Bank of Lithuania: financial service providers must recognise fraud and apply measures to prevent it
The Bank of Lithuania addresses all financial market participants operating in Lithuania, particularly electronic money and payment institutions, prompting them to be vigilant in their assessment of business relationships with customers and management of money laundering risks.
“The Bank of Lithuania has repeatedly warned financial market participants about the global rise of fraud due to the COVID-19 pandemic. Financial services often transcend country borders, therefore, it is of utmost importance to prevent fraudsters from taking advantage of financial institutions for the embezzlement of defrauded funds,” said Jekaterina Govina, Director of the Financial Market Supervision Service of the Bank of Lithuania.
According to Ms. Govina, financial institutions must thoroughly assess whether the controls currently in place are suitable for the management of fraud risks, so that institutions do not have to cover the damages done by fraudsters later on.
The Bank of Lithuania reminds that all licensed financial market participants are obliged to know their customers properly not only prior to the start of the provision of services, but also in the course of the business relationship. Available information (services provided, licences required for their provision and their validity in other countries, etc.) should be used effectively during the customer monitoring process. Money laundering and terrorist financing risk management processes applied in financial institutions should include measures allowing an effective recognition of fraud cases. Special focus should be dedicated to the identification of the cases where customers potentially conceal the activities that usually require obtaining an authorisation or a licence.
Financial market participants have to ensure effective retrospective monitoring of customer transactions, so that a longer-term profile of customer activities can be created. This helps in evaluating whether customer activities match the activity declared by the customer earlier. It is always mandatory to ascertain whether the transactions performed by customers are clear, economically meaningful and correspond to the customer activity profile and business peculiarities as well as whether the source of funds or wealth is clear. In the case of doubts about legitimacy of transactions, it is necessary to decide on additional risk mitigation measures, however, they should not be superfluous. Financial market participants should also ensure that the customers that solicit investment in virtual assets or other financial instruments are not able to do that in the countries where they are not entitled to provide these services.
At the same time, the Bank of Lithuania reminds and additionally warns about fraud trends and typologies that became evident during the COVID-19 pandemic, as customers may be inclined to take advantage of various offers to earn money “quickly and without effort”: invest in complex financial instruments (virtual assets, derivatives in the Forex market, contracts for differences (CFDs), binary options, etc.), try their luck in online gambling, buy cheap products that are in high demand, etc.
If information about the potential cases of fraud is received, the Bank of Lithuania always responds urgently: contacts the financial market participant with a request for all information on the person potentially related to fraud as well as on fraud and money laundering risk management measures applied by the financial market participant itself. Moreover, the Bank of Lithuania takes into account the complaints received and their number when planning its supervisory actions.
One of the latest examples of potential fraud is the investigation launched by the Latvian police regarding fraudulent activities of five crowdfunding platform operators operating in Latvia: Monethera, Wisefund, Envestio SI, Keutzal and Grupeer. The Bank of Lithuania has not yet received any complaints regarding their activities, however, the Latvian police investigators invite the residents that invested in these platforms and incurred losses to contact them. Those who incurred losses are invited to contact the following officials:
- regarding Monethera – investigator Inese Buravska, email: [email protected]
- regarding Wisefund, Envestio SI, Keutzal and Grupeer – investigator Ervins Ambrozis, email [email protected]
Additional information is available in the previous Bank of Lithuania recommendations.