Trasta Komercbanka will challenge a decision from the European Central Bank (ECB) to pull its licence, the Latvian bank's lawyer told financial press on March 14.

The ECB pulled Trasta’s license on March 3, on request from Latvian financial market regulator FKTK. The request was “politically motivated” and served FKTK as poster action to “discipline Latvian banks generally and that in doing so it violated the law,” Okko Behrends, lawyer with DLA Piper in Frankfurt, told moneymt.com. FKTK has visibly raised its policing of Latvia's banking sector in recent weeks, in apparent reaction to international criticism over its failure to clamp down, especially on money flows linked to corruption in the CIS.

The lawyer suggested the regulator's action was carried out to please the OECD and the US. The pair has been at the forefront of the renewed pressure to get Riga to deal with money laundering.

“[There is] the question of how the actions of the FCMC can be reconciled with basic values of good administration, namely honesty, integrity, impartiality as well as independence from political influence,” Behrends said. FKTK reacted by saying the allegations were groundless.

The loss of the licence appears to have spelled the end for the beleaguered lender. Withdrawal limits were imposed in late January, after the bank failed to take action on improving its capital base and proving that it had not been involved in money-laundering.

Money laundering has long been a problem of the Latvian banking sector. Latvian banks are a popular haven for non-resident deposits (NRDs), mostly stemming from Russia, Ukraine and other CIS countries. 

Meanwhile, the payment of compensation to Trasta Komercbanka depositors will begin on March 16, the regulator said. That's despite the fact that there have been no reports of missing funds at the bank.

Deposits of up to €100,000 are guaranteed by the state and 93% of depositors will recover their money, FKTK said. The regulator also said Trasta Komercbanka was not important enough for the Latvian banking system to undergo resolution action or bailout

FKTK has been under fire recently in Latvia and internationally for alleged inefficiency in curbing money laundering in the Latvian banking system. The criticism led the regulator’s head Kristaps Zakulis to step down in late January, to be replaced with deputy Peter Putnins. The action to pull Trasta’s licence may improve Putnins‘ standing with the Latvian government, after he was assessed by a leading minister as not fit for the task of making FKTK more effective.