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

On Settlement Finality in Payment and Financial Instrument Settlement Systems

Chapter I
General Provisions

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

1) payment and financial instrument settlement system (hereinafter - the system) - a mechanism for the execution of transfer orders of payments and financial instruments that operates in accordance with an agreement and meets all of the following conditions:

a) it is an agreement between three or more participants, excluding the system operator, a settlement agent, a central counterparty, a clearing house, or an indirect participant, for the execution of transfer orders between the participants or netting, whether or not via a central counterparty, in accordance with common rules and standardised arrangements;

b) it is governed by a law of the Republic of Latvia or a European Union Member State, or a country of the European Economic Area (hereinafter - the Member State) which is chosen by the participants;

c) Latvia or another Member State in accordance with laws whereof the system operates has designated it as the system and informed the European Securities and Markets Authority of this decision;

2) institution - an entity which participates in the system and is responsible for discharging the financial obligations arising from transfer orders within such system and meets at least one of the following conditions:

a) it is a credit institution, a branch, a branch of a foreign credit institution, a central bank, a credit union, or a postal operator registered in the Member State which has the right to provide payment services in accordance with laws and regulations;

b) it is an investment firm, a branch, or a branch of a foreign investment firm registered in the Member State;

c) it is a State administration authority or a State or local government capital company;

d) [3 March 2011];

e) it is a payment institution licensed in the Member State if it participates in the system in which only the transfer orders referred to in Paragraph one, Clause 10, Sub-clause "a" of this Section are processed;

f) it is an electronic money institution licensed in the Member State if it participates in the system in which only the transfer orders referred to in Paragraph one, Clause 10, Sub-clause "a" of this Section are processed;

3) [30 September 2021];

4) settlement agent - an entity which opens settlement accounts for institutions or a central counterparty through which the transfer orders processed within the system are settled and, where necessary, may provide a credit to the respective institutions or the central counterparty for settlement purposes;

5) clearing house - an entity responsible for the calculation of the net positions of institutions and the calculation of the net positions of the central counterparty or settlement agent if the respective institutions are also parties to an agreement and the relevant agreement provides for the calculation of net positions;

6) participant - an institution, a central counterparty, a settlement agent, a clearing house, a system operator, or a clearing member of a central counterparty which has received the authorisation for the activity of the central counterparty in accordance with the procedures laid down in Article 17 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 (hereinafter - Regulation No 648/2012);

7) indirect participant - an institution, a central counterparty, a settlement agent, a clearing house, or a system operator which can be identified by the system and which has an agreement with a participant for the execution of transfer orders within the framework of the relevant system;

8) system operator - the entity which is responsible for ensuring operation of the system;

9) systemic risk - a risk that the failure of one participant of the system to discharge its obligations will cause the failure of other participants or financial institutions to discharge their obligations in due time. Such situation can create significant liquidity or credit problems but this in turn can pose a threat to the stability of the financial market;

10) transfer order - an instruction which meets one of the following conditions:

a) an instruction by a participant to place at the disposal of a recipient an amount of money by means of an accounting record on the account of a credit institution, a central bank, a central counterparty, or a settlement agent, or an instruction to accept a payment or discharge payment obligations in accordance with the rules of the system;

b) an instruction by a participant to transfer the title to financial instruments or right to financial instruments by means of an entry in the register or otherwise;

11) insolvency proceedings - any measure, including insolvency proceedings, that is provided by laws of a Member State or a foreign country for the winding-up of the relevant participant, and also for the restriction or restoration of the participant's activity if this includes suspension or restriction of the transfers of financial instruments or cash transfers;

12) initiation of insolvency proceedings - the moment when a relevant judicial or administrative institution of the Member State or a foreign country has taken the decision or judgement on the initiation of insolvency proceedings;

13) netting - conversion of claims and obligations into one net claim or one net obligation so that only a net claim may be brought and only a net obligation must be discharged if the claims and obligations result from transfer orders which are executed by one or more participants in favour of one or more other participants of the system or which the participants receive from other participants of the system;

14) settlement account - an account with a central bank, a settlement agent, or a central counterparty that is used by participants of the system to hold funds or financial instruments or to settle mutual transactions between the participants of the system;

15) collateral - realisable assets, including the financial resources, financial instruments, and credit claims, which are provided for the purpose of exercising the rights and discharging the obligations which may arise in connection with participation in the system, or a collateral provided to a central bank;

16) central bank - Latvijas Banka, a central bank of another Member State, or the European Central Bank;

17) clearing - transmission, reconciliation, and, where necessary, confirmation of transfer orders prior to settlements, and also netting of a transfer order and establishment of such net positions according to which settlements will be made;

18) clearing system - a set of procedures by means of which participants in a clearing house or another specific place exchange information or documents related to money transfers or transfers of financial instruments. In order to ensure settlements of obligations of the participants by netting, the set of procedures may also include procedures for calculating net positions of the participants;

19) net position - the difference between the total transfers received and made by a participant of the clearing system within a specific period. If this difference is positive, a net credit position or net claim arises but if this difference is negative a net debt position or net obligation arises;

20) [3 March 2011];

21) working day - a period provided for in the rules of the system when the execution of a transfer order is possible within the framework of the relevant system;

22) interoperable systems - two or more systems the system operators of which have mutually agreed on the procedures that cover the execution of transfer orders between the systems.

(2) The term "credit claims" used in the Law corresponds to the term "credit claims" explained in the Financial Collateral Law.

(3) The term "central counterparty" and the term "clearing member" correspond to the terms used in Regulation No 648/2012.

[3 March 2011; 19 May 2016; 30 September 2021; 23 September 2021; 26 September 2024]

Section 2. The purpose of the Law is to ensure:

1) stability of the financial market by promoting safe and efficient operation of the payment and financial instrument settlement systems of the Republic of Latvia and of the cross-border payment and financial instrument settlement systems by limiting the systemic risk and minimising, to the extent possible, disruptions to the system which could be caused by the initiation of insolvency proceedings against any of the participants;

2) finality of netting and settlements, their legal effect in the system and the right to freely enforce the collateral provided for participation in the system or transactions with the central bank, and also in the case of insolvency proceedings against a participant.

Section 3. This Law shall apply to:

1) the systems the operation of which Latvijas Banka has informed the European Securities and Markets Authority;

2) all participants of the systems referred to in Clause 1 of this Section;

3) the collateral which is provided for participation in the systems referred to in Clause 1 of this Section or which is used by a central bank in transactions when performing the functions of the central bank.

[19 May 2016; 23 September 2021]

Section 4. (1) Latvijas Banka may also deem the following agreement to be the system within the meaning of Section 1, Clause 1 of this Law:

1) the task of which is to execute the transfer orders referred to in Section 1, Clause 10, Sub-clause "b" of this Law and which executes orders to a limited extent in respect of another type of financial instruments if such decision is based on systemic risk;

2) between two participants, excluding a settlement agent, a central counterparty, a clearing house, or an indirect participant, if such entities are parties to the agreement, on the execution of transfer orders if such decision is based on systemic risk.

(2) An agreement between interoperable systems shall not constitute a separate system.

[3 March 2011; 30 September 2021; 23 September 2021]

Section 5. (1) Latvijas Banka may also determine as the institution within the meaning of Section 1, Clause 2 of this Law a commercial company that participates in the relevant system within which only the transfer orders referred to in Section 1, Clause 10, Sub-clause "b" of this Law are executed, and also the payments resulting from such orders if this commercial company is liable for the financial obligations arising from the transfer orders within this system, unless at least three participants of such system are the institutions referred to in Section 1, Clause 2 of this Law, and such decision is based on systemic risk.

(2) [3 March 2011].

[3 March 2011; 23 September 2021]

Section 6. [30 September 2021]

Section 7. The same participant may act as a central counterparty, a settlement agent, or a clearing house or perform a part or all of the tasks of such participants if the rules of the system provide for such possibility.

[30 September 2021]

Section 7.¹ (1) Latvijas Banka shall supervise the systems.

(2) The system operator shall be obliged to provide Latvijas Banka with the information necessary for the supervision of the system.

[14 September 2017]

Chapter II
Netting and Transfer Orders

Section 8. (1) Netting and transfer orders shall be legally enforceable and binding on third persons also if insolvency proceedings have been initiated against a participant of the system or interoperable system or an interoperable system operator other than the participant, provided that the transfer orders have been entered into the system prior to the initiation of insolvency proceedings.

(2) If transfer orders are entered into the system after the initiation of insolvency proceedings against a participant and they are executed on the working day specified in the rules of the system when the insolvency proceedings are initiated, they shall only be legally enforceable and binding on third persons if the system operator is able to prove that, at the time when such transfer orders became irrevocable in accordance with the rules of the system, it was neither aware, nor should have been aware of the initiation of such proceedings.

(3) Laws and regulations providing for the setting aside of legal transactions shall not be applicable to the netting of the claims and obligations resulting from participation in the system and arising prior to the initiation of insolvency proceedings against a participant.

(4) The moment of entry of a transfer order into a system shall be defined by the rules of that system.

(5) In interoperable systems, the rules of each system shall determine the moment when a transfer order is entered into the system. Rules of one system for the moment of entry of a transfer order shall not be affected by the rules of another system, unless it is provided for in the rules of all the systems involved.

[3 March 2011; 23 September 2021]

Section 9. The initiation of insolvency proceedings against a participant or an interoperable system operator shall not prevent the following:

1) use of funds or financial instruments available on the settlement account of the participants to allow the participant to discharge its obligations arising from its participation in the system or interoperable system which it has on the working day of the initiation of insolvency proceedings;

2) reduction of a participant's credit related to the system against a collateral available in the system or interoperable system to discharge the obligations of the participant of the relevant system.

[3 March 2011]

Section 10. (1) The rules of the system shall determine the moment when a transfer order may not be revoked unilaterally.

(2) In interoperable systems, the rules of each system shall determine the moment when a transfer order may not be revoked unilaterally. Rules of one system for the moment of irrevocability shall not be affected by the rules of another system, unless it is provided for in the rules of all the systems involved.

(3) A transfer order shall be irrevocable and settlement shall be final from the moment determined in the rules of the relevant system.

[14 September 2017]

Chapter III
Provisions for Insolvency Proceedings Against Participants

Section 11. (1) A court of the Republic of Latvia shall, in accordance with the procedures laid down in the Civil Procedure Law, inform Latvijas Banka of the initiation of insolvency proceedings against a participant.

(2) When the administrative institution to which such rights have been granted by the law takes the decision to initiate insolvency proceedings against a participant, it shall immediately - on the same day - inform Latvijas Banka of this fact.

(3) Latvijas Banka shall immediately - on the same day when it has received the decision or judgement of a court of the Republic of Latvia or of an administrative institution on the initiation of insolvency proceedings against a participant - inform the following of this fact:

1) system operators in the systems whereof the participant participates;

2) relevant entities which have been appointed as recipients of such information by Member States and in respect of which Member States have informed the European Securities and Markets Authority;

3) the European Systemic Risk Board and the European Securities and Markets Authority.

[3 March 2011; 22 March 2012; 19 May 2016; 23 September 2021]

Section 12. Insolvency proceedings shall not affect such rights and obligations of a participant, including a participant of an interoperable system or an interoperable system operator other than the participant, that arise from the participation in the system or are related thereto and have arisen prior to the initiation of insolvency proceedings. Such rights and obligations of a participant may not be recognised as invalid.

[3 March 2011]

Chapter IV
Protection of the Rights of a Collateral Taker in the Case of Insolvency Proceedings of a Collateral Provider

Section 13. (1) The right of a system operator or participant to the collateral provided thereto in relation to the system or interoperable system, or the right of a central bank to the collateral shall not be affected by the insolvency proceedings initiated against the participant, the interoperable system operator other than the participant, a counterparty of the central bank, or any third person who has provided the collateral. Such collateral may be enforced immediately for the purpose of exercising the respective rights, and the restriction of rights to enforce the collateral which have been specified in laws and regulations shall not be applicable to such collateral.

(2) If the system operator has provided a collateral to another system operator in relation to an interoperable system, the right to this collateral held by the system operator who has provided the collateral shall not be affected by the insolvency proceedings initiated against the system operator who has received the collateral.

[3 March 2011; 25 September 2014]

Chapter V
Choice of Law

Section 14. In determining the country in accordance with whose laws the system will operate, the participants may only choose such Member State in which at least one participant is registered.

[3 March 2011]

Section 15. After initiation of insolvency proceedings against a participant, its rights and obligations incurred during participation in the system shall be determined in accordance with the laws of the country under which the relevant system operates.

Section 16. If financial instruments (also rights arising from financial instruments) are provided as a collateral in favour of participants, the system operator, or the central bank, and the right of such participants (or their representatives, agents, or third persons acting on their behalf) to the financial instruments have been recorded in the register, an account, or a centralised deposit system located in the relevant country, the rights of such subjects - collateral takers - to the respective financial instruments shall be governed by the laws of the relevant country.

[3 March 2011]

Chapter VI
Determination and Notification of the System

[23 September 2021]

Section 17. [23 September 2021]

Section 18. [23 September 2021]

Section 19. Latvijas Banka shall determine whether the system which, in compliance with the agreement of participants, operates in accordance with the laws of the Republic of Latvia conforms to the system to which this Law applies.

[23 September 2021]

Section 20. Latvijas Banka shall notify the European Securities and Markets Authority of the system which it has determined as the system to which this Law applies, and shall also inform of the system operator.

[23 September 2021]

Section 21. The system operator shall inform Latvijas Banka of participants of the system, indirect participants, and any changes in the composition of the participants.

[23 September 2021]

Section 22. An institution shall, upon request of a person, inform of the systems in which this institution participates and provide information on the main rules of the systems.

Transitional Provisions

1. Requirements of this Law shall not apply to insolvency proceedings initiated before coming into force of this Law.

2. System operators the systems of which operate in accordance with the laws of the Republic of Latvia shall, within three months after coming into force of this Law, provide the Commission with the information referred to in Sections 18 and 21 of this Law.

Informative Reference to European Union Directives

[3 March 2011; 22 March 2012; 30 September 2021; 26 September 2024]

The Law contains norms arising from:

1) Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems;

2) Directive 2009/44/EC of the European Parliament and of the Council of 6 May 2009 amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims;

3) Directive 2010/78/EU of the European Parliament and of the Council of 24 November 2010, amending Directives 98/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC and 2009/65/EC in respect of the powers of the European Supervisory Authority (European Banking Authority), the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority);

4) Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 amending Directive 2014/59/EU as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms and Directive 98/26/EC;

5) Regulation (EU) 2024/886 of the European Parliament and of the Council of 13 March 2024 amending Regulations (EU) No 260/2012 and (EU) 2021/1230 and Directives 98/26/EC and (EU) 2015/2366 as regards instant credit transfers in euro.

The time of coming into force of the Law shall be determined by a special law.

The Law has been adopted by the Saeima on 11 December 2003.

President V. Vīķe-Freiberga

Rīga, 24 December 2003

¹ The Parliament of the Republic of Latvia

Translation © 2025 Valsts valodas centrs (State Language Centre)