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Financial Institution Due Diligence in Armenia: A Critical Analysis of Personal Data Protection Liabilities

Armenia’s financial sector has been facing growing concerns over personal data protection, with many institutions collecting and using customer information for purposes beyond the original intention. This raises questions about the legality of such practices under Armenian law, particularly when data is collected for conducting client due diligence based on the “Know Your Customer” principle.

Unjustified Data Collection

According to experts, banks and financial organizations in Armenia solicit customer personal information without proper justification, citing the need to comply with anti-money laundering regulations and other international standards. However, this raises concerns about the misuse of sensitive data, potentially exposing customers to identity theft, fraud, and other forms of exploitation.

The “Know Your Customer” Principle

The “Know Your Customer” principle is a cornerstone of financial regulation worldwide, requiring institutions to verify the identity of their clients and maintain records of customer transactions. While this principle aims to prevent money laundering and terrorist financing, it has also led to an over-reliance on personal data collection, often without adequate safeguards or transparency.

Inadequate Regulations

In Armenia, the Law on Personal Data Protection 2004 sets out basic principles for collecting, storing, and using personal information. However, many experts argue that these regulations are inadequate, failing to provide sufficient protection against unauthorized use of sensitive customer data.

Importance of Due Diligence

The importance of robust due diligence practices in Armenia’s financial sector cannot be overstated. Online lending platforms, in particular, have raised concerns about the lack of transparency and accountability in handling customer data. As the use of online lending continues to grow, it is essential that regulators prioritize the protection of customers’ personal information and prevent its misuse.

Conclusion

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Ultimately, the question remains whether the use of a client’s personal data for reasons beyond the intended purpose by financial institutions is lawful under Armenian law when collected for conducting client due diligence based on the “Know Your Customer” principle. The answer lies in implementing stricter regulations and ensuring that financial institutions prioritize transparency, accountability, and customer protection above all else.

Key Takeaways

• Armenia’s financial sector faces growing concerns over personal data protection
• Financial institutions collect customer information without proper justification
• Inadequate regulations fail to provide sufficient protection against unauthorized use of sensitive customer data
• Robust due diligence practices are essential in Armenia’s financial sector, particularly with online lending platforms