In the last 5-7 years, the topic of investment has not been "off the scene" and has become a regular cause for discussion, podcasts, recordings and opinion pieces. And this time will be no exception.
Currently, every conscious and sensible resident in Latvia has heard something about how cool and good it is to invest, and how it will help in old age or with any major purchases or unexpected expenses. The next level of investment awareness already requires people to know that investments should be diversified (the old story about not putting all your eggs in one basket). Namely, at a minimum: cash in a deposit or savings account, then a medium/long-term (at least 5-10 years) investment that can be converted into cash relatively quickly and, preferably, cheaply when needed, and lastly, an investment in pension plans that can be accessed only when you reach retirement age. Finally, those who have already got into the excitement of investing know the intricacies of fees, management charges and tax returns. But let's be real – most of us simply want to multiply our hard-earned money in the easiest and most profitable way possible.
And the investment opportunities are endless! From investments where the "entry ticket to the investment club" is at least EUR 50,000 to EUR 1 investment per month. You can invest in funds, ETFs, buy shares or a fractioned share, buy life insurance, choose broker services or rely on artificial intelligence tools. However, in any of these choices, one question is essential: how reliable is your chosen provider? And it's not about whether you can count on guaranteed returns and capital growth. (Because any supervised investment service provider is forced to say, whether you like it or not, that no, you can't count on that). The question is whether the money you invest will be invested at all and you will ever see it again, or whether it will be your [forced] voluntary donation to the scammers.
Relatively recently, a number of investment platforms licensed in Latvia (LANDE, INDEMO, VIAINVEST, NECTARO, DEBITUM INVESTMENTS and TWINO) announced the signing of a joint memorandum with the aim of promoting transparency and credibility in the alternative finance market.1 One of the reasons for this is the increasing, aggressive activity of unlicensed "investment service providers" in the Latvian market. This article has been written in support of that commitment and to promote financial literacy in investment.
The Latvian financial sector has just published data on the amount of money defrauded in Latvia, which amounted to more than EUR 15 million in 2024.2 One would assume that fraud would be easier to spot in payments than in investment services, which are in themselves more complex. (It's no coincidence that before you can invest, you have to fill in a questionnaire to help identifying the investment services that are right for you.) Since investment services are more complex, it is harder for someone without knowledge to know whether they are about to be swindled or whether they have been lucky enough to find an extremely profitable investment.3
So what is the bare minimum that you should check before entrusting your money to someone else for profit? And that means every "financial analyst", "broker" and application that offers you their one-off [and guaranteed] profit-generating services.
All, absolutely all, investment service providers must be licensed in a Member State of the European Union in some supervisory capacity. If they want to provide their services outside their Member State of establishment, the service provider must also be authorised in that other Member State4. What I mean by "some kind of supervisory capacity" is that there are only limited types of service providers that can provide investment services in the EU. These are: a) credit institutions5; b) investment brokerage companies; c) investment management companies; d) [to a very limited extent] licensed alternative investment fund managers; e) for private6 pension fund management, a private pension fund or licensed alternative investment fund; f) if crypto is your "speciality", licensed crypto service providers.7 These are service providers that will be registered in an EU Member State and listed on the website of that Member State's financial supervisor. For visual representation you may refer, for example to: https://https://uzraudziba.bank.lv/en/market/investment-service-providers/.
If you do not find your chosen service provider on that list, this can mean two things: a) the service provider is not authorised to provide services in the EU as a whole; b) the service provider is not authorised to provide services in Latvia, meaning actively advertising its services (in the broadest sense of the word) to potential clients in Latvia. In cases specified under b) you can check the service provider in the financial supervisory registers of other EU countries. The good news is that you don't even have to guess who the right supervisor in which country is to carry out these small investigations. ESMA (the European Securities Market Authority, the European Union's financial market supervisor) maintains a list of financial supervisors in all EU Member States, which in turn maintain registers of investment service providers. You can find it at https://www.esma.europa.eu/about-esma/governance-structure/board-of-supervisors#12, under "National Competent Authorities". If your search there is unsuccessful, you should conclude that case (a) has occurred and that investing with such providers will be entirely at your own risk and responsibility.8
Taking a step back, one may ask why is licensing so important? Does licensed mean completely safe? Could it mean that if I invest my money with this provider, I won't lose it and maybe even multiply it [in a guaranteed manner]? No. A licence cannot guarantee this. But having a licence will give you more reason to believe that the provider's intention is to be in the market for the long term and to provide a service, not to make money and then disappear from sight. To obtain a licence, a service provider must, inter alia:
- maintain sufficient capital (between EUR 25,000 and EUR 5,000,000, depending on the services to be provided);
- its shareholders and management have to go through a very rigorous process of evaluation by the supervisor, both in terms of their reputation, knowledge and wealth;
- maintain a series of [costly] internal systems and processes to comply with AML, IT, data security and in terms of assessing your clients (the same suitability & appropriateness test that allows you to determine the most appropriate investment for you) and informing them, etc., etc.
In particular, if someone has decided to become a licensed investment service provider, this will require substantial financial and time resources that someone targeting fraud would be less likely to invest. In addition, a licensed service provider is monitored after the licence has been granted, when the supervisor monitors not only the financial situation of the service provider, but also its business activities. This means, inter alia, that you can turn to the financial supervisor in matters concerning the business relationship between you and the investment service provider.9 And, a little consolation bonus for you as an investor, if such an investment service provider does become insolvent, you are guaranteed the right to recover EUR 20,000 of your investment.
A disclaimer for clarity: can you be prohibited from entrusting your money to persons who are not licensed at all or to an investment service provider established outside the EU without being authorised to provide its services in the EU? Obviously not. You can do it, but whether it's worth it is up to you.
Footnotes
1. More information on the memorandum is available at: https://debitum.investments/blog/uniting-to-shape-the-future-of-regulated-fintech/
2. https://www.financelatvia.eu/wp-content/uploads/2025/01/FNA-krapsana-2901_compressed.pdf
3. This is a bit of sarcasm. Let's keep a cool head and remind ourselves from time to time, at least in the area of investment: "If something seems too good, it's probably because it is."
4. This is the so-called "passporting" process, whereby the wish to provide services is notified to the supervisor of another Member State. It comes with a statement from the "primary" supervisor and a series of documents (which are, however, much less than when the licence is originally applied for).
5. Note that a credit institution must be authorised to provide investment services. The fact that it is an existing credit institution does not mean that it can provide investment services. It is therefore important to check information directly on investment service providers.
6. Only an investment management company can manage state pension funds.
7. The requirement for all crypto service providers to obtain a licence to provide services in the EU came into force in 2025. Therefore, at the moment, it is only possible to find crypto service providers in the supervisory registers if those services have been regulated at national level in the Member State concerned. However, it can be assumed that a crypto service provider with serious intentions will, as a minimum, indicate with which Member State supervisor it has started the licensing process.
8. For the sake of clarity, investment services are also a licensable and supervised activity in countries outside the EU. But be aware that it is up to you to do all the research on where you can complain, what you can expect in return, whether your investment will be reimbursed to any extent in the event of the service provider's insolvency, etc. In the EU, however, there are a number of uniform principles for the provision of investment services that all players in the sector must respect.
9. These questions cannot, however, address issues related to the cost of services (such as commissions), etc.
Originally Published 03 March 2025
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
