Since 1 January 2002, the Investor Protection Law has been in force in Latvia which lays down general principles for the operation of investor protection system, the procedures for the provision of financing necessary for its functioning and disbursement of compensations. In cases where the Financial and Capital Market Commission ascertains that an investment service provider who has received a special permit (licence) of the Financial and Capital Market Commission for the provision of investment services, or branches thereof in foreign states that have not joined the foreign investor protection system, is unable to meet its obligations in full and within time limits, or a court ruling on declaration of insolvency or liquidation of investment service provider has entered into force, the investors are entitled to compensation.
The compensation shall be calculated and paid only to an investor who, in accordance with the provisions of the Investor Protection Law, is entitled to compensation in the amount of outstanding liabilities, but not more than EUR 20 000, regardless of the number of accounts opened for the investor. The compensation shall be disbursed in euros. This does not apply to cases where investors have suffered losses due to changes in the prices of financial instruments or financial instruments have become illiquid.
The compensation shall be disbursed for:
Financial means for disbursement of compensation shall be provided by members of the investor protection system in proportion to their share in the total portfolio of financial instruments of members of the investor protection system.
The Financial and Capital Market Commission shall determine the procedures and time limits for disbursement of compensation. The compensation shall be paid to those investors who have applied for compensation for outstanding liabilities. An application for compensation must be submitted within one year after the investor has become aware of the failure of the investment service provider to meet their obligations, but not later than five years from the date of fulfilment of the obligations. Disbursement of compensation shall be carried out in three months after the date of the decision on recognition of an application as justified.
Section 7 of the Investor Protection Law provides for the cases where compensation shall not be disbursed.
Members of the investment system have an obligation to inform their existing and future clients (investors) of their participation in the system and the amount of compensation for outstanding liabilities, as well as the requirements of the Investor Protection Law to enable an investor to obtain compensation.