With technical support from the International Monetary Fund (the IMF), the National Bank of Ukraine (the NBU) has prepared a draft road map for strengthening supervision in anti-money laundering and terrorism financing (AML/CFT). Its implementation will enable the NBU to focus more on adequacy of AML/CFT tools in financial institutions and discontinue investigative functions.
This approach is outlined in the Memorandum of Economic and Financial Policies between Ukraine and the IMF dated 5 December 2018 (hereinafter – the Memorandum).
“Note that the discontinuation of investigative functions under the Memorandum does not mean that the NBU will cease to fulfill its supervisory functions in financial monitoring,” said Kateryna Rozhkova, First Deputy Governor of the NBU. Under its mandate, the NBU will continue to analyze the effectiveness of risk management systems in banks and the adequacy of measures that banks take to minimize (mitigate) risks in their activities, she said. “These steps are being taken to prevent the use of banking services for legalization of “dirty” money and to ensure the adequacy of financial monitoring tools, including measures to examine bank and client transactions,” said Kateryna Rozhkova.
To that end, the draft road map offers a list of measures to achieve the following:
- improve the performance of the banking sector and the NBU in AML/CFT
- enhance the effectiveness of cooperation between the NBU, the State Financial Monitoring Service of Ukraine, and law enforcement authorities
- increase the banking sector’s awareness of the tasks and requirements that financial institutions are facing in AML/CFT
- revise the NBU’s internal documents and procedures after adoption of the new Law of Ukraine On Preventing and Combating the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism and the Proliferation of Weapons of Mass Destruction to align them with the amended law. In particular, these measures should strengthen the supervision and draw special attention to ML/FT risks.
At the same time, the draft road map does not put the NBU in charge of criminal investigations, either in AML/CFT or in other areas, according to Ihor Bereza, Director of the Financial Monitoring Department.
“Taking into consideration the limited labor, time, and technical resources, and with the aim to avoid unjustified use of such resources, the NBU focuses on banking supervision in financial monitoring. In particular, the NBU analyzes the effectiveness of systems developed by banks to counteract illegal transactions, and the adequacy of their procedures and controls. When a bank’s vulnerabilities in financial monitoring are detected, the NBU asks the bank to take more effective measures to prevent the use of banking services in schemes that legalize criminal proceeds,” said Ihor Bereza.
However, if a bank’s risk management system and the measures taken by the bank are proved ineffective and lead to violations and/or the bank’s participation in risky activities in financial monitoring, then the NBU applies appropriate corrective measures to conduct a thorough analysis, identify possible violations of financial monitoring laws, and make necessary decisions. “The regulator examines transactions of banks as well as those of their clients, which is common practice in Ukraine and elsewhere in the world,” noted Ihor Bereza.
Going forward, the NBU plans to revise the adequacy of resources that are being used for effective risk-based supervision.
For reference:
The NBU’s functions and powers in the area of prevention and counteraction to legalization (laundering) of the proceeds from crime, terrorism financing, and financing of weapons of mass destruction (hereinafter – financial monitoring) are regulated by the laws of Ukraine On the National Bank of Ukraine, On Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime, Terrorism Financing and Financing of Weapons of Mass Destruction, and On Banks and Banking.
Under the laws of Ukraine, the objective of the NBU’s supervision is to verify compliance with financial monitoring requirements and the adequacy of measures taken by banks to prevent the use of their services for legalization (laundering) of the proceeds from crime and for terrorism financing.
In particular, the supervision includes analysis of the effectiveness of risk management systems developed by banks and the adequacy of measures taken by banks to minimize (mitigate) the risks in their activities to prevent the use of banking services for legalization purposes.