FCMC: Tough requirements for controlling non-resident money flow in Latvia

22.03.2013
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Riga, 21.03.2013
Press Release

FCMC: Tough requirements for controlling non-resident money flow in Latvia

Financial and Capital Market Commission (FCMC) points out that there is a set of special supervisory measures particularly for monitoring non-resident money flow in Latvia, and FCMC experts perform supervision on a regular basis to ensure that these activities are maintained in all Latvian banks.

FCMC Chairman Kristaps Zakulis: “There are no grounds to  expect large inflows of unknown origin funds entering the Latvian financial sector in the nearest days, as requirements for non-resident customer assessment in Latvia are among the highest ones, including duty to apply enhanced customer due diligence. Also, the statements that Latvia could become Cyprus Number 2 are not true, because the sizes of financial sectors of both countries and their significance to the economy are rather different. In Cyprus, the financial service area, including the banking sector, and also related financial services make up 40% of gross domestic product, while in Latvia the financial sector overall makes up 3-3,5% of  gross domestic product.”

In view of the situation in Cyprus, this week FCMC Chairman Zakulis asked the Latvian banks to focus more on the assessment of their customers and the quality of financial flow. Nevertheless, also up to now FCMC has been working in this direction and requested the banks to thoroughly assess the sources of incoming money and be aware of their customer activities. For instance, customer due diligence of new customers of Latvian banks involves several steps, and this process sometimes may take several weeks. Prior to placing funds in Latvian banks those non-residents, which do not carry out any economic activities in Latvia (so-called off-shore companies), are required to open an account in any of Latvian banks.

A step-by-step mechanism is set for the opening of account and following supervision:
Step 1: The Bank identifies a customer and receives the necessary information from the customer to perform due diligence and decide on the opening of account or refusal to open the account.
Step 2: If the company does not carry out commercial activities in the Republic of Latvia, then the Bank has to perform enhanced customer due diligence in accordance with the FCMC regulations (including finding out information on business lines, major partners, planned business volumes and sources of funds). Based on obtained information the Bank determines customer risk level and decides on the opening of account or refusal to open the account.
Step 3: After the opening of account for a customer which does not carry out commercial activities in the Republic of Latvia, the Bank has to conduct enhanced customer due diligence and customer transaction monitoring in accordance with the FCMC regulations, if the monthly credit turnover exceeds equivalent of LVL 200 000 or annual credit turnover exceeds equivalent of LVL 2 000 000.

Whereas the enhanced customer due diligence performed by the Bank after the opening of customer account involves a minimum of following steps:

– Comparing the compliance of transaction performed in the customer account with the economic activities declared by the customer;
– Obtaining additional information to find out whether the beneficial owner indicated by the customer or specified by the financial institution is the actual beneficial owner in fact;
– Clarifying sources of financial assets in the customer account;
– Performing analysis of customer economic activities.

Latvian regulatory requirements have been developed based on the EU directives and the FATF (Financial Action Task Force) recommendations. Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) conduct enhanced customer due diligence and customer transaction monitoring has evaluated money laundering and terrorism financing prevention system in Latvia in 2011/2012, admitting its compliance with international standards.

For further information:
Ieva Upleja
Chief Public Relations Specialist
Communications Division
Financial and Capital Market Commission
Phone:+371 67774807; email: ieva.upleja@fktk.lv

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