Update on NBU's approaches to financial monitoring
The National Bank of Ukraine (NBU) updated its approaches to financial monitoring in July 2023, providing banks with new guidelines for detecting tax evasion schemes. In particular, the regulator focused on high-risk operations that may be used to create fictitious tax credits or to legitimize income from the shadow sector.
In a separate letter, the NBU emphasized such schemes as turnover and reciprocal flows. Among the risk indicators to be monitored are:
- multi-million turnovers of companies with a minimal number of employees;
- absence of manufacturing or warehouse facilities;
- inconsistency of payments with the declared type of activity;
- transit movement of funds;
- cooperation with newly established counterparties;
- absence of documents regarding the transportation or storage of goods.
It is important to note that the NBU does not impose new mass restrictions on clients, but only provides recommendations to banks on working with specific combinations of risk signs. As expert Dilyara Mustafaeva noted,
“the significance of this letter lies in the fact that it does not impose new mass restrictions on clients and does not mean automatic tightening of control over any business operations.”
New regulations and their impact
In addition, the NBU adopted a number of regulations related to the assessment of banks' resilience, credit risk, currency transfers by postal operators, financial inclusion, and banks' operations during martial law. Regulation No. 81 allowed banks to assist people who, due to physical or objective circumstances, cannot undergo procedures independently. According to the new rules, the document can be presented by an accompanying person or a bank employee, and consent for photo documentation can be confirmed by audio or video recording.
Within the updates, Regulation No. 77 improves the risk-based supervision SREP, while Regulation No. 75 extends the testing period for calculating the minimum size of exposures weighted by credit risk. According to the new rules, banks will start reporting from November 1, 2026, instead of August 1. Regulation No. 79 allowed postal operators, express carriers, and international carriers to transfer currency abroad for paying customs duties, taxes, and fees related to the delivery of shipments to EU countries. Regulations No. 78 and No. 80 clarified the rules for assessing borrowers' financial condition during martial law, as well as relaxed the requirements for considering non-core assets in capital calculation.
Dilyara Mustafaeva emphasized that the overall logic of the July changes is quite clear: control should be strengthened where there are justified risks of using the banking system for illegal schemes, but should become simpler and more accessible where individuals face physical, territorial, or other objective barriers. She also noted that
“such decisions should not be perceived as a reduction of requirements for banks.”
Recall that earlier, Hvylya reported on a checklist of 73 indicators that banks use to check clients.
The updates to the NBU's approaches to financial monitoring indicate the regulator's desire to adapt to changing conditions in the economy and enhance the effectiveness of risk control in the banking sector. This can positively impact the stability of the financial system amidst the challenges facing the country, including military conflict and economic difficulties. Thanks to the new recommendations, banks can better detect and prevent financial crimes, which, in turn, can increase trust in the banking system as a whole.