Response to consultation on Guidelines on internal policies, procedures and controls to ensure the implementation of Union and national restrictive measures
Question 1: Do you agree with the proposed provisions? If you do not agree, please explain how you think these provisions should be amended, and set out why they should be amended. Please provide evidence of the impact these provisions would have if they were maintained as drafted'?
Consultation Reaction | Guidelines on internal policies, procedures and controls to ensure the implementation of Union and national restrictive measures under Regulation (EU) 2023/1113 (EBA/CP/2023/42)
Regarding the proposed Guidelines on internal policies, procedures and controls to ensure the implementation of Union and national restrictive measures under Regulation (EU) 2023/1113, I offer three comments for consideration.
1) Definition of beneficial owner
In paragraph 18 sub a of section 4.1.4 on screening the customer base, the guidelines state that beneficial owners should be screened. The guidelines should clarify who are considered beneficial owners with respect to the EU Restrictive Measures.
EU sanctions regulations generally mandate the freezing of funds and economic resources owned, held, or controlled by listed individuals or entities or persons, entities or bodies associated with them, and prohibit the direct or indirect provision of funds or economic resources to them.
With reference to Council Regulation (EC) No 2580/2001, owning a legal person, group or entity means being in possession of 50% or more of the proprietary rights of a legal person, group or entity, or having a majority interest therein.
In the Guidelines, reference should be made to the fact that in the context of restrictive measures, ownership is defined differently than the definition of beneficial owners in the context of AML/CFT. This could for instance be done by, similarly as in paragraph 18 sub c, by referring to Council Regulation (EC) No 2580/2001 for the definition of ‘ownership’.
Regarding this topic, it would also be helpful to have further guidance if ownership constitutes 50% or more of the proprietary rights of a legal person as stated in Council Regulation (EC) No 2580/2001. Or if ownership amounts to more than 50% of the ownership as mentioned in the European Commission’s Consolidated FAQs on the implementation of Council Regulation No 833/2014 and Council Regulation No 269/2014 as well as in paragraph 62 of the EU Best Practices on Restrictive Measures of 27 June 2022 (“Restrictive measures (Sanctions) - Update of the EU Best Practices for the effective implementation of restrictive measures”).
2) Screening of persons authorised to act on behalf of the customer
In paragraph 18 sub b of section 4.1.4 on screening the customer base, the guidelines state that persons authorized to act on behalf of a customer, should be screened. With respect to legal persons, this would typically be a representative or director of an entity.
EU sanctions regulations generally mandate the freezing of funds and economic resources owned, held, or controlled by listed individuals or entities or persons, entities or bodies associated with them, and prohibiting the direct or indirect provision of funds or economic resources to them.
In practice, institutions screen the client’s representatives and directors, but a positive match does not necessitate asset freezing under EU Restrictive Measures since these individuals usually do not own or control the entity's funds as defined in Council Regulation (EC) No 2580/2001.
The Guidelines should clarify that while screening individuals authorised to act on behalf of a legal entity is prudent from a risk management perspective, it is not always obligatory to freeze the entity's assets if such individuals are listed, due to their likely lack of ownership or control over the entity's funds.
3) Screening of transfers of funds
Paragraph 21 of section 4.1.5 on screening of transfers of funds and crypto-assets mentions that payment service providers (PSPs) must screen all parties involved in fund transfers against the sanctions lists. In this context, the guidelines should also mention Regulation (EU) 2024/886 of the European Parliament and of the Council of 13 March 2024 as regards instant credit transfers in euro, especially Article 5d paragraph 2.
This Article specifies that during an instant credit transfer, neither the payer’s nor the payee’s PSP is required to check if the parties involved are subject to targeted financial sanctions, beyond the verifications stipulated in paragraph 1 of Article 5d. This clarification would align the guidelines with specific legislative requirements for screening during instant credit transfers.