Bank control over financial operations: a risk aversion tool or a bureaucratic procedure for a business?

In early 2014, the situation in the Ukrainian economy significantly deteriorated. The devaluation of the hryvnia caused a sharp deterioration in the financial situation of citizens and business. Such changes could not affect the banking system of the country, through which virtually all financial transactions are carried out. During 2014-2017, 88 banks were declared insolvent, almost all of them “flared up” and only one resumed its activities. Many of these banks carried out risky operations and issued doubtful loans. Taking into account this tendency, the National Bank began to take certain steps to stabilize. On August 15, 2016, the NBU adopted Resolution No. 369, which approved which approved the order by which banks carry out the verification of participants in financial transactions and related documents. The purpose for which this decision was made was to prevent banks from carrying out risk activities. The Regulation came into force on September 1, 2016, and became mandatory for all Ukrainian banks, their separate subdivisions and branches of foreign banks in Ukraine.
Cases in which banks perform analysis and verification
The essence of a risky financial transaction is a threat to depositors and lenders in the event of its implementation, as well as the Bank committed any actions related to questionable money that could have been obtained in a criminal way, were used to facilitate the accomplices or to conceal their origin. An exhaustive list of operations is established in clause 3 of the Regulation. Having analyzed the cases in which the bank is being monitored, it can be concluded that all of them are related to the acquisition of foreign currency and transfers of funds abroad, or with the transfer of funds to accounts of non-residents in connection with the execution of contracts, or investment by foreigners. The effect of the norms on the need for inspection and analysis by the bank of documents and participants of the above-mentioned financial transactions applies to all clients of the bank, both Ukrainian and branches of foreign banks.
Exceptions to which verification is not performed
However, financial transactions in which monitoring is not carried out are also indicated in the provision. An exhaustive list of exceptions is set forth in clause 4 of this provision. If to generalize, then these operations are related to state guarantees, international assistance, cooperation with international companies and organizations. Also, financial transactions in the field of scientific and technical activities and within the framework of cooperation between Ukraine and the EU are included here. If the transaction amount is less than UAH 150,000 and there are no indications of the division of the aggregate into several small operations, the verification will also not be performed.
The procedure for checking and analyzing documents and participants in financial transactions
The bank’s employees are involved in the analysis and verification of information about the transaction, as well as its participants. These actions must be carried out prior to the time of such operation and submission of documents to the National Bank (Clause 5 of the Regulation). In cases where verification of information may be carried out using open sources, in particular the Internet, clients can not to send transaction-related documents (clause 9 of the Regulation). This norm establishes the duty of bank employees to independently search the documents required for verification and information on subjects of financial transaction in all available open networks. That is, if the bankers found all the data on the Internet, then they should not require any documents from the client. And this is logical, since any check is the time taken for the entrepreneur or the company.
However, if the information required for verification is not placed in open sources, or this information does not contain all information, and if there are signs of a risky banking operation, the bank may require the client or his representative to submit additional documents (clause 8 of the Regulation). This rule establishes the right of the bank and the client’s duty to provide relevant documents for their further analysis and verification.
Under the indicator of a risky financial transaction in the situation, the NBU’s features of financial transactions, which make it possible to assign them to risky ones, are meant. When verifying documents and participants of operations, the bank establishes the following: the purpose of the transaction, its compliance with the activities of participants, establishing economic feasibility and financial capacity for its implementation, as well as studying participants in such an operation and identifying sources of origin of funds. According to the results of the inspection, the bank makes a conclusion.
Documents submitted for analysis and verification
The documents that a bank can claim from customers is different for each case. For the most part, this is information that confirms the financial ability of the client, the origin of the funds. If the transaction is carried out by a legal entity, information about the end-owners is required. Also, the contracts that are the basis for transactions or documents confirming the payment by the client of taxes and the exemption of a non-resident from taxation may be claimed. The exact list of documents, for each case, is set out in the annexes to the provision.
What about bank abuse?
In our reality, bank employees often ignore the need to independently search for their information in open sources, in particular on the Internet, and they require documents from clients without any steps to find the information they need on their own. Such delay on the part of banks hinders the effective implementation of economic activity, but at the moment there is no effective tool for rapid influence on bank employees. An exit for a client can be an appeal to a lawyer and filing a complaint against such employees to the management of the bank, as well as an appeal to a court with a claim to terminate an action that violates the right or to terminate an agreement with the bank and the search for a new bank for cooperation, if all the necessary information is open access, and the bank does not continue to agree to conduct an operation without the client submitting the documents.
The lawyer association “Bachynskyy, Kolomiets & Partners” will provide you with detailed advice and assistance in case of problems with this issue of the above-mentioned financial transactions applies to all clients of the bank, both Ukrainian and branches of foreign banks.

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