A law has been adopted allowing foreign clients to be identified by foreign financial institutions
Pepeliaev Group advises that on 21 July 2023 Federal Law No. 308-FZ[1] dated 10 July 2023 will come into effect. It provides for the possibility of identification, for the benefit of Russian financial institutions, to be conducted by foreign financial institutions in relation to foreign persons to whom they provide services.
It is anticipated that the law will simplify the procedure for identifying foreign clients, both individuals and legal entities, for the benefit of Russian entities of the financial market. Such Russian institutions will be able to grow their clientele by more actively attracting foreign clients and to update information regarding existing clients by tapping into the infrastructure of their foreign counterparts. Foreign persons will have simpler access to services of Russian entities of the financial market.
The following Russian entities will be able to have clients identified by foreign financial institutions:
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Credit institutions;
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Professional players of the securities market (other than a professional player of the securities market that is exclusively engaged in investment consulting);
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Operators of investment platforms;
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Management companies of:
- investment funds;
- unit investment funds;
- private pension funds;
- Operators of information systems in which digital financial assets are issued.
Comment
Clients (their representatives) who are Russian persons may still be identified only by Russian entities. It is not allowed to delegate identification of such clients to foreign financial institutions. For example, a Russian national who stays abroad is still required to undergo identification specifically in the Russian financial institution.
The law specifically stipulates the right of a credit institution to open an account for a foreign client without a foreign individual or a representative of a foreign legal entity being physically present, provided that the foreign financial institution has conducted the procedure of identifying the representative according to the established rules.
Mandatory control will be exercised with respect to a foreign client’s transaction in the amount of RUB 50,000 and greater (for a foreign individual) or RUB 500,000 and greater (for a foreign legal entity) or in an amount in foreign currency which is equivalent to or is greater than the above, provided that identification was conducted by foreign financial institutions under a contract for identification services further to a request of a Russian entity.
Information that Russian institutions receive regarding foreign clients and transactions that the latter carry out with monetary funds will be submitted to the Russian Federal Financial Monitoring Service.
A Russian financial institution will be responsible for proper identification, as in the case when Russian persons are instructed to perform such identification.
Which restrictions apply?
A contract for the identification of a foreign client, its representative, beneficiary, or beneficial owner and for updating information regarding such persons may be concluded only with those foreign financial institutions that have been registered in the states indicated in the list that was approved by the Russian Government and agreed with the Federal Security Service and the Bank of Russia.
In addition, during the identification process or when relevant information is updated such foreign persons must be clients of the relevant financial institutions. Identification must be conducted in the presence of the person in question.
The law establishes requirements for the content of the conditions of a contract for identification services. This, for instance, relates to the transfer of information which was obtained during identification, liability, the possibility of a unilateral withdrawal from the contract and other.
In certain cases, the Bank of Russia and the Federal Security Service may impose restrictions on the identification procedure being conducted further to a request. In this case, Russian institutions will be obliged to terminate the contract with a foreign financial institution within 10 days.
Comment
It should be noted that amendments already came into effect on 6 June 2023[2] in relation to certain procedures established by the Bank of Russia of identifying foreign clients and simplifying communications with them.
Specifically, documents in a foreign language which are issued by competent authorities of foreign states and evidencing the status of non-resident banks, legal entities that are not non-resident banks and unincorporated foreign structures may be accepted without such documents being legalised (but attaching a notarised translation into Russian). Legalising may be required if an institution has doubts over the credibility or accuracy of documents which have been submitted or there is information (there are doubts) that the above persons entered into a contract with the institution with a view to closing transactions for the purpose of closing transactions aimed at legalising (laundering) proceeds of crime or financing terrorism.
What to think about and what to do
The new opportunities for attracting/servicing foreign clients with the help of foreign partners in permitted jurisdictions require relevant contracts to be drafted and concluded with foreign financial institutions.
Amendments to this effect should also be enshrined in internal control regulations.
Help from your adviser
Pepeliaev Group’s specialists have vast experience in advising on matters relating to the application of legislation on combating the legalisation (laundering) of the proceeds of crime and the financing of terrorism.
We are ready to provide full-fledged support when a contract is concluded with foreign financial institutions and also with amending internal control regulations.
[1] Federal Law No. 308-FZ “On amending articles 6 and 7 of Federal Law "On combating the legalisation (laundering) of the proceeds of crime and financing of terrorism” dated 10 July 2023.
[2] The Bank of Russia’s Instruction No. 6397-U "On amending certain regulations of the Bank of Russia with regard to the requirements for credit institutions and non-credit financial institutions to identify clients, a client’s representatives, beneficiaries and beneficial owners for the purposes of countering the legalisation (laundering) of proceeds of crime and the financing of terrorism” dated 4 April 2023.