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Belgium’s Financial Institutions Face Tougher Compliance Audits as New Law Takes Effect

A new law aimed at combating tax fraud has come into force in Belgium, requiring financial institutions to be more vigilant about detecting and reporting suspicious transactions. The Law of 2 June 2021, which entered into effect on 28 June 2021, imposes a duty on the National Bank of Belgium (NBB) and the Financial Services and Markets Authority (FSMA) to report so-called Special Mechanisms to judicial authorities.

What are Special Mechanisms?

The term “Special Mechanism” refers to repetitive transactions carried out in circumstances deviating from common market practices with the aim of facilitating tax evasion by third parties. The law prohibits financial institutions from setting up such mechanisms, and non-compliance can lead to administrative sanctions.

Changes under the new law

Prior to the new law, the NBB and FSMA were required to report Special Mechanisms only if they became aware that a supervised institution was involved in tax fraud. However, under the new law, the authorities are now obligated to report factual elements of Special Mechanisms even if the financial institution is not involved in the tax fraud.

New requirements for entities

The law also introduces a new requirement for entities subject to anti-money laundering (AML) reporting to report discrepancies between information held on ultimate beneficial owners and information included in the UBO-register. This applies not only to financial institutions but also to auditors, accountants, and tax advisors.

Penalties for non-compliance

The new criminal offence of setting up Special Mechanisms carries penalties of one month to one year of imprisonment and/or a fine between €50 and €10,000 for financial institutions and their personnel who intentionally set up such mechanisms.

Compliance requirements for financial institutions

To comply with the new law, financial institutions must have an adequate tax prevention policy and robust compliance framework in place. This includes:

• Identifying potential risks areas based on activities
• Performing regular reviews of current policies and procedures

Assistance from EY

EY can assist financial institutions in understanding the requirements and consequences of the new law, assessing its impact on their organization, and identifying potential gaps in their tax prevention policy and compliance framework. We can also provide:

• Training for personnel
• Support with control procedures performed by the FSMA or NBB
• Remediation projects