Banks, as well as other obliged institutions, are facing a number of challenges echoing the ongoing war in Ukraine. First of all, they are obliged to adjust their business model, product offer and agreements to the requirements of the PFSA's Statement, i.e., to the requirement to provide refugees with a basic payment account and to update their agreement templates in a way that allows them to establish business relations with refugees. Secondly, and seemingly even more challenging, banks are required to screen their existing clients, their beneficial owners and their contractors for being on sanctions lists and, if necessary, to update their risk assessment or apply appropriate mitigating measures.
The war in Ukraine affects almost every sphere of the economy, including the activity of banks. The main challenges that banks have had to face in the space of just a few days are first and foremost the implementation of sanctions imposed on Russia and Belarus and the adjustment of their services to meet the needs of the growing influx of refugees from across the eastern border. Both aspects have already been addressed by EU and national supervisory authorities. On March 4, the Polish Financial Supervision Authority ("PFSA") issued a Statement on the PFSA's position on banking services for refugees from Ukraine (the "PFSA Statement"). The issue of international sanctions was addressed by the EU Banking Authority ("EBA") in its Statement of March 11 (the "EBA Statement"). Below please find a summary of the main provisions of both Statements and a recapitulation of the key actions banks are forced to take in the face of the ongoing armed conflict in Ukraine.
In connection with Russia's aggression towards Ukraine, many countries and institutions have decided to impose a series of economic and financial sanctions on Russia and Belarus. The European Union, Switzerland, the United States and the United Kingdom, among others, have decided to take such a step. The catalogue of sanctions is very extensive and is being constantly expanded. The most severe measures for Russian and Belarusian entities are their removal from the SWIFT network, the freezing of assets and a ban on making funds available to entities on the sanctions lists.
Banks, as institutions obliged under the Anti-Money Laundering and Countering the Financing of Terrorism Act (the “AML Act”), are required to apply specific restrictive measures against entities on the sanctions lists indicated in Article 118 of the AML Act. Specific restrictive measures consist of:
In view of the growing catalogue of sanctions imposed on Russia and Belarus and the inclusion of more and more entities on sanctions lists, banks are likely to apply specific restrictive measures much more frequently than before.
In addition to the requirements imposed by the AML Act, banks will be required to directly apply the provisions of EU regulations imposing other specific restrictive measures. In view of the growing catalogue of EU sanctions imposed on Russia, the EBA indicates in its Statement the readiness to coordinate the flow of enquiries from financial institutions to the European Commission on concerns relating to issues of application of specific restrictive measures. These enquiries should be addressed to firstname.lastname@example.org.
Sanctions imposed by the United States, Switzerland and the United Kingdom likewise are not without impact on the risk assessment of domestic obliged institutions - the inclusion of entities on sanctions lists may, in accordance with the recommendation of the Polish FIU, be taken into account when assessing the risk of customers and contractors of obliged institutions. Banks should therefore not lose sight of the need to apply a risk-based approach. The EBA guidelines on risk factors for money laundering and terrorist financing should prove helpful to banks in this respect.
Adaptation of banking services to the needs of Ukrainian refugees
In connection with the war in Ukraine, we are witnessing an unprecedented influx of refugees from across the eastern border into the Republic of Poland. In just over two weeks, Border Guard officers cleared 1.720 million people fleeing Ukraine to Poland at border crossings. In this situation, it is necessary for banks to immediately implement an offer addressed to refugees, providing them with access to basic payment services and facilitating the distribution of financial support intended for refugees. This expectation was also expressed by the PFSA, indicating in the PFSA’s Statement that such a product should include at least:
The basic payment account issue raises several potential issues. Firstly, the issue of cross-border operations and the possibility for banks to charge fees for them may prove problematic - under Article 59 ie., paragraph 5 of the Payment Services Act, charging such fees is possible, but it is not entirely clear how this provision relates to the recommendation in the PFSA Statement that completely waives fees.
In this context, the statement of the PFSA on remote establishment of business relations with a client, described by us in the last legal alert, is also gaining in importance (link). PFSA does not exclude the possibility of establishing business relations with refugees in remote form, but it should be kept in mind that if the bank assesses the risk related to such relations as increased, it is permissible to exclude the possibility of remote identification and verification in relation to specific groups of entities, e.g., persons who are not citizens of Member States or politically exposed persons. The EBA's Opinion on due diligence for asylum seekers may also be helpful in this context.
Another challenge the banks are facing, which we would like to draw your attention to, is the need indicated by the PFSA to prepare agreements (and all documents annexed to agreements) in as many as three equivalent language versions - Polish, English and Ukrainian.
The PFSA's Statement is the first to address the issue of adapting banking products to the needs of refugees, who are becoming a growing group of bank customers. It refers only to the issue of basic payment accounts, without yet addressing issues that will certainly pose huge challenges for banks in the future, such as granting loans to refugees or mass exchange of the hryvnia into zloty.
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