Latvia: A Banking & Finance Overview

Background

Latvia has emerged as a strong entry point to the European financial market, supported by a modern regulatory framework that combines accessible entry with high supervisory standards. By 2026, it offers a transparent and reliable environment for market participants to grow and operate across the European Economic Area, reinforcing competitiveness while maintaining Eurozone-level stability.

Regulatory Transformation

Payment Service Directive 3

The focus of the Latvian fintech sector has shifted towards the implementation of the Payment Services Directive 3 and the accompanying Payment Services Regulation, following the political agreement reached in late 2025. This regulatory overhaul, poised for formal adoption in 2026, aims to harmonise the European Union (EU) payments landscape by strengthening fraud prevention mechanisms, specifically through mandatory IBAN-name matching and enhanced Strong Customer Authentication protocols.

For Latvian market participants, the transition entails a move towards direct access to payment systems for non-bank institutions, reducing dependency on traditional credit institutions. Furthermore, the mandatory introduction of permission dashboards and refined open banking APIs is expected to foster a more transparent and competitive environment, aligning with Latvia’s broader strategy to solidify its position as an innovation-led fintech hub within the Baltic region.

AML Directive

The 2026 Latvian anti-money laundering (AML) landscape is defined by the full integration of the EU’s Sixth Anti-Money Laundering Directive and the oversight of the Anti-Money Laundering Authority. Central to this framework is the Bank of Latvia, which has successfully transitioned from a rigid supervisory role to a professional, consultative partner for financial institutions.

The directive mandates rigorous beneficial ownership transparency and automated real-time transaction monitoring, specifically targeting sanctions circumvention. The local regulator follows a risk-based approach, providing clear and practical guidance that supports innovation while maintaining strong supervisory standards throughout the application process. This professionalised environment ensures that a Latvian licence serves as a prestigious, AML-fortified seal of approval for firms scaling across the European Economic Area.

AIFM framework

The Alternative Investment Fund Managers (AIFM) framework, governed by the Law on Alternative Investment Funds and Managers Thereof, balances EU-wide harmonisation with regional agility. As of 2026, the regime, under the supervision of the Bank of Latvia, oversees a total of 30 registered and licensed managers – a total net increase of 20% (five entities) since 2024. This growth is bifurcated between fully licensed AIFMs, which manage assets exceeding the threshold of EUR500 million, and registered AIFMs that manage funds below this threshold. Notably, the latter category remains a vital entry point for boutique firms, particularly within the venture capital and private credit verticals.

Latvia’s competitive advantage resides in its cost efficiency, where set-up and compliance expenditures are estimated to be lower than in traditional hubs such as Luxembourg, without compromising on the EU Passporting rights that allow for seamless cross-border marketing to professional investors.

Specialised credit institution licence

Effective 6 January 2026, Latvia amended its Credit Institutions Law to introduce the specialised credit institution – a new category of financial market participant. This framework reduces the initial capital requirement to at least EUR1 million, which marks a significant departure from the standard European Union entry threshold of EUR5 million. The amendments reflect a strategic policy response to a prolonged period of stagnation for more than ten years in the domestic banking sector, during which no new credit institution licences were issued, and market competition remained concentrated among a limited number of large incumbents.

While regulatory oversight for a specialised credit institution remains broadly equivalent to that of a universal banking licence, the reduced entry threshold has generated significant interest among fintech companies, payment institutions and non-bank lenders. The framework is intended to support lean, digitally native companies capable of delivering a full range of banking services and scaling them across Europe.

At the same time, standard banking licences are regaining relevance in the Latvian market too. The 2024 licensing of AS INDEXO Banka, the first since 2011, marked a turning point, with several other institutions reportedly also pursuing full authorisation.

Finance: Trends and Developments

Licensing under MiCA

In late 2025, the Bank of Latvia issued its first two licences under the Markets in Crypto-Assets Regulation (MiCA) within a single week. This move followed Latvia’s early adoption of the MiCA framework, signalling a clear intent to provide a predictable environment for digital asset companies. Rather than just transposing EU rules, the regulator has prioritised a functional pre-licensing consultation process, which allows companies to resolve technical requirements before the formal application begins. This proactive approach has reduced the licensing timeline to an ambitious three-month target.

Once licensed, these providers gain full EU passporting rights, which has turned the licensing process into a tangible export, attracting international companies that require a combination of rigorous oversight and administrative efficiency.

Advancements in capital markets

Since 2025 and continuing into 2026, there has been a clear shift towards involving more State-controlled entities in initial public offerings. Latvia’s capital market has undergone significant transformation since 2018, resulting in the development of a stable investor base, as well as the necessary mechanisms and institutional framework to support companies in issuing securities. Nevertheless, there remains considerable potential for increased market activity; therefore, the involvement of State-owned companies in the public offerings is a logical next step to help unlock this potential and further drive the Baltic’s market development.

The first expected offering is from VAS Latvijas autoceļu uzturētājs, a State-owned road maintenance company. This transaction is expected to serve as a benchmark, establishing a clear pathway for how the State can retain strategic control while simultaneously expanding its capital base through public markets. Additional offerings are already in the pipeline, aiming to stimulate economic growth and diversify funding sources beyond traditional bank lending.

Innovative transactions

Parallel to State activity, the private sector has demonstrated increasing sophistication through innovative transactions. High-profile companies, particularly within the fintech and banking sectors, have successfully utilised the exchange for both capital raises and complex mergers. For instance, AS INDEXO recently completed a unique share-exchange transaction to acquire a controlling stake in AS DelfinGroup, creating a financial services group with a market capitalisation of more than EUR100 million. These activities, alongside the entry of municipal-owned companies such as SIA Rīgas ūdens into the green bond market, signal a maturing ecosystem where both private innovators and public entities are leveraging the capital market to drive growth and transparency.

Trend towards bond instruments

Last year witnessed a substantial expansion of the Latvian debt capital market, characterised by heightened volume of primary and secondary offerings. This trend is evidenced by multiple issuances by leading market participants in the initial admissions list such as AS PN Project, Eleving Group SA and AS Latvenergo (15 in total) and with secondary offerings participants such as IPAS INDEXO (25 in total) for the financial year 2025.

The growing use of bond instruments, supported by steady investor demand for fixed-income returns, signal development of the local financial market. As a result, bond financing is increasingly becoming a common funding option, alongside traditional bank lending, including bilateral and syndicated loans.