Latvia's Financial and Capital Market Commission has decided to prohibit Versobank AS from operating there.

The bank, which has a wealth management department under Ms Tetiana Tolochna, is banned from attracting new customers in the country and is going to have to end its contractual relationships with existing customers.

The decision to impose this ban stems from Versobank's failure to follow procedures laid down in the Credit Institution Law under which credit institutions registered in other member-states of the European Union may conduct cross-border busiess by opening branches in Latvia. Versobank has had a permanent physical presence in Latvia for some time, according to the regulator on its website. The regulator also says, however, that it was not licensed to operate physically in Latvia and is registered in Estonia instead.

In accordance with the Credit Institution Law, if the FCMC determines that a credit institution registered in another EU country, which provides financial services without opening a branch, performs activities that break the laws of Latvia, it must without delay ask the credit institution to stop. If the credit institution does not, the FCMC must inform the relevant supervisor in the other EU country, which then has the duty of rectifying matters.

The FCMC board's aim in banning the bank from providing services in Latvia is two-pronged: to keep financial markets stable and to protect the interests of investors and depositors. Versobank AS is subject to supervision by the Estonian Financial Supervision Authority.

The Estonian Financial Supervision Authority, for its part, states: "Versobank had earlier assured the FSA that they do not provide services in Latvia in a way that does not follow the given authorisations. Since the evidence on activities in Latvia that the FCMC [Latvian Financial and Capital Market Commission] has investigated are mainly in Latvia, then the representatives of the FSA have familiarised themselves with the situation in Riga and contributed to this procedure in full co-operation with the Latvian colleagues. At current stage, it was reasonable to hold the procedure over the activities that were investigated in relation to Versobank in Latvia."

The bank has already run into trouble with the Estonian regulator over other matters, but the details have not been published in English.

Versobank has a private banking arm. Its correspondent banking relationships are with:

• Bayerische Landesbank, Munich
• Raiffeisen Bank International AG, Vienna
• KBC Bank NV, Brussels
• Societe Generale, Paris
• Sberbank of Russia, Moscow
• Deutsche Bank Trust Company Americas, New York
• OJSC Promsvyazbank, Moscow
• Societe Generale, Paris
• Sberbank of Russia, Moscow
• AO ALFA-BANK, Moscow
• PJSC ROSBANK, Moscow
• Bank of China (Shanghai RMB Trading Unit), Shanghai
• SEB Bank, Tallinn, the capital of Estonia