Latvia’s much criticised financial regulator FKTK announced on February 2 that it will launch an audit of the country’s boutique banks to check money-laundering standards are up to scratch.

The audit was announced by deputy head of FKTK Peter Putnins, who was recently proposed by the Bank of Latvia and the finance ministry to become the new head of the regulator. He would replace Kristaps Zakulis who stepped down in late January amidst allegations FKTK was ineffective in fighting money-laundering and corruption in Latvia’s banking sector, which is a longstanding issue.

Latvian banks are a popular haven for non-resident deposits (NRDs), mostly stemming from Russia, Ukraine and other CIS countries. Funds from the CIS make up around half of all deposits the system. Despite warnings from international institutions such as the OECD, Latvia's role as a money-laundering hub has been exacerbated by the ineffectiveness of FKTK, according to critics.

Putnins now pledges to step up efforts to fix the problems. He told Latvian Radio that all the country's 17 boutique banks – which are thought to be at the centre of money-laundering allegations - will undergo a stringent audit in line with US and EU practices and carried out by three reputable US companies, LSM reports.

"That will take us to the highest international standards possible. Banks and bank owners have to understand and implement checks and standards... that's important not only for themselves but for wider national interests," Putnins said.

Putnins’ announcement looks likely to be a response to critcism of his nomination to head FKTK. Economics Minister Dana Reizniece-Ozola, speculated to become finance minister in the new government, expressed doubt that Putnins will be able to make the necessary changes at the watchdog.