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29 November 2016 Regulations No.196
Riga (Financial and Capital Market Commission, minutes of the Council’s
meeting No. 42, par. 2)
Regulations for Cooperation with Third Parties and Requirements for Business Relations with the Customers whose Identification or Due Diligenceis PerformedUsing Third Party’s Services
Issued pursuant to Clauses 4 and 8, Paragraph two, Section 47 of the
Law on the Prevention of Money Laundering
and Terrorism Financing
I.General Provisions
1.Regulations for Cooperation with Third Parties and Requirements for Business Relations with the Customers whose Identification or Due Diligence is Performed Using Third Party’s Services (hereinafter referred to as the “Regulations”) shall determine the requirements for cooperation of credit institutions, payment institutions and electronic money institutions, as well as their subsidiaries of Member States and third countries (hereinafter all jointly referred to as the “Institution”) with third parties which conduct identification of customers or obtain information necessary for due diligence of customers in the interests of the Institution (hereinafter referred to as the “Agent”), and for business relations with the customers whose identification or due diligence requires information provided by the Agent.
2. The purpose of the Regulations is to ensure that the Institution, which uses the Agent services for identification of customers in the interests of the Institution or for obtaining the information necessary for due diligence of customers (hereinafter referred to as the “Agent Services”), takes efficient and appropriate measures in order to mitigate the money laundering and terrorism financing (hereinafter referred to as the “ML/TF”) risk related to the use of the Agent Services.
II.Provisions and Procedure for Use of the Agent Service
3.Prior to the commencement of the use of the Agent Services, the Institution, shall assess, substantiate and document the need for such a Service, determine the countries or territories where the Service will be used, and assess related risks, as well as envisage the measurements necessary for mitigation of ML/TF risk and mitigation of related reputational and operational risks.
4. A decision to engage in cooperation with the Agent shall be approved by the Management Board of the Institution or a Member of the Management Board, who is responsible for prevention of ML/TF at the Institution, on the basis of the assessment of risks related to cooperation with the relevant Agent which has been prepared by the responsible employees of the Institution.
5.The Institution shall also be liable for compliance of identification or due diligence of a customer with the legal requirements for prevention of ML/TF in the case where the identification or due diligence of the customer has been conducted by using the Agent Services.
6.The Institution shall not use the Agent Services in the following cases:
6.1. if the Agent, a beneficial owner or a representative thereof is the following:
6.1.1. a person against whom international or national sanctions have been imposed in accordance with the Law on International Sanctions and National Sanctions of the Republic of Latvia;
6.1.2. a person who gains benefits or implements control in the Institution or affiliated body thereof, except for the case where the affiliated body, which provides Agent Services, is a parent body or a subsidiary of the Institution - a credit institution;
6.1.3. a person for whom information causes certain doubts as to the reputation of this person;
6.1.4. a person whose transactions have been reported by the Institution to the Prevention of Money Laundering Service as suspicious transactions, or a person related to such a person in accordance with Article 4(1)(39) of the Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No.648/2012;
6.2. in any other cases specified by the Institution in its policies and procedures.
7. Using the Agent Services the Institution shall ensure the following:
7.1. the Agent conducts identification of a customer, and the customer personally participates in the identification procedure (hereinafter referred to as “face-to-face”);
7.2. the Agent is not entitled to subcontract any third party for the provision of the Agent Services;
7.3. the Institution does not establish business relations with a customer identified by the Agent, and conducts identification of the customer itself prior to the taking of a decision to establish business relations if the customer is potentially connected to ML/TF. The Institution shall ensure that the Agent immediately informs the Institution if the Agent is aware of the information about possible connections of the customer with established or potential ML/TF;
7.4. the Institution does not establish business relations with a customer, identified by the Agent and conducts identification of the customer itself prior to establishment of business relations, if the customer is a politically exposed person, a family member thereof or a person closely related to a politically exposed person, or a representative, beneficial owner or shareholder of the customer is a politically exposed person, a family member thereof or a person closely related to a politically exposed person. The Institution ensures that the Agent immediately informs the Institution, if the customer is a politically exposed person, a family member thereof or a person closely related to a politically exposed person, or a representative, beneficial owner or shareholder of the customer is a politically exposed person, a family member thereof or a person closely related to a politically exposed person;
7.5. if the Agent is a legal entity, the Agent commences or continues to provide Agent Services after the Institution has assessed compliance of professional training, experience and reputation of the persons that provide Agent Services on behalf of the Agent (hereinafter referred to as the “Agent’s Representative) with the Institution’s requirements for the ML/TF prevention policies and procedures, and the Institution has given its written consent to the provision of Agent Services by the Agent’s Representative on behalf of the Agent, determining the scope of authorisation of the Agent’s Representative. The Institution has the right to withdraw its consent if the Agent's Representative does not act in line with the ML/TF prevention policies and procedures;
7.6. the Agent immediately notifies the Institution of any termination of a legal relationship with the Agent's Representative;
7.7. the Agent informs the Institution of any cases in which the Agent or the Agent's Representative is involved in a breach of requirements for ML/TF prevention or attempt thereof.
8.The Institution shall establish policies and procedures for use of the Agent Services stipulating at least the following:
8.1. countries and territories where Agent Services are used, types of customers whose identification is performed or due diligenceinformation is obtained using the Agent Services, and type of business or personal activities of a customer whose identification is performed or due diligence information is obtained using the Agent Services;
8.2. ML/TF risk mitigation measures using the Agent Services;
8.3. requirements and criteria for adequacy of professional experience, competence and reputation of the Agent or the Agent’s Representative;
8.4. procedure for commencing cooperation with the Agent;
8.5. uniform requirements for the Agent Service agreements;
8.6. scope of authorisation of the Agent and the Agent’s Representative;
8.7. measures for prevention of potential conflicts of interests of the Agent throughout the use of the Agent Services;
8.8. requirements for confirmation of face-to-face identification of a customer i.e. who, where and when has conducted identification of the customer, and requirements for documentary confirmation of rights of the customer and the Agent or the Agent’s Representative to be located in the country where the identification has been conducted at the moment of identification;
8.9. procedure for informing a customer of the Institution’s decision to establish business relations;
8.10. procedure for registration of the information related to the Agent and Agent Services envisaging that the Institution creates, maintains and regularly updates an appropriate register;
8.11. requirements for assessment of quality and compliance of the Agent Services with the Institution’s ML/TF prevention policies and procedures throughout the use of the Agent Services;
8.12. conditions for extension or limitation of cooperation with the Agent on the basis of the quality assessment of the Agent Services;
8.13. procedure for suspension of cooperation with the Agent.
9.Prior to commencement of the use of the Agent Services the Institution shall ensure fulfilment of at least the following requirements:
9.1. to identify the Agent, the Agent's Representative and the beneficial owner in accordance with the Institution’s ML/TF prevention policies and procedures;
9.2. to examine business or personal activities of the Agent in order to make certain that these activities have a clear legal and commercial purpose and comply with the Institution’s ML/TF prevention policies and procedures;
9.3. to assess compliance of professional training, experience and reputation of the Agent or the Agent’s Representative with the Institution’s ML/TF prevention policies and procedures;
9.4. to check whether the Agent, the Agent's Representative or the beneficial owner corresponds to the restriction referred to in Clause 6.1.1 of the present Regulations, and assess whether any ML/TF risk or reputational risk-increasing factors are present with regard to the Agent or the Agent’s Representative in accordance with the Institution’s policies and procedures;
9.5. to assess whether any business or personal activities of the Agent or the Agent's Representative cause any conflict of interest to the Agent during provision of the Agent Services;
9.6. to check whether the Agent or the Agent's Representative is involved in a breach of requirements for ML/TF prevention or attempt thereof;
9.7. to enter into a written agreement with the Agent on provision of the Agent Services.
10.The Institution shall be obliged to immediately suspend cooperation with the Agent, if the Agent:
10.1. fails to provide or does not provide in a timely manner the information necessary for the Institution under the Agent Service agreement;
10.2. provides the Institution with misleading information about itself or the customer whose identification or due diligence requires the use of the Agent Services;
10.3. has caused or may cause damage to the Institution’s reputation through its practices;
10.4. has provided guidance to a customer with the aim of avoiding fulfilment of the ML/TF prevention requirements, or contributed to the formal fulfilment thereof;
10.5. fails to comply with the confidentiality requirements;
10.6. fails to fulfil the requirements for quality or documentation of the Agent Services under the Agent Service Agreement;
10.7. is involved or the Institution suspects that the Agent is involved in the ML/TF.
III.Agent Training
11. The Institution shall ensure that the Agent and the Agent's Representative are aware of the legal and institutional requirements for ML/TF prevention when commencing provision of the Agent Services and throughout the cooperation with the Institution.
12.The Institution shall develop a training programme for ML/TF prevention for the Agent, covering at least the following issues:
12.1. legal regulations regarding ML/TF in the Republic of Latvia and the Institution;
12.2. limitations to the Agent’s activities during provision of the Agent Services;
12.3. requirements for the information necessary for identification and due diligence of customers;
12.4. recognition and verification of the signs of authenticity of documents;
12.5. presentation and certification of copies of the documents necessary for identification of customers in accordance with the laws and regulations of the Republic of Latvia and in line with institutional requirements.
13. The Institution shall ensure regular training of the Agent and the Agent’s Representative at least once a year, as well as ensure assessment of knowledge of the Agent and the Agent’s Representative after completion of the training course by documenting information about the training venue, time, content and assessment of knowledge.
14. The Institution shall update the training programme for ML/TF prevention for the Agent in accordance with any changes in laws and regulations or ML/TF prevention policies and procedures of the Institution.
15. The Institution shall be obliged to inform the Agent of the current requirements for the information necessary for identification and due diligence of customers. The Institution shall ensure that the Agent and the Agent's Representative acknowledge in writing that they are informed of the requirements for the information necessary for identification and due diligence of customers, and undertake to obey them.
16.The Institution shall ensure that the Agent may consult with the responsible employees of the Institution about identification of customers, verification of the authenticity of documents, risks related to ML/TF, services offered by the Institution and other issues at stake.
17.The Institution shall establish procedures and explanations for the Agent on the obtaining of the information necessary for identification and due diligence of customers.
IV.Register of Agents and Monitoring of Quality of the Agent Services
18. The Institution shall establish a register of agents indicating the following:
18.1. name of the Agent;
18.2. number and date of conclusion of the Agent agreement;
18.3. duration of the agreement;
18.4. regions specified for the Agent Services and limitations imposed thereon, if any;
18.5. description of the business and personal activities of the Agent;
18.6. identification data, pursuant to the Law on the Prevention of Money Laundering and Terrorism Financing, and according to the scope of authorisation of each Agent’s Representative, provided the Agent is a legal entity;
18.7. information on customers whose identification or due diligence require the use of the Agent Services, and risk scoring of these customers prior to establishment of business relations;
18.8. date of quality assessment of the Agent Services, identified deficiencies in the Services provided by the Agent, and quality assessment of the Agent Services;
18.9. the Institution's decision on the establishment of business relations with each customer whose identification or due diligence require the use of the Agent Services, indicating the identification number of a customer in the Institution;
18.10. date of the Agent training;
18.11. any other information relevant to the Agent’s activities, such as account numbers for payment of commissions due to the Agent.
19.The Institution shall regularly, but at least once a year, assess compliance and quality of the Agent Services and summarise the results of the assessment.
20.The Institution shall include in the summary of results from the assessment of compliance and quality of the Agent Services the information about compliance of the Agent Services with the institutional requirements, compliance of transactions of the customers whose identification or due diligence has been conducted using the Agent Services with the information provided initially, and compliance of a customer with his/her initial risk profile, the Institution’s decision on establishment of business relations with the customers whose identification or due diligence has been conducted using the Agent Services, as well as any other information relevant to the compliance and quality of the Agent’s activities.
21.If the information about the customer whose identification or due diligence has been conducted using the Agent Services does not comply with the policies and procedures of the Institution, the Institution shall inform the Agent in a timely manner of the identified deficiencies and decide on additional training for the Agent or the Agent’s Representative, or ask the Agent to withdraw the authorisation of the Agent’s Representative, or suspend cooperation with the Agent.
22. The Institution shall regularly update the information about the Agent, the Agent's Representative and scope of authorisation thereof, provided the Agent is a legal entity, as well as check whether international or national sanctions have been imposed against the Agent, the Agent’s Representative or the beneficial owner in accordance with the Law on International Sanctions and National Sanctions of the Republic of Latvia.
23.The Institution shall document and, at least once a year, submit a quality assessment of the Agent Services and impact of use thereof on ML/TF risk exposure of the Institution. The Management Board or a Member of the Management Board, who is responsible for prevention of ML/TF at the Institution, shall take a decision on future cooperation with the Agent on the basis of the quality of the Agent Services and results of business activity of the Agent.
V. Requirements for Business Relations with the Customers whose Identification or Due Diligence Requires Use of the Agent Services
24.The Institution shall consider and take into consideration the risks inherent to the customer whose identification or due diligence has been conducted using the Agent Services, and determine appropriate control and monitoring measures in order to make sure that the said risks are identified and appropriately managed in a timely manner.
25. The decision to commence cooperation with the customer whose identification or due diligence has been conducted using the Agent Services shall be taken by the Institution. The Institution shall ensure that the Agent is only entitled to inform the customer of the Institution’s decision after the Institution has taken and documented the decision to establish business relations with the customer or refused to establish them.
26. If the information about the customer whose identification or due diligence has been conducted using the Agent Services does not comply with the ML/TF policies and procedures of the Institution, the Institution shall not accept documents of the customer asking the Agent to ensure documents compliant with the requirements or refusing to establish business relations with the customer.
27.The Institution shall ensure that its information system enables it to select the customers whose identification or due diligence has been conducted using the Agent Services. The Institution shall ensure the possibility to select the customers whose identification or due diligence has been conducted using the Agent Services and who have been refused the establishment of business relations, indicating whether the establishment of business relations has been refused due to incomplete activity of the Agent or any other considerations of the Institution.
28.The Institution shall ensure that a credit turnover limit is imposed on a customer whose identification has been conducted using the Agent Services, and this limit shall not exceed a three-month credit turnover threshold for transactions with an increased ML/TF risk, as stipulated by the Financial and Capital Market Commission’s Regulations which determine requirements for enhanced due diligence for credit institutions and licensed payment and electronic money institutions, and the Institution shall itself conduct repeated identification of the customer in his/her presence not later than three months after the establishment of business relations, provided any of the following conditions are present: