NBU head vows to monitor banks' compliance with risk-oriented approach to PEPs

MOSCOW. Oct 20 (Interfax) - The adoption of a bill by Ukraine's Verkhovna Rada that the term of Political Exposed Person (PEP) status will no longer be limited by three years at a time formalizes mechanisms that set of banks' formalistic approaching to financing monitoring of PEPs and the use of disproportionate measures in relations to them, National Bank of Ukraine (NBU) Governor Andrei Pyshny said.

"Therefore, I can repeat once again what was said to the banks: the NBU will not tolerate an approach in the future whereby the best way to avoid hassle with PEPs is to refuse to serve them altogether," Ukrainian media outlets quoted Pyshny as saying in a statement on social media on Thursday when responding to the massive criticism drawn by this draft legislation on social media.

Ukraine has a record of banks' very formalistic approach to serving PEPs, which includes groundlessly treating all PEPs without any exception as high-risk clients, which is one of the reasons behind the criticism of the new legislation, he said.

"However, we are changing the situation. And the situation is changing. It is the risk-oriented approach that banks ought to apply in practice," Pyshny said.

Banks already know how to work with PEPs, as the NBU issued the first such recommendations to them back in 2021 and in 2023 introduced the relevant amendments to its regulatory legal acts and thoroughly explained them to the banks, he said.

"In the end, there are very considerable fines if financial institutions refuse to apply the risk-oriented approach," he said.

The law envisages fines of up to 1.7 million hryvni for non-bank institutions, while the NBU's regulatory acts permit fines up to 10 million hryvni for banks, Pyshny said.

"And I can assure you that we will resort to them if there are grounds for that," he said.

"This issue is surrounded by a great deal of manipulation rather than constructive ideas," Pyshny said. He proposed studying the norms of the new law in detail and learning more about the regulatory standards that will be introduced, including by the NBU, Pyshny said.

Pyshny denied the opinion that all PEPs will be subject to lifelong tightened financial monitoring and will have to substantiate and confirm every transaction.

"PEPs, like other clients, can be treated as a low, medium and high risk. A priori, only foreign PEPs are assigned the high-risk level [...] What does the law say? Twelve months after a PEP finishes to fulfill his public functions and a bank makes sure that there are no PEP-related risks (the level of influence, the scope of authority in the past, connection between the past and current duties), standard financial monitoring procedures will start to be applied, like to any other client," he said.

Regardless of what is being said, the norms of the adopted PEP legislation meet both FATF standards, EU Directive 2015/849 and the International Monetary Fund's requirements for access to macrofinancial assistance, he said.

"Ukraine is clearly committed to joining the EU and has obligations to international partners, so it must abide by internationally recognized rules. This law is an element of the state's anti-corruption transformation," Pyshny said.