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In effect since 3 December 2004 Published in the newspaper Latvijas Vestnesis (The Official Gazette of the Government of the Republic of Latvia) No.191 on 2 December 2004 Financial and Capital Market Commission Board Decision No.261 (minutes No. 45 p. 6) Riga, 26 November 2004 REGARDING APPROVAL OF “REGULATIONS ON RESTRICTIONS OF INVESTMENT OF ELECTRONIC MONEY INSTITUTIONS” On the basis of Clauses 1 and 2 of Article 6, Clauses 1 and 3 of the paragraph 1 of Article 7 and Clause 2 of Article 17 of the Law on the Financial and Capital Market Commission and paragraph 5 of Article 37 of the Credit Institution Law, The Board of the Financial and Capital Market Commission d e c i d e s : To approve “Regulations on Restrictions of Investments of Electronic Money Institutions” (in the appendix). Chairman of the Financial and Capital Market Commission U. Cerps REGULATIONS ON RESTRICTIONS OF INVESTMENT OF ELECTRONIC MONEY INSTITUTIONS 1. GENERAL PROVISIONS 1.1. “Regulations on Restrictions of Investment of Electronic Money Institutions” (hereinafter – the Regulations) have been prepared in accordance with the requirements of Clauses 1 and 2 of Article 6, Clauses 1 and 3 of paragraph 1 of Article 7 and paragraph 2 of Article 17 of the Law on the Financial and Capital Market Commission and paragraph 5 of Article 37 of the Credit Institution Law for the purpose to set restrictions on their investments, which shall be observed by licensed electronic money institutions (hereinafter – institutions) in placing the amount of assets that corresponds to the amount of issued electronic money. 1.2. Terms “central government” and “central bank” are used in the Regulations in accordance with explanations of terms provided in the “Regulation for Preparing the Monthly Financial Position Report of Monetary Financial Institutions and Its Appendices” approved by the decision No.88/7 of the Council of the Bank of Latvia on 12 July 2001. 1.3. Terms “credit institution of a Zone A country”, “market risk” and “margin” are used in the Regulations in accordance with the explanation of the respective terms in “The Regulations on the Capital Adequacy Calculation” approved by the decision No.255 of the Board of the Financial and Capital Market Commission (hereinafter – the Commission) of 17 November 2004. 2. INVESTMENT RESTRICTIONS 2.1. The institution shall make investments in amount of its liabilities, ensuing from the issued electronic money, only in the following assets: 2.1.1. assets, to which in accordance with Clauses 4.4.1.1.–4.4.1.3. and 4.4.1.5.–4.4.1.7. of the Commission “Regulations on the Capital Adequacy Calculation” the attributed weighted risk level is 0 per cent and which are liquid; 2.1.2. Claims on demand with credit institutions of Zone A countries; 2.1.3. debt securities (except for the ones specified in Clause 2.1.1): 2.1.3.1. which are liquid, 2.1.3.2. the issuer of which does not have qualifying holding in the share capital of the institution, as well as issuer of which is not a subsidiary company of the company that has qualifying holding in the share capital of the institution, 2.1.3.3. that meets the requirements of Clause 6.17 of the Commission “Regulations on the Capital Adequacy Calculation”. 2.2. The institution shall evaluate investments in assets referred to in Clauses 2.1.1-2.1.3 at the lowest of purchase and market value. 2.3. Proportion of total amount of own capital of the institution and assets referred to in Clauses 2.1.2 and 2.1.3 shall not be less than 5 per cent. 2.4. For restriction of the market risk that arises from electronic money issue and investments the institution shall make transactions: 2.4.1. with liquid foreign currency derivatives traded in the stock exchange and interest derivatives that are under requirement of daily margin contribution; 2.4.2. with liquid foreign currency derivatives traded over-the-counter, initial term of which is 14 calendar days and less. 2.5. Transactions with derivatives referred to in Clause 2.4 of the Regulations are acceptable, if full hedging of the market risk is provided for and it has been achieved to the highest possible extent. INFORMATIVE REFERENCE TO THE EUROPEAN UNION DIRECTIVE Norms included in the Regulations, which ensue from the Directive 2000/46/EC of the European Parliament and of the Council of 18 September 2000 on the Taking up, Pursuit of and Prudential Supervision of the Business of Electronic Money Institutions. ***