How are the financial and capital markets making ready for the Euro Day?

Kristīne Batraga, 07.03.2013. Foto: Private archive, 06.03.2013

Mr Pēters Putniņš

Interview with the Financial and Capital Market Commission (FCMC) Deputy Chairman Pēters Putniņš, appointed as head of the Financial System Working Group on the project of the euro introduction since beginning of March this year.

What are the tasks of the Financial System Working Group?

Key task for the Financial System Working Group, heading of which has been delegated to FCMC, was to draw up proposals for the action plan for the euro introduction in such areas as monetary and capital markets, financial instruments, redenomination of Government debt, adjustment of securities settlement systems for the euro.

What are the other members of Financial System Working Group?

Working group includes mainly representatives of the associations of financial market operators and associated public institutions, such as the Bank of Latvia, State Treasury, Ministry of Finance, State Social Insurance Agency, Ministry of Welfare, stock exchange and depository.

What are the group's accomplishments so far and plans for this year?

Working group has drafted the sections on the financial sector in the Law on Introduction of Euro relating to such issues as redenomination of equity capital shares and debt securities, continuity of contracts, change of money market indices etc. This year we are going to continue practical implementation of the plan, namely, in order to ensure smooth transition of securities trading and settlement systems to settlement in euro. We will make clear and introduce the necessary changes in the NASDAQ OMX trading system and the Latvian Central Depository accounting and settlement systems. Furthermore, FCMC will carry out all the necessary modifications and amendments to the financial sector regulatory requirements and rules issued by FCMC in relation to the changeover to the euro.

Will the transition to the euro by banks be monitored by FCMC?

Within the FCMC competence it will perform the supervision over the banks as regards compliance with provisions of the Law on Introduction of Euro during the process of cash changeover, as well as supervision over banks and payment institutions as regards compliance with regulatory requirements in the process of non-cash and electronic money changeover. We will also monitor how the banks and other market players subject to the supervision of FCMC comply with the principle of contract continuity according to which the banks cannot request to sing a new contract (deposit/loan) only because of the transition to the euro.

Are the banks prepared for the introduction of the euro?

It is certain without fail, for banks the year 2013 will pass in the sign of the euro. The banks have been getting prepared for this significant event already since last year though an official approval of the euro introduction is expected only in July this year. There is still much work to be done, because it involves not only the bank customer awareness, but also adapting the bank internal processes and IT systems. It is expected that the highest costs for banks will be related to the preparing of IT, accounting and customer servicing systems, as well as ATM and encashment services for the changeover to the euro currency. It is already evident that the costs for the euro introduction will reach several million lats. Our banks have an advantage as they may learn from the recent Estonian experience in this regard.

Joining the eurozone may bring changes into the banking supervision. What changes do you see?

If Latvia joins the eurozone in 2014 it will also automatically join the single banking supervisory mechanism. Negotiations on the structure of  mechanism are still going on at the EU level between the Council and European Parliament, however, the main principles of the mechanism has been already outlined.

The single supervisory mechanism will be composed by the European Central Bank (ECB) and the national competent authorities. ECB will have responsibility for overall operation of the single supervisory mechanism and it will have the key role in supervising the eurozone banks, however, the supervision will be implemented in a differential manner. Based on certain criteria, such as the size of credit institutions and their relative significance in the national economy, credit institutions that will come under the direct ECB supervision will be selected as well as those supervision of which will be carried out at large by the national competent authorities, however, an opportunity will be provided that the latter also may be subject to the direct ECB supervision.

Do you know which Latvian banks will come under ECB supervision as well?

At least three most significant banks of the countries participating in the mechanism have to come under the ECB supervision. By joining the eurozone, the three largest banks in Latvia – Swedbank, SEB, probably also ABLV Bank – could be subject to the direct ECB supervision. Nordea Bank Finland Plc. Latvia branch could be supervised by the ECB as a branch of the eurozone bank. It should be noted that the direct ECB supervision will be implemented in close cooperation with the national supervisors and the ECB has been developing the principles for the maintenance of cooperation.

Are there any other changes planned following implementation of the single bank supervisory mechanism?

After joining the eurozone, the Latvian banks, like other eurozone banks, will have an access to all the ECB instruments supporting liquidity problem-solving. Apart from the single bank supervisory mechanism, it is planned to develop the single EU bank resolution mechanism in order to reduce using the taxpayers funds in bank resolution in the future.

What is the easiest way for the residents to change the lats to the euro?

Already now it is evident that for bank customers most convenient way for the changeover to the euro is to timely deposit the cash in their bank accounts. Banks will ensure that at the moment of the euro introduction the lats held with the accounts will be automatically converted into the euros applying the official exchange rate and free of charge. In other words, the customers will avoid any worries, they won't have on purpose to carry their money to the bank or waste their time queuing, instead they will see in the New Year 2014 quietly.

What are the frequently asked questions at this time?

Most frequently the customers are making inquiries about deposit contracts and loan contracts – if they are to be modified or replaced. In short, it won't be required to modify or change the loan, deposit or any other contract with the bank because of the euro introduction, as the continuity principle will apply to all contracts. We have launched a special section on our website at www.fktk.lv for the bank customers to easy find answers to the frequently asked questions.