The Latvian banking sector started a significant and comprehensive improvement process in 2016 to ensure the highest standards in countering money laundering and terrorist financing as well as to facilitate sustainable development of the banking sector. The improvement of the compliance process is carried out both by the Finance Latvia Association (Association) and by each bank individually.
The Association is committed to achieving the highest anti-money laundering and combating the financing of terrorism (AML/CFT) compliance standards among member banks within the next 2 to 3 years.
Improvements fall into five main compliance categories:
- Corporate governance
- Internal controls
- Training of banking staff
- Independent testing
- Automated banking system enhancement, with a special focus towards internal controls.
Major step in AML/CFT: higher standards through industry self-regulation
In October 2017, the Council of the Association approved Policy Guidance and Guidelines on Anti-Money Laundering, Countering Terrorism Financing and Enforcement of Sanctions. This marks a new direction of activities of the Association and confirms high professional maturity of the banking industry.
The Association will follow the implementation of guidelines by the members of the Association and, based on risk assessment and the development of generally accepted standards, will develop the existing guidelines or, if necessary, issue new guidelines.
Finance Latvia Association has carried out an assessment of the shared KYC utility
- Each country has its own approach to the development of the shared KYC utility
- The shared KYC utility provides a significant input in combating financial crime
- The shared KYC utility enables greater use of innovation in preventing and combating financial crime
Resource sharing and widespread usage of innovation in combating financial crime has become the spotlight of today’s world. Special attention is drawn to the continuous improvement of customer due diligence and development of platforms for information sharing. The goal is clear and unequivocal: strengthen the ability to reduce the risks associated with money laundering and terrorism financing (ML/TF).
Currently, each country and financial institution chooses solutions that are most convenient for itself, resulting in multiple individual solutions. However, in order to achieve the highest standards of compliance, it is essential that each country, in collaboration with its financial sector and the largest actors of the real economy, decides on the single best way for the development of the shared KYC utility. Such cooperation would bring remarkable benefits since a country which achieves and maintains the highest standards of compliance improves its reputation and credibility in the international setting, reduces the overall administrative burden, and decreases the costs of business partner and customer due diligence.
Continuing its endeavor of ensuring compliance with the best world practice in the field of compliance in Latvia, the Finance Latvia Association (hereinafter – Finance Latvia) has prepared a report on the possibilities of introducing the shared KYC utility in Latvia. The report provides a broad insight into possible models and their advantages but does not itself propose to create a one.
“Last year, an innovative solution was implemented in Latvia – a public-private information sharing partnership. The roots of this model can be found in the United Kingdom. On November 23, 2018, high-level workshops were held in Riga on the topic of the best available technological solutions for “Know Your Customer” principle’s implementation, and for information sharing partnerships that would lead to more effective combating of financial crime “AML/CFT: RegTech & Partnerships”. These events were organized by Finance Latvia in collaboration with ACAMS Baltics Chapter, Microsoft and Citadele. After assessment of opinions and information provided in the events, and cooperation with representatives of public and private sector, Finance Latvia has prepared a report on the possibilities of implementing the shared KYC utility in Latvia.”
– Jānis Brazovskis, CAMS, board member, Finance Latvia.
The main findings of the Finance Latvia report on the possible models of the shared KYC utility:
- some obliged entities may outsource shared KYC utility services inter alia by creating a joint venture regarding all or a particular part of the due diligence process; such model is currently envisaged by the European Commission in the newly agreed Nordic KYC utility project;
- the shared KYC utility would work similarly to the way any credit information bureau does, allowing obliged entities to exchange information for the purpose of AML/CFT risk management in a standardized way (presentation of Jānis Timermanis, Head of A/s “Kredītinformācijas birojs” on KYC Utility and other innovations for AML, in Oslo (Norway) on June 11 is available here. Additional information: Shared KYC utility Edgars Pastars Association May 2019 and KYC-models-and-mechanisms-Ragnar-Toomla-SEB-May-2019);
- an individual stores his/her identification data and the key data from public registries (including tax payments) in a specified way, and is able to transfer that data to a merchant or obliged entity without having to fill out detailed questionnaires each time on the data that is at the disposal of the state; the model operates in Singapore, and is currently being discussed in the Baltics within the framework of a project financed by the European Commission (DIGINNO KYC project – Is cross-border KYC possible? Rainer Osanik presentation PDF).
Additional emphasis is placed on the following:
- the shared KYC utility does not provide an exception to not perform customer due diligence or solely rely on the due diligence carried out by another obliged entity;
- the shared KYC utility merely provides the obliged entities and merchants with additional information that they would otherwise not be able to obtain;
- the shared KYC utility would reduce the need for the client and business partner to submit the same information numerous obliged entities or business partners.
The report emphasizes that, generally, the shared KYC utility would apply to corporates, whereas to individuals merely in specific, high-risk cases or if the person him-/herself is willing to transfer his/her personal data using the shared KYC utility. The full report can be found here: KYC utility report June 2019 PDF
Compliance Status Review on progress and planned actions
Latvia Association_presentation_11012018 Banking provides an industry level overview of the accomplishments in the field of compliance since 2016, as well as future plans of the Association and the industry in general.
During 2016, 11 member banks of the Association undertook independent AML/CFT compliance reviews conducted by the US-based compliance firms (Navigant, Exiger and Lewis Baach Kaufmann Middlemiss). Following the reviews, the banks adopted remediation plans to implement the improvements needed to reach full compliance with US standards on top of the EU applicable standards.
The aim of the review was to ensure that the highest industry standards were met, highlighting the areas for improvement. Good results are seen due to applying the following increased AML/CFT standards:
- 90% of the remediation plan actions introduced by September 2017. All items included in the plans are planned to be introduced by the end of 2017, the beginning of 2018.
- Latvian banks are cooperating with the customers whose financial histories they are aware of, avoiding customers with increased risk. The number of de-risked clients in 2016 was reduced by an additional 39% compared to 2015.
- Special attention was paid to the further automation of processes. Significant investments in IT systems automate the monitoring of customers and their transactions to the maximum extent possible and are effective tools for the more timely identification and elimination of potential illegal actions.
Major Enhancements and Other Relevant Developments individually by banks
Individual factsheets by member banks provide detailed information on major enhancements in AML/CFT compliance and other key developments.
Baltic International Bank
ABLV Bank (Since February 16, 2018 ABLV Bank membership in the Finance Latvia Association has been suspended; on March 6 ABLV Bank has terminated its membership)