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22 August 2017 Regulations No.122
Riga (Financial and Capital Market Commission, minutes No. 38.3.p.
of the Council’s meeting)
Regulations on Establishing and Maintaining Correspondent Banking Relationship
Issued pursuant to Section 47, Paragraph two, Clause 10 of the Law on the Prevention of Money
Laundering and Terrorism Financing
- General Provisions
1. “Regulations on Establishing and Maintaining Correspondent Banking Relationship” (hereinafter referred to as “the Regulations”) lay down the minimum requirements for credit institutions as well as the branches of the credit institutions of Member States and third countries (hereinafter collectively referred to as “the credit institution”) for carrying out the due diligence of their customers (loro correspondents) as well as for the monitoring of transactions throughout the term of business relations.
2. The purpose of these Regulations is to ensure that the credit institution takes the due diligence and transaction monitoring measures of their customers (loro correspondents) effectively with a view to minimising money laundering and terrorism financing (hereinafter referred to as “ML/TF) risk within the scope of the correspondent banking relationship.
3.Terms used in these Regulations:
3.1.Interbank clearing – settlement transactions, including providing customer transaction services between two or more customers (loro correspondents), using the correspondent accounts opened with the same credit institution;
3.2.Loro correspondent account (the vostro correspondent account of the credit institution) – another credit institution’s (the customer’s – loro correspondent’s) correspondent account opened with the credit institution on the basis of a covenant;
3.3.Vostro correspondent account – a correspondent account opened by a credit institution with another credit institution on the basis of an agreement or a covenant;
3.4.Loro correspondent – a credit institution for which a loro correspondent account has been opened with another credit institution;
3.5.Nostro correspondent – a credit institution in which a nostro correspondent account has been opened for another credit institution;
3.6.Downstream correspondent relationship – business relations within the scope of which the credit institution’s customer (loro correspondent) provides correspondent services to another credit institution and uses the loro correspondent account for carrying out settlement transactions of another credit institution;
3.7.Downstream correspondent – a credit institution to which the customer of the credit institution (loro correspondent) provides correspondent services;
3.8.Payment order – a payment order in the meaning of The Law on Payment Services and Electronic Money.
4.Upon establishing business relations with a customer (loro correspondent), based on the results of the due diligence of the customer (loro correspondent) and its risk profile, the credit institution shall lay down compliance requirements for the customer (loro correspondent) in the field of preventing money laundering and terrorism financing to such an extent as is necessary to ensure the consistency of the correspondent relationship with the statutory requirements in the field of prevention of money laundering and terrorism financing, as well as the duty to fulfil international as well as national sanctions (hereinafter also referred to as “the risk of sanctions”). The credit institution shall obtain and document the representation from the customer (loro correspondent), wherein it undertakes to comply with the compliance requirements laid down by the credit institution in the field of prevention of money laundering and terrorism financing, including in regard to customer due diligence and monitoring of transactions, the minimum amount of the measures aimed to minimise ML/TF risks, the format of the payment orders used for interbank clearing and the duty to cooperate with the credit institution, as well as to provide all necessary information in relation to the use of the correspondent account upon the request of the credit institution.
5.In its policies and procedures the credit institution shall provide for:
5.1.The action on the part of the credit institution and the limitations applicable to the activity of the customer (loro correspondent), as well as sanctions if during the business relations the customer (loro correspondent) fails to fulfil the compliance requirements and the duties owed to the credit institution as referred to in Paragraph 4 hereof;
5.2.The procedure under which information about the customer’s (loro correspondent) transactions including the interbank clearing transactions is aggregated, stored, and analysed, among other things providing for the extent, nature, and term of storing the information;
5.3.The procedure under which the customer’s (loro correspondent’s) ML/TF and sanctions risk related to its interbank clearing transactions is assessed, establishing reasonable measures aimed to minimise the said risk and providing for the cases when the credit institution shall decide to ban interbank clearing transactions or impose a limitation thereof to the customer (loro correspondent);
5.4.The cases when information requests are forwarded to the customer (loro correspondent), the procedure for making and forwarding of the said requests, the procedure for analysing the answers provided by the customer (loro correspondent), the staff of the credit institution responsible for the analysis, and the action on the part of the credit institution in the event that the customer (loro correspondent) fails to respond to the request.
6.The credit institution shall apply the requirements of these Regulations in addition to the specified customer enhanced due diligence and transaction monitoring requirements and procedure laid down in Regulation No. 234 “Regulations regarding Enhanced Customer Due Diligence of Credit Institutions and Licensed Payment and Electronic Money Institutions” of 23 December 2015 (hereinafter referred to as “Regulation No. 234”).
2. Customer (Loro Correspondent) Due Diligence and Monitoring of the Transactions Thereof
2.1. Customer (Loro Correspondent) Due Diligence
7. Before deciding on establishing business relations with the customer (loro correspondent), the credit institution shall take the following customer (loro correspondent) due diligence measures in addition to the requirements laid down in the Law on the Prevention of Money Laundering and Terrorism Financing (hereinafter referred to as “the Law on PMLTF”) and Regulation No. 234:
7.1.Acquire information about the reputation of the customer (loro correspondent), the group thereof (if applicable) or the parent company or the founding company, if the customer (loro correspondent) is a branch or a subsidiary company, as well as of the customer’s (loro correspondent) subsidiary company or branch, if such have been established, including the possible involvement thereof in ML/TF-related activities or the violation of international or national sanctions;
7.2.Acquire information about the supervisory authority of the customer (loro correspondent), the parent company or the founding company thereof, if the customer (loro correspondent) is a branch or a subsidiary company, as well as of the customer’s (loro correspondent’s) subsidiary or branch, if such have been established, as well as the quality of monitoring;
7.3.Acquire information about the countries and territories in which customer (loro correspondent), the group thereof (if applicable) or the parent company or the founding company as well as the customer’s (loro correspondent’s) branches or subsidiaries, if such have been established, is located or carries on its business, as well as whether the customer’s (loro correspondent’s) subsidiary or branch, if such has been established, will use the loro correspondent account;
7.4.Acquire information about the customer’s (loro correspondent) offered products and services, the delivery channels of products and services, the customer base (the share of natural personas and legal entities, the share of residents and non-residents, the countries of registration and the principal place of business of customers, the business activity, etc.). The credit institution shall ascertain the share of the customer’s (loro correspondent’s) customers, which are the subjects or shell companies that are the subjects of Section 3, Paragraph one, Clauses 2 and 5 of the Law on PMLTF or shell companies, as well as the total budgeted or actual credit turnover of such customers within three months before establishing the correspondent banking relationship;
7.5.Acquire information about the purpose of opening a loro correspondent account and the intended activity therein, as well as about the service that the loro correspondent account will provide to the customers thereof within the scope of loro correspondent banking;
7.6.Acquire information about the customer’s (loro correspondent’s) other loro and nostro correspondent banking relationships;
7.7.Acquire information about the customer’s (loro correspondent’s), the group thereof (if applicable) or the parent company or the founding company if the customer (loro correspondent) is a branch or a subsidiary company, as well as of the customer’s (loro correspondent’s) subsidiaries or branches, if such have been established, internal control system in the field of preventing ML/TF, and assess the consistency thereof with internationally recognised standards and laws and regulations in the field of preventing money laundering and terrorism financing;
7.8.Ascertain that the customer (loro correspondent ) uses the information technology system appropriate for its ML/TF risk profile as well as carry out staff training on ML/TF matters;
7.9.Acquire the customer’s (loro correspondent’s) ML/TF policies and procedures and assess the consistency thereof with the following requirements:
7.9.1.The customer identification, due diligence, and transaction monitoring requirements are consistent with the internationally recognised standards;
7.9.2.ML/TF risk groups have been determined and the formation criteria thereof have been developed;
7.9.3.The fulfilment of the binding international and national sanctions has been ensured;
7.9.4.The measures aimed to minimise the customer’s (loro correspondent’s) the ML/TF risk and the procedure and criteria for the application thereof have been specified;
7.9.5. The requirements for the assessment of the efficiency and control of the internal control system in the field of ML/TF prevention (internal or external audit resources) have been developed;
7.9.6.The procedure for accepting, carrying out due diligence and supervision by the customer (loro correspondent) of its customers (loro correspondents) has been developed, including laying down the requirements for the downstream correspondent banking relationship; the procedure for the assessment of compliance by the customer’s (loro correspondent’s) customers (loro correspondents) with the ML/TF prevention policy and procedures and sanctions has been developed;
7.9.7. The procedure for determining the status of a politically exposed person (PEP), the family member of a PEP, and a person closely related to the PEP and for decision-making on establishing business relations has been developed;
7.9.8.The criteria for carrying out enhanced due diligence and the measures and procedure of enhanced due diligence have been specified.
8.The credit institution shall assess and document the information obtained as a result of the due diligence referred to in Paragraph 7 hereof, by determining the ML/TF risk level inherent to the customer (loro correspondent), and based on this assessment and the risk profile assigned to the customer (loro correspondent) under the procedure laid down in Regulation No. 234, take a grounded decision to establish or refuse to establish business relations with the customer (loro correspondent).
9. taking into consideration the customer’s (loro correspondent’s) ML/TF profile, the credit institution shall, on a regular basis, however, not less than once in 12 calendar months, update and assess the information referred to in Paragraph 7 hereof. The management board of the credit institution or a member of the management board especially authorised by the management board shall take the decision on carrying on the loro correspondent banking relationship if during the term of business relations, the information about the customer (loro correspondent) acquired during the due diligence changes significantly or the ML/TF risk related thereto increases significantly.
2.2. Customer (Loro Correspondent) Due Diligence during the Term of Business Relations
10. During the term of business relations, the credit institution shall carry out the customer (loro correspondent) due diligence, namely:
10.1.Verify whether the customer (loro correspondent) uses downstream for providing loro correspondent banking services to correspondents, as well as determine who are the customers (downstream correspondents), obtaining at least the following information:
10.1.1.The nature of the business activity of the customer’s (loro correspondent’s) customers – downstream correspondents, services and products offered by them, the delivery channels of their products and services, the territory of activity, the customer base (the share of natural persons and legal entities, the share of residents and non-residents, the countries of registration and the principal place of business of customers, the business activity, etc.), reputation, supervision, the internal control system, the ML/TF risk management measures;
10.1.2. The measures for monitoring transactions carried out by the customer (loro correspondent) within the scope of downstream correspondent relations;
10.2.Verify whether the customer (loro correspondent) offers services with direct access to the loro access account (payable-through account services), and determine the customers thereof which can use these services;
10.3. Ascertain the consistency of the nature of transactions carried out in the loro correspondent account and the extent thereof for consistency with the originally specified purpose of the use of the loro correspondent account;
10.4.Carry out regular monitoring of the transactions of the customer’s (loro correspondent’s) customers that make payments through the loro correspondent account, and, if necessary, get hold of the information supporting the transactions.
11. In taking the due diligence measures referred to in Paragraphs 7 and 10, the credit institution shall acquire information from the publicly available resources of the supervisory authorities of the customer (loro correspondent), other independent and trusted sources of information, as well as, if necessary, visit the headquarters of the loro correspondent, arrange meetings with the customer's (loro correspondent’s) staff responsible for the prevention of ML/TF, fulfilling of the sanction requirements, and correspondent banking relationships, get hold of documents and carry out other activities aimed at acquiring as complete and objective information as possible.
12.In monitoring transactions in the loro correspondent account, the credit institution shall acquire information from the customer (loro correspondent) about the key customers thereof, the documents supporting the business relations and other necessary information if at least one of the circumstances are identified:
12.1.The correspondent account is used for carrying out such transactions, which are not typical to the current use of the loro correspondent account;
12.2.During the specified period there has been an increase in the number of transactions without an obvious basis; or fluctuations in the extent or nature of transactions occur;
12.3.There is a large number of refunded or refused payments in the loro correspondent account;
12.4.Untypically high or sophisticated transactions with the involvement of a number of countries, territories, customers or financial institutions are carried out using the loro correspondent account, and the credit institution is suspicious that the purpose of such transactions is to hide the origin, ownership or control of the funds;
12.5.Transactions with the involvement of shell companies are carried out using the loro correspondent account;
12.6.Transactions with the involvement of the mentioned countries and territories referred to in Paragraph 31 of Regulation No. 234 are carried out using the loro correspondent account;
12.7.The loro correspondent account is used to carry out transactions with the involvement of such persons regarding which the credit institution or the customer (loro correspondent) have information of an unfavourable nature, especially in relation with the violation of ML/TF requirements, international or national sanction requirements, or attempts to carry out such activities, or commit other illegal offences;
12.8. The credit institution is suspicious that the loro correspondent account is used for activities related to the violations of the ML/TF requirements or international or national sanctions.
2.3. Monitoring the Transactions of the Customer (Loro Correspondent)
13.The credit institution shall account for and document all payment orders sent on behalf of the customer (loro correspondent) or received on behalf of it, using any communication and payment order exchange channel to make the payments, including SWIFT, Internet Bank, TELEX, etc., ensuring that the customer’s (loro account’s) internal clearing payment orders are accounted for and documented separately.
14.The credit institution shall ensure that the information specified in the payment order forwarded or received on behalf of the customer (loro correspondent) is not changed, adjusted or otherwise modified with a view to hiding it or avoiding disclosing it, and in transactions carried out by the customer (loro correspondent) no such payment message formats or channels, the purpose whereof is to hide or avoid disclosing a payment and the information contained therein, are used, including the information received from other credit institutions involved in making the payment.
15.The credit institution shall ensure enhanced supervision of the customer’s (loro correspondent’s) interbank clearing transactions throughout the term of the business relations, assess the ML/TF and sanctions risks related to the said transactions, and take measures aimed at minimising the said risks.
16.Where it has been identified or there are suspicions that the customer (loro correspondent) seeks to evade compliance with international or national sanctions, the credit institution shall carry out all the payments of the customer (loro correspondent) that are carried out using the loro correspondent account, enhanced supervision, taking measures aimed to minimise the ML/TF risk, at least three months from the date when the credit institution has identified the circumstances specified herein, as well as consider terminating the business relations with the customer (loro correspondent).
17.The credit institution shall ensure the enhanced monitoring of the transactions of the customer (loro correspondent) pursuant to Regulation No. 234 for as long as the circumstances referred to in Sub-paragraphs 17.1 - 17.4 hereof persist:
17.1.Sanctions for violations of the ML/TF requirements or deficiencies have been applied to the customer (loro correspondent) within the last five years, or the credit institution is suspicious of the involvement of the customer (loro correspondent) in ML/TF related activities or international or national sanctions;