The financial monitoring system in Ukrainian banks should abandon the formal approach and move to a substantive analysis of client transactions. This was stated by Anna Lipska, Director of the Financial Monitoring Department of the NBU, during an event on Radio NV. Financial monitoring in banks has previously raised many questions from clients, and now the regulator has officially acknowledged shortcomings in its work. According to Lipska, the restructuring of the system is associated with the implementation of a risk-oriented approach and has been ongoing for some time. There is no definite completion date for the process, since it covers the entire banking system of the country.
Anna Lipska, Director of the NBU’s specialized department, spoke about the restructuring of approaches to financial monitoring on Radio NV. She emphasized that collecting a large number of documents from the client is no longer enough – the bank must understand the essence of its activities and financial capabilities.
“The financial monitoring system should be restructured. Is it a quick or simple process? Definitely not,” said Anna Lipska, Director of the NBU’s Financial Monitoring Department.
According to the NBU representative, legislation to introduce a risk-based approach has already been developed and is currently being implemented. However, she acknowledged that this process is not yet fully completed and has some shortcomings.
“It is necessary to know your client, understand the specifics of his activities and financial capabilities, as well as whether a particular transaction carried out by the client corresponds to his financial capabilities and activities,” explained Lipska.
The director of the department noted that such a deep analysis is especially important in times of war, since a significant part of operations in Ukraine is related to the defense sector and procurement for state funds. She also described how the NBU detects the formal approach of banks during supervisory activities. According to Lipska, the regulator sees a difference between the two models of work of financial institutions:
the bank collects a lot of documents, but does not conduct any real analysis and does not find out the ultimate beneficial owners of the client;
The bank requests relatively few documents, but prepares a high-quality and substantiated analytical conclusion for the transaction.
“The limits of the bank’s responsibility are not limited to collecting certain documents. The bank must request those documents that are really necessary for it to conduct an analysis, and then carry out such an analysis,” said Lipska.
How banks check client transactions
The financial monitoring mechanism in Ukrainian banks consists of several sequential stages. First, each transaction is checked by automated IT systems, and only then, if a deviation is detected, compliance specialists are involved in the case. Among the main factors that the bank’s algorithms take into account:
Publicly exposed person (PEP) status of one of the participants in the transaction;
complex or confusing ownership structure of the company;
connection with offshore jurisdictions;
inconsistency of the transaction with the client’s declared financial activity.
If the system detects suspicious signs, the operation is suspended, and financial analysts study the economic essence of the transaction and may request contracts or primary documentation from the client. It is based on the results of such analysis that the responsible bank employee makes a decision – to make a payment, freeze assets or notify state authorities.
Previously, the Informant reported that the client is not obliged to prove his innocence before the bank’s financial monitoring. The Supreme Court in case No. 757/5609/24 prohibited financial institutions from blocking accounts, referring only to its own conclusion about “unacceptably high risk”, and placed the burden of proving the legality of the blocking on the bank itself.
