Bank of Valletta plc’s extensive derisking exercise, including a Know Your Client (KYC) retail client remediation exercise, comes off the back of discussions between the bank, the Malta Financial Services Authority (MFSA) and the European Central Bank (ECB), as well as the need to follow international best practices, the bank’s Money Laundering Reporting Officer (MLRO) said.
In an interview with The Malta Business Observer, the MLRO, who declined to give their name, said that “if you have correspondent banks, and they do not want to carry certain risk, you need to remove it off your books as otherwise people will not want to do business with you. This is all part of the de-risking process.”
The comments follow increasing pressure on the bank to step up their de-risking procedures as a result of international scrutiny. Last June, ING Bank, BOV’s last USD correspondent bank announced it would be ending its services to the Maltese bank on the 14th December.
ING had also been undergoing a de-risking strategy after it was fined €775 million last September over money laundering breaches by criminals through the bank. Deutsche Bank also terminated its USD correspondent banking relationship with BOV over two years ago.
Indeed, in other comments given to the media last week, BOV has said that it is inching closer towards concluding a new correspondent banking relationship that would process USD.
The bank has also recently been in the news due to its decision to close down dozens of company accounts deemed “high-risk”, some of which belonged to iGaming firms – including Malta Gaming Authority licensees – following an ECB review.
Shedding light on the de-risking exercise, the bank’s MLRO explained that it involved mainly International Corporate Customers (ICC) and the bank’s International Personal Banking (IPB) customers. “ICC customers are, in their majority, companies registered in Malta with the Registry of Companies (now the Malta Business Registry), where the beneficial owner is not Maltese and business activity happens outside of Malta.”
Asked whether they fall within the category of companies that register in Malta to benefit from the effective 5 per cent tax rebate available to companies with foreign ownership, the reply was in the affirmative. “Looking at our company acceptance policy, the client, to have a bank account with BOV tied to their company, needs to have what we call an economic substance or nexus in Malta.”
The MLRO stressed that for such clients to have an account with the bank, BOV must ascertain that the company has an office in Malta, employees in Malta, and that the board of directors meets in Malta.
“We make sure that those controlling the company have not chosen Malta simply to benefit from the tax rebate system while having zero connection with the island. We are in the process of closing off bank accounts for ICC clients with no ties to the island.”
With regard to International Personal Banking (IPB) customers, the MLRO highlighted that this category is composed of a mixture of clients, with some based outside EU/EEA jurisdictions.
“Such clients would have come to Malta and opened a bank account to receive salaries, for example. If we see that they no longer have an economic nexus in Malta, we close their accounts.”
Another category of clients whose accounts have been closed off by BOV are Individual Investor Programme (IIP) buyers, who would have come to Malta and opened an account with the bank in the process of acquiring a Maltese passport, but do not have an identifiable economic substance with Malta.
The MLRO explained that the entire de-risking process did not originate from a single directive or regulation, such as the 5th Anti Money Laundering (AML) Directive coming into force in January 2020, but rather, it came about following discussions with the MFSA and the European Central Bank.
In addition, “BOV must follow international best practices as it is an international bank.” This de-risking exercise is being carried out hand-in-hand with a Know Your Client (KYC) remediation exercise with retail customers.
Its aim is to ensure that data for each client, whether old or new, is uniform across the board, the MLRO stressed. They highlighted that, while BOV may assess a client’s activity in order to gain much of the information required, with the way compliance regulations have evolved, certain questions that are being asked to newly onboarded clients must also be ascertained with older clients directly.
“For example, when looking into source of wealth information we ask a set of questions to new clients. There are clients that we have a long history with, and while we can check for the information that we require by looking into the individual’s history, we are instead going to the client for the information we need in order to have uniformity in our data,” the MLRO explained.
Therefore, “in this way we can carry out a fair risk assessment on BOV’s client mix across the board. The exercise is not complete but from our analysis so far it does not result that we have a high ratio of high-risk clients.”
This interview initially featured in the October edition of the The Malta Business Observer.