It will become more difficult to open a bank account in the Baltic States

The Baltic countries have been used for many years by businessmen from all over the world as a window into the banking world of Europe. Geographical proximity to the CIS and widespread knowledge of the Russian language by residents of the Baltic countries have made opening accounts in banks in Estonia, Lithuania and Latvia a very popular solution for entrepreneurs from the CIS and, especially, Russia. An additional cherry on the cake has always been inexpensive service, simplicity and speed of account opening, which distinguished Baltic banks from competitors in other European countries. It is quite natural that a larger flow of customers, especially in comparison with the small domestic market of the Baltic States itself, attracted the attention of regulatory authorities, and their work is just beginning to gain momentum!

The result of such close attention was recently a fine of 1 billion Swedish kronor from the Swedish Financial Inspectorate to the SEB Group banking group in June 2020, and earlier this March, Swedbank was also fined 4 billion Swedish kronor.

Before we talk about the consequences of these events, which will surely lead to new difficulties in working with financial institutions in Estonia, Lithuania and Latvia, let's look at their causes and remember how this story developed.

 

The first serious blow is the closure of the ABLV bank

The memory of the recent high-profile scandals with the closure of ABLV Bank, which was involved in financial flows leading to North Korea, is still fresh. He was stripped of his banking license, and his clients had a hard time – when trying to open an account with another bank or payment system, they were treated with great distrust and often refused service, which caused some businesses to suffer significant losses. Moreover, some depositors of the bank are still waiting for the satisfaction of their creditor claims against the bankrupt ABLV in order to return the funds not secured by the deposit guarantee fund. The main lesson that banks and payment companies of the Baltic States (unfortunately, not all) have learned from this story is that the rules for combating money laundering and terrorist financing (AML) should be observed with all seriousness.

 

Payment systems are no exception. Fine to the Lithuanian payment system Mister Tango, UAB

After the ABLV lessons, the Baltic banks realized the seriousness of the situation, but some payment systems continued to work in the usual "relaxed" mode. It is important to note that payment systems that provide settlement account services to their customers must comply with the same AML requirements (counter terrorist financing and money laundering) as conventional banks. As expected, the reaction of financial regulators was not long in coming. A significant fine was received by the Mister Tango payment system, UAB. Although the payment system itself has not stopped working, but the revision of internal policies and closer inspection of existing customers led to the fact that many users were asked to close accounts as soon as possible.

 

What were the results of the events with ABLV and Mister Tango?

For a simple user, the results of these stories were the complication of working with Baltic banks and the rise in price of their services. What does the complication of working with Baltic banks mean in practice?

Some banks refused to service companies that are not related to the Baltic States as much as possible. Thus, it is possible to open an account in the Bank of Estonia only if there is not only a company in Estonia, but also a real office, employees, customers/suppliers and a local director.

The number of documents for opening an account has increased significantly and their quality and content have to be taken seriously. For example, confirmation of the address for foreign companies is now mandatory, and the address itself must match the country of registration of the company.

The number of questions about ongoing operations has also increased. A real case in the work of one IT company – the bank requested a part of the prepared code as a confirmation of the provision of services under the software development contract.

As for the increase in the cost of servicing, the most obvious example is that almost all Baltic banks charge a fee for reviewing documents for opening an account (and without any guarantees of opening).

 

Штраф from the Swedish Financial Inspection to SEB Group Banking Group and Swedbank Bank

In itself, the situation with receiving fines from any regulator is a high-profile case, but not unique. Such events periodically occur in different parts of the world, but the history of SEB and Swedbank banks should be taken a closer look.

Firstly, the punishment of two different banks for similar violations in such a short period of time speaks about the very close attention of society and financial regulators to the financial flows going through the Baltic States. And taking into account all the background that we talked about earlier, one more important conclusion can be made – this attention has been intensified for a long time and it will not be weakened

Secondly, each similar event was previously followed by a complication of work with banks and payment institutions in the region of Estonia, Lithuania and Latvia. Accordingly, we should expect the next stage of cleansing from the Baltic banking sector in the very near future, since the signal about this is very clearly directed at the entire financial services market of this region.

Do you want to open a reliable bank account quickly and without unnecessary problems, prepare for the upcoming changes, keep working accounts for your business and not suffer from possible delays in payments? Get the right answers for your business from Antwort Law specialists – we will check the existing business structure and all the necessary documents for risks and give all the necessary advice on how to eliminate them.