The National Bank of Ukraine together with the European Bank for Reconstruction and Development have assessed de-risking effects in the banking sector of Ukraine and drafted a comprehensive program to eliminate its triggers.
De-risking is a phenomenon when financial institutions cease or restrict business relationships with clients to avoid risks rather than manage them. It creates significant barriers for Ukrainian banks to access the international market and make payments in foreign currency. In particular, during 2016-2017, due to the tightened regulatory requirements and higher compliance expenses in the developed economies, many Ukrainian banks lost the direct correspondent relationship with American and European banks.
Among the main triggers of de-risking we can highlight the following:
- The volume of business with correspondent banks does not cover the compliance expenses.
- Necessary information on payment services provided to correspondent banks is not available for an adequate risk assessment.
- Clients are located in jurisdictions that are considered too risky, or the products/services/customer base of the correspondent bank show increased risk.
To restore correspondent relationship, Ukrainian banks need to train staff, substantially rebuild their business processes and provide disclosure in accordance with international standards on compliance and combating financial crime. Ukrainian banks must comply with these standards at the level of the largest international banks.
In order to help with this difficult task, in 2018, for the first time in its history, the International Compliance Association (ICA) and the EBRD jointly funded scholarships for employees of Ukrainian banks, as well as banks from the Republic of Belarus, Uzbekistan and Morocco.
In 2018, 40 employees of Ukrainian banks and 10 employees of the NBU were trained at the NBU Training Center and received ICA professional certification in the following areas: Know your customer (KYC), Customer Due Diligence (CDD), Trade-based money laundering. According to the EBRD, Ukraine showed the best test results at the end of the course among participating countries: two thirds of students scored 90 out of 100 points and above.
In 2019, the NBU and the EBRD will continue to work together in a number of areas, in particular, on reducing the level of de-risking in Ukraine and developing recommendations for banks on improvement of business processes, retraining employees and further elimination of de-risking triggers.
Ihor Bereza, Director of Financial Monitoring Department of the NBU, said: “The National Bank closely cooperates with the EBRD on issues related to raising the level of professionalism of banking employees. And training in combating money laundering and terrorist financing is one of the priorities of this cooperation.”
Kamola Mahmudova, Senior EBRD Banker, said: “We would like to thank ICA for their joining the EBRD in sharing the best international compliance practices with the economies we invest in. We are pleased to propose to the EBRD partner banks this unique opportunity to train their experts in trade finance in compliance area according to the standards of the best international banks. These qualifications will be another step towards elimination of trade barriers and facilitation of trade between countries of EBRD operations, helping them establish relationships with a wider range of professionals from around the world.”
For reference:
The issue of de-risking is global and affects the banking sector around the world. According to the International Chamber of Commerce, as of 2015, 70% of participating banks rejected trade finance operations due to tightened regulatory requirements. 46% of them closed accounts due to increased compliance expenses. In addition, 91% of respondents expect further tightening of regulatory requirements in the next few years.
At the same time, de-risking affected the most Central and Eastern Europe where, according to SWIFT, the number of banking correspondent relations decreased by 23% during 2016-2018.
The International Compliance Association is a global professional association with more than 12,000 member organizations, as well as a body entitled to award professional certificates in the area of compliance.
ICA seeks to achieve high standards in combating money laundering, compliance with regulatory requirements, and preventing financial crimes in the form of dissemination of knowledge and the award of professional qualifications.