New Rules for Sole Proprietors from August: Banks Set Transaction Limits for Entrepreneurs and Legal Entities

On May 14, the banking community signed an updated version of the Memorandum on ensuring transparency in the functioning of the payment services market, which provides new approaches to controlling client transactions with an increased level of risk.

In particular, the document provides for the introduction of restrictions on money transfers for newly established and inactive sole proprietors who resume activity after a long break, as well as for certain legal entities exhibiting signs of "shell companies."

The new limits will be applied in stages — three and six months after the signing of the amendments to the Memorandum, i.e., from August and November.

As market participants explained, the purpose of the updated document is to unify banks' approaches to financial monitoring and to counteract the use of bank accounts for illegal schemes, including through so-called "drops."

What limits will be set for sole proprietors.

The Memorandum does not apply to everyone indiscriminately. Restrictions will primarily concern newly established and inactive sole proprietors whom banks classify as high-risk.

Restrictions are introduced in two stages.

For such clients, the following is provided:

• three months after signing the amendments to the Memorandum:
• for sole proprietors of tax group I — a limit of up to 600 thousand UAH per month;
• for sole proprietors of tax groups II and III — a limit of up to 3 million UAH per month;
• six months after:
• for sole proprietors of group I — a limit of up to 400 thousand UAH per month;
• for sole proprietors of groups II and III — a limit of up to 1 million UAH per month.

For other sole proprietors and individuals engaged in independent professional activities, banks will monitor transactions according to their own risk-oriented approach.

The document emphasizes that restrictions will not apply to clients who operate transparently, conduct real business activities, pay taxes, etc.

Banks will check new and "dormant" sole proprietors

For newly established or inactive sole proprietors with a high level of risk, banks will conduct an in-depth study of:

• the purpose of opening or activating the account;
• the type of client’s activity;
• the goods or services the entrepreneur is engaged in;
• the volume of planned financial transactions;
• the compliance of transactions with the declared activity.

Banks will also carry out enhanced monitoring of accounts considering the entrepreneur’s average monthly income.

Among the signs of risky activity, banks name, in particular:

• a sharp increase in the number of transactions on the sole proprietor’s account from different counterparties;
• zero balance on the account at the beginning and end of the day;
• an unusual increase in the number of incoming payments from individuals;
• splitting of transfers, including round sums from one counterparty during the month.

Restrictions for legal entities

Separate limits are also provided for legal entities that exhibit more than two signs of so-called "shell companies."

For such legal entities, the following is provided:

• three months after signing the amendments — a limit of up to 5 million UAH per month;
• six months after — a limit of up to 2 million UAH per month.

If the established limit does not meet the business needs, the client can apply to the bank for an increase by providing documents confirming the necessity of conducting transactions in a larger volume.

Banks will strengthen information exchange and anti-fraud control

The updated version of the Memorandum also provides for the development of mechanisms for information exchange between market participants and government bodies, in particular to identify risky transactions.

Market participants plan to work on integrations for automatic verification of clients’ income confirmation, use of government registries, and improvement of anti-fraud rules.

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