COVID-19: remote opening and maintenance of personal accounts in the register of the owners of securities

Pepeliaev Group advises that the legislation on combating the legalisation of the proceeds of crime has been amended in connection with registrars being granted permission to remotely open and maintain personal accounts of owners of securities.

On 7 April 2020 the Russian President signed Federal Law No. 116 “On amending the federal law “On combating the legalisation (laundering) of the proceeds of crime and the financing of terrorism” with regard to specifying rights and obligations of legal entities that perform specific types of professional activity on the securities market” (the “Law”) which significantly amends the procedure for the identification by registrars of clients when they open and maintain personal accounts. On the same date, the Law was published and came into force.

Introduction of a simplified procedure for identifying clients who are individuals when personal accounts are opened and maintained in the register of securities

1. New cases of the application of the simplified procedure of identification of clients of registrars that are individuals^[1]

In accordance with the requirements of the Law on combating the legalisation of the proceeds of crime[2], companies performing operations with monetary funds or other property must identify their clients when undertaking the corresponding transactions[3]. Until the new Law was adopted there was a procedure for the simplified identification of clients who are individuals that applied only in certain cases, an exhaustive list of which was enshrined in the specified federal law[4] (for example, in the case of a transfer of monetary funds at the request of the individual client without the opening of a bank account or when entering into a brokerage services agreement). Provisions of the Law[5] add the following situations to the list:

• the opening of a personal account in the register of the owners of securities;
• the maintaining of a personal account in the register of the owners of securities, if the opening of a personal account in the register of the owners of securities is not based on an application or another document (which serves as a ground for the opening of the specified personal account) being filed by the person for which the personal account is opened.

In other words, the amendments introduced by the Law allow registrars, both when opening and maintaining personal accounts in the register of the owners of securities, to identify clients who open personal accounts in the register of shareholders under the simplified procedure.

2. Conditions complying with which the registrar may use the simplified procedure for identifying clients

The registrar has a right to use the simplified procedure for identifying clients only when the following conditions are met:

• the transaction is not subject to mandatory control in accordance with article 6 of the Law on combating the legalisation of proceeds and there is no information with respect to the individual client concerning his/her involvement in extremist or terrorist activities;
• there are no suspicions that the purpose of the individual client is to perform transactions in order to legalise (launder) the proceeds of crime or to finance terrorism;
• the transaction is not complicated or unusual in its nature[6] so as to evidence the absence of obvious economic sense or an obvious lawful purpose, and the performance of this transaction gives no reasons to suppose that its purpose lies in evading the procedures of mandatory control in accordance with the Law on combating the legalisation of proceeds.

3. Methods of opening personal accounts using the simplified procedure of client identification

One of the following methods can be used for the remote opening of personal account for the owners of securities under the simplified procedure:

(1) the client individual sends, including electronically, the following information about himself/herself: first name, patronymic name, and last name; the series and number of his/her identification document; the number of the individual personal account of the insured person in the system of the Russian Pension Fund, and/or his/her taxpayer identification number, and/or his/her number of a policy of mandatory medical insurance of an insured person; and the subscription number of the individual client who uses mobile communication services; in this case identification proceeds in particular using information from the inter-departmental electronic interaction system (IDEIS);

(2) using the official internet portal ‘Gosuslugi’, which means that the individual client independently logs into the unified system of identification and authentication using an enhanced qualified digital signature or a simple digital signature provided that, when the key for the simple digital signature was granted, the identity of the individual was established in person specifying the following information about him/her: first name, patronymic name, and last name (unless the law or national custom dictates otherwise); and the number of the individual personal account of the insured person in the system of the Russian Pension Fund.

4. The specifics of the simplified procedure for client identification

For a simplified identification of the client individual less information needs to be provided than for identification under the general procedure. If a simplified (online) identification is performed, the client needs to provide the following information: his/her full name, and the series and number of the identification document of the individual client[7].

At least once every three years, the registrar updates the information about clients for whom personal accounts in the register of securities have been opened[8].

Please note that if a personal account in the register of the owners of securities is opened without an application being filed by the person (for example when the issuer undergoes a reorganisation), then the simplified client identification is not carried out when a personal account is opened in the register of the owners of securities, but is carried out after the personal account has been opened though before the first transaction with securities is performed based on the instruction of the client for whom such personal account has been opened[9].

Also as a result of the Law being adopted, registrars have received the right to assign, under an agreement, the performance of the simplified identification of the client individual to another professional participant of the securities market that performs the functions of a transfer agent[10].

Please note that the easing of the conditions of the Law on combating the legalisation of proceeds is also being observed in other areas. For example the Central Bank in its information letter[11] specified that no sanctions will be applied to credit institutions for a violation of the prohibition on opening bank accounts for clients without the individual who is opening the account being present in person (provided that the purpose of opening the bank account is to carry out or to receive socially important payments).

What to think about and what to do

Individuals willing to open a personal account of an owner of securities are recommended to review the new methods for opening such accounts and using the opportunity to open and maintain personal accounts of owners of securities online in the conditions of the current spread of the coronavirus infection COVID-19 and restrictions being introduced by the state authorities in order to stabilise the epidemiological situation.

Help from your adviser

Pepeliaev Group's lawyers are keeping track of changes in legislation and are ready to provide legal support with respect to procedures of opening personal accounts of the owners of securities as well as to corporate and registration procedures. They will also comment on contentious matters connected with applying new items of legislation that are being introduced within short timeframes in the current pandemic situation. Among other things, we will reach out to the Bank of Russia and other state authorities for official clarifications on issues stemming from the performance of regulatory acts regarding corporate relationships.