Private Banking Compliance Under Anti-Money-Laundering Legislation
Private banking — individual service for high-value clients and the management of substantial funds — stands at the centre of the legislation on the prevention of money laundering and the financing of terrorism. A commercial bank is an accountable person under this law: a full-fledged risk assessment and management system is required, together with the identification of the client and the beneficial owner and, at elevated risk, enhanced measures.
Who Is an Accountable Person and What the Status Involves
The law lists among accountable persons the financial institutions — besides the commercial bank, these include microfinance organisations, insurance and brokerage companies, leasing companies, currency exchange points, payment service and virtual asset service providers, microbanks, loan issuers, pension and asset management companies; from 1 January 2027 a factoring company and a factoring platform will be added. Accountable persons also include advocates, notaries, accountants and auditors where they provide services connected with the purchase or sale of real estate, the management of funds, securities or virtual assets, bank accounts, legal persons, trust-type structures or shares. The requirements do not extend to legal advice or to the representation of a client in court, arbitration or administrative proceedings.
Requirements for the Risk Assessment and Management System
An accountable person must, considering the nature and volume of its activities, introduce an effective system for the assessment and management of money laundering and terrorism financing risks; for a head enterprise, risks are also assessed at group level. The assessment rests on the client and the beneficial owner, their activity and jurisdiction, the product, the service and the transaction. A new technology, product or material change in business practice requires a prior risk assessment. The client risk level is determined before a one-off transaction and before establishing a relationship, and afterwards periodically and on material changes. The accountable person must take into account the national risk assessment and the guidance of the supervisory authority.
Beneficial Owner Identification in Private Banking Practice
In work with private banking clients it is decisive to establish the beneficial owner — the natural person who is the ultimate owner or ultimate controller of the client and/or on whose behalf a transaction is prepared, concluded or executed. The beneficial owner of a legal person is the natural person who directly or indirectly owns twenty-five percent or more of the shares or voting rights or otherwise exercises ultimate control. Direct ownership means the direct holding of such a share or shares; indirect ownership runs through a legal person that the individual controls. If, after all possible measures, no beneficial owner exists, the preventive measures are applied towards the person holding a senior managerial position of the client. Where a trust or similar structure exists, the measures extend to the trustee, the settlor, the protector, the beneficiary and the person exercising effective ultimate control.
Enhanced Measures and Politically Exposed Persons
For a client of elevated risk, enhanced measures apply in addition to the basic ones: additional information on the assets and activity of the client and the beneficial owner, an increased frequency of updating identification data, additional substantiation of the purposes of transactions, senior management approval, the establishment of the origin of assets, funds and convertible virtual assets, and enhanced monitoring, including the identification of aggregated transactions for further study. A separate regime concerns politically exposed persons — performers of prominent public or political functions: the head of state, the head of government, ministers, members of parliament, members of the highest courts, ambassadors, and the heads of defence forces and state-participation enterprises. With such clients, senior management approval, the establishment of the origin of assets and enhanced monitoring are mandatory; the measures extend to family members and close associates, and after the functions cease the management of continuing risks carries on.
Frequently Asked Questions
Below we answer the questions raised most often in connection with private banking compliance.
Which shareholding creates beneficial owner status?
The beneficial owner of a legal person is the natural person who directly or indirectly owns twenty-five percent or more of the shares or voting rights or otherwise exercises ultimate control.
What is required from an elevated-risk client?
Additional information on assets and activity, an increased frequency of updating identification data, additional substantiation of transaction purposes, senior management approval and enhanced monitoring, including identification of aggregated transactions for further study.
Who counts as a politically exposed person?
A natural person performing a prominent public or political function — the head of state, the head of government, a minister, a member of parliament, a member of the highest courts, an ambassador and others named by the law; the special measures extend to family members and close associates as well.
When are risks assessed in relation to a new product?
Before the introduction of a new technology, product, service or material change in business practice — the accountable person is obliged to assess the related risks in advance.
How We Help on Legal.ge
The financial law specialists of Legal.ge assist banks and private banking structures in building compliance systems: we review procedures, explain the regimes for beneficial owners and politically exposed persons and prepare recommendations aligned with the expectations of the supervisory authority. Contact us — experience built on this legislation reduces the cost of compliance.