The beginning of March was marked by three regulatory documents of the Central Bank entering into effect, aimed at regulating internal control in non-credit financial institutions:

• Regulation No.444-P on identification of clients, client representatives and beneficiaries by non-credit financial institutions for purposes of combating money laundering and terrorist financing dated 12.12.2014 (the “Regulation on Identification”), in force as of March 1, 2015
• Order of the Bank of Russia No.3471-U “On requirements for personnel training and education in non-credit financial institutions” dated 05.12.2014 (the “Order”), in force as of  March 1, 2015
• Regulation No.445-P of the Bank of Russia on the requirements for rules of internal control of non-credit financial institutions for purposes of combating money laundering and terrorist financing dated 15.12.2014 (the “Regulation”), in force as of March 1, 2015

The Regulation on Identification sets the requirements for identifying clients of non-credit financial institutions, their representatives (including the sole executive body as the client’s representative) and beneficiaries for the purposes of combating money laundering and terrorist financing (“CML/TF”).

Pursuant to this regulation, before undertaking to service a client, its representative or beneficiary, a non-credit financial institution must identify them.

The non-credit financial institution must perform identification at its own discretion or engage third parties, through collection of information and documents provided for by the Regulation on Identification.

The Regulation on Identification is of a practical nature and regulates the procedure for performing just the part of measures included in the general system of CML/TF. However, special attention should be paid to observing the procedure for identifying the client. In the event of failure to observe it, despite the apparent insignificance of such violation, strong measures of administrative, licensing and criminal liability are provided.

The Order determines the list of employees of non-credit financial institutions who must go through mandatory training and education for the CML/TF purposes. The lists of such employees differ, depending on the type of financial institution.

The Order determines several types of training: introductory (primary) instruction, targeted (extra) instruction and professional development (regular scheduled instruction), as well as the frequency with which they must take place.

The Order also establishes the requirements for the CML/TF training and education program, which is subject to approval by the head of the non-credit financial institution.

The Regulation, sets the requirements for the Rules of internal control for the CML/TF purposes, arrangement of the CML/TF system at non-credit financial institutions and programs included in the CML/TF system.

The Rules of internal control for CML/TF purposes are a comprehensive document or a set of documents determined by the non-credit financial institution fully regulating its CML/TF activity and containing a description of the measures taken and procedures performed that are determined by the internal control programs for CML/TF purposes.

The Rules of internal control for CML/TF purposes are to be developed by the financial institution considering the peculiarities of the nature and scale of its activity, organizational structure, type of products/services provided to clients, as well as the risk level of money laundering and terrorist financing.

The Rules of internal control for CML/TF purposes must contain 9 mandatory programs specified in the Regulation, as well as other programs developed by the financial institution at its own discretion.

Obviously, the regulator is actively working on elaborating the rules for arranging internal control at financial institutions for the purposes of combating money laundering and terrorist financing. Considering the importance of the government control in this area, it may be assumed that the process of elaborating the rules for arranging the CML/TF system has not been completed and is ongoing, and that the next step on the part of the regulator will be inspection of whether the new rules are observed by the financial market participants.

It should be taken into account that non-credit financial institutions must make their internal documents compliant with new requirements within three months from the time the specified regulatory documents came into force, i.e. by June 1, 2015.

Otherwise, it is a violation of legislation on observing the CML/TF rules, entailing substantial measures of administrative, license and criminal liability.

Considering the large scope of work on developing a system of internal control complying with the requirements of the Central Bank, it is reasonable to immediately start the work on preparing both the system and the officials responsible for its operation.

Irina Akimova  Of Counsel                                Moscow   iakimova@cls.ru  Tel.: +7 (495) 970 1090

Dmitry Gavrilenko     Associate                Moscow       Tel.: +7 (495) 970 1090