On 13.07.2018, a brand new Law of 1.03.2018 on the prevention of money laundering and terrorist financing (hereinafter: "Law"). The purpose of the new legislation is to bring domestic law in line with EU AML (Anti-Money Laundering) regulations. The factoring industry was already covered by the previous law, however, the new Act provides for completely new obligations that need to be bulleted.
Application of the law to the factoring industry. The law treats domestic banks as "obligated institutions" at the very beginning, but does not explicitly identify factoring companies among the entities. A careful analysis of the application of the Law leads to the conclusion that factoring companies are treated as obligated institutions. This is due to the Law's inclusion of financial institutions within the meaning of the Banking Law, i.e. financial institutions referred to in Article 4(1)(26) of Regulation No. 575/2013, and consequently financial institutions whose basis of activity is the performance of at least one of the activities listed in points 2-12 and point 15 of Annex I to Directive 2013/36/EU, specifically point 2 of that Annex covering "factoring with or without recourse."
The most important legal aspects for the factoring industry are signaled below in a nutshell.
- Factoring company identification form (Article 77 of the Act)
In order to begin reporting and performing other statutory obligations, the factoring company shall submit to the GIF a form identifying the obligated institution containing the data indicated in Article 77 of the Law, including the compliance officer's data. The form can be submitted via the website with either a qualified electronic signature of the compliance officer or a qualified electronic seal of the factoring company in accordance with the Decree of the Minister of Finance dated 4.10.2018, which in §4. Paragraphs 3-4 also gives the possibility of making a paper report.
- Individual risk assessment (Article 27 of the Act)
Factoring companies by 13.01.2019. develop an assessment of the risk of money laundering and terrorist financing - tailored individually to both the factoring industry and their own individual operations (taking into account, among other things, the size of the company, distribution channels, types of factoring offered, value of financing, nature of cooperation, methods of acquiring customers, markets and industries of origin of customers, etc.). The assessment should be updated no less than once every two years (Article 27 of the Law). Preparing this document is a major challenge for each company.
- Obligation to appoint a compliance officer (Articles 6-9 of the Act)
The law requires factoring companies to designate:
- a person in a senior management position responsible for carrying out the duties set forth in the Law;
- the person responsible for implementing the obligations set forth in the Law;
- an employee in a managerial position responsible for ensuring that the activities of the factoring company and its employees and associates comply with the Act.
Therefore, a so-called ""new" government should be established. Compliance Officer and a designated board member responsible for AML.
- Develop and implement an internal procedure (Article 50 of the Act)
Factoring companies must put in place an internal procedure outlining anti-money laundering and counter-terrorist financing policies. Internal procedure is individual, should be 'tailor-made', take into account, among other things, the nature, type, scope, principles, products (e.g., the types of factoring offered) and specify, among other things, activities or actions taken to mitigate risk; principles of risk recognition and assessment; principles of verification and updating; measures used to properly manage identified risks; principles of application of financial security measures; principles of storage of documents and information; principles of performance of duties to GIF; principles of employee training (training programs); principles of so-called whistleblowing; principles of internal control.
- Group procedure (Article 51 of the Act)
Group companies (and their majority-owned branches/subsidiaries) located in a third country shall additionally also implement a group procedure setting forth the rules for the exchange and protection of information transferred for the purpose of performing AML/CFT obligations between the various group entities.
- Whistleblowing (Article 53 of the Act)
Companies are required to put in place a procedure and system for anonymous reporting of irregularities and abuses (whistleblowing) in AML/CFT.
- Ongoing identification (Article 42(3) of the Act) and risk documentation
The law requires in-depth identification and analysis of money laundering and terrorist financing risks. Identification and analysis consist of identifying, assessing and properly documenting the risks in the context of the factoring services provided. In practice, this boils down to not only the imposition of additional control and reporting obligations within the factoring company, but also the need to conduct a comprehensive assessment of factors relevant from the perspective of the factoring company's client as well as the beneficial owner. The law introduces the principle that the scope of financial security measures applied in a given case depends on the degree of identified risk of money laundering or terrorist financing.
- Introduction of financial security measures
Factoring companies are required by the Law to apply financial security measures to their clients. The scope of their application is determined on the basis of an assessment of the risk of money laundering and terrorist financing. Such measures include: identification of the client and verification of his identity; identification of the beneficial owner; obtaining information regarding the purpose and intended nature of the client's business relationship; ongoing monitoring of the business relationship with the client, and others.
- Central Register of Actual Beneficiaries (Article 55 of the Act)
The law introduces a Central Register of Beneficial Owners and provides for obligations for companies to electronically notify beneficial owners (applications submitted electronically are to be free of charge). Notifications are to be made via a website with a qualified electronic signature or ePUAP trusted profile. The current Ordinance of the Minister of Finance dated 16.05.2018 is scheduled to come into effect on 13.10.2019, and the Registry is unlikely to be fully operational by then.
- Training responsibilities (Article 52 of the Act)
The factoring company is required to ensure that employees performing AML duties participate in individual and up-to-date training programs on the implementation of these duties.
- Reporting (Article 72 of the Act)
Of course, the Law also provides for a number of notification obligations - the most onerous ones (i.e., reporting transactions with a value above the equivalent of €15,000), as well as suspicious transactions and notifications of suspected crimes. The Law introduces electronic notification channels.
- Types of sanctions
The Law provides for a number of penalties for violations of most of the obligations under the Law. Penalties listed in the Law include fines - up to €5,000,000 or 10% of the turnover reported in the last approved financial statements for the fiscal year.
- Summary
The new Law completely changes the AML system and poses a huge compliance challenge for the industry. Due to the huge sanctions, the need for factoring companies to adapt to the new Act is absolutely indisputable. It will be a huge challenge to shape procedures, rules and methods of operation in such a way as not to unduly slow down operations. Attention should also be paid to the principle of individualization of documentation and procedures, which should be 'tailor-made'.
