Resolution on the Approval of the Instructions for Increasing the Access to Financial Services and Financial Inclusion

Unofficial translation BOARD OF LIETUVOS BANKAS RESOLUTION ON THE APPROVAL OF THE INSTRUCTIONS FOR INCREASING THE ACCESS TO FINANCIAL SERVICES AND FINANCIAL INCLUSION 26 June 2024 No 03-81 Vilnius Acting in accordance with Article 42(4)(1) of the Republic of Lithuania Law on Lietuvos bankas, the Board of Lietuvos bankas has r e s o l v e d: 1. To approve the Instructions for Increasing the Access to Financial Services and Financial Inclusion (attached). 2. To establish that this Resolution shall enter into force on 1 January 2025. Deputy Chair of the Board Deputising for Chairman of the Board Julita Varanauskienė APPROVED by Resolution No 03-81 of the Board of Lietuvos bankas of 26 June 2024 Instructions for Increasing the Access to Financial Services and Financial Inclusion CHAPTER I GENERAL PROVISIONS The Instructions for Increasing the Access to Financial Services and Financial Inclusion (hereinafter – the Instructions) lay down the procedure to be followed by financial market participants in ensuring that money laundering and terrorist financing risks are effectively managed and properly mitigated, including, where applicable, measures relating to the provision of basic payment account service in accordance with Article 71 of the Republic of Lithuania Law on Payments, also, set out the measures to be used by financial market participants providing payment services to inform payment service users about decisions on non-entering into or termination of business relationships and the suspension of payment transactions, taken for the purposes of managing money laundering and terrorist financing risk. The Instructions have been drawn up in accordance with the Guidelines of the European Banking Authority of 31 March 2023 on policies and controls for the effective management of money laundering and terrorist financing (ML/TF) risks when providing access to financial services (EBA/GL/2023/04). 3. Application of requirements of the Instructions: 3.1. The Institutions shall apply to credit institutions, electronic money institutions and payment institutions (FMPs). Section 2 of Chapter V of the Instructions shall not apply to the provision of a basic payment account service within the meaning of Article 2(44) of the Republic of Lithuania Law on Payments. The procedure and conditions for opening a basic payment account and termination of the framework agreement on the basic payment account shall be governed by the Republic of Lithuania Law on Payments. CHAPTER II DEFINITIONS The following definitions apply: 4.1. Money laundering and terrorist financing risk means a probability that a financial market participant will be used for committing a money laundering or terrorist financing offence (for example, because of inadequate or inappropriate measures for implementing control of money laundering and terrorist financing prevention). Money laundering and terrorist financing risk factors mean variables that, either on their own or in combination, may increase or decrease money laundering and terrorist financing risk. Unwarranted de-risking means a blanket refusal to enter into or a decision to terminate business relationships with individual customers or categories of customers associated with higher money laundering and terrorist financing risk, or a blanket refusal to carry out transactions with higher money laundering and terrorist financing risk. Suspension of a payment transaction means money laundering and terrorist financing risk management actions taken by the payment service provider in implementation of the requirements laid down in the legislation and/or its own internal policies and internal control procedures, which result in non-execution of the payment transaction within the time limit set in the Republic of Lithuania Law on Payments, or, where no such time limit is laid down in the said Law, within the time limit set in the framework agreement or the single payment service contract, without refusing to carry out the payment transaction. Other terms used in the Instructions shall have the same meaning as defined in the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing and the Law on Payments. CHAPTER III REQUIREMENTS FOR POLICIES AND CONTROLS FOR THE MANAGEMENT OF MONEY LAUNDERING AND TERRORIST FINANCING RISKS RELATING TO PROVISION OF ACCESS TO FINANCIAL SERVICES SECTION ONE RISK ASSESSMENT Acting in accordance with the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing and under the instructions under Money Laundering and/or Terrorist Financing Prevention Guidelines for Financial Market Participants approved by Resolution No 03-17 of the Board of Lietuvos bankas of 12 February 2015 on the approval of money laundering and/or terrorist financing prevention guidelines for financial market participants, FMPs shall set up their policies, controls and procedures in a way that enables them to identify risk factors and to assess money laundering and terrorist financing risks associated with individual business relationships. As part of this, FMPs shall differentiate between the risks associated with a particular category of customers and the risks associated with individual customers that belong to this category. FMPs shall ensure that the implementation of these policies, procedures and controls does not result in the blanket refusal or termination of business relationships with entire categories of customers that FMPs have assessed as presenting higher money laundering and terrorist financing risk. SECTION TWO CUSTOMER DUE DILIGENCE AND RECORD KEEPING FMPs shall put in place risk-sensitive policies and procedures to ensure that unwarranted de-risking is avoided, i.e. their approach to applying customer due diligence (CDD) measures does not result in them unduly denying customers legitimate access to financial services. To comply with their obligations under Article 18 of the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing, FMPs shall set out in their policies and procedures the criteria they will use to determine on which grounds they will decide that a business relationship may be rejected or terminated or that a transaction may be denied. As part of this, they shall set out in their policies, procedures and controls all options for mitigating higher money laundering and terrorist financing risks that they will consider applying before deciding to reject a customer on money laundering and terrorist financing risk grounds. These options shall at least include adjusting the level and intensity of monitoring and the application of targeted restrictions to products or services. FMPs’ policies and procedures shall set out clearly in which situations the application of these mitigating measures may be appropriate. Before taking a decision to reject or to terminate a business relationship, FMPs shall satisfy themselves that they have considered and rejected all possible mitigating measures that could reasonably be applied in the particular case, taking into account the money laundering and terrorist financing risk associated with the existing or prospective business relationship. FMPs shall document any decision to refuse or terminate a business relationship and the reason for doing so, and shall keep such documentation in accordance with the procedure set out in the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing and shall make this documentation available to Lietuvos bankas upon the latter’s request. SECTION THREE PROVISIONS SPECIFIC TO THE BASIC PAYMENT ACCOUNT FMPS that are obliged to provide the basic payment account service, as laid down in Articles 71 and 72 of the Republic of Lithuania Law on Payments, shall set out in their policies and procedures how they apply their customer due diligence requirements and what the requirements are, to account for the fact that the limited functionalities of a basic payment account help mitigate the risk that the customer could abuse these products and services for financial crime purposes. When implementing non-discriminatory access to a basic payment account under Article 12 of the Republic of Lithuania Law on Payments, FMPs shall make sure that the applicable digital onboarding solutions are in line with the requirements of Section IX of the Republic of Lithuania Law on Payments and with these Instructions, and in the cases of digital onboarding, that the decision to refuse to provide services to a customer is not automated (without individual assessment carried out by a FMP’s specialist). As their understanding of the money laundering and terrorist financing risk associated with individual business relationships grows, FMPs shall update the individual risk assessment of the customer and adjust the extent of monitoring and the type of products and services for which that customer is eligible. SECTION FOUR ADJUSTING THE INTENSITY OF MONITORING MEASURES FMPs shall set out in their policies and procedures how they adjust the level and intensity of monitoring in a way that is commensurate with the money laundering and terrorist financing risk associated with the customer and in line with the customer’s risk profile. To effectively manage money laundering and terrorist financing risk associated with a customer, monitoring shall at least include the following steps: setting expectations of the customer’s behaviour, such as the likely nature, amount, source and destination of transactions, so as to enable the FMP to spot unusual transactions. ensuring that the customer’s account is subject to ongoing monitoring with a view of determining the justification of changes to the customer’s money laundering and terrorist financing risk profile. ensuring that any changes to customer due diligence information retained within the time limits set out in the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing and other legislation or within proportionate time limits set by the FMP that might affect the FMP’s assessment of the money laundering and terrorist financing risk associated with the individual business relationship are taken into account. CHAPTER IV TARGETED AND PROPORTIONATE LIMITATION OF ACCESS TO PRODUCTS OR SERVICES FMPs’ policies and procedures shall include options and criteria on adjusting the features of products or services offered to a given customer on an individual and money laundering and terrorist financing risk-sensitive basis. These should at least include the following options: provide the basic payment account service, where the FMP is obliged to provide such a service under Article 71(2) of the Republic of Lithuania Law on Payments; or impose targeted restrictions on financial products and services, such as the amount, the type or the number of transfers or the amount of transactions to and from third countries, in particular where these third countries are associated with higher money laundering and terrorist financing risk. FMPs shall ensure that their controls and procedures specify that limitations of products and services set out in paragraph 15 of these Instructions are applied taking into consideration the personal situation of the individuals, the money laundering and terrorist financing risks associated therewith and their financial basic needs. In those cases, procedures should include the assessment of the following options (depending on the services provided by the FMP) to potentially mitigate the associated money laundering and terrorist financing risks: no provision of credit or overdraft facilities; monthly turnover limits (unless the rationale for larger or unlimited turnover can be explained and justified); limits on the amount, the type and/or number of payment transactions (further or larger payment transactions are possible on a case-by-case basis determined by individual assessment); limits on the amount of transactions to and from third countries (while considering the cumulative effect of frequent smaller transactions within a set period of time), in particular where these third countries are associated with higher money laundering and terrorist financing risk; limits on the size of deposits; limits on third party payment transactions except for those made by the authority that disburses support for such customers; limits on payment transactions received from third parties that the institution has not reviewed; 16.8 prohibiting cash withdrawals from third countries. CHAPTER V APPROPRIATE NOTIFICATION OF PAYMENT SERVICE USERS ON RISK MANAGEMENT MEASURES SECTION ONE GENERAL PROVISIONS FOR NOTIFICATIONS TO PAYMENT SERVICE USERS Upon suspending the execution of a payment transaction or in implementing other measures of managing money laundering and terrorist financing risks, including measures related to restrictions on the access to payment services, when contacting the payment service user (PSU) and requesting information/documents for the purposes of money laundering and terrorist financing risk management, the FMP shall notify the PSU, in writing, on paper or on another durable medium, in a clear and understandable manner, as to what information/documents should be provided by the PSU to the FMP, in what format, manner and within what timeframe it has to be done, and shall specify to the PSU the possible consequences of failure to provide or late provision of the information/documents to the FMP. The FMP shall set the timeframe for producing the information/documents needed to manage the money laundering and terrorist financing risks having objectively assessed the scope, content and/or sources of the information/documents sought to be obtained from the PSU. In writing on paper or using another durable medium, the FMP shall notify the PSU on the possibility to apply to the FMP for an extension of the timeframe set by the FMP for submission of the information/documents in the event that the PSU is unable to produce the requested information/documents to the FMP within the aforementioned timeframe for justified reasons. Should the FMP refuse to grant the PSU’s request for an extension of the time limit for submission of the information/documents, the FMP shall inform the PSU accordingly and shall state the specific reasons for the refusal. In the event of intermediate communications (e.g. when providing notifications on the extension of time limits for document production), where the PSU is not provided with information about the FMP’s final decision, the provision of information in writing or on a durable medium shall not be mandatory, however, the FMP shall keep a record of the content of the information and the delivery thereof. SECTION TWO INFORMING PAYMENT SERVICE USERS IN CASES OF EXAMINATION AND REJECTION OF AN APPLICATION FOR OPENING A PAYMENT ACCOUNT AND TERMINATION OF THE FRAMEWORK AGREEMENT Where a PSU has submitted to the FMP an application for opening a payment account that meets the requirements set by the FMP for the opening of such an account, the FMP shall pass a decision on the opening of the payment account and shall enter into the framework agreement with the PSU on the opening of the payment account, or shall adopt a decision on the refusal of the opening, as soon as possible but no later than within 1 month from the date of receipt of the PSU’s application and all the necessary information. Upon receipt of a PSU’s application for opening a payment account, the FMP shall notify the PSU, in writing on paper or using another durable medium, about the date of its decision or the timeframe within which its decision will be adopted. Having passed a decision to refuse to open a payment account or a unilateral decision to terminate the framework agreement, the FMP shall immediately notify the PSU thereof in writing on paper or on any other durable medium, free of charge, and shall state the reasons for the refusal or termination, unless this is prohibited by law. In the notification of the refusal to open a payment account or of the decision to terminate the framework agreement, the FMP shall inform the PSU about the procedure for lodging a complaint with the FMP against such a decision, the consumer’s right to apply to a court or, where the PSU is a consumer, to the institution dealing with out-of-court consumer disputes, i.e., Lietuvos bankas, and shall provide the contact details of the latter. SECTION THREE INFORMING PAYMENT SERVICE USERS ABOUT THE SUSPENSION OF A PAYMENT TRANSACTION Having suspended a payment transaction, the FMP shall immediately notify the PSU in an agreed manner of the suspension of the payment transaction, the reasons for the suspension and the provisional duration of the suspension, unless the disclosure of such information is prohibited by law. The suspension of a payment transaction shall only last for as long as necessary for managing the money laundering and terrorist financing risk. The FMP shall set the provisional time limit for the suspension of the payment transaction having considered the time needed for it to carry out the actions necessary for containing the money laundering and terrorist financing risk and passing the decision on the execution of the payment transaction. If, for objective reasons (e.g. the PSU fails to provide or delays provision of the information/documents requested by the FMP, provides part of the requested information, fails to cooperate with the FMP, the volume of information/documents provided by the PSU is extensive, the provided information is in other than national language, or there are other objective reasons beyond the FMP’s control), the suspension of a payment transaction is longer than the preliminary suspension period set by the FMP, this timeframe may be extended for a maximum of 5 business days without limitation of the number of times of doing so, but for no longer than necessary for managing the money laundering and terrorist financing risk. The FMP shall inform the PSU in an agreed manner of each extension of the time limit for suspension of the payment transaction, by specifying the reasons for the extension. SECTION VI FINAL PROVISIONS The persons in violation of the requirements of these Instructions shall be held liable according to the procedure established by legal instruments.