The Central Bank of the Russian Federation (Bank of Russia) mandates credit institutions to verify their clients’ identity.
These requirements are specified by the “Clause on identification of clients and beneficiaries by credit entities to counteract the criminally gained income legalization (laundering) and terrorism financing” as of 19 August, 2004 No.262P. The Clause is being implemented by the regulator according to the requirements of the Federal Law “On the counteracting of criminally gained income legalization (laundering) and terrorism financing” as of 07.08.2001 №115-FL.
Every credit institution must implement a program to be able to verify the identity of each client and beneficiaries, to evaluate the magnitude of risk entailed in each transaction, and to ascertain that the transaction is legal. Banks are required to collect internal information related to banking transactions and to use public databases of the federal executive authorities as well as other legally available information sources.
The regulator indicated that the largest credit entities do not entirely meet these requirements, in particular in regard to identity checks of their clients. They see this process only as a mere formality, which means that trading locations, storage and manufacturing facilities of the clients are not being visited. Banks are mandated to conduct premise visits of their clients, either by their own staff or using external agencies. Ignoring regulations concerning identity verification can cause higher credit risks: payment delay or even default. According to the Bank of Russia’s statistics, the total sum of loans overdue granted to legal entities or individual entrepreneurs as of 1 August, 2015 amounts to over RUB 1.6 trillion (over EUR 21 billion). Comparing it to 1 January, 2015, the amount increased by 42%.
The regulator will take further measures towards more detailed requirements, commonly referred to as KYC, which will be implemented by the end of 2015. A bank will be required to check the authenticity of the data received from the prospective borrower. Checking the legal entity, particularly by means of visiting premises to determine that business operations and the collateral pledged to the bank are real. These measures are designed to determine the credit risk level and the provision for future loans.
Bank officials however indicated that the public records databases, maintained by the Regulator and the Federal Tax Service, do not entirely meet the needs of banks to be compliant, because public data bases are not updated on a regular basis.
Source: Bank of Russia
Recommendation: Significant contribution to solving the problems of client identity verifications can make such solutions as for instance The Information and Analytical System Globas-i® developed by Credinform (Russia) that enables the identification of beneficiaries of Russian and international legal entities disclose fraudulent Russian companies and analyze the ability of business partners to meet their obligations.