Bank Of Lithuania Takes On De-Risking With New Guidelines

July 5, 2024
From next year, financial institutions in Lithuania will need to comply with new requirements intended to improve payment service user experience, increase financial inclusion and implement money laundering risk management measures.

From next year, financial institutions in Lithuania will need to comply with new requirements intended to improve payment service user experience, increase financial inclusion, and implement money laundering risk management measures.

The Bank of Lithuania has  comprehensive guidelines for financial market participants, including payments and e-money institutions, to enhance consumer protection and financial service accessibility, which will be effective from the beginning of next year.

These regulations are designed to prevent undue risk mitigation practices and ensure transparent communication with consumers, particularly in the realm of money laundering and terrorist financing risk management.

The incoming compliance requirements mandate that payment service providers need to assess individual client risks, and should not implement automated de-risking policies without first exploring alternative risk mitigation strategies. 

This move aims to safeguard against the arbitrary denial or termination of business relationships solely based on risk assessments.

Clear and sound decision-making

Under the guidelines, financial institutions must document and justify any decisions to terminate or decline business relationships due to perceived money laundering risks. 

Moreover, they are required to inform clients promptly about such decisions, detailing the process for filing complaints and seeking recourse through regulatory bodies or courts.

Recognising the importance of clear communication, the guidelines emphasise the provision of detailed information to clients regarding any restrictions on financial services. 

This includes informing clients about payment suspensions and providing clarity on transaction timelines and progress updates. 

Such transparency is intended to empower clients to understand and respond to decisions affecting their financial interactions.

The Bank of Lithuania has set a stringent regulatory framework to ensure compliance with these guidelines, and financial market participants will need to adhere to specified timelines for decision-making on suspended payments.

They are expected to follow the bank's recommendations regarding the duration of these suspensions.

To facilitate a smooth transition, financial institutions have been granted a preparatory period leading up to the enforcement of these guidelines. 

This grace period allows entities to align their operational practices with the new regulatory requirements, ensuring minimal disruption to their services.

The Bank of Lithuania said these measures are pivotal in fostering a fair and inclusive financial environment. 

Trust and alignment

By promoting responsible risk management and enhancing consumer rights, the guidelines aim to strengthen public trust in financial institutions while safeguarding against illicit financial activities.

They also align well with the EU’s proposed Payment Services Regulation (PSR). 

For example, the PSR strengthens the existing requirements under PSD2 for credit institutions to provide non-bank PSPs with access to payment accounts.

Under the PSR, a credit institution may only refuse to open or unilaterally close a payment account for a payment institution (including an electronic money institution transitioning to a payment institution under the new regime) in specific circumstances. 

The regulation also extends these access rights to entities applying for authorisation as a payment institution, as well as to agents or distributors of payment institutions.

The regulatory proposal further mandates that if a credit institution refuses to open or closes a payment account under these circumstances, it must notify the affected entity and provide a detailed justification based on specific risks. 

This requirement aims to ensure transparency in decision-making, and the affected entity has the right to appeal to the relevant national competent authority.



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