Polish Financial Regulator Warns of High-Risk Business Relationships with Foreign PEPs

The Polish Financial Supervision Authority (KNF) has issued guidelines for financial institutions operating in Poland, warning them to treat business relationships with customers whose beneficial owners are foreign Politically Exposed Persons (PEPs) as high-risk.

Conducting Thorough Risk Assessments

While KNF acknowledges that not all business relationships with domestic or international PEPs necessarily constitute high-risk situations, it emphasizes the importance of conducting thorough risk assessments and internal procedures for financial institutions to determine the level of risk involved. This is a crucial step in ensuring compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) regulations.

In contrast, KNF will require financial institutions operating in Poland to treat business relationships with customers whose beneficial owners are foreign PEPs as high-risk, in accordance with Article 20 of the EU’s Fourth Anti-Money Laundering Directive.

Broader Effort to Converge Supervisory Practices

This move comes amidst a broader effort by European financial regulators to converge their supervisory practices and ensure consistency in the application of AML/CFT regulations across the region. This convergence is crucial for maintaining the effectiveness of these regulations and preventing money laundering and terrorist financing.

Progress in Implementing EU Guidelines on Convergence of Supervisory Practices

In related news, several European countries have reported progress in implementing the EU’s Joint Guidelines on the Convergence of Supervisory Practices relating to the Consistency of Supervisory Coordination Arrangements for Financial Conglomerates. According to a recent report:

Portugal has achieved full compliance with the guidelines.
Romania and Slovenia intend to comply by specific deadlines.
Slovakia and Finland have reported progress in implementing the guidelines, although they still need to complete some outstanding tasks.

UK’s Stance on EU Guidelines

The UK’s Prudential Regulation Authority (PRA) has declined to comment on the guidelines, citing a lack of competence over their scope. The Financial Conduct Authority, on the other hand, has confirmed its compliance with the guidelines.

Conclusion

As financial institutions operating in Poland navigate these complex regulations, they would do well to heed KNF’s warning and prioritize thorough risk assessments and internal procedures for all business relationships with customers whose beneficial owners are PEPs, regardless of their nationality. By taking a proactive approach to AML/CFT compliance, financial institutions can minimize the risk of money laundering and terrorist financing while maintaining public trust in the financial system.