Appealing a bank decision based on financial monitoring results

In recent years, the tightening of financial monitoring requirements has led to an increase in the number of cases where banks stop spending operations on an account or refuse to serve customers, citing “establishing an unacceptably high risk and terminating business relations.” For many customers, especially legal entities and individual entrepreneurs, such decisions have serious consequences — from making business operations more difficult to losing reputation.

What is financial monitoring and what actions does a bank have the right to take

In accordance with the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Proceeds of Crime…”, banks have the obligation and the right to analyze customer activities, identify sources of funds and independently determine the level of risk of the customer. In the event of suspicious transactions or situations where the customer does not provide the requested information, the bank has the right to stop spending operations or refuse to carry out the transaction. Also, if the analysis results show that the client poses an unacceptably high risk, the bank may decide to refuse to open an account or terminate the existing one.

The wording “establishing an unacceptably high risk and terminating business relations” is standard for bank notifications about terminating relations with the client. Such a basis formally meets the requirements of the law, but leaves considerable room for subjective interpretation by the financial institution.

What is “unacceptably high risk”

In terms of financial monitoring, “unacceptably high risk” means that the client’s activities, according to the bank’s assessment, may pose a significant threat in terms of money laundering or terrorist financing. This may be due to: ambiguous origin of funds; suspicious financial transactions; lack of proper confirmation of sources of income; the presence of ties with offshore jurisdictions, etc.

In this regard, a logical question arises: does the client have the right to appeal the bank’s actions, which are formally based on the requirements of the legislation in the field of financial monitoring?

Mechanisms for appealing bank decisions

Currently, Ukrainian legislation does not directly provide for a special mechanism for appealing bank decisions taken to fulfill the requirements of financial monitoring. However, the client is not deprived of the right to protect his interests:

1. Appeal to the bank. The first step should be an official appeal to the bank with a request to provide a written justification for the decision made. Often, situations arise due to a lack of information or misunderstanding. Providing the necessary documents can change the risk assessment or unblock expenditure transactions.

2. Complaint to the NBU. Although the National Bank of Ukraine does not directly interfere in the commercial decisions of banks, it exercises general supervision over compliance with the rules of financial monitoring. In case of violations by the bank, the client can file a complaint with the regulator, which has the authority to initiate an inspection.

3. Judicial procedure. The most effective, albeit lengthy, method is to go to court. In court proceedings, you can challenge: unlawful suspension of expenditure transactions or an unfounded decision to terminate business relations. In the practice of Ukrainian courts, there are precedents in which courts sided with clients in cases where the bank did not prove the objectivity of its risk assessment or exceeded its authority.

However, it is worth recognizing that in most cases the courts adhere to the presumption of the legality of the bank’s actions, given the complexity and special nature of financial monitoring.

Risks and recommendations

It is worth understanding that banks operate within strict regulatory requirements, and evading their implementation can have serious consequences for them, including fines. Therefore, clients are recommended to: be open and transparent in financial transactions; provide documents confirming the source of funds upon request; keep copies of all bank requests and responses – this will serve as evidence in the event of a legal dispute.

Conclusion

Although banks have discretionary powers in the field of financial monitoring, this does not mean that clients are completely deprived of the opportunity to protect their rights. In case of abuse or a formal approach to risk assessment, there are mechanisms for both judicial and extrajudicial response. The main thing is to act in a timely manner, keep documents and seek professional legal assistance.