In Latvia, just like in the rest of the world, banks are required to apply the principle “Know your customer”. The purpose of this principle is to ensure a secure environment and prevent any potential money laundering and terrorist financing risks.
Statutory requirements
In order to apply the principle in practice, all banks are required to obtain information about their customers as well as the origin of the funds thereof pursuant to the following laws and regulations:
- On the Prevention of money laundering and terrorist and proliferation financing;
- The Finance and Capital Market Commission (FCMC) Regulation on clients Due Dilligence, clients Enhanced Due Dilligence and establishing of numeric risk evaluation system.
Laws and regulations (e.g., Section 28 of the mentioned law On the Prevention of money laundering and terrorist and proliferation financing) impose an obligation on banks to request customers to submit and an obligation on customers to submit to banks the information and documents necessary for carrying out customer due diligence measures, including information about the true beneficiaries thereof, about transactions carried out by customers, the business and individual activities of the customers and the true beneficiaries thereof, as well as about their financial position and the origin of cash or other assets. In some cases, banks may also request other additional information.
Bank questionnaires
In practice, the information is collected using questionnaires.
Such a questionnaire forms an integral part of the information (including contact information) provided by the customer to the bank. It is therefore necessary to update the data in the questionnaire whenever any major changes occur, such as the change in the country of residence or in the status of a politically exposed person.
If questionnaire is not completed
In accordance with the above laws and regulations, banks must keep and regularly update the documents, data and information obtained in the course of the customer’s due diligence. The failure to complete the questionnaire may therefore lead to limited availability of online banking services until the relevant data is updated. Taking into account the requirements of the laws and regulations to identify the customers and obtain the information and documents necessary for the customer’s due diligence, the bank will regularly remind its customers about the need to update the questionnaire, i.e., the relevant notification will appear in the internet bank at specified times.
If a customer does not wish or refuses to provide the requested information and documents to enable carrying out the customer’s due diligence in substance, the bank shall have the right to terminate the business relationship with the customer as well as require early performance of the customer’s obligations. Therefore, to continue the business relationship successfully, timely submitting of the required information and documents is key.
Use of the obtained data
Under Chapter XII of the Law On Taxies and Duties (effective from 01.01.2016) banks are required to transfer the information obtained from their customers to the State Revenue Service (SRS). The SRS will forward this information to the tax administrations of the relevant countries.
Starting from September 2017, each year, the bank will report to the SRS information about the year-end account balances as well as about such income, as interest, dividends, etc. of the tax residents of the member states of the Organization for Economic Cooperation and Development. More details can be found on the web page of The Association of Latvian Commercial Banks.
