may renew upon request of the purchaser. Access to the abovementioned systems is not denied on the grounds that the purchaser does not possess a rating from a credit rating agency or that rating is not commensurate with the rating levels required.

(7) Shareholders, persons who own other instruments of ownership, or creditors of the institution under resolution and other third parties the assets, rights, or liabilities of which are not transferred shall not have any rights over the assets, rights, or liabilities transferred or rights related thereto.

[16 February 2017]

Section 49. (1) The Financial and Capital Market Commission shall ensure that transfer of shares, other instruments of ownership, assets, rights, or liabilities is as transparent as possible, does not misrepresent, is free from conflicts of interest or unfair advantages to a potential purchaser, does not apply unduly favour or discriminate between potential purchasers, takes account of actual circumstances, the need to effect a rapid resolution and retain financial stability. Upon applying the sale of business tool, the objective is to achieve higher sales price for the relevant shares or other instruments of ownership, assets, rights, or liabilities.

(2) The institution may, using the official storage system, delay any public disclosure of the information related to the marketing transaction of the institution under resolution which the institution has an obligation to disclose to the public, in conformity with Article 17(5) of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (Text with EEA relevance).

(3) The Financial and Capital Market Commission may apply the sale of business tool without complying with that laid down in Paragraph one of this Section if it detects that compliance with those requirements and principles would be likely to undermine the achievement of one or more of the resolution objectives and in particular if it considers that financial difficulties or likely insolvency of the institution under resolution causes or increases a material threat to financial stability or material spread of instability in a financial market or compliance with the requirements would be likely to undermine the effectiveness of the sale of business tool in addressing that threat.

Chapter X
Bridge Institution Tool and Asset Separation Tool

Section 50. (1) In order to apply a bridge institution tool having regard to the need to retain critical functions of the bridge institution, the Financial and Capital Market Commission is entitled to transfer shares, other instruments of ownership, assets, rights, or liabilities of one or more institutions under resolution to the bridge institution without consent of the shareholders or persons who own other instruments of ownership of the institution under resolution without complying with the procedures for transfer of instruments of ownership, assets, rights, or liabilities laid down in other laws and regulations.

(2) A bridge institution is a legal person which meets the following requirements:

1) one or more direct or indirect administration authorities have a qualifying holding therein, and it is under supervision of the Financial and Capital Market Commission;

2) it has been established in order to receive and hold several or all shares or other instruments of ownership of the institutions under resolution or assets, rights, or liabilities of one or several institutions under resolution in order to continue several or all functions, services, and activities of the institution under resolution.

(3) Application of a bail-in tool shall not affect the right of the Financial and Capital Market Commission to control a bridge institution.

(4) Upon applying a bridge institution tool, the Financial and Capital Market Commission shall ensure that the total value of the liabilities transferred to the bridge institution does not exceed the total value of the rights and assets acquired from the institution under resolution or other sources.

(5) Consideration for the application of a resolution tool which is paid by a bridge institution shall be disbursed to:

1) the persons who own shares or other instruments of ownership and whose shares or other instruments of ownership have been transferred to the bridge institution;

2) the institution under resolution if the assets or liabilities of the institution under resolution have been transferred to the bridge institution.

(6) Upon applying a bridge institution tool, the Financial and Capital Market Commission may implement transfer powers for several times in order to carry out additional transfer of the shares or other instruments of ownership or assets, rights, or liabilities of the institution under resolution.

(7) The Financial and Capital Market Commission may transfer the shares or other instruments of ownership transferred to the bridge institution back to their initial shareholders or holders of other instruments of ownership, and also transfer the assets, rights, or liabilities transferred to the bridge institution back to the institution under resolution if such possibility has been provided upon implementing the transfer, or if such shares or such other instruments of ownership, assets, rights,or liabilities have been transferred the transfer of which has not been provided for in the contract, and these persons and institution under resolution have an obligation to accept them.

(8) The shares, other instruments of ownership, assets, rights, or liabilities transferred to the bridge institution may be transferred to a third person by the Financial and Capital Market Commission.

(9) The bridge institution may continue to use the rights of the institution under resolution to provide financial services in another Member State, membership rights and access to payment systems, regulated market organiser, investor compensation schemes, and deposit guarantee schemes of the institution under resolution, if the purchaser meets the membership and qualifying holding criteria in such systems.

(10) If the purchaser does not meet the membership or qualifying holding criteria for a relevant payment system, regulated market organiser, investor compensation scheme, or deposit guarantee scheme, the Financial and Capital Market Commission is entitled to determine the time period, not exceeding 24 months, during which the purchaser may use the membership and access rights of the institution under resolution to the abovementioned systems and which the Financial and Capital Market Commission may renew upon request of the purchaser.

(11) Access to the payment systems is not denied on the ground that the bridge institution does not possess a rating from a credit rating agency or that rating is not commensurate with the rating levels required. In other fields of activity the bridge institution may be considered to be a successor in the assets, liabilities, and rights of the institution under resolution.

(12) Shareholders of the institution under resolution, those persons who own other instruments of ownership, or creditors and other third parties whose assets, rights, or liabilities are not transferred to the bridge institution shall not have any rights to the assets, rights, or liabilities transferred or rights related thereto.

(13) A bridge institution shall not imply any duty or responsibility to shareholders of the institution under resolution or persons who own other instruments of ownership, or creditors, and the board, council, or senior management shall have no liability to such shareholders or persons who own other instruments of ownership, or creditors for acts or omissions in the discharge of their duties unless the act or omission implies gross negligence which directly affects the interests of shareholders of the institution under resolution or persons who own other instruments of ownership, or creditors.

[16 February 2017]

Section 51. (1) The Financial and Capital Market Commission shall approve the constitutional documents and strategy of operation, council and board of the bridge institution, and also the remuneration and office duties of the members of the council and the board. The bridge institution has an obligation to perform the tasks and functions specified in laws and regulations which it takes over from the institution under resolution, and the Financial and Capital Market Commission shall carry out the supervision of the bridge institution. If it is necessary for the achievement of the resolution objectives, the Financial and Capital Market Commission may permit non-compliance with the requirements of the laws and regulations governing the activity of institutions for a certain period of time.

(2) The board, council, or senior management of the bridge institution shall try to retain access to critical functions and to sell their shares, other instruments of ownership, assets, rights, or liabilities to private sector purchasers under appropriate conditions within the time period specified in this Law.

(3) The Financial and Capital Market Commission shall decide that the bridge institution loses its status in any of the following cases:

1) the bridge institution merges with another company;

2) it ceases to meet the requirements laid down for the bridge institution;

3) the sale of the largest part of the assets, rights, or liabilities of the bridge institution to a third party;

4) the expiry of the period specified for the operation of the bridge institution has set in;

5) the assets of the bridge institution are completely wound down and its liabilities are completely discharged.

(4) Upon selling the bridge institution, its assets or liabilities, the Financial and Capital Market Commission shall ensure that the sale process is transparent as much as possible, does not misrepresent and discriminate between potential purchasers. The sale shall be made according to legal transactions entered into in accordance with civil legal procedures, taking into account the valuation of the valuer, and also in accordance with the legal framework of State aid.

(5) The Financial and Capital Market Commission shall terminate the operation of a bridge institution as soon as possible, however not later than two years after the day when the shares, other instruments of ownership, assets, rights, or liabilities of the institution under resolution have been transferred to the bridge institution, using an instrument of the bridge institution. The Financial and Capital Market Commission is entitled to extend the abovementioned time period for not more than one year provided that after such an extension it loses the status of the bridge institution or that such extension is necessary to ensure the continuity of essential institution or financial services.

(6) If a bridge institution loses its status because all its assets, rights, or liabilities have been sold to a third person, or if the bridge institution is used for transfer of assets and liabilities of more than one institution under resolution and all assets, rights, and liabilities which have been transferred from each institution under resolution have been sold, or the time period specified for the its operation has set in, the bridge institution shall be wound up in accordance with the general procedures laid down in the law.

(7) Income which is obtained as a result of termination of a bridge institution shall be disbursed to the shareholders of the bridge institution or those persons who own other instruments of ownership.

Section 52. (1) The Financial and Capital Market Commission has the right to transfer the assets, rights, or liabilities of the institution under resolution or bridge institution to one or more asset management companies without consent of the shareholders of the institution under resolution or persons who own other instruments of ownership and without complying with the procedures for transfer of assets, rights, or liabilities specified in other laws and regulations if the sale of such assets, rights, or liabilities in case of winding up could have adverse effect on the stability of financial market and if such transfer is necessary in order to ensure due operation of the institution under resolution or bridge institution or to increase income from the sale of assets, rights, or liabilities of the institution under resolution as much as possible (hereinafter - the asset separation tool).

(2) An asset management company shall manage the assets transferred to it with the objective to increase their value in case of asset sale.

(3) The Financial and Capital Market Commission shall approve the constitutional documents and strategy of operation, council and board of the asset management company, and also the remuneration and office duties of the members of the council and the board.

(4) Upon applying the asset resolution tool, the Financial and Capital Market Commission shall determine the consideration for which assets, rights, and liabilities are transferred to the asset management company in conformity with the assessment principles laid down in this Law and the legal framework of State aid. Such consideration may comply with their nominal value or be lower than their nominal value.

(5) A consideration for assets, rights, or liabilities transferred to an asset management company shall be disbursed to an institution under resolution. The consideration may be disbursed in the form of debt securities issued by the asset management company.

(6) The Financial and Capital Market Commission is entitled to transfer the assets, rights, or liabilities transferred to the asset management company back to the institution under resolution if such possibility has been provided upon carrying out the transfer or if such assets, rights, or liabilities have been transferred the transfer of which has not been provided for in the contract, and the institution under resolution has an obligation to accept them.

(7) Shareholders of the institution under resolution or those persons who own other instruments of ownership, or creditors and other third parties whose assets, rights, or liabilities are not transferred shall not have any rights to the assets, rights, or liabilities transferred to the asset management company or to related rights arising therefrom.

(8) An asset management company shall not imply any duty or responsibility to shareholders of the institution under resolution or those persons who own other instruments of ownership, or creditors, and also its council, board, or senior management shall have no liability to such shareholders and persons who own other instruments of ownership or creditors for acts or omissions in the discharge of their duties unless the act or omission implies gross negligence which directly affects the interests of shareholders of the institution under resolution, those persons who own other instruments of ownership, or creditors.

[16 February 2017]

Chapter XI
Bail-in Tool

Section 53. (1) The Financial and Capital Market Commission may apply bail-in tool according to the resolution principles for any of the following objectives:

1) to recapitalise the institution or financial company that meets the resolution conditions to the extent sufficient to restore its ability to comply with the conditions for obtaining the licence (authorisation) in accordance with the requirements of the Credit Institution Law or the Financial Instrument Market Law;

2) to convert into equity or to reduce the principal amount of claims or debt instruments which is transferred to a bridge institution for the provision of capital for it or transferred, using the sale of business tool or the asset separation tool.

(2) The Financial and Capital Market Commission may apply bail-in tool in order to reach the objective referred to in Paragraph one, Clause 1 of this Section if there is a reasonable prospect that the application of that tool will help to achieve the relevant resolution objectives and will restore the financial stability of the relevant institution or financial company.

(3) If the conditions referred to in Paragraph two of this Section are not met, the Financial and Capital Market Commission may apply other resolution tools or the claim referred to in Paragraph one, Clause 2 of this Section, or conversion to equity of the principal amount of the claim or reduction thereof.

Section 54. (1) The bail-in tool shall be applied to all liabilities of the institution or financial company, except for:

1) the covered deposits. The Financial and Capital Market Commission is entitled to implement write-down or conversion power in respect of any deposit amount which exceeds the amount of covered deposits specified in the Deposit Guarantee Law;

2) secured liabilities, including covered bonds and liabilities in the form of financial instruments used for hedging purposes. Such liabilities shall form an integral part of the cover pool and which, in accordance with the procedures laid down in laws and regulations, are secured in a way similar to covered bonds;

3) any liability that arises by virtue of the holding by the institution or financial company of client assets if, in accordance with the applicable laws and regulations governing insolvency, such client assets are not included in the list of the property of the institution or financial company in the insolvency proceedings;

4) any liability that arises by virtue of fiduciary operations (trust) between the institution or financial company and the client if, in accordance with the applicable laws and regulations governing insolvency, such client assets are not included in the list of the property of the institution or financial company in the insolvency proceedings;

5) liabilities to institutions, except for the companies that are part of the same group, with an original maturity of less than seven days;

6) such liabilities in respect of systems which are specified in accordance with the law On Settlement Finality in Payment and Financial Instrument Settlement Systems or in respect of managers (operators) of such systems or their participants if a maturity of such liabilities is less than seven days and if they are arising from the participation in such a system;

7) liabilities in respect of accrued salary, pension benefits, or another fixed component of remuneration of an official and employee, except for the variable component of remuneration which is not regulated by a collective bargaining agreement. The exception in respect to the fixed component of remuneration which is regulated by a collective bargaining agreement shall not be applied to such officials or employees the performance of whose professional work duties significantly influences risk profile of the institution or financial company;

8) liabilities in respect of a creditor if they are arising from the basic resources or basic services necessary for the provision of commercial activity of the institution or financial company, including information technology services, utilities, and also provision of the rental, servicing, and upkeep of premises;

9) liabilities in relation to tax and other payments (debts) to the State budget and local government budgets and mandatory State social insurance contributions;

10) liabilities in respect of deposit guarantee schemes arising from the requirements of the Deposit Guarantee Law.

(2) The institution or financial company shall ensure that all assets which are collateral of liabilities and are related to a covered bond cover pool remain unaffected and segregated, and that such assets have enough funding. The Financial and Capital Market Commission, where appropriate, is entitled to implement the write-down or conversion power in relation to any part of a secured liability or a liability for which collateral has been pledged which exceeds the value of the assets, pledge, lien, or collateral against which it is secured.

(3) In order to ensure resolution of the institutions and groups, the Financial and Capital Market Commission, without prejudice to the requirements of Regulation No 575/2013, the Credit Institution Law, and the Financial Instrument Market Law in respect of large exposures, is entitled to limit, in accordance with the requirements of Section 20, Paragraph four, Clause 2 of this Law, the extent of an exposure with another institution if the liabilities caused by such exposure comply with the conditions for application of a bail-in tool, except for the liabilities that are held at companies that are part of the same group.

(4) In exceptional circumstances, where the bail-in tool is applied, the Financial and Capital Market Commission is entitled to exclude or partially exclude certain liabilities from the application of the write-down or conversion powers in any of the following cases:

1) it is not possible to bail-in the liabilities within a reasonable time period;

2) the exclusion is necessary and is commensurate in order to ensure the continuity of critical functions and core business lines of the institution under resolution;

3) the exclusion is necessary and commensurate in order to prevent adverse effects, in particular as regards eligible deposits held by natural persons and micro, small and medium sized-enterprises, which would severely disrupt the functioning of financial markets, including of financial market infrastructures, in a manner that could cause a serious disturbance to the national economy of the Republic of Latvia or of the European Union;

4) the application of the bail-in tool to the abovementioned liabilities would cause a destruction in value such that the losses borne by other creditors would be higher than if the abovementioned liabilities were excluded from bail-in.

[16 February 2017]

Section 55. (1) If the Financial and Capital Market Commission decides to exclude or partially exclude eligible liabilities or class of eligible liabilities, it is entitled to increase the level of write-down or conversion applied to other eligible liabilities, provided that the level of write-down and conversion applied to other eligible liabilities complies with the principle laid down in Section 41, Paragraph one, Clause 6 of this Law.

(2) If the Financial and Capital Market Commission decides to exclude or partially exclude eligible liabilities or class of eligible liabilities, and the losses that would have been borne by those liabilities have not been passed on fully to other creditors, a contribution may be made from the resolution fund to the institution under resolution to take one or both of the following measures:

1) cover any losses which have not been absorbed by eligible liabilities and restore the net asset value of the institution under resolution to zero in accordance with Section 67, Paragraph one, Clause 1 of this Law;

2) purchase shares or other instruments of ownership or capital instruments in the institution under resolution, in order to recapitalise the institution in accordance with Section 67, Paragraph one, Clause 2 of this Law.

Section 56. (1) The contribution referred to in Section 55, Paragraph two of this Law may be made from the resolution fund in conformity with the following conditions:

1) a contribution to loss absorption and recapitalisation equal to an amount not less than 8 per cent of the total amount of liabilities, capital, and reserves of the institution under resolution, measured at the time of resolution action in accordance with the valuation provided for in Sections 45, 46, and 47 of this Law, has been ensured by the shareholders and the persons who own other instruments of ownership, the holders of relevant capital instruments, and other eligible liabilities through write-down, conversion, or otherwise;

2) the contribution of the resolution fund does not exceed 5 per cent of the total amount of liabilities, capital, and reserves of the institution under resolution, measured at the time of resolution action in accordance with the valuation provided for in Sections 45, 46, and 47 of this Law.

(2) The contribution of the resolution fund referred to in Section 55, Paragraph two of this Law may be financed by:

1) the amount available to the resolution financing arrangement which has been raised through contributions by institutions and by branches registered in the Republic of Latvia of the institutions registered abroad;

2) the amount that can be raised through additional contributions in conformity with that laid down in Article 71 of Regulation No 806/2014 within three years;

3) the amounts raised from alternative financing sources if the amounts referred to in Clauses 1 and 2 of this Paragraph are insufficient.

[16 February 2017]

Section 57. (1) In extraordinary circumstances, the Financial and Capital Market Commission is entitled to receive additional financing from alternative financing sources in conformity with the following conditions:

1) the 5 per cent limit specified in Section 56, Paragraph one, Clause 2 of this Law has been conformed with;

2) all unsecured, non-preferred liabilities and other than eligible deposits within the meaning of the Deposit Guarantee Law have been written down or converted in full.

(2) If the conditions provided for in Paragraph one of this Section have been complied with, the resolution fund may make a contribution from resources which have been raised through contributions made in the resolution fund and which have not yet been used.

(3) By way of derogation from the conditions of Section 56, Paragraph one, Clause 1 of this Law, the resolution fund may make the contribution referred to in Section 55, Paragraph two of this Law if the following conditions are complied with:

1) the contribution to loss absorption and recapitalisation referred to in Section 56, Paragraph one, Clause 1 of this Law is equal to an amount not less than 20 per cent of the risk weighted assets of the institution under resolution;

2) it has at its disposal the amount which consists of contributions made in the resolution fund and which is at least equal to 3 per cent of covered deposits of all the credit institutions registered in the Republic of Latvia;

3) the institution under resolution has assets below EUR 900 billion on a consolidated basis.

[16 February 2017]

Section 58. (1) Upon implementing the rights specified in Section 54, Paragraph four and Section 55, Paragraph one of this Law, the Financial and Capital Market Commission shall give due consideration to:

1) the principle that losses should be borne first by shareholders or persons who own other instruments of ownership and next by creditors of the institution under resolution in order of preference;

2) the level of loss absorbing capacity which would remain in the institution under resolution if the liability or class of liabilities were excluded;

3) the need to maintain adequate resources for resolution financing.

(2) Exclusions in accordance with the requirements of Section 54, Paragraph four and Section 55, Paragraph one of this Law may be applied either to completely exclude a liability from write-down or to limit the extent of the write-down applied to the abovementioned liability.

(3) After the decision to implement the rights specified in Section 54, Paragraph four and Section 55, Paragraph one of this Law is taken, the Financial and Capital Market Commission shall notify the European Commission thereof. If the implementation of the rights specified in Section 54, Paragraph four and Section 55, Paragraph one of this Law requires to use resources of the resolution fund or another alternative financing source, the Financial and Capital Market Commission needs to receive a coordination of the European Commission before taking of such decision.

Section 59. (1) The institution shall ensure, at all times, a minimum requirement for own funds and eligible liabilities. The minimum requirement for own funds and eligible liabilities shall be calculated as the total amount of own funds and eligible liabilities expressed as a percentage of the total liabilities, capital, and reserves of the institution, having regard that derivative liabilities shall be included in the total liabilities on the basis that full recognition is given to counterparty (transaction partner) netting rights provided for in the agreement in derivatives.

(2) Eligible liabilities shall be included in the total amount of own funds and eligible liabilities referred to in Paragraph one of this Section only if they satisfy all of the following conditions:

1) they are issued or attracted and fully paid;

2) they are not owed to, secured by, or guaranteed by the institution itself;

3) the purchase thereof was not funded by the institution;

4) they have a remaining maturity of at least one year. If a liability confers upon its owner a right to early reimbursement, the maturity of that liability shall be the first date where such a right arises;

5) they do not arise from a derivative;

6) they do not arise from a deposit for which the first or second round priority is intended in the procedure for satisfaction of creditor claims of insolvency proceedings.

(3) If a liability is governed by the law of a foreign country, the Financial and Capital Market Commission is entitled to request the institution to demonstrate that any decision of the Financial and Capital Market Commission to write down or convert the abovementioned liability is in conformity with equal actions provided for in legal acts of the foreign country in respect of write-down or conversion of liabilities, having regard to the terms of the contract governing the liability, the international agreements on the recognition of resolution proceedings, and the provisions of other binding laws and regulations. If the Financial and Capital Market Commission is not satisfied that any of its decisions would comply with equal actions provided for in legal acts of the foreign country in respect of write-down or conversion of liabilities, the liabilities shall not be counted towards the minimum requirement for own funds and eligible liabilities.

[16 February 2017]

Section 60. (1) The minimum requirement for own funds and eligible liabilities of each institution in accordance with Section 59, Paragraph one of this Law shall be determined by the Financial and Capital Market Commission, taking into account at least one of the following criteria:

1) the need to ensure that the institution can be resolved by the application of the resolution tools, including the bail-in tool, in a way that meets the resolution objectives;

2) the need to ensure that the institution has sufficient amount of eligible liabilities to ensure that, if the bail-in tool were to be applied, losses could be absorbed and the Common Equity Tier 1 ratio of the institution could be restored to a level necessary to enable the institution to continue the conformity with the conditions for receiving a licence (authorisation) in accordance with the requirements of the Credit Institution Law or the Financial Instrument Market Law;

3) the need to ensure that, if the resolution plan anticipates that certain classes of eligible liabilities might be excluded from bail-in in accordance with Section 54, Paragraph four of this Law or that certain classes of eligible liabilities might be transferred to a recipient in full under a partial transfer, that the institution has sufficient other eligible liabilities to ensure that losses could be absorbed and the Common Equity Tier 1 ratio of the institution could be restored to a level necessary to enable the institution to continue the conformity with the conditions for obtaining a licence (authorisation) in accordance with the requirements of the Credit Institution Law or the Financial Instrument Market Law;

4) the size, the business model, the funding model, and the risk profile of the institution;

5) the extent to which the Deposit Guarantee Scheme could contribute to the co-financing of resolution;

6) the extent to which the insolvency of the institution would have adverse effects on financial stability and financial system.

(2) The institution shall comply with the minimum requirement laid down in Section 59, Paragraph one of this Law for own funds and eligible liabilities on an individual basis. The Financial and Capital Market Commission is entitled to take the decision to apply the abovementioned minimum requirement also to the companies referred to in Section 2, Paragraph two, Clauses 2, 3, and 4 of this Law.

[16 February 2017]

Section 61. (1) In addition to the requirements of Section 60, Paragraph two of this Law, a European Union parent company registered in the Republic of Latvia shall comply with the requirement laid down in Section 59, Paragraph one of this Law on a consolidated basis. The minimum requirement for own funds and eligible liabilities on a consolidated basis of a European Union parent company registered in the Republic of Latvia shall be determined by the Financial and Capital Market Commission, in accordance with Paragraphs two, three, and four of this Section, at least on the basis of the criteria laid down in Section 60, Paragraph one of this Law and of whether the foreign subsidiaries of the group are to be resolved on an individual basis according to the resolution plan.

(2) The Financial and Capital Market Commission and the resolution authorities of the subsidiaries shall do everything within their competence to take the joint decision on the level of the minimum requirement for own funds and eligible liabilities applied on a consolidated basis. The joint decision shall be justified, and the Financial and Capital Market Commission shall submit the joint decision to the European Union parent company registered in the Republic of Latvia.

(3) If such joint decision is not taken within four months, the Financial and Capital Market Commission shall take the decision on the minimum requirement for own funds and eligible liabilities on a consolidated basis after duly taking into consideration the opinions, including objections, expressed by the resolution authorities of subsidiaries. If, at the end of the four-month period, any of the relevant resolution authorities has referred the matter for examination to the European Banking Authority in accordance with Article 19 of Regulation (EU) No 1093/2010, the Financial and Capital Market Commission shall defer the enforcement of its decision until a decision that the European Banking Authority is entitled to take in accordance with Article 19(3) of Regulation (EU) No 1093/2010, and shall implement measures according to the decision of the European Banking Authority.

(4) After the end of the four-month period or after taking of the joint decision, the Financial and Capital Market Commission may not refer the matter for examination to the European Banking Authority. If the European Banking Authority has not taken a decision within one month, the Financial and Capital Market Commission shall implement the enforcement of the decision taken thereby. The Financial and Capital Market Commission shall review the decision taken at least once a year and, where necessary, make amendments thereto.

Section 62. (1) The Financial and Capital Market Commission as the resolution authority of a subsidiary registered in the Republic of Latvia of a European Union parent company of another Member State shall take all the measures within its competence in order to take the joint decision together with a group-level resolution authority on the level of the minimum requirement for own funds and eligible liabilities applied on a consolidated basis.

(2) If such joint decision is not taken within four months and a group-level resolution authority has not taken into account the opinion, including objections, expressed by the Financial and Capital Market Commission the Financial and Capital Market Commission is entitled to refer the matter for examination to the European Banking Authority in accordance with Article 19 of Regulation (EU) No 1093/2010.

(3) After the end of the four-month period or after taking of the joint decision, the Financial and Capital Market Commission is not entitled to refer the matter for examination to the European Banking Authority. The decision taken by the group-level resolution authority shall be binding on the Financial and Capital Market Commission.

Section 63. (1) The Financial and Capital Market Commission as the resolution authority of a subsidiary registered in the Republic of Latvia shall determine the minimum requirement for own funds and eligible liabilities to be applied to the abovementioned subsidiary on an individual basis in accordance with the requirements of this Section. The abovementioned minimum requirement shall be determined at a level appropriate for the subsidiary having regard to:

1) the criteria listed in Section 60, Paragraph one of this Law, in particular the size, business model, and risk profile of the subsidiary, including the scope of its own funds;

2) the minimum requirement for own funds and eligible liabilities on a consolidated basis which has been set for the group.

(2) The Financial and Capital Market Commission as the resolution authority of a subsidiary registered in the Republic of Latvia and the group-level resolution authority shall take all measures within its competence in order to take the joint decision on the level of the minimum requirement for own funds and eligible liabilities applied to the subsidiary on an individual basis. The joint decision shall be justified, and the Financial and Capital Market Commission and the group-level resolution authority shall submit it to the subsidiary and to the European Union parent company respectively.

(3) If the resolution authorities do not take such joint decision within four months, the decision shall be taken by the Financial and Capital Market Commission, taking into account the opinion, including objections, expressed by the group-level resolution authority. If, at the end of the four-month period, the group-level resolution authority has referred the matter for examination to the European Banking Authority in accordance with Article 19 of Regulation (EU) No 1093/2010, the Financial and Capital Market Commissions shall defer the enforcement of its decision until a decision that European Banking Authority is entitled to take in accordance with Article 19(3) of Regulation (EU) No 1093/2010, and shall implement the measures according to the decision of the European Banking Authority.

(4) After the end of the four-month period or after taking of the joint decision, the Financial and Capital Market Commission may not refer the matter for examination to the European Banking Authority. If the European Banking Authority has not taken a decision within one month, the Financial and Capital Market Commission shall implement the enforcement of the decision taken thereby. The Financial and Capital Market Commission shall review the decision taken at least once a year and, where necessary, make amendments thereto.

[16 February 2017]

Section 64. (1) The Financial and Capital Market Commission as the group-level resolution authority shall take all measures within its competence in order together with the resolution authority of the subsidiary of the group to take the joint decision on the level of the minimum requirement for own funds and eligible liabilities applied to the subsidiary on an individual basis. The joint decision shall be justified, and the resolution authority of the subsidiary of the group and the Financial and Capital Market Commission shall submit the joint decision to the subsidiary and the European Union parent company registered in the Republic of Latvia accordingly.

(2) If the resolution authorities do not take such joint decision within four months and the resolution authority of the subsidiary of the group has not taken into account the opinion, including objections, expressed by the Financial and Capital Market Commission, the Financial and Capital Market Commission is entitled to refer the matter for examination to the European Banking Authority in accordance with Article 19 of Regulation (EU) No 1093/2010.

(3) After the end of the four-month period or after taking of the joint decision, and also where the level of the minimum requirement for own funds and eligible liabilities stipulated by the resolution authority of the subsidiary of the group is within one percentage point of the level of the laid down minimum requirements for own funds and eligible liabilities in respect of the subsidiary on a consolidated basis, the Financial and Capital Market Commission may not refer the matter for examination to the European Banking Authority. The decision taken by the resolution authority of the subsidiary of the group shall be binding on the Financial and Capital Market Commission.

[16 February 2017]

Section 65. (1) The Financial and Capital Market Commission is entitled to fully exempt a European Union parent institution registered in the Republic of Latvia from conformity with the minimum requirement for own funds and eligible liabilities on an individual basis if the following requirements are complied with concurrently:

1) the European Union parent institution registered in the Republic of Latvia complies with the minimum requirement laid down in accordance with Section 61, Paragraph one of this Law on a consolidated basis;

2) the Financial and Capital Market Commission has fully exempted the European Union parent institution registered in the Republic of Latvia from conformity with the capital requirements on an individual basis in accordance with Article 7(3) of Regulation (EU) No 575/2013.

(2) The Financial and Capital Market Commission as the resolution authority of a subsidiary registered in the Republic of Latvia is entitled to fully exempt the abovementioned subsidiary from conformity with the requirements laid down in Section 59, Paragraph one of this Law on an individual basis if the following conditions are complied with concurrently:

1) both the subsidiary and its parent company are licensed in the Republic of Latvia and the supervision thereof is carried out by the Financial and Capital Market Commission;

2) the subsidiary is included in the consolidation group of the parent company, in its turn the parent company is subject to the supervision on a consolidated basis;

3) the parent institution of the subsidiary registered in the Republic of Latvia which is registered in the Republic of Latvia and which is not a European Union parent institution, complies, on a sub-consolidated basis, with the minimum requirement for own funds and eligible liabilities laid down in Section 59, Paragraph one of this Law;

4) there is no current or foreseen material practical or legal impediments to the prompt transfer of own funds or repayment of liabilities to the subsidiary by its parent company;

5) either the parent company satisfies the requirements of the Financial and Capital Market Commission regarding the management of the subsidiary and has declared, with the consent of the Financial and Capital Market Commission, that it guarantees the commitments entered into by the subsidiary, or the risks in the subsidiary are of no significance;

6) the risk evaluation and control procedures of the subsidiary are the same as the risk evaluation and control procedures of the parent company;

7) the parent company holds more than 50 per cent of the voting rights in the subsidiary or the subsidiary has the right to appoint or remove the majority of the members of the council or board of the subsidiary;

8) the Financial and Capital Market Commission as the supervisory authority of the subsidiary registered in the Republic of Latvia has fully exempted it from conformity with the individual capital requirements in accordance with Article 7(1) of Regulation No 575/2013.

(3) The decisions taken in accordance with the requirements of this Law on determining the minimum requirements for own funds and eligible liabilities may provide for that the minimum requirement for own funds and eligible liabilities is partially met on a consolidated or individual basis through contractual bail-in instruments.

[16 February 2017]

Section 66. The Financial and Capital Market Commission shall inform the European Banking Authority of the minimum requirement for own funds and eligible liabilities laid down for the institution under the supervision thereof, and also of the decisions taken in accordance with Section 65, Paragraph three of this Law.

Section 67. (1) Upon applying the bail-in tool, the Financial and Capital Market Commission shall, on the basis of a valuation in accordance with Sections 45, 46, and 47 of this Law, assess the total amount consisting of:

1) the amount by which eligible liabilities must be written down in order to ensure that the net asset value of the institution under resolution is equal to zero;

2) the amount by which eligible liabilities must be converted into shares or other types of capital instruments in order to restore or ensure the Common Equity Tier 1 capital ratio of either the institution under resolution or the bridge institution.

(2) The assessment referred to in Paragraph one of this Section shall determine the total amount of eligible liabilities by which such liabilities need to be written down or converted in order to restore the Common Equity Tier 1 capital ratio of the institution under resolution or to ensure the Common Equity Tier 1 capital ratio of the bridge institution taking, into account any contribution of the capital by the resolution fund, and in order to sustain that market participants and public rely on the institution under resolution or the bridge institution, and also to ensure its conformity, for at least one year, with the conditions for the receipt of a licence (authorisation) in accordance with the Credit Institution Law or the Financial Instrument Market Law. If the Financial and Capital Market Commission intends to use the asset separation tool referred to in Section 52 of this Law, the amount by which eligible liabilities need to be reduced shall take into account accordingly the amount of the capital necessary to the asset management company which has been specified in the basis of prudent assumptions.

(3) A consideration may be disbursed to creditors and afterwards to shareholders or persons who own other instruments of ownership if the following conditions are complied with:

1) the capital is written down in accordance with Sections 77, 78, 79, and 80 of this Law;

2) the bail-in has been applied in accordance with Section 53, Paragraph one of this Law;

3) based on the preliminary valuation in accordance with Sections 45, 46, and 47 of this Law, it is detected that the scope of write-down is greater than it could be when assessed against the definitive valuation in accordance with Section 47, Paragraph two of this Law.

(4) The Financial and Capital Market Commission shall determine and maintain measures to ensure that the assessment referred to in this Section is based on information on the assets and liabilities of the institution under resolution which is as up to date and comprehensive as possible.

Section 68. (1) Upon applying the bail-in tool referred to in Section 53, Paragraph one of this Law or the write-down or conversion of capital instruments referred to in Section 77 of this Law, the Financial and Capital Market Commission shall take at least one of the following actions in respect of shareholders and such persons who own other instruments of ownership:

1) cancel shares or other instruments of ownership owned by such persons or transfer them to bailed-in creditors;

2) if, according to the valuation carried out in accordance with Sections 45, 46, and 47 of this Law, the institution under resolution has a positive net value of assets, the composition of existing shareholders and such persons who own other instruments of ownership is diluted as a result of the conversion into shares or other instruments of ownership:

a) of the relevant capital instruments issued or attracted by the institution in accordance with the rights referred to in Section 77, Paragraph two of this Law;

b) of the eligible liabilities issued or attracted by the institution under resolution in accordance with the rights referred to in Section 85, Paragraph one, Clause 6 of this Law.

(2) The conversion referred to in Paragraph one, Clause 2 of this Section shall be conducted at a rate of conversion by the application of which existing undivided share of the ownership of the shareholders and holders of other instruments of ownership is severely diluted.

(3) The actions referred to in Paragraphs one and two of this Section shall also be taken in respect of shareholders and such persons who own other instruments of ownership and whose shares or other instruments of ownership were issued or conferred in the following circumstances:

1) after conversion of debt instruments to shares or other instruments of ownership in accordance with the contractual terms of the original debt instruments upon occurrence of conversion concurrently with the assessment of the Financial and Capital Market Commission or prior to such assessment that the institution or financial company meets the conditions for resolution;

2) after conversion of the relevant capital instruments to Common Equity Tier 1 instruments in accordance with Section 78 of this Law.

(4) Upon considering which actions referred to in Paragraph one of this Section should be taken, the Financial and Capital Market Commission shall take into account:

1) the valuations carried out in accordance with Sections 45, 46, and 47 of this Law;

2) the amount by which the Common Equity Tier 1 items must be reduced in the valuation thereof and the relevant capital instruments must be written down or converted in accordance with Section 78, Paragraph one of this Law;

3) the total amount assessed by it in accordance with the requirements of Section 67 of this Law.

(5) The assessment of a person in respect of acquisition or increase of a qualifying holding is carried out in a reasonable time period in order not to delay the application of the bail-in tool or the conversion of capital instruments or not to cause obstacles for achieving the relevant objectives of the resolution action.

(6) If the valuation of a person in respect of acquisition or increase of a qualifying holding is not completed on the date of application of the bail-in tool or the conversion of capital instruments, the conditions referred to in Section 48, Paragraph five of this Law shall be applied to any acquisition of or increase in a qualifying holding by an acquirer resulting from the application of the bail-in tool or the conversion of capital instruments.

[16 February 2017]

Section 69. (1) When applying the bail-in tool, the Financial and Capital Market Commission shall implement the write-down and conversion powers, taking into account the exclusions referred to in Section 54 and Section 55, Paragraph one of this Law, and also all of the following requirements consecutively:

1) Common Equity Tier 1 items are written down in accordance with Section 78, Paragraph one, Clause 1 of this Law;

2) if the total reduction in accordance with Paragraph one, Clause 1 of this Section is less than the total amount referred to in Section 68, Paragraph four, Clauses 2 and 3 of this Law, the Financial and Capital Market Commission shall write down the principal amount of Additional Tier 1 instruments to the extent required and in conformity with the capacity for covering of losses from these instruments;

3) if the total reduction in accordance with Paragraph one, Clauses 1 and 2 of this Section is less than the total amount referred to in Section 68, Paragraph four, Clauses 2 and 3 of this Law, the Financial and Capital Market Commission shall write down the principal amount of Tier 2 instruments to the extent required and in conformity with the capacity for covering of losses from these instruments;

4) if the total reduction of shares or other instruments of ownership and relevant capital instruments in accordance with Paragraph one, Clauses 1, 2, and 3 of this Section is less than the total amount referred to in Section 68, Paragraph four, Clauses 2 and 3 of this Law, the Financial and Capital Market Commission shall write down to the extent required the principal amount of subordinated liability that is not Additional Tier 1 or Tier 2 capital according to the hierarchy of claims of creditors to be applied in the case of insolvency proceedings, having regard to Paragraph one, Clauses 1, 2, and 3 of this Section;

5) if the total reduction of shares or other instruments of ownership, relevant capital instruments and eligible liabilities in accordance with Paragraph one, Clauses 1, 2, 3, and 4 of this Section is less than the total amount referred to in Section 68, Paragraph four, Clauses 2 and 3 of this Law, the Financial and Capital Market Commission shall write down to the extent required the principal amount of, or outstanding amount payable in respect of, the rest of eligible liabilities in accordance with the procedures for the satisfaction of claims of creditors applicable in the case of insolvency proceedings, having regard to Sections 54, 55, 56, 57, and 58 of this Law and Paragraph one, Clauses 1, 2, 3, and 4 of this Section.

(2) Upon implementing the write-down or conversion powers, the Financial and Capital Market Commission shall allocate the losses represented by the total amount referred to in Section 68, Paragraph four, Clauses 2 and 3 of this Law proportionally between shares or other instruments of ownership and eligible liabilities of the same rank, reducing the principal amount of, or outstanding amount payable in respect of, those shares or other instruments of ownership and eligible liabilities accordingly pro rata to their value, except for the cases referred to in Section 54, Paragraph four and Section 55, Paragraph one of this Law when a different allocation of losses amongst liabilities of the same priority is allowed.

(3) By way of derogation from the requirements of Paragraph two of this Section, the liabilities excluded from bail-in in accordance with Section 54 and Section 55, Paragraph one of this Law, more favourable conditions may be applied than to the eligible liabilities which in the case of insolvency proceedings are of the same class.

(4) Before applying the write-down or conversion referred to in Paragraph one, Clause 5 of this Section, the Financial and Capital Market Commission shall write down or convert the principal amount on instruments referred to in Paragraph one, Clauses 2, 3, and 4 of this Section if those instruments have not been converted yet and the provisions that provide for the principal amount of the instrument to be written down or instruments to be converted into shares or other instruments of ownership on the occurrence of any event that refers to the financial situation, solvency, or levels of own funds of the financial company are binding thereon.

(5) If the principal amount of an instrument has been written down, but not to zero, in accordance with the provisions referred to in Paragraph four of this Sections on write-down of the principal amount of an instrument before the application of the bail-in tool, the Financial and Capital Market Commission shall implement the write-down and conversion powers to the residual amount of that principal amount.

(6) Upon deciding on whether liabilities are to be written down or converted into equity, the Financial and Capital Market Commission is not entitled to convert one class of liabilities, while a class of liabilities that is subordinated to that class remains substantially unconverted into equity or not written down, except for the case when it is permitted in accordance with Section 54 and Section 55, Paragraph one of this Law.

[16 February 2017]

Section 70. (1) The Financial and Capital Market Commission shall conform to the requirements of this Section, upon implementing the write-down or conversion powers in relation to liabilities arising from derivatives.

(2) The Financial and Capital Market Commission shall implement the write-down or conversion powers in relation to a liability arising from a derivative only upon or after closing-out the derivatives. The Financial and Capital Market Commission has the right to terminate and close out any derivative contract for the purpose of resolution action. If a liability arising from derivatives has been excluded from the application of the bail-in tool in accordance with Section 54, Paragraph four and Section 55, Paragraph one of this Law, the Financial and Capital Market Commission does not have an obligation to terminate or close out the derivative contract

(3) If derivative transactions are subject to a netting agreement, the Financial and Capital Market Commission or a valuer shall determine the liabilities arising from such transactions, taking into account the netting agreement which is part of the valuation provided for in Sections 45, 46, and 47 of this Law.

(4) The Financial and Capital Market Commission shall determine the value of liabilities arising from derivatives according to the following:

1) appropriate methods for determining the value of classes of derivatives, including transactions that are subject to netting agreements;

2) appropriate principles for detecting the relevant point in time at which the value of a derivative position should be established;

3) appropriate methods for comparing the destruction in value that would arise from the close-out and bail-in of derivatives with the amount of losses that would be borne by derivatives in a bail-in.

(5) The methods and principles referred to in Paragraph four of this Section for determining the value of liabilities which are arising from derivatives shall be determined in accordance with the directly applicable legal acts of the European Union.

[16 February 2017]

Section 71. (1) If the Financial and Capital Market Commission implements the rights referred to in Section 77, Paragraph three and Section 85, Paragraph one, Clause 6 of this Law, it may apply different conversion rates to different classes of capital instruments and liabilities in accordance with one or several of the principles referred to in Paragraph two or three of this Section.

(2) The conversion rate shall represent appropriate compensation to the creditor for any losses incurred by virtue of the implement of the write-down or conversion powers.

(3) If different conversion rates are applied in accordance with the requirements of Paragraph one of this Section, the conversion rate applicable to liabilities that are considered to be senior in accordance with the applicable laws and regulations governing insolvency shall be higher than the conversion rate applicable to subordinated liabilities.

Section 72. If the Financial and Capital Market Commission applies the bail-in tool, the relevant institution or the authorised representative appointed by the Financial and Capital Market Commission shall draw up and implement the reorganisation plan.

Section 73. (1) The institution or the authorised representative appointed by the Financial and Capital Market Commission shall, within one month after application of the bail-in tool, submit a reorganisation plan to the Financial and Capital Market Commission which conforms to the requirements of this Section and in the case of application of the State aid - to the legal framework of State aid.

(2) If the bail-in tool referred to in Section 53, Paragraph one, Clause 1 of this Law is applied to two or more group companies, the reorganisation plan shall be prepared by the European Union parent company. The abovementioned plan shall cover all of the institutions in the group in accordance with the procedures laid down in Sections 7 and 8 of this Law, and the European Union parent company shall submit it to the group-level resolution authority. If the Financial and Capital Market Commission is the group-level resolution authority, it shall send the received reorganisation plan to other resolution authorities concerned and to the European Banking Authority.

(3) In order to achieve the resolution objectives, the Financial and Capital Market Commission as the resolution authority of the institution under resolution or the group-level resolution authority, if the bail-in tool is applied to two or more group companies, may extend the time period for the submission of the reorganisation plan up to a maximum of two months since the application of the bail-in tool if the reorganisation plan does not include State aid.

(4) A reorganisation plan shall set out measures aiming to restore the long-term viability of the institution or financial company or parts of its commercial activity within a reasonable time period. Those measures shall be based on assumptions as to the economic and financial market situation under which the institution or financial company will operate.

(5) The reorganisation plan shall take account of the current state of the financial markets and future prospects, reflecting best-case and worst-case assumptions allowing the identification of the main vulnerabilities of the institution or financial company. Assumptions shall be compared with other sector-wide benchmarks.

(6) A reorganisation plan includes at least the following information:

1) a detailed analysis of the factors and problems that facilitated financial difficulties of the institution or financial company, and also analysis on the circumstances that led to the abovementioned difficulties;

2) a description of the measures aiming to restore the long-term viability of the institution or financial company which are intended to be implemented;

3) a timetable for the implementation of the abovementioned measures.

(7) The measures referred to in Paragraph six of this Section may include:

1) the reorganisation of the activities of the institution or financial company;

2) changes in the operational systems and infrastructure of the financial company;

3) the withdrawal from loss-making activities;

4) the restructuring of such existing activities which can be made competitive;

5) the sale of assets or of business lines.

(8) Within one month from the date of submitting the reorganisation plan to the Financial and Capital Market Commission, it shall assess the likelihood that the plan, if implemented, will restore the long-term viability of the institution or financial company. If the Financial and Capital Market Commission considers that the plan would achieve the relevant objective, it shall approve the plan.

(9) If the Financial and Capital Market Commission is not certain that it is possible to restore the long-term viability of the institution or financial company with the help of the reorganisation plan, it shall inform the person responsible for the submission of the plan and request to amend the plan within two weeks in a way that addresses the problematic issues and to submit it to the Financial and Capital Market Commission. The Financial and Capital Market Commission shall assess the amended plan and notify the institution within a week whether the problematic issues have been solved and whether additional amendments are required.

(10) The council, board, or senior management of the institution or the authorised representative appointed by the Financial and Capital Market Commission shall implement the reorganisation plan approved by the Financial and Capital Market Commission and shall submit a report to this Commission at least once every six months on progress in the implementation of the plan.

(11) The council, board, or senior management of the institution or the the authorised representative appointed by the Financial and Capital Market Commission shall revise the reorganisation plan if, in the opinion of the Financial and Capital Market Commission, it is necessary to restore the long-term viability of the institution under resolution, and shall submit all amendments to the Financial and Capital Market Commission for approval.

[16 February 2017]

Section 74. (1) If the Financial and Capital Market Commission implements the powers referred to in Section 77, Paragraph two and Section 85, Paragraph one, Clauses 5, 6, 7, 8, and 9 of this Law, the reduction or conversion of the principal or outstanding amount due shall enter into effect and shall be immediately binding on the institution under resolution, its creditors, shareholders and persons who own other instruments of ownership.

(2) The Financial and Capital Market Commission has the right to require the performance of all the tasks necessary to implement the powers referred to in Section 77, Paragraph two and Section 85, Paragraph one, Clauses 5, 6, 7, 8, and 9 of this Section, including to assign to make all the necessary changes in the relevant registers, to assign to remove shares, other instruments of ownership, or debt instruments from trading, to assign to admit new shares or other instruments of ownership to trading, and also to assign to relist any debt instruments which have been written down, without publishing of a prospectus in accordance with the Financial Instrument Market Law.

(3) If the Financial and Capital Market Commission reduces to zero the principal amount of, or outstanding amount payable in respect of, a liability by means of the power specified in Section 85, Paragraph one, Clause 5 of this Law, any obligations or claims arising from such liability which are not accrued at the time when the power is implemented shall be regarded as invalid.

(4) If the Financial and Capital Market Commission reduces in part, but not in full, the principal amount of, or outstanding amount payable in respect of, a liability by means of the power specified in Section 85, Paragraph one, Clause 5 of this Law, the liability shall be discharged to the extent of the amount reduced and the relevant instrument or agreement that created the original liability shall continue to apply in relation to the residual principal amount of, or outstanding amount payable in respect of the liability, and any changes in the amount of interest payable to reflect the reduction of the principal amount and any further amendments to the terms which the Financial and Capital Market Commission might make by means of the power specified in Section 85, Paragraph one, Clause 10 of this Law shall apply to it.

Section 75. (1) In addition to Section 85, Paragraph one, Clause 9 of this Law, the Financial and Capital Market Commission is entitled to determine the requirement for the institution or financial company to maintain a sufficient amount of the authorised share capital or of other Common Equity Tier 1 instruments, so that, if the Financial and Capital Market Commission implements the powers referred to in Section 85, Paragraph one, Clauses 5 and 6 of this Law in relation to the institution or financial company or any of its subsidiaries, the institution or financial company might issue sufficient number of new shares or other instruments of ownership, thus ensuring that the conversion of liabilities into shares or other instruments of ownership could be implemented effectively.

(2) The Financial and Capital Market Commission shall assess whether it is appropriate for the institution or financial company to impose the requirement of Paragraph one of this Section in relation to the drawing up and maintenance of the resolution plan for such institution or financial company or group, taking into account the resolution actions provided for in that plan. If the possibility to apply the bail-in tool is provided for in the resolution plan, the Financial and Capital Market Commission shall verify whether the authorised share capital or other Common Equity Tier 1 instruments are sufficient to cover the total amount referred to in Section 68, Paragraph four, Clauses 2 and 3 of this Law.

(3) The requirement laid down in the Commercial Law regarding the procedures for the increase in share capital and use of pre-emption rights by shareholders shall not be applicable to conversion of liabilities to shares or other instruments of ownership.

Section 76. (1) Institutions or financial companies, by undertaking liabilities, shall include in the concluded agreements the provision providing for that liabilities may be subject to the write-down and conversion powers, if such liabilities:

1) are not excluded from liabilities in accordance with Section 54, Paragraphs one, two, and three of this Law;

2) are not the claims of natural persons and micro, small and medium-sized enterprises above the amount to be disbursed in the guaranteed compensation;

3) are governed by the legal acts of a foreign country;

4) have arisen after coming into force of this Law.

(2) The institution or financial company has no obligation to ensure the fulfilment of the requirements of Paragraph one of this Section if the Republic of Latvia has entered into an agreement with the relevant foreign country on the write-down or conversion power of liabilities or such power is arising from the legal acts of the relevant foreign country.

(3) The Financial and Capital Market Commission is entitled to request that the institution or financial company provides substantiated assessment on the possibility of implementation of the agreements referred to in Paragraph two of this Section.

(4) If the institution or financial company had an obligation to ensure the performance of the requirements of Paragraph one of this Section, however, it has not been done, the Financial and Capital Market Commission is entitled to implement the write-down or conversion power in respect of these liabilities.

[16 February 2017]

Chapter XII
Write-down and Conversion of Capital Instruments

Section 77. (1) The power to write down or convert the relevant capital instruments may be used:

1) independently from performance of a resolution action;

2) in combination with a resolution action, if the conditions for resolution referred to in Sections 39 and 40 of this Law are met.

(2) The Financial and Capital Market Commission is entitled to write down or convert the relevant capital instruments into shares or other instruments of ownership of the institution or financial company.

(3) The Financial and Capital Market Commission shall immediately implement the write-down or conversion power in accordance with the requirements of Section 78 of this Law in relation to the relevant capital instruments issued or attracted by the institution or financial company if one of the following circumstances has set in:

1) it is detected before any resolution action is taken that it conforms to the conditions for resolution referred to in Sections 39 and 40 of this Law;

2) it is detected that, unless write-down or conversion power is implemented in relation to the relevant capital instruments, the institution or financial company will no longer be capable to continue its commercial activity;

3) in relation to the relevant capital instruments issued or attracted by the subsidiary if the abovementioned capital instruments conform for the purposes of meeting own funds requirements on an individual basis and on a consolidated basis, it is detected that, unless the write-down or conversion power is implemented in relation to those instruments, the group will no longer be capable to continue its commercial activity;

4) in relation to the relevant capital instruments issued or attracted at the level of the parent company if the abovementioned capital instruments are conform for the purposes of meeting own funds requirements on an individual basis in the parent company or on a consolidated basis, it is detected that, unless the write-down or conversion power is implemented in relation to those instruments, the group will no longer be capable to continue its commercial activity;

5) it is detected that the institution or financial company requests the State aid, however, has not received it yet, except for the case when the financial support is provided in accordance with the provisions of Section 39, Paragraph three, Clause 4, Sub-clause "c" of this Law.

(4) It is deemed that the institution or financial company or a group is no longer capable to continue its commercial activity if both of the following conditions are met:

1) the institution or financial company or the group is or is likely to be in financial difficulties;

2) taking into account the timing and other relevant circumstances, there is no prospect that any action, including alternative private sector measures or action by the Financial and Capital Market Commission, including early intervention measures, other than the write-down or conversion of capital instruments, independently or in combination with a resolution action, would prevent the insolvency of the institution or financial company or the group within a foreseeable time period.

(5) It is deemed that the group is in financial difficulties or is likely to be in financial difficulties if it violates or there are grounds to believe that in a foreseeable time period it will violate the prudential requirements laid down for it on a consolidated basis level (losses have arisen or are likely to arise for the group as a result of which all own funds or significant part of own funds will be utilised).

(6) The relevant capital instrument issued by a subsidiary shall not be written down to a greater extent or shall not be converted on worse terms in accordance with Paragraph three, Clause 3 of this Section than equally ranked capital instruments at the level of the parent company which have been written down or converted.

(7) If the Financial and Capital Market Commission makes the determination referred to in Paragraph three of this Section, it shall immediately notify thereof the resolution authority responsible for the particular institution or financial company.

(8) Before making the determination referred to Paragraph three, Clause 3 of this Section in relation to a subsidiary issuing the relevant capital instruments which conform for the purposes of meeting the own funds requirements on an individual basis and on a consolidated basis, the Financial and Capital Market Commission shall comply with the notification and consultation requirements laid down in Section 80 of this Law.

(9) Before implementing the power to write down or convert capital instruments, the Financial and Capital Market Commission shall ensure that a valuation of the assets and liabilities of the institution or financial company is carried out in accordance with Sections 45, 46, and 47 of this Section. The abovementioned valuation shall form the basis of the calculation of the write-down to be applied to the relevant capital instruments in order to absorb losses and the level of conversion to be applied to relevant capital instruments in order to recapitalise the institution or financial company.

(10) The Financial and Capital Market Commission shall be responsible for the determination referred to in Paragraph three of this Section in accordance with Section 79 of this Law.

[16 February 2017]

Section 78. (1) Upon complying with the requirements laid down in Section 77 of this Law, the Financial and Capital Market Commission shall implement the write-down or conversion power according to the procedures for the satisfaction of claims of creditors applicable in the case of insolvency proceedings, in a way that consecutively produces the following results:

1) Common Equity Tier 1 items are written down in proportion to the losses and to the extent of their capacity to cover such losses and the Financial and Capital Market Commission takes one or both of the actions referred to in Section 68, Paragraph one of this Law in respect of holders of Common Equity Tier 1 instruments;

2) the principal amount of Additional Tier 1 instruments is written down or converted into Common Equity Tier 1 instruments or both, to the extent required to achieve the resolution objectives referred to in Section 38 of this Law or to the extent of the capacity of the relevant capital instruments to cover the losses - whichever is lower;

3) the principal amount of Tier 2 instruments is written down or converted into Common Equity Tier 1 instruments or both, to the extent required to achieve the resolution objectives referred to in Section 38 of this Law or to the extent of the capacity of the relevant capital instruments to cover the losses - whichever is lower.

(2) When the principal amount of the relevant capital instrument is written down:

1) the reduction of the abovementioned principal amount shall be permanent, except for any write-up in accordance with the disbursement of the consideration provided for in Section 67, Paragraph three of this Law;

2) no liability to the holders of the relevant capital instruments shall remain under that amount of the instrument which has been written down, except for any liability already accrued (liabilities which may arise as a result of a partial write-down in respect of interest payments for debt instruments as of the reporting date on which the valuation for the period from the last day of interest payment has been prepared), and any liability for damages that may arise if illegal implementation of the write-down power would have been detected by a court judgment;

3) consideration may be disbursed to persons who own or owned the relevant capital instruments if Common Equity Tier 1 instruments are issued in accordance with Paragraph four of this Section.

(3) Paragraph two, Clause 2 of this Section shall not restrict the right to acquire Common Equity Tier 1 instruments issued in accordance with Paragraph four of this Section to a person who is or was a holder of the relevant capital instruments.

(4) In order to effect a conversion of the relevant capital instruments in accordance with Paragraph one, Clause 3 of this Section, the Financial and Capital Market Commission is entitled to request that the institution or financial company issues Common Equity Tier 1 instruments to the person who is or was a holder of the relevant capital instruments. These capital instruments may only be converted if the following conditions are met:

1) the abovementioned Common Equity Tier 1 instruments are issued by the institution or the institution or financial company, or by a parent company of the institution or financial company with the consent of the resolution authority of the institution or financial company or of the resolution authority of the parent company;

2) the abovementioned Common Equity Tier 1 instruments are issued prior to any issuance of shares or other instruments of ownership by that institution or financial company in which investment in own funds is performed in accordance with the legal framework of State aid;

3) the abovementioned Common Equity Tier 1 instruments are transferred without delay following the implementation of the conversion power;

4) the conversion rate that determines the number of Common Equity Tier 1 instruments which are provided in respect of each relevant capital instrument complies with the principles set out in Section 71 of this Law and the guidelines developed by the European Banking Authority.

(5) If the institution meets the conditions for resolution and the Financial and Capital Market Commission decides to apply a resolution tool to that institution, the Financial and Capital Market Commission shall ascertain before application of the resolution tool whether the case referred to in Section 77, Paragraph three of this Law has set in.

[16 February 2017]

Section 79. (1) The Financial and Capital Market Commission shall be responsible for making the determination referred to in Section 77, Paragraph three of this Law in respect of the institution or financial company if the relevant capital instruments issued or attracted thereby are recognised for the purposes of meeting own funds requirements on an individual basis in accordance with the requirements of Article 92 of Regulation No 575/2013 and if the authorisation (licence) has been issued to such institution or financial company in accordance with the Credit Institution Law or the Financial Instrument Market Law.

(2) The Financial and Capital Market Commission shall be responsible for making the determination referred to in Section 77, Paragraph three, Clause 2 of this Law in respect of the institution or financial company which is a subsidiary if the relevant capital instruments issued or attracted thereby are recognised for the purposes of meeting own funds requirements on an individual and consolidated basis and if the authorisation (licence) has been issued to such institution or financial company in accordance with the Credit Institution Law or the Financial Instrument Market Law.

(3) The Financial and Capital Market Commission if it is a consolidating supervisor shall take all the measures within its competence in order to make the determination referred to in Section 77, Paragraph three, Clause 3 of this Law together with the institution of the Member State which is responsible for the determination referred to in Section 77, Paragraph three of this Law in the form of the joint decision in conformity with Section 112, Paragraph four of this Law in respect of the institution or financial company which is a subsidiary of the abovementioned Member State if the relevant capital instruments issued or attracted by such institution or financial company conform for the purposes of meeting own funds requirements on an individual and consolidated basis and if the authorisation (licence) has been issued to such institution or financial company in accordance with the legal acts of the relevant Member State.

(4) The Financial and Capital Market Commission shall implement all the measures within its competence in order to make the determination referred to in Section 77, Paragraph three, Clause 3 of this Law together with the institution of the Member State which in accordance with its legal acts is responsible for making the determination equivalent to the determination referred to in Section 77, Paragraph three of this Law in the Member State in which the consolidating supervisor is located, in the form of the joint decision in conformity with Section 113 of this Law in respect of the institution or financial company which is a subsidiary of the abovementioned Member State if the relevant capital instruments issued or attracted by such institution or financial company conform for the purposes of meeting own funds requirements on an individual and consolidated basis and if the authorisation (licence) has been issued to such institution or financial company in accordance with the Credit Institution Law or the Financial Instrument Market Law.

(5) The Financial and Capital Market Commission if it is the consolidating supervisor shall be responsible for making the determination referred to in Section 77, Paragraph three, Clause 4 of this Law.

Section 80. (1) Before making the determination referred to in Section 77, Paragraph three, Clause 2, 3, 4, or 5 of this Law in relation to a subsidiary that issues or attracts the relevant capital instruments which conform for the purposes of meeting the own funds requirements on an individual and consolidated basis, the Financial and Capital Market Commission shall comply with the following requirements:

1) if the Commission considers whether to make the determination referred to in Section 77, Paragraph three, Clause 2, 3, 4, or 5 of this Law, it shall immediately notify the consolidating supervisor of the Member State thereof and - if it is not the same - the institution of the abovementioned Member State which is responsible for making the determination specified in Section 77, Paragraph three of this Law;

2) if the Commission considers whether to make the determination referred to in Section 77, Paragraph three, Clause 3 of this Law, it shall immediately notify the supervisory authority of the Member State thereof which performs supervision of each such institution or financial company which has issued or attracted the relevant capital instruments to which the write-down or conversion powers could have been referred to, and - if it is not the same - the institution of the abovementioned Member State which is responsible for making the determination specified in Section 77, Paragraph three of this Law.

(2) If the determination referred to in Section 77, Paragraph three, Clause 3, 4, or 5 of this Law is made in respect of the institution or group which implements cross-border activity, the Financial and Capital Market Commission shall take into account the possible impact of the resolution activity on all Member States in which the institution or group operates.

(3) The Financial and Capital Market Commission shall, in accordance with Paragraph one of this Section, append to a notification an explanation of the reasons why it is considering making of the relevant determination.

(4) If a notification has been made in accordance with Paragraph one of this Section, the Financial and Capital Market Commission shall, after consulting the institutions or authorities which it has notified accordingly, assess the following matters:

1) whether an alternative measure to the implementation of the write-down or conversion power in accordance with the requirements of Section 77, Paragraph three of this Law is available;

2) if such an alternative measure is available - whether it can feasibly be applied;

3) if such an alternative measure could feasibly be applied - whether there is a realistic prospect that it would address, in an adequate time period, the circumstances that would otherwise require the determination referred to in Section 77, Paragraph three of this Law to be made.

(5) Within the meaning of Paragraph four of this Section, alternative measures are the early intervention measures referred to in Section 33 of this Law, and also the measures referred to in Section 101.3, Paragraphs 4.4 and 4.7 of the Credit Institution Law and Section 139, Paragraph 11.7 of the Financial Instrument Market Law or the transfer of funds or capital to the institution or financial company from the parent company.

(6) If, in accordance with Paragraph four of this Section, the Financial and Capital Market Commission, after consulting the institutions or authorities which it has notified accordingly, evaluates that one or more alternative measures are available, that they can feasibly be applied, and they would deliver the outcome referred to Paragraph four, Clause 3 of this Section, it shall ensure that those measures are applied.

(7) If, in the case referred to in Paragraph one, Clause 1 of this Section and in accordance with Paragraph four of this Section, the Financial and Capital Market Commission, after consulting the institutions or authorities, concludes that no alternative measures are available which would deliver the outcome referred to in Paragraph four, Clause 3 of this Section, the Financial and Capital Market Commission shall assess whether it is necessary to make the determination referred to in Section 77, Paragraph three of this Law.

(8) If the Financial and Capital Market Commission decides to make the determination referred to in Section 77, Paragraph three, Clause 3 of this Law, it shall immediately notify thereof the authorities of the Member States responsible for making the determination referred to in Section 77, Paragraph three of this Law in which the relevant subsidiaries are located, and the determination shall be made in the form of the joint decision in conformity with Section 112, Paragraph four of this Law.

(9) If the institution of another Member State which is responsible for the determination indicated in Section 77, Paragraph three of this Law decides to make the determination referred to in Section 77, Paragraph three, Clause 3 of this Law and notifies the Financial and Capital Market Commission thereof because the relevant subsidiary is located in the Republic of Latvia, the Financial and Capital Market Commission shall implement all the measures within its competence in order to make the determination in the form of the joint decision in conformity with Section 113 of this Law.

(10) The determination in accordance with Section 77, Paragraph three, Clause 3 of this Law is not made if the joint decision referred to in this Section is not taken.

(11) If the subsidiary referred to in Paragraph nine of this Section is located in the Republic of Latvia, the Financial and Capital Market Commission shall immediately execute the decision taken to write down or convert the relevant capital instruments.

[16 February 2017]

Chapter XIII
Additional Financial Stabilisation Tools

Section 81. (1) In order to achieve the resolution objectives and to prevent insolvency of the institution or financial company, the Cabinet is entitled, upon previous consultation with the Financial and Capital Market Commission, to decide on the application of additional financial stabilisation tools, if the following conditions are complied with:

1) shareholders or those persons who own other instruments of ownership have covered losses and, as a result of application bail-in tool, have covered not less than 8 per cent of the total liabilities and own capital of the institution under resolution the amount of which is determined during the resolution action in accordance with the valuation provided for in Chapter VIII of this Law by using the write-down or conversion power or other resolution action by the Financial and Capital Market Commission;

2) all the conditions necessary for the performance of the resolution action laid down in Section 39, Paragraph one of this Law have been fulfilled, however, application of resolution tools would not be sufficient in order to prevent significant negative impact on the financial stability and activity of the institution or financial company.

(2) Upon applying additional financial stabilisation tools, the State aid is provided. Before provision of the State aid, it is necessary to receive the decision of the European Commission on compatibility of the State aid with the internal market of the European Union.

Section 82. Additional financial stabilisation tools are as follows:

1) public capital aid tool;

2) temporary public property tool.

Section 83. (1) Upon applying the public capital aid tool, the Financial and Capital Market Commission is entitled to implement recapitalisation of the institution or financial company, ensuring capital for it in exchange for the following tools:

1) Common Equity Tier 1 instruments;

2) Additional Tier 1 instruments or Tier 2 instruments.

(2) Upon applying the public capital aid tool, the shares owned by the State in the institution or financial company are alienated, without exceeding the time period which is specified in the decision of the European Commission on compatibility of the State aid with the internal market of the European Union.

Section 84. (1) Upon applying the temporary public property tool, the institution or financial company may be temporarily taken over into ownership by the State by transferring it under management of the capital company selected by the Cabinet in which the State has a decisive influence.

(2) The institution or financial company to which the temporary public property tool has been applied is alienated, without exceeding the time period specified in the decision of the European Commission on compatibility of the State aid with the internal market of the European Union.

Chapter XIV
Resolution Powers

Section 85. (1) The Financial and Capital Market Commission as the resolution authority has the following resolution powers, upon applying resolution tools:

1) to request any person related to a resolution action to provide any information necessary for the Financial and Capital Market Commission to decide upon and prepare a resolution action, including updates and supplements of the information provided in the resolution plans;

2) to take control of an institution under resolution and to implement all the rights and powers conferred upon the shareholders or those person who own other instruments of ownership, the council, board, or senior management of the institution under resolution;

3) to transfer shares or other instruments of ownership of the institution under resolution to a purchaser or bridge institution;

4) to transfer to another commercial company, with the consent thereof, financial instruments, rights, assets, or liabilities of the institution under resolution;

5) to reduce or cancel the principal amount of or outstanding amount due in respect of eligible liabilities of the institution under resolution;

6) to convert liabilities of the institution under resolution into shares or other instruments of ownership in that institution or financial company, the relevant parent institution or bridge institution to which the assets, rights, or liabilities of the institution or financial company are transferred;

7) to cancel debt instruments issued by the institution under resolution, except for secured liabilities in the cases specified in this Law;

8) to reduce, including to reduce to zero, the nominal amount of shares or other instruments of ownership of the institution under resolution and to cancel such shares or other instruments of ownership;

9) to request the institution under resolution or the relevant parent institution to increase equity capital, including to issue new shares or other capital instruments, including preference shares and contingent convertible instruments;

10) to amend the maturity of liabilities of the institution under resolution, to amend the interest rate, amount payable for such liabilities and the payment procedures. It shall not apply to secured liabilities;

11) to close out and terminate financial contracts or derivative contracts;

12) to remove the members of the council or board of the institution under resolution and to appoint new members.

(2) Upon applying the resolution tools and implementing the resolution powers, the Financial and Capital Market Commission need not comply with the requirements laid down in other laws and regulations and they are not binding on it in respect of the procedures for the transfer of financial instruments, rights, assets, or liabilities, including the necessity to receive approval of the shareholders or those persons who own other instruments of ownership, and also that of the creditors or third parties, and the requirement regarding prior informing of the third party. The abovementioned exemption shall not apply to the requirements which are determined by the legal framework of State aid.

(3) If the powers referred to in Paragraph one of this Section are not applicable to the institution or financial company due to its legal form, the Financial and Capital Market Commission shall apply equal powers to such institutions or companies and the safeguards provided for in this Law - to the shareholders or those persons who own other instruments of ownership, and also to creditors and counterparties (transaction partners).

Section 86. (1) In addition to the powers specified in Section 85 of this Law, the Financial and Capital Market Commission has the following powers:

1) to determine that the transfer is applicable free from any liability or encumbrance affecting the financial instruments, rights, assets, or liabilities transferred;

2) to remove rights to acquire further shares or other instruments of ownership;

3) to request the relevant authority under resolution to discontinue or suspend the admission of securities to trading on a regulated market in accordance with that specified in the Financial Instrument Market Law;

4) to ensure that the recipient of the transferred financial instruments, rights, assets, or liabilities has the rights and obligations of the institution under resolution;

5) to request that the institution under resolution and the recipient of shares or other instruments of ownership, financial instruments, rights, assets, or liabilities mutually exchange with information and provide assistance;

6) to cancel or modify the terms of such contract to which the institution under resolution is a party or to substitute the recipient of financial instruments, rights, assets, or liabilities as a party.

(2) Resolution powers shall be implemented by ensuring continuity of the contracts entered into by the institution under resolution and the liabilities thereof which are transferred to the recipient. The abovementioned shall not affect the right of employees of the institution under resolution to terminate an employment contract and other rights of the parties arising from the contracts entered into by the institution under resolution.

Section 87. (1) The Financial and Capital Market Commission has the right to assign the institution under resolution or any group company of the institution under resolution to provide or ensure services that are necessary to enable the recipient of rights, assets, or liabilities to use effectively the rights transferred to it and to manage the financial instruments, assets, or liabilities. The institution under resolution shall provide or ensure services in conformity with contracts which it has entered into before performance of resolution, or, if there are no contracts or they are not valid anymore, in conformity with fair transaction practice.

(2) If the resolution institution of another Member State has used the powers specified in Paragraph one of this Section in respect of an institution under resolution registered in another Member State or the relevant company of the group thereof which is located in the Republic of Latvia, the Financial and Capital Market Commission has the right to ensure the enforcement of the decision taken by the resolution institution of another Member State.

(3) Paragraph one of this Section shall also be applied in the insolvency proceedings of the institution under resolution or a company of the group thereof.

Section 88. (1) If, upon transfer of shares, other instruments of ownership, assets, rights, or liabilities, also assets that are located in another Member State or rights or liabilities to which the legal acts of another Member State are applicable are transferred, the relevant other Member State shall be regarded as the country of transfer and the legal acts of that Member State shall be applied to the transfer.

(2) The Financial and Capital Market Commission shall provide assistance to the resolution authority of another Member State in respect of the transfer of those shares or other instruments of ownership, assets, rights, or liabilities to which the laws and regulations of the Republic of Latvia are applicable.

(3) Shareholders or the persons who own other instruments of ownership, creditors and third parties which are affected by the transfer of shares or other instruments of ownership, assets, rights, or liabilities have not right to set aside the transfer.

(4) If the resolution authority of another Member State implements the write-down or conversion powers to instruments or liabilities, including liabilities before creditors which are governed by the laws and regulations of the Republic of Latvia, the Financial and Capital Market Commission shall ensure that the principal amount of such liabilities or instruments is reduced or liabilities or instruments are converted in conformity with the write-down or conversion powers implemented by the resolution authority of another Member State.

Section 89. (1) If the resolution action applied by the Financial and Capital Market Commission is directed towards assets or shares, or other instruments of ownership of the institution under resolution located in a foreign country, rights or liabilities to which the legal acts of a foreign country are applicable, the Financial and Capital Market Commission may request that:

1) the person governing assets, shares, other instruments of ownership, liabilities of the institution under resolution and using the rights takes all the necessary measures to ensure that the transfer, write-down, conversion, and other resolution actions are being implemented;

2) the person governing assets, shares, other instruments of ownership, liabilities of the institution under resolution and implementing the rights has an obligation to hold the shares, other instruments of ownership, assets, or liabilities and to implement the rights or to undertake responsibility for the liabilities until transfer, write-down, conversion, or other resolution action is implemented;

3) for the person governing assets, shares, other instruments of ownership, liabilities of the institution under resolution and implementing the rights, the justified expenditures thereof for carrying out the actions specified in Clauses 1 and 2 of this Paragraph are covered in conformity with Section 43, Paragraph five of this Section.

(2) If the Financial and Capital Market Commission evaluates that, regardless of all the necessary measures taken by the person, it is not foreseeable that it will be possible to apply the transfer or conversion in relation to property located in a foreign country or to certain shares, other instruments of ownership, rights or liabilities in accordance with the legal acts of the foreign country, the Financial and Capital Market Commission shall not proceed with the transfer, write-down, conversion, or other resolution actions, including the cases when the Financial and Capital Market Commission has already taken the decision on transfer, write-down, conversion, or action of the relevant shares, other instruments of ownership, rights or liabilities concerned.

Section 90. (1) A crisis prevention measure and a crisis management measure taken in relation to the institution or financial company in accordance with this Law, and any event directly linked to the application of such a measure shall not, according to a contract entered into by the institution or financial company, be deemed to be an enforcement event within the meaning of the laws and regulations governing financial security or as insolvency proceedings within the meaning of the laws and regulations governing settlement finality in payment and securities settlement systems provided that the substantive obligations according to the contract, including payment and delivery obligations, are still being performed, and also collateral is provided. The abovementioned shall also refer to the contracts entered into by the subsidiary institution of the institution or financial company or by the financial company if it is provided for therein that the liabilities are guaranteed by the parent company or financial company, or any group institution or financial company, or to the contracts entered into by other group institutions or financial companies if provisions regarding the liability of other group companies are included therein.

(2) If the Financial and Capital Market Commission has recognised foreign resolution procedures, for the purpose of application of this Section such proceedings shall be considered a crisis management measure.

(3) A crisis prevention measure or a crisis management measure, and also any event directly linked to the application of such measure shall not constitute grounds:

1) to implement any contractual termination, suspension, amendment, netting, or set-off rights, including in relation to contracts entered into by a subsidiary institution or financial company and the performance of which is guaranteed or in the performance which a group company participates financially;

2) to obtain in possession, to take over control of the property of the institution or financial company involved or its group company, or to request security for it;

3) to affect the rights arising from the contracts entered into by the institution or financial company if significant liabilities arising from the contracts are still being performed, including payment and payment performance obligations, and also security is also provided.

(4) The actions referred to in Paragraph three of this Section may be taken if the justification for their taking arises by virtue of an event other than the crisis prevention measure, the crisis management measure, or any event directly linked to the application of such measures.

(5) Suspension or restriction of the performance of liabilities shall not be considered non-performance of contractual obligations for the purposes of application of this Section.

[16 February 2017]

Section 91. (1) The Financial and Capital Market Commission has the right to suspend enforcement of any payment obligations according to any contract to which an institution under resolution is a party from the day when a notice of the suspension has been published until midnight of the next working day. If a payment or delivery obligation would have been due during the suspension period, the payment or delivery obligation shall be enforced immediately upon expiry of the suspension period.

(2) If payment obligations of an institution under resolution under a contract are suspended, the payment or delivery obligations of the counterparties of the institution under resolution under the abovementioned contract shall be suspended for the same period of time.

(3) The rights specified in this Section shall not apply to:

1) eligible deposits;

2) payment performance obligations against payment systems or operators of systems, central counterparties, and central banks of the Member States;

3) eligible claims of an investor compensation scheme.

(4) The Financial and Capital Market Commission shall take into consideration the potential impact the implementation of that right might have on the stable functioning of financial markets.

[16 February 2017; 28 February 2019]

Section 92. (1) The Financial and Capital Market Commission has the right to restrict enforcement of the right to use security of secured creditors of an institution under resolution in relation to any assets of the institution under resolution from the day of publishing a notice of the suspension until midnight of the next working day.

(2) The Financial and Capital Market Commission is not entitled to implement the right referred to in Paragraph one of this Section in relation to claims of operators of payment systems, central counterparties, and central bank of the Member State over assets pledged or provided by way of financial collateral by the institution under resolution.

(3) The Financial and Capital Market Commission shall take into consideration the potential impact the implementation of that right might have on the stable functioning of financial markets.

[16 February 2017]

Section 93. (1) The Financial and Capital Market Commission has the right to temporarily suspend the termination rights of a counterparty (transaction partner) which has entered into a contract of any type with an institution under resolution from the day of publishing a notice of the suspension until midnight of the next working day.

(2) The Financial and Capital Market Commission has the right to temporarily suspend the termination rights of such counterparty (transaction partner) which has entered into a contract of any type with a subsidiary of an institution under resolution if:

1) the institution under resolution has issued a guarantee for the performance of the liabilities of the subsidiary specified in the contract;

2) the grounds for termination of the contract are solely the initiation of a case of insolvency proceedings or the financial condition of the institution under resolution;

3) the Financial and Capital Market Commission has taken a decision or may take a decision in respect of the institution under resolution to transfer its assets and liabilities to an acquirer, it shall either provide for in the contract the transfer of all the assets and liabilities of the subsidiary and the acquirer has accepted them, or ensure adequate protection for such assets and liabilities in any other way.

(3) The rights specified in Paragraph two of this Section may be implemented from the day of publishing the notice until midnight of the next working day.

(4) Temporary suspension in accordance with Paragraphs one and two of this Section shall not be applied to systems for payments and securities or operators of systems, central counterparties, and central banks of the Member States.

(5) If the Financial and Capital Market Commission notifies that the rights and liabilities arising from the contract have not been transferred to an acquirer or they are subject to write-down or conversion upon the application of the bail-in tool, the person has the right to implement the termination rights specified in the contract before the end of the time period of suspension referred to in this Section.

(6) If the Financial and Capital Market Commission has suspended the termination rights and has not given the notice specified in Paragraph five of this Section upon setting in of the period when suspension expires, the termination rights may be implemented as follows:

1) if the rights and liabilities arising from the contract have been transferred to an acquirer, a counterparty (transaction partner) may use the termination rights according to the provisions of the relevant contract if the grounds for the termination of the contract arise from the action of the acquirer;

2) if the rights and liabilities arising from the contract remain with the institution under resolution and the Financial and Capital Market Commission has not applied the bail-in tool to them, a counterparty (transaction partner) may implement the termination rights according to the terms of the relevant contract.

(7) The Financial and Capital Market Commission shall take into consideration the potential impact the implementation of that right might have on the stable functioning of financial markets.

(8) The Financial and Capital Market Commission is entitled to request the institution or financial company to maintain detailed records of financial contracts. The Financial and Capital Market Commission is entitled to request that the Latvian Central Depository provides the information necessary for the purpose of application the rights referred to in this Section to the Financial and Capital Market Commission in accordance with Article 81 of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories.

[16 February 2017]

Section 94. In order to carry out a resolution action, the Financial and Capital Market Commission is entitled, by appointing an authorised person, to take over the institution under resolution in its control so as to manage the institution under resolution by all powers of the meeting of shareholders, council, and board of the institution under resolution, to perform its activity and provide its services, and also to manage and act with assets and property of the institution under resolution. While the authorised person is appointed, shareholders of the institution under resolution or those persons who own other instruments of ownership have no voting rights arising from the shares or other instruments of ownership of the institution under resolution.

Chapter XV
Safeguards

Section 95. (1) Upon applying one or more resolution actions, except for the instrument referred to in Paragraph two of this Section, shareholders, those persons who own other instruments of ownership, and those creditors whose claims have not been transferred, receive in satisfaction of their claims at least as much as what they would have received if insolvency would have been applied to the institution under resolution immediately before transfer.

(2) If the Financial and Capital Market Commission applies the bail-in tool, the application of the bail-in tool shall not incur greater losses to shareholders, the persons who own other instruments of ownership, and those creditors whose claims have been written down or converted into equity than they would have incurred if insolvency procedure would have been applied to the institution under resolution immediately before write-down or conversion.

[16 February 2017]

Section 96. (1) In order to evaluate whether more favourable conditions would have been applied to shareholders, the persons who own other instruments of ownership, and creditors if insolvency was commenced instead of performance of the resolution action, a valuation shall be carried out by a valuer immediately after the resolution action in which the following shall be determined:

1) the conditions that would be appropriate for shareholders, those persons who own other instruments of ownership, and creditors if the institution under resolution with respect to which the resolution action has been performed had commenced insolvency proceedings at the time when, in accordance with this Law, the decision to apply the resolution action was taken;

2) the conditions that actually are implemented in respect of shareholders, those persons who own other instruments of ownership, and creditors in the resolution of the institution under resolution;

3) whether there is any difference between the consequences of application of the conditions referred to in Clauses 1 and 2 of this Section.

(2) During valuation a valuer shall take into account the assumption that the institution under resolution would have commenced insolvency proceedings at the time when, in accordance with this Law, the decision to apply the resolution action was taken and that the resolution action had not been performed.

Section 97. If in the evaluation on whether more favourable conditions would be applied to shareholders, persons who own other instruments of ownership, and creditors if insolvency procedure would have been commenced, it is detected that any shareholder, the person who owns other instruments or ownership, creditor, or deposit guarantee scheme has incurred greater losses than it would have incurred in the case of commencement of insolvency, they have the right to the disbursement of the consideration from the resolution fund.

Section 98. (1) If the Financial and Capital Market Commission, using a resolution tool, transfers a part but not all of the assets, rights, or liabilities of an institution under resolution to another company or bridge institution or if the Financial and Capital Market Commission revokes or amends the provisions of such contract to which the institution under resolution is a party, or acts on behalf of it, the Financial and Capital Market Commission shall ensure the protection measures specified in this Law and apply the restrictions of Sections 90, 91, 92, and 93 of this Law to the following types of arrangements:

1) security under which a counterparty (transaction parter) has an actual or contingent interest in the assets or rights that are subject to transfer, irrespective of whether that interest is secured by specific assets or rights or by way of interest payments or similar condition;

2) title transfer financial collateral arrangements according to which collateral to secure or cover the performance of specified obligations is provided by a transfer of full ownership of assets from the collateral provider to the collateral taker, moreover,the collateral taker has an obligation to transfer assets if the obligations referred to in the arrangement are performed;

3) netting arrangements according to which two or more claims or liabilities between the institution under resolution and a counterparty (transaction parter) can be set off against each other;

4) netting arrangements according to which several claims may be modified as one net claim if, upon setting in of the event of contract performance, immediate performance of liabilities is requested and in each of cases the claims are converted into one net claim or replaced by it;

5) covered bonds;

6) structured finance arrangements which are used for hedging purposes which form an integral part of the cover pool and which, in accordance with the laws and regulations on respect of financial instruments, are secured in a way similar to the covered bonds. These arrangements shall include that the security is granted and maintained by a counterparty (transaction party) or an authorised person.

(2) The protection specified in Paragraph one of this Section shall be applied irrespective of the number of parties involved in the arrangements and of whether:

1) agreement is concluded in the form of a contract, trust, or other legal form, if laws and regulations provide for the possibility of such agreement;

2) agreement is governed in whole or in part by the legal acts of other Member States and the legal acts of other Member States allow to conclude such agreement.

[16 February 2017]

Section 99. (1) Upon transferring title transfer financial collateral arrangements and set-off and netting arrangements, the Financial and Capital Market Commission shall ensure that all of the rights and obligations that are protected under the abovementioned arrangements entered into between the institution under resolution and other persons are transferred, and also the modification or termination of rights and liabilities that are protected under the abovementioned arrangements is not performed, using the resolution powers specified in this Law for the Financial and Capital Market Commission.

(2) The rights and liabilities shall be considered as protected if the counterparties are entitled to set off or net those rights and liabilities.

(3) In addition to that specified in Paragraph one of this Section, where necessary in order to ensure availability of the covered deposits the Financial and Capital Market Commission may:

1) transfer the covered deposits which are part of the subject-matter of the arrangements referred to in Paragraph one of this Section, without transferring other assets, rights, or liabilities that are the subject-matter of the same arrangement;

2) transfer, modify, or sell those assets, rights, or liabilities, without transferring the covered deposits.

Section 100. (1) Upon performing the activities referred to in Section 98 of this Law, the Financial and Capital Market Commission shall not:

1) transfer such assets against which the liability is secured unless the abovementioned liability and benefit of the security are also transferred;

2) transfer a secured liability unless the benefit of the security is also transferred;

3) transfer the benefit of the security unless the secured liability is also transferred;

4) modify or terminate security arrangements, if the effect of that modification or termination is that the liability ceases to be secured.

(2) In addition to that specified in Paragraph one of this Section, where necessary in order to ensure availability of the covered deposits the Financial and Capital Market Commission may:

1) transfer the covered deposits which are part of the subject-matter of the arrangements referred to in Paragraph one of this Section, without transferring other assets, rights, or liabilities that are the subject-matter of the same arrangement;

2) transfer or otherwise alienate those assets, rights, or liabilities, and also modify rights or liabilities, without transferring the covered deposits.

Section 101. (1) Upon transferring structured finance arrangements, the Financial and Capital Market Commission shall not:

1) transfer all of the assets, rights, and liabilities which are part of the subject-matter of the structured finance arrangement, including the arrangements referred to in Section 98, Paragraph one, Clauses 5 and 6 of this Law, to which the institution under resolution is a party;

2) terminate or modify the arrangements to which the institution under resolution is a party.

(2) In exceptional cases, where necessary in order to ensure availability of the covered deposits the Financial and Capital Market Commission may:

1) transfer the covered deposits which are part of the subject-matter of the arrangements referred to in Paragraph one of this Section, without transferring other assets, rights, or liabilities that are the subject-matter of the same arrangement;

2) transfer or otherwise alienate those assets, rights, or liabilities, and also modify rights or liabilities, without transferring the covered deposits.

[16 February 2017]

Section 102. (1) The application of a resolution tool shall not affect the operation of payment and securities settlement systems if the Financial and Capital Market Commission:

1) transfers some but not all of the assets, rights, or liabilities of the institution under resolution to another commercial company;

2) uses the rights intended for it to cancel or amend the terms of such contract to which the institution under resolution is a party or to substitute a recipient as a party.

(2) The actions referred to in Paragraph one of this Section shall not affect the enforceability of transfer orders and netting, the use of funds, securities, or credit, and also protection of security.

(3) Upon applying the requirements of this Section, the Financial and Capital Market Commission shall ensure that the restrictions specified in Section 92 of this Law are determined for all group companies in respect of which a resolution action is taken.

Chapter XVI
Information Provision Obligation and Restricted Access Information

Section 103. (1) The board of the institution or financial company shall inform the Financial and Capital Market Commission if the former considers that the institution or the financial company is in financial difficulties or is likely to be in financial difficulties.

(2) If the Financial and Capital Market Commission detects that the institution or financial company conforms to the conditions referred to in Section 39, Paragraph three of this Law, the Financial and Capital Market Commission shall immediately communicate it to the following:

1) the resolution and supervisory authorities of the institution or financial company or branches of the institution or financial company;

2) Latvijas Banka;

3) the group-level resolution authority;

4) the Ministry of Finance;

5) the consolidating supervisor if consolidated supervision is carried out for the institution or financial company;

6) the European Systemic Risk Board.

Section 104. (1) After the decision to apply a resolution action has been taken (hereinafter - the resolution decision), the Financial and Capital Market Commission shall send a notice of the abovementioned decision to:

1) the supervisory authorities of the institution under resolution and the branches thereof;

2) Latvijas Banka;

3) the group-level resolution authority;

4) the Ministry of Finance;

5) the consolidating supervisor if consolidated supervision is carried out for the institution under resolution;

6) the European Systemic Risk Board;

7) the European Commission, the European Central Bank, the European Securities and Markets Authority, the European Supervisory Authority, and the European Banking Authority;

8) the system operators specified in the law On Settlement Finality in Payment and Financial Instrument Settlement Systems.

(2) The Financial and Capital Market Commission shall publish on its website the information on the resolution decisions taken and send it to the European Banking Authority for the publication on the website of the European Banking Authority. The Financial and Capital Market Commission shall send the abovementioned information to the official mandatory information storage system within the meaning of the Financial Instrument Market Law if the shares, other instruments of ownership, or debt instruments of the institution under resolution are admitted to trading on a regulated market, or to the shareholders and known creditors of the institution under resolution if the shares, instruments of ownership, or debt instruments are not admitted to trading on a regulated market.

Section 105. (1) The information related to the recovery plans, resolution plans, assessment results, resolution, resolution actions, including application of resolution procedures and resolution instruments which is provided or received by the following shall be considered restricted access information:

1) the Financial and Capital Market Commission;

2) the Ministry of Finance;

3) authorised representatives or authorised persons appointed in accordance with the law;

4) recipients or potential recipients of the assets, liabilities, rights, shares, or other instruments of ownership of the institution under resolution;

5) sworn auditors, advisors, valuers, and other experts who directly or indirectly have cooperated with the Financial and Capital Market Commission;

6) Latvijas Banka;

7) other institutions of direct or indirect administration involved in the resolution process;

8) a bridge institution or an asset management company;

9) persons who provide or have provided services to the persons referred to in this Section, and also members of the council, board, or senior management of legal persons or employees who have received the information for the performance of their work or professional duties.

(2) Restricted access information shall not be disclosed to other persons unless in summary or collective form so that an individual institution or financial company cannot be identified, except for the cases when such information may be disclosed in accordance with the law.

(3) Upon classifying information as restricted access information, the consequences that disclosing of such information might cause to the public interests as regards financial, monetary, and economic policy and to the interests of commercial activity of natural and legal persons are valuated, and also the necessity and purpose of the performance of inspections and audits, especially the consequences caused by disclosing the results of recovery plans, resolution plans, and assessment shall be assessed.

(4) The Financial and Capital Market Commission, the Ministry of Finance, other institutions of direct and indirect administration involved in resolution and resolution action, Latvijas Banka, bridge institution, or asset management company shall include the prohibition to disclose restricted access information in internal regulatory enactments and ensure that only persons who are directly involved in the resolution process have access to such information. The abovementioned legal subjects shall also ensure that the relevant persons are informed of the prohibition to disclose restricted access information.

(5) The persons referred to in Paragraph one of this Section, in accordance with laws and regulations, shall be punishable for disclosing the restricted access information (confidential information) specified in Paragraph one of this Section.

(6) The provisions of Paragraph one of this Section shall not restrict employees or former employees of the institutions or legal persons referred to therein from mutually exchanging information within the scope of these institutions, and also the Financial and Capital Market Commission, according to its competence, from exchanging restricted access information with resolution authorities, competent ministries, central banks, deposit guarantee schemes of other Member States, State institutions responsible for insolvency proceedings in the relevant Member State, the European Banking Authority, or relevant foreign institutions which are responsible for the implementation of resolution in the relevant foreign country.

[16 February 2017]

Chapter XVII
Cross-border Group Resolution

Section 106. Upon making decisions in accordance with this Law or taking actions and measures which may have an impact in one or more other Member States, the Financial and Capital Market Commission shall comply with the following general requirements and principles:

1) the efficacy of decision-making and reduction of resolution costs;

2) action is taken in a timely manner and with due urgency when required;

3) mutual cooperation to ensure that decisions are taken and measures are taken in a coordinated and efficient manner;

4) the roles and responsibilities of resolution authorities within each Member State are defined clearly;

5) due consideration is given to the interests of such Member States where the parent companies of the Member State and subsidiaries of the Member State are performing commercial activity, and in particular the impact of any decision, action, or inaction on the financial stability, fiscal resources, resolution fund, deposit guarantee scheme, or investor protection system of the abovementioned Member States;

6) due consideration is given to the interests of those Member States where significant branches are performing commercial activity, in particular the impact of any decision, action, or inaction on the financial stability of the abovementioned Member States;

7) due consideration is given to the objectives of balancing the interests of the various Member States involved and of avoiding non-conformity with or protection of the interests of Member States;

8) the obligation, in accordance with this Law, to consult a resolution or supervisory authority before any decision or measure is taken or measure is implemented includes at least an obligation to consult on those elements of the proposed decision or measure which have or which are likely to have an effect on the parent company, the subsidiary, or branch of the Member State, and on those elements of the proposed decision or measure which have or which are likely to have an impact on the financial stability of the Member State where the parent company, subsidiary, or branch of the Member State is performing commercial activity or is registered;

9) upon taking resolution actions, take into account and follow the resolution plans, unless, taking into account the circumstances of the case, it is considered that the resolution objectives will be achieved more effectively by taking actions which are not provided for in the resolution plans;

10) assess the possible implication of a proposed decision or measure on the financial stability, fiscal resources, resolution fund, deposit guarantee scheme, or investor compensation scheme of the relevant Member State;

11) understanding that the best reduction of overall costs of resolution may be achieved upon mutual cooperation and coordinating an action by the resolution and supervisory authorities.

[16 February 2017]

Section 107. (1) If the Financial and Capital Market Commission is a group-level resolution authority, it shall establish a resolution college which implements the rights referred to in this Law to determine the minimum requirements for own funds and eligible liabilities, and also cooperation and coordination with resolution authorities of foreign countries. The Financial and Capital Market Commission has no obligation to establish a resolution college if a group or college which is performing the same functions, is carrying out the same tasks, and complies with all the requirements laid down in this Law for a resolution college has already been established.

(2) A resolution college and, where appropriate, involved supervisory authorities shall perform the following functions:

1) exchange information which is related to the drawing-up, preparation of group resolution plans, the application to groups of preventative rights, and group resolution;

2) develop a group resolution plan;

3) assess the resolvability of a group;

4) take measures to remove impediments to the resolvability of a group;

5) decide on the need to establish a group resolution plan and agree on the application of the abovementioned resolution plan;

6) coordinate public informing of a group resolution strategy and plans;

7) coordinate the use of the financing arrangements necessary for the group resolution;

8) determine the minimum requirements for a group on a consolidated basis and subsidiary level;

9) discuss other issues in relation to a group resolution.

(3) The composition of the resolution college shall include:

1) the group-level resolution authority;

2) the resolution authorities in each Member State in which a subsidiary covered by consolidated supervision is performing commercial activity;

3) the resolution authorities in Member States where a parent company of one or more companies of the group which is the company referred to in Section 2, Paragraph two, Clause 4 of this Law are performing commercial activity;

4) the resolution authorities in the territory of the country of which significant branches are located;

5) the consolidating supervisor and the supervisory authorities of the Member States where the resolution authority is a member of the resolution college, and also the central banks of the Member States - upon invitation of the supervisory authorities;

6) the competent ministries;

7) the authorities which are responsible for the deposit guarantee scheme in Member States where the resolution authorities are members of a resolution college;

8) the European Banking Authority (without voting rights in decision-making within the scope of activity of a resolution college);

9) the resolution authorities of such foreign countries where a parent company or an institution which is performing commercial activity in the Member States has a subsidiary institution or a significant branch, if the group-level resolution authority has recognised that requirements for non-disclosure of information equivalent to the requirements of this Law have been laid down for them.

(4) If the Financial and Capital Market Commission is the group-level resolution authority, it shall be the chair of the resolution college and it has the following rights:

1) to bring forward written provisions and procedures for the operation of the resolution college, after prior consulting with other resolution authorities;

2) to coordinate all activities of the resolution college;

3) to convene and chair the meetings of the resolution college, and also inform all members of the resolution college of the time, place of a meeting and the issues to be discussed;

4) to decide which persons shall be invited to attend a meeting of the resolution college, taking into account that the issue to be discussed is significant for the members of this college and invited persons, in particular its potential impact on financial stability in the relevant Member States;

5) to inform all of the members of the college of the decisions and outcomes of the meetings referred to in Clause 3 of this Paragraph.

(5) If the Financial and Capital Market Commission is in the composition of such resolution college the group-level resolution authority of which is a resolution authority of another Member State, the Financial and Capital Market Commission shall participate in the work of the resolution college to such extent that is determined by the group-level resolution authority. The Financial and Capital Market Commission is entitled to participate in meetings of a resolution college if the matters to be discussed in the agenda apply to taking of the joint decision or a group company located in the Republic of Latvia.

Section 108. (1) If a foreign institution or foreign parent company has subsidiaries or significant branches which are performing their commercial activity in the Republic of Latvia and in one more or several Member States, the Financial and Capital Market Commission and resolution authorities of the involved Member States shall establish a European resolution college which is chaired by a member of the European resolution college selected upon agreement.

(2) The European resolution college shall perform the functions of a resolution college specified in this Law with respect to the subsidiaries and branches, insofar as it applies to them.

(3) If the subsidiaries or branches specified in Paragraph one of this Section are held by a financial holding company of a Member State which is registered in the relevant Member State, the European resolution college shall be chaired by the resolution authority of the Member State where the consolidating supervisor for the performance of consolidated supervision is located.

(4) The European resolution college need not be established if another group or college performing the functions specified in this Law for a resolution college has been already established.

Section 109. (1) The Financial and Capital Market Commission shall, upon request, provide the information to resolution authorities and supervisory authorities of other Member States requested thereby which is necessary for the performance of a resolution action, and the Financial and Capital Market Commission has the right to request the information from resolution authorities and supervisory authorities of other Member States which is necessary for the performance of a resolution action.

(2) If the Financial and Capital Market Commission is the group-level resolution authority, it shall send all significant information to the involved resolution authorities of the Member State.

(3) The Financial and Capital Market Commission is entitled to provide the information provided by a resolution authority of a foreign country to resolution authorities and supervisory authorities of other Member States only upon receipt of the consent of the resolution authority of the foreign country.

(4) The Financial and Capital Market Commission shall provide information to the Ministry of Finance in matters regarding which the Financial and Capital Market Commission has an obligation to notify, consult with, or receive the consent of the Ministry of Finance in accordance with this Law or which may have implications on the State budget funds.

Section 110. (1) If the Financial and Capital Market Commission decides that early intervention measures are applicable to the institution or financial company registered in the Republic of Latvia which is a subsidiary in a group, it shall immediately notify the group-level resolution authority, the consolidating supervisor, and other members of the resolution college for the group thereof, and also communicate a resolution action or inform of the necessity to commence insolvency proceedings.

(2) The group-level resolution authority, after consulting with other members of the resolution college, shall detect whether the conformity with the resolution conditions of the company belonging to the group located in another Member State could be ensured in conformity with the information received in Paragraph one of this Section. If such conformity is not detected, the Financial and Capital Market Commission may take a resolution action or commence insolvency proceedings regarding which it has notified.

(3) If the group-level resolution authority, after consulting with other members of the resolution college, detects that resolution actions or other measures of which the Financial and Capital Market Commission has notified would ensure that the company belonging to the group located in another Member State conforms to the resolution conditions, the group-level resolution authority shall, not later than 24 hours after receipt of the notification of the Financial and Capital Market Commission, propose a group resolution plan and submit it to the resolution college. That 24-hour period may be extended if the Financial and Capital Market Commission agrees to it.

(4) If, within 24 hours or a longer time period on which an agreement has been reached, after receipt of the notification of the Financial and Capital Market Commission, the group-level resolution authority has not made an evaluation, the Financial and Capital Market Commission may take a resolution action or other measures of which it has notified.

(5) Upon applying a group resolution plan:

1) the resolution plan drawn up previously shall be taken into account and implemented, unless resolution authorities, taking into account the actual circumstances, are of the opinion that resolution objectives will be achieved more effectively by taking actions which are not provided for in the resolution plan drawn up previously;

2) the resolution actions that should be taken by the resolution authorities in relation to the parent company of the Member State or individual group companies shall be listed in order to implement the resolution objectives;

3) it shall be determined how those resolution actions should be coordinated;

4) a financing plan which takes into account the group resolution plan and the division of responsibility shall be included.

(6) The group resolution plan shall adopted by the joint decision of the group-level resolution authority and such resolution authorities responsible for the subsidiaries which are covered by the group resolution plan.

(7) If the Financial and Capital Market Commission disagrees with the group resolution plan proposed by the group-level resolution authority or departs from it, or considers that due to financial stability considerations it is necessary to take independent resolution actions or measures other than those specified in the proposed plan in relation to the institution or financial company registered in the Republic of Latvia, it shall set out in detail the reasons for the disagreement with the group resolution plan or the reasons to depart from the group resolution plan, notify the group-level resolution authority and the other resolution authorities that are covered by the group resolution plan of the reasons and inform them of the actions or measures it will take. In the decision on disagreement to the group resolution plan the Financial and Capital Market Commission shall assess the resolution plan developed previously, the potential impact on financial stability in the involved Member States, and also the potential effect of the actions or measures on other companies of the group.

[16 February 2017]

Section 111. (1) If the Financial and Capital Market Commission as the group-level resolution authority receives a notification of the resolution authority of the group subsidiaries that this company meets the conditions for resolution, it shall, within 24 hours from the moment of receipt of the notification, having consulted with other members of the resolution college, evaluate whether the resolution action referred to in the notification of the resolution authority of the group subsidiaries or the recognised necessity to commence insolvency proceedings promotes conformity of the group company located in another Member State with the conditions for resolution, take the group resolution plan, and submit it to the resolution college. The Financial and Capital Market Commission may extend the time period for the evaluation upon consent of the resolution authority which has submitted the notification.

(2) The group resolution plan shall adopted by the joint decision of the Financial and Capital Market Commission and such resolution authorities responsible for the subsidiaries which are covered by the group resolution plan. If any of the resolution authorities of the group subsidiaries take an individual decision on the subsidiary located within the territory thereof, the Financial and Capital Market Commission shall take the joint decision with such resolution authorities of the group subsidiaries which agree to the group resolution plan proposed by the Financial and Capital Market Commission.

Section 112. (1) If the Financial and Capital Market Commission as a group-level resolution authority decides that a parent company of the Member State for which it is responsible meets the conditions laid down in this Law for taking a resolution action, this Commission shall immediately notify the consolidating supervisor and other members of the resolution college of the group, and also communicate the resolution action which it considers to be appropriate, or the necessity to commence insolvency proceedings.

(2) A resolution action or the necessity to commence insolvency proceedings may include the implementation of a group resolution plan if:

1) the resolution actions or other measures at the level of a parent company notified by the Financial and Capital Market Commission promote that the resolution conditions are fulfilled by a group company in another Member State;

2) resolution actions or other measures at the level of a parent company only are not sufficient to stabilise the financial situation or they will not provide an optimum outcome;

3) one or more subsidiaries meet the resolution conditions according to the evaluation of their resolution authorities;

4) resolution actions or other measures at the group level will benefit the subsidiaries of the group.

(3) If the resolution actions notified by the Financial and Capital Market Commission do not include the implementation of a group resolution plan, the Financial and Capital Market Commission shall, upon taking its decision after consulting with the members of the resolution college, take into account the group resolution plan drawn up previously, unless the resolution authorities assess, taking into account actual circumstances, and also financial stability of the involved Member States that resolution objectives will be achieved more effectively by taking actions which are not provided for in the abovementioned resolution plan.

(4) If the resolution actions notified by the Financial and Capital Market Commission include implementation of a group resolution plan, the decision on the group resolution plan shall be taken by the joint decision of the Financial and Capital Market Commission and such resolution authorities responsible for the subsidiaries which are covered by the group resolution plan. If any of the resolution authorities of the group subsidiaries take an individual decision on the subsidiary located within the territory thereof, the Financial and Capital Market Commission shall take the joint decision with such resolution authorities of the group subsidiaries which agree to the group resolution plan proposed by the Financial and Capital Market Commission.

[16 February 2017]

Section 113. (1) If the group-level resolution authority of a subsidiary registered in the Republic of Latvia notifies the Financial and Capital Market Commission of the conformity of the parent company of the Member State with the conditions for taking the resolution action laid down in this Law, the Financial and Capital Market Commission shall participate in discussing the actions notified by the group-level resolution authority together with other members of the resolution college of the group.

(2) If the resolution action notified under Paragraph one of this Section includes implementation of a group resolution plan, the decision on the group resolution plan shall be taken by the joint decision of the group-level resolution authority and such resolution authorities responsible for the subsidiaries which are covered by the group resolution plan.

(3) If the Financial and Capital Market Commission disagrees with or departs from the group resolution plan proposed by the group-level resolution authority or considers that it needs to take independent resolution actions or measures other than those specified in the proposed plan in relation to the institution or financial company registered in the Republic of Latvia for reasons of financial stability, it shall set out in detail the reasons for the disagreement or the reasons to depart from the group resolution plan, notify the group-level resolution authority and the other resolution authorities that are covered by the group resolution plan of the reasons and inform them of the actions or measures it intends to take. Upon setting out the reasons for its disagreement, the Financial and Capital Market Commission shall assess the resolution plan developed previously, the potential impact on financial stability in the involved Member States, and also the potential effect of the intended actions or measures on other companies of the group.

[16 February 2017]

Section 114. (1) The Financial and Capital Market Commission may refer to the European Banking Authority with the request to provide assistance in taking the joint decision on a group resolution plan referred to in this Law in accordance with Article 31(c) of Regulation (EU) No 1093/2010.

(2) If the abovementioned group resolution plan is not adopted, the Financial and Capital Market Commission shall cooperate with the resolution college in order to achieve a coordinated resolution strategy in respect of all group companies which become insolvent or are likely to become insolvent.

(3) The Financial and Capital Market Commission shall inform other members of the resolution college of the resolution actions or measures taken thereby and their on-going progress.

(4) The joint decision referred to in this Law and the decisions which resolution authorities take in the cases when they do not agree with the group resolution plan are considered final and the involved resolution authorities shall apply them in the relevant Member States.

[16 February 2017]

Chapter XVIII
Relations with Foreign Countries

Section 115. In order to ensure performance of resolution actions, the resolution authorities shall cooperate on the basis of the International Agreement on Co-operation of Resolution Authorities. If the International Agreement on Co-operation of Resolution Authorities has not come into force, the Republic of Latvia may enter into bilateral agreements with foreign countries on cooperation, taking into account the provisions of this Chapter.

Section 116. (1) This Section shall be applied to foreign resolution procedure unless the International Agreement on Co-operation of Resolution Authorities has come into force, and also following the coming into force of the abovementioned agreement to the extent that the recognition and enforcement of foreign resolution procedures is not governed by that agreement.

(2) A European resolution college shall, after having discussed, take the joint decision on the recognition of the foreign resolution in relation to a foreign institution or a parent company that:

1) has subsidiaries operating in two or more Member States, or branches regarded as significant in two or more Member States;

2) has assets, rights, or liabilities which are located in two or more Member States or which are governed by the legal acts of those Member States.

(3) If the European resolution college the member of which is the Financial and Capital Market Commission takes the joint decision on the recognition of the foreign resolution, the Financial and Capital Market Commission shall ensure the enforcement of the foreign resolution procedures in accordance with the laws and regulations of the Republic of Latvia.

(4) If the joint decision is not taken by the European resolution college the member of which is the Financial and Capital Market Commission or if a European resolution college has not been established, the Financial and Capital Market Commission shall take its own decision on whether to recognise and enforce the foreign resolution proceedings relating to a foreign institution or a parent company. Upon taking the decision, due consideration to the interests of each individual Member State where the institution or parent company operates, and in particular to the potential impact of the recognition and enforcement of the foreign resolution procedure on the other companies of the group and the financial stability of the abovementioned Member States is given.

(5) Recognition of foreign resolution may include the requirement to:

1) implement the resolution powers in relation to the assets of a foreign institution or parent company which are located in the Republic of Latvia or governed by the laws and regulations of the Republic of Latvia, or the rights or liabilities of a foreign institution which have been booked by the branch registered in the Republic of Latvia or governed by the laws and regulations of the Republic of Latvia, if claims in relation to such rights and liabilities are enforceable in the Republic of Latvia;

2) transfer, and also to request another person to transfer shares or other instruments of ownership to a subsidiary which is performing commercial activity in the Republic of Latvia;

3) implement the rights specified in Section 91, 92, or 93 of this Law for a party which has entered into a contract with the company referred to in Paragraph two of this Section, if such rights are necessary in order to enforce foreign resolution procedures;

4) render unenforceable the rights specified in the contract to terminate or accelerate performance of the contracts of the companies referred to in Paragraph two of this Section or other companies of the group or the amend the rights specified in the contract for the relevant companies in the cases where such rights arise from the resolution action taken in respect of the foreign institution or the parent company of such companies, whether by the foreign resolution authority itself or such action is taken otherwise in accordance with the laws and regulations governing the foreign resolution procedures, provided that the substantive obligations provided for in the contract, including payment and delivery obligations, are still being performed, and also collateral is provided.

(6) The Financial and Capital Market Commission may take, where necessary in the public interest, resolution actions and implement resolution powers with respect to a parent company if the relevant foreign State authority detects that an institution registered in such foreign country meets the conditions for resolution in accordance with the legal acts of that foreign country.

[16 February 2017]

Section 117. The Financial and Capital Market Commission, after consulting with other European resolution authorities which are part of a college of European resolution authorities may refuse to recognise or to enforce foreign resolution procedures if it considers that:

1) the foreign resolution procedures would have adverse effects on financial stability in the Republic of Latvia or in another Member State;

2) independent resolution in relation to a branch registered in the Republic of Latvia of an institution registered in foreign countries is necessary to achieve one or more of the resolution objectives;

3) depositors and other creditors which are located or which are due payments in the Republic of Latvia would not receive the same treatment as creditors of such foreign country with similar legal rights in accordance with the internal resolution procedures of the foreign country;

4) recognition or enforcement of the foreign resolution procedure would have material fiscal implications for the Republic of Latvia or the consequences of such recognition or enforcement would be in contradiction with the laws and regulations of the Republic of Latvia.

Section 118. (1) The Financial and Capital Market Commission is entitled to implement the resolution powers in relation to a branch registered in the Republic of Latvia of an institution registered in a foreign country which is not subject to foreign resolution procedures or which is subject to foreign resolution procedures if the Financial and Capital Market Commission considers that the performance of the resolution procedure is necessary in the public interests, any of the circumstances referred to in Section 117 of this Law has set in, and one or more of the following conditions is met:

1) the branch no longer meets, or is likely not to meet, the laws and regulations governing its activity, moreover, it is not foreseeable that any private sector action, supervisory action, or resolution action of the relevant foreign country would restore conformity of the branch with the laws and regulations governing its activity or prevent insolvency in a reasonable time period;

2) the Financial and Capital Market Commission is of the opinion that the foreign institution is unable to pay its liabilities to creditors, and the Financial and Capital Market Commission has ascertained that no foreign resolution procedures or insolvency proceedings have been or will be initiated in relation to the abovementioned foreign institution in a reasonable time period;

3) the resolution procedures are applied to the foreign institution or the foreign resolution institution has notified to the Financial and Capital Market Commission of its intention to initiate them.

(2) If the Financial and Capital Market Commission implements the resolution powers in relation to a branch registered in the Republic of Latvia of an institution registered in a foreign country, it shall take into consideration the resolution objectives and take the action in accordance with the requirements of this Law regarding the application of resolution tools.

[28 February 2019]

Section 119. (1) The provisions of this Section shall be applied in respect of cooperation with a foreign country unless the International Agreement on Co-operation of Resolution Authorities has come into force, and also following the coming into force thereof, insofar the abovementioned agreement does not govern that laid down in this Section.

(2) The Financial and Capital Market Commission has the right, according to the framework cooperation arrangements of the European Banking Authority concluded with foreign authorities, to enter into cooperation arrangements with the following foreign authorities responsible for the resolution:

1) with the State authorities responsible for the resolution in a foreign country where the parent company or the company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law is performing commercial activity if European Union subsidiaries are performing commercial activity in two or more Member States;

2) if a foreign institution has one or more branches in the Republic of Latvia and in one or more other Member States, the authorities responsible for the resolution of such foreign country where the abovementioned foreign institution is performing commercial activity;

3) if the parent company or the company referred to in Section 2, Paragraph two, Clauses 3 and 4 of this Law which is performing commercial activity in the Republic of Latvia and which is a subsidiary institution or significant branch in another Member State also has one or more foreign subsidiary institutions, the State authorities responsible for the resolution in the foreign countries where the abovementioned subsidiary institutions are performing commercial activity;

4) if an institution which has a subsidiary institution or significant branch in the Republic of Latvia has one or more branches in one or more foreign countries, the State authorities responsible for the resolution in the foreign countries where the abovementioned branches are performing commercial activity.

(3) Cooperation arrangements concluded between the Financial and Capital Market Commission and the foreign resolution authorities may include provisions on the following matters:

1) the exchange of information necessary for the preparation and maintenance of resolution plans;

2) consultation and cooperation in the drawing up of resolution plans and exercising of similar powers in accordance with the legal acts of the relevant foreign countries;

3) the exchange of information necessary for the application of resolution tools and implementation of resolution powers and similar powers in accordance with the legal acts of the relevant foreign countries;

4) cooperation in the matters of application of early intervention measures or consultation before taking any significant action in accordance with this Law or the legal acts of the foreign country affecting the institution or group to which the arrangement applies;

5) the coordination of public information by taking joint resolution actions;

6) the procedures and arrangements for the exchange of information and cooperation, including through the establishment and operation of crisis management groups.

(4) This Section shall not limit the right of the Financial and Capital Market Commission from concluding bilateral or multilateral arrangements with foreign countries in accordance with Article 33 of Regulation (EU) No 1093/2010.

(5) The Financial and Capital Market Commission shall notify the European Banking Authority of each cooperation arrangement that it has entered into in accordance with this Section.

Section 120. (1) The Financial and Capital Market Commission and the Ministry of Finance shall exchange restricted access information, including recovery plans, with the relevant State authorities responsible for the resolution in foreign countries only if the following conditions are met:

1) the national legal acts of the foreign authorities responsible for the resolution determine non-disclosure requirements for restricted access information which are equal to the requirements laid down in this Law for such authorities;

2) processing of personal data included in restricted access information, including transmission of such data to a foreign authority, is carried out in accordance with the legal norms governing personal data processing of the Republic of Latvia;

3) the information is necessary in order to perform the functions of the foreign authority responsible for the resolution which are equal to the functions of resolution authorities provided for in this Law.

(2) The Financial and Capital Market Commission may disclose restricted access information received from other Member States to the foreign authorities responsible for the resolution only in the following cases:

1) the authority of such Member State from which the information has been obtained agrees to that disclosure;

2) the information is disclosed only for the purposes permitted by the authorities of such Member State from which the information has been obtained.

Chapter XIX
Resolution Financing Arrangements

Section 121. The Financial and Capital Market Commission shall ensure accumulation and management of funds of the institutions in the national resolution fund. In accordance with Articles 69, 70, 71, 72, 73, and 74 of Regulation No 806/2014, the Financial and Capital Market Commission shall ensure transfer of the contributions of credit institutions to the Single Resolution Fund in accordance with the procedures laid down in the Agreement on the Transfer and Mutualisation of Contributions to the Single Resolution Fund approved by the law On the Agreement on the Transfer and Mutualisation of Contributions to the Single Resolution Fund. The Financial and Capital Market Commission shall use the funds of the Single Resolution Fund in accordance with Article 77 of Regulation No 806/2014.

[28 February 2019]

Section 121.1 (1) The Financial and Capital Market Commission is entitled to decide on the use of the funds of investment brokerage companies accumulated in the national resolution fund.

(2) The funds of the national resolution fund shall be used only to the extent necessary to ensure efficient application of the resolution tools for the following purposes:

1) to guarantee the assets or liabilities of the investment brokerage company under resolution, its subsidiaries, a bridge institution, or an asset management company;

2) to make loans to the investment brokerage company under resolution, its subsidiaries, a bridge institution, or an asset management company;

3) to purchase assets of the investment brokerage company under resolution;

4) to finance operation of a bridge institution and an asset management company;

5) to disburse compensation to shareholders and such persons who own other instruments of ownership or creditors in accordance with the procedures laid down in this Law;

6) to finance the investment brokerage company under resolution if the Financial and Capital Market Commission has taken the decision, in accordance with this Law, to exclude or partly exclude certain liabilities from the scope of application of the write-down or conversion power;

7) to issue loans to resolution financing arrangements of other Member States.

(3) The funds of the national resolution fund shall be used for the objectives referred to in Paragraph two of this Section, applying also the sale of business tool.

(4) The funds of the national resolution fund shall not be used to absorb the losses of an investment brokerage company or financial institution or to recapitalise such an investment brokerage company or financial institution. If the use of the resolution fund for the objectives specified in this Section causes losses for an investment brokerage company or financial institution, the conditions for the use of the national resolution fund indicated in Sections 56 and 57 of this Law shall be applied.

[28 February 2019]

Section 121.2 (1) The Financial and Capital Market Commission shall determine the annual payment in the national resolution fund for each investment brokerage company as one per cent of the amount of its liabilities (except for own funds), taking into account the total liabilities of all investment brokerage companies (except for own funds) and adjusting it in conformity with the risk profile of the investment brokerage company stipulated by the Financial and Capital Market Commission. A payment in the national resolution fund may not be less than EUR 1000 per year. The Financial and Capital Market Commission shall issue regulatory provisions in which the procedures for making payments in the national resolution fund are determined.

(2) The financial resources present in the national resolution fund may include payment liabilities of investment brokerage companies in the amount of not more than 30 per cent of the total amount of resources present in such fund.

(3) If the financial resources available in the national resolution fund are not sufficient in order to cover losses, costs, or other expenditures thereof incurred by the use of such fund, investment brokerage companies shall make additional payments. Additional payments for investment brokerage companies shall be determined in accordance with the provisions of Paragraph one of this Section. The amount of additional payments may not exceed three times the amount of the specified annual payments.

(4) The Financial and Capital Market Commission may allow to defer, in whole or in part, making of additional payments by an investment brokerage company in the national resolution fund if it is necessary to protect the financial position of such investment brokerage company. Such exemption shall be granted for a period not exceeding six months, and it may be extended upon request of the investment brokerage company. The deferred payment shall be made by the investment brokerage company at a point in time when such payment no longer jeopardises the liquidity or solvency thereof.

(5) Payments of an investment brokerage company in the national resolution fund shall be included in its expenditures.

[28 February 2019]

Section 121.3 The Financial and Capital Market Commission is entitled to use alternative funding sources and enter into contracts on borrowings or other forms of support with investment brokerage companies, financial institutions, or other third parties if the funds of the resolution fund are not immediately accessible or are not sufficient in order to cover the losses, costs, or other expenditures incurred by the use of such fund, or additional payments are not immediately accessible or are not sufficient.

[28 February 2019]

Section 121.4 The Financial and Capital Market Commission may request a borrowing from resolution financing arrangements of other Member States if:

1) there are no sufficient funds in the national resolution fund in order to cover the losses, costs, or other expenditures incurred by the use of such fund;

2) the additional payments are not immediately accessible;

3) the funds of alternative funding sources are not accessible.

[28 February 2019]

Section 121.5 (1) If the Financial and Capital Market Commission is the group-level resolution authority, it shall, after consulting with the resolution authorities of the investment brokerage companies that are part of the group, propose, before taking any resolution action, a group financing plan as part of the group resolution plan.

(2) The group financing plan shall include:

1) a valuation in respect of the companies belonging to the group;

2) the losses to be recognised by each company belonging to the group at the moment when the resolution tools are applied;

3) in relation to each company belonging to the group - the possible losses of each class of shareholders and creditors;

4) the total financing necessary from resolution financing arrangements of the Member States and the purpose and form of the financing;

5) the calculation of the amount that each of the resolution financing arrangements of the Member States where the companies belonging to the group are located pays in the financing of the group resolution in order to build up the total necessary financing referred to in Clause 4 of this Paragraph;

6) the amount that each of the resolution financing arrangement of such Member States where the companies belonging to the group are located pays in the financing of the group resolution and the procedures for the making of such payment;

7) the amount of a borrowing that the resolution financing arrangements of such Member States where the companies belonging to the group are located will obtain;

8) the time period for the use of the resolution financing arrangements of such Member States where the companies belonging to the group are located, providing for the possibility, where appropriate, to extend such time period.

(3) Unless specified otherwise in the group financing plan, upon calculating the contribution of resolution financing arrangement of each Member State, the Financial and Capital Market Commission shall take into consideration:

1) the proportion of the risk-weighted assets of the group held at investment brokerage companies and financial institutions registered in the relevant Member State of the resolution financing arrangement;

2) the proportion of the assets of the group held at investment brokerage companies and financial institutions registered in the relevant Member State of the resolution financing arrangement;

3) the proportion of such losses which have given rise to the need for group resolution in those group companies which are under supervision of the authorities responsible for the resolution financing arrangement;

4) the proportion of such resources of the group financing which, according to the financing plan, are intended to be used to provide direct contribution in the group companies which are registered in the relevant Member State of the resolution financing arrangement.

(4) In order to ensure group financing, the national resolution fund may enter into contracts on receipt of borrowings or other forms of support.

(5) The national resolution fund may guarantee a borrowing contracted by other group resolution financing arrangements in accordance with Paragraph four of this Section.

(6) The Financial and Capital Market Commission shall ensure that any revenues that arise from the use of the group financing arrangements are allocated to resolution financing arrangements of the Member States in conformity with their payments to the financing of the resolution.

[28 February 2019]

Section 122. [16 February 2017]

Section 123. [16 February 2017]

Section 124. [16 February 2017]

Section 125. [16 February 2017]

Section 126. [16 February 2017]

Section 127. (1) If the Financial and Capital Market Commission takes a resolution action, concurrently ensuring that depositors have free access to their deposits, payments from the deposit guarantee fund may be made in the following amount:

1) if the bail-in tool is applied - the amount by which covered deposits would have been written down in order to absorb the losses, if the covered deposits would have been subject to the application of bail-in and would have been written down to the same extent as liabilities with the same level of priority under insolvency proceedings;

2) if one or more resolution tools other than the bail-in tool is applied - the amount of losses of such depositors to which the covered deposits belong, if such depositors would have suffered losses in proportion to the losses incurred by creditors having liabilities with the same level of priority under insolvency proceedings.

(2) The participation of the deposit guarantee fund in funding of resolution shall not exceed the losses that would have been incurred for the deposit guarantee fund in case of insolvency of the institution under resolution.

(3) If the bail-in tool is applied, any payments need not be made from the deposit guarantee fund in order to cover the costs of recapitalising the institution or bridge institution.

(4) If it is detected that the payment of the deposit guarantee fund to resolution had exceeded the net losses which the deposit guarantee fund would have incurred by winding up of the institution, the deposit guarantee fund has the right to the disbursement of the consideration from the resolution fund.

(5) The Financial and Capital Market Commission shall ensure that the amount of liabilities of the deposit guarantee fund referred to in Paragraph one of this Section arises from the valuation prepared in accordance with the provisions of Chapter VIII of this Law.

(6) The payments which arise from the liabilities referred to in Paragraph one of this Section shall be made in money and they may not exceed 0.4 per cent of the covered deposits. After the payments are made from the funds of the deposit guarantee fund for covering resolution actions of the institution, the Financial and Capital Market Commission shall obtain the right of claim against the institution in the amount of the sum of such payments. The funds acquired through subrogation shall be transferred into the deposit guarantee fund.

(7) If eligible deposits of an institution under resolution are transferred to another company, using the sale of business tool or the bridge institution tool, the depositors have no right to claim against the deposit guarantee fund in relation to the remaining deposits in the institution under resolution which were not transferred, provided that the amount of the deposits transferred is at least equal to the total amount of guaranteed compensation.

[28 February 2019]

Chapter XX
Liability

Section 128. The Financial and Capital Market Commission or its authorised representative has the right to request and receive information from the institution and financial company, to carry out on site inspections, to become familiar with documentation, and to request explanations that are necessary for the supervision of conformity with the requirements of this Law.

Section 129. The Financial and Capital Market Commission is entitled to apply the following sanctions for infringing Sections 5, 7, 12, 30, and 103 of this Law:

1) to provide a public statement indicating the responsible natural person, institution, financial company, European Union parent company registered in the Republic of Latvia, or another legal person and the nature of the infringement;

2) to issue an order requesting the natural or legal person responsible for the infringement to cease the conduct and to desist from a repetition of that conduct;

3) to determine a temporary ban to perform the duties against any member of the council or board of the institution or financial company or any other natural person who is considered responsible for the infringement;

4) to impose a fine on a legal person of up to 10 per cent of the amount of net income of the preceding financial year which conforms to the amount which, in accordance with Regulation No 575/2013, is used in order to calculate the own funds requirements for operational risk according to the basic indicator approach. If 10 per cent of the amount of net income of the preceding financial year which has been calculated in accordance with what is laid down in the first sentence of this Clause constitutes less than EUR 142 300, the Financial and Capital Market Commission is entitled to impose a fine of up to EUR 142 300. If a legal person is a subsidiary of a parent company, the amount of net income of the preceding financial year shall conform to the amount which, in accordance with Regulation No 575/2013, is used in order calculate the own funds requirements for operational risk according to the basic indicator approach on the basis of the data presented by the final parent company in consolidated financial statements of the preceding financial year;

5) to impose a fine of up to five million EUR on the natural person responsible for the infringement;

6) to impose a fine of up to double the amount of the income generated a result of the infringement or of the prevented possible losses.

Section 130. (1) The Financial and Capital Market Commission shall post the information on the sanctions imposed for the infringements of this Law and the regulatory provisions issued by the Financial and Capital Market Commission on the basis thereof on its website, indicating the personal data and the infringement committed thereby, and also on the contesting of the administrative act issued by the Financial and Capital Market Commission and the ruling taken thereby.

(2) The Financial and Capital Market Commission may make public the information referred to in Paragraph one of this Section without identifying the person, if it is detected after performance of prior assessment that the disclosure of personal data of the natural person to whom the sanction has been imposed is not commensurate or the disclosure of the data of the natural or legal person may threaten the stability of the financial market or may cause incommensurate damage to the persons involved, or criminal proceedings have been initiated.

(3) If it is foreseeable that the circumstances referred to in Paragraph two of this Section will end within a reasonable time period, making public of the information referred to in Paragraph one of this Section may be suspended for this time period.

(4) The information posted on the website of the Financial and Capital Market Commission in accordance with the procedures laid down in this Section shall be available for five years from the date of posting thereof.

(5) The Financial and Capital Market Commission shall inform the European Banking Authority of the sanctions imposed on persons.

Section 131. (1) Appeal of an administrative act issued by the Financial and Capital Market Commission shall not suspend the operation thereof. An administrative act of the Financial and Capital Market Commission on application of the crisis management measures shall be enforced without delay.

(2) An administrative act of the Financial and Capital Market Commission may be appealed to the Administrative District Court. The Administrative District Court shall examine the case by emergency procedure.

(3) An applicant shall specify the justification of the application. Participants of the administrative procedure shall be subject to the burden of proof.

(4) A cassation complaint may be submitted in respect of the ruling of the Administrative District Court. The Supreme Court shall examine the case by emergency procedure.

(5) Decisions of a court (judge) which are taken upon performance of procedural actions for the examination of the submitted application or initiated case shall not be appealed.

(6) If the law determines the time period for execution of any procedural action, but, upon execution of the relevant procedural action within this time period, the conditions of Paragraphs two and four this Section would not be complied with, the court (judge) itself shall determine an appropriate time period for the execution of the relevant procedural action.

(7) The revocation of the administrative act issued by the Financial and Capital Market Commission on taking the crisis management measures for the purpose of protecting the interests of such third parties which have acquired the shares or other instruments of ownership, assets, rights, and liabilities of the institution under resolution in good faith shall not affect the decisions taken and actual actions performed by the Financial and Capital Market Commission which were directed towards execution of the revoked decision. The Financial and Capital Market Commission shall be responsible for the losses caused by the revoked administrative act.

Transitional Provisions

[16 February 2017]

1. With the coming into force of this Law, the Law on the Taking over of Banks (Latvijas Vēstnesis, 2008, No. 202) is repealed.

[16 February 2017]

2. Resolution actions in respect of the subjects referred to in Article 7(5) of Regulation No 806/2014 which the resolution institution has commenced until the day of coming into force of Chapter IV.1 of this Law shall be implemented in conformity with those legal norms which were in force on the day of taking the decision on a resolution action.

[16 February 2017]

Informative Reference to European Union Directives

[28 February 2019]

This Law contains norms arising from:

1) Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council Text with EEA relevance;

2) Directive (EU) 2017/2399 of the European Parliament and of the Council of 12 December 2017 amending Directive 2014/59/EU as regards the ranking of unsecured debt instruments in insolvency hierarchy.

The Law has been adopted by the Saeima on 18 June 2015.

President A. Bērziņš

Rīga, 2 July 2015


1 The Parliament of the Republic of Latvia

Translation © 2021 Valsts valodas centrs (State Language Centre)

 
Document information
Title: Kredītiestāžu un ieguldījumu brokeru sabiedrību darbības atjaunošanas un noregulējuma likums Status:
In force
in force
Issuer: Saeima Type: law Adoption: 18.06.2015.Entry into force: 16.07.2015.Theme: Commercial rightsPublication: Latvijas Vēstnesis, 127, 02.07.2015. OP number: 2015/127.2
Language:
LVEN
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