The European Council has introduced new sanctions-related regulation and issued a new directive focused on enhancing transparency regarding the flow of funds related to Russian-owned entities out of the EU.
This measure aims to give National Competent Authorities (NCAs) better oversight of financial activities related to Russian entities and thereby manage and control risk.
Moody’s industry practice lead, Nicola Passariello, shares a set of frequently asked questions about the European Council regulations on reporting on outgoing transfers.
What are the specific provisions of the regulation?
Article 5r mandates reporting on funds held by EU credit and financial institutions or EU operators' branches located outside the EU. It emphasizes that EU entities, including their branches, are responsible for reporting, considering the funds as part of the EU entity's balance sheet.
Reporting periods are quarterly for entities under paragraph 1 and semi-annually for credit and financial institutions mentioned in paragraph 2.
Who needs to report?
What transactions are covered by the regulation?
The measure applies to all types of funds transfers from the EU to outside the union that are conducted by the relevant Russian-owned companies. This includes transactions aimed at profit repatriation. It encompasses all forms of funds, in any currency, such as cash, deposits, securities, dividends, credits, guarantees, and financial documents evidencing ownership or interest in financial resources.
What are the reporting deadlines?
For credit and financial institutions (as per paragraph 2), the first report was due by July 15, 2024, with subsequent reports following a semi-annual schedule.
What are the beneficial ownership thresholds?
The measure targets entities with more than 40% ownership by Russian persons or entities, considering aggregate ownership, i.e. whether the 40% threshold is met through direct or indirect/circular ownership.
The definition of Russian ownership includes legal entities in Russia, Russian nationals, or residents in Russia, with the ownership criteria not limited to a single individual or entity.
What are an EU financial institution’s responsibilities?
Institutions initiating the relevant funds transfers are required to report to the competent authority of the Member State in which they are located. The reporting obligation is entity-specific to ensure localized compliance oversight.
How can banks and financial institutions manage this obligation?
Banks need to automate the process of gathering data that shows them what to what needs to be reported. They need to obtain the beneficial ownership and control data and have tools available to calculate circular ownership.
Institutions need to find and obtain this data in a clear, clean and customized way so that it can be reported to competent authorities within the required timeframe for compliance.
The data from Moody’s Sanctions360 can help satisfy the new regulatory reporting requirement.
With the creation of a custom data form, banks can receive the relevant data, highlighting individuals and entities that trigger the transaction threshold, pulling that information, which can then be used for reporting.
Moody’s Orbis is the world’s most powerful comparable data resource on private companies. It has information on more than 600+ million entities worldwide.
Please get in touch today with the Moody’s team to discuss how we can support compliance with this reporting requirement.