Risk Appetite Policy

Extract from Banking Circle’s AML/CTF Risk Appetite Policy detailing the Prohibited and Restricted Business activities.

• Purpose and Scope
• Accepted Business
• Countries

Purpose and Definition

This Policy summaries applies to Banking Circle, including all its branches and subsidiaries (hereinafter “the Company”), general policy with respect to its AML/CTF obligations and sets the guidelines and criteria to ensure full compliance with all applicable laws and regulations. The company provides foreign exchange (‘FX’), banking and payment services to banks, non-bank financial institutions (‘NBFIs’) and mid-to-large corporates. The purpose of this Anti-Money Laundering / Counter Terrorist Financing (“AML/ CTF”) Risk Appetite Policy (the “Policy”) is to define Banking Circle´s risk tolerance and the guiding principles governing Money Laundering and Terrorist Financing (“ML/TF”) risk identification, measurement, reporting, management and monitoring, as required by applicable laws.

Clients

Banking Circle provides services to Banks, Non-Bank Financial Institutions (“NBFIs”) and NonRegulated Corporates (“Corporates”). Banking Circle shall not provide services directly to individuals (consumers).

Banking Circle shall promote and achieve adequate diversification of its Client base. Authorised Management shall ensure that the Client base of Banking Circle is adequately diversified and that its profitability does not depend solely on few high-risk Clients.

Client Due Diligence

Banking Circle shall not accept Clients for which it cannot successfully complete the level of due diligence, as required by the client risk assessment.¹

Accepted Business

As a general principle, Banking Circle shall not onboard Clients carrying out businesses or activities that are illegal, conducted in absence of required licenses or permissions, or present an excessive reputational risk (which includes any material adverse media) for Banking Circle and/or the financial centres where Banking Circle operates. In the case of Correspondent Banking relationships, Banking Circles Clients’ underlying customers must also comply with this requirement.

In general, Banking Circle will not do business with groups, legal entities, bodies, and similar which have been sanctioned for major offences irrespective of when the Client was sanctioned and the jurisdiction(s) in which it was sanctioned.

This implies, inter alia, that:

• As required, Clients (and in the case of Correspondent Banking relationships, Banking Circle’s Clients’ underlying customers) must hold the appropriate licenses or permissions to operate and provide services/sell goods in their countries/territories of establishment, and in the countries/territories they provide services or sell goods to;
• As required, products and services sold or provided by Banking Circle´s Clients (and in the case of Correspondent Banking relationships, Banking Circle’s Clients’ underlying customers) must comply with applicable legal or regulatory standards.

Scenarios

There are several scenarios in relation to Clients and Payment flows. Some include:

1. A direct Client of Banking Circle
   
   1. Payment flows include:
      
      1. A remitter (not a Client of Banking Circle), sending funds to a Client of Banking Circle
      2. A beneficiary, (not a Client of Banking Circle), receiving funds from a Client of Banking Circle
      3. Deposit taking and custody services
2. A customer of a PSP Client of Banking Circle
   
   1. Payment flows include:
      
      1. A remitter (not a customer of Banking Circle’s PSP Client), sending funds to a customer of Banking Circle’s PSP Client
      2. A beneficiary, (not a Client of Banking Circle), receiving funds from a customer of Banking Circle’s PSP Client

Prohibited Client Types and Prohibited Payment Flows:

Banking Circle does not permit pay in or pay outs from its accounts in physical cash. Banking Circle does not onboard, nor will it process the payment flows for its PSP Clients, for the following:

• Groups, legal bodies or similar subject to international sanctions or embargoes, in particular as issued by the regulatory bodies of the jurisdictions where Banking Circle operates, and the United Nations (“UN”), the US Office of Foreign Assets Control (“OFAC”) or other applicable international bodies.
• Non-transparent or high-risk structures – Activities conducted through special-purpose vehicles (SPVs) or similar legal entities, particularly those established in jurisdictions that limit transparency, hinder regulatory oversight, or fail to meet international banking standards.
• Bidding fee auctions, penny auctions, or any type of all-pay auction in which all participants must pay a non-refundable fee to place each small incremental bid;
• Shell banks; (banks based in countries where they have no physical presence involving decision-making and management and which are typically not connected to wider regulated financial groups); Banking Circle shall take appropriate measures to ensure that they do not conduct any business relationships with undertakings allowing shell banks to use their products and services.
• Shell companies; (a company with no physical presence involving effective decision-making, operations or assets other than cash or equivalents of cash);
• Bearer share corporations and companies connected to nominee or similar arrangements for the purpose of hiding or mask the true beneficial ownership (some trust structures may be permitted, depending on the merits of the case and there is no suggestion of untoward behaviour); or holding savings books, accounts or custody accounts payable to bearer.
• Physically present Adult Services – this includes, but it not limited to, Escort services, Solicitation thereof, sale and/or advertising or suggestion of any physical sexual services that may imply or suggest prostitution, regardless of whether it is legal in the specific country involved;
• Unregulated investment companies involved in managing or investing third-party funds
• Any involvement in the sale or marketing of Binary Options;

Banking Circle’s Restrictions on Directly Onboarded Clients

Banking Circle will not directly onboard any of the following Client types. Banking Circle’s PSP Clients may have the following as their underlying customers, subject to additional due diligence and approvals:

• Adult services that are not physically present, this includes dating sites, websites with adult content, and pornography businesses. These businesses must:
  
  • Have no suggestions of escort services, or the sale of physically present sexual services (solicitation/prostitution);
  • Have no material negative media which could result in material reputational damage for Banking Circle and/or the Luxembourg financial centre as well as any other jurisdiction, where Banking Circle is present; and
  • Be incorporated within UK, North America or Europe.

• Any business involved with Cannabidiol “CBD”. These businesses must:
  
  • Have been onboarded by the PSP Client with appropriate onboarding procedures and controls to address the risks associated with this Business type. o Possess the appropriate licenses or permits in those jurisdictions where they are established, or sell products into; and
  • Be able prove that the Tetrahydrocannabinol “THC” content is within legal limits, and prove that this is continually monitored and tested; If the business is engaged in the legal sale of cannabis (such as coffee shops), only bullet 1 and 2 applies.

• Charities, social service organisations and other non-profit or political organisations. These businesses must:
  
  • Be registered, licensed or local equivalent, in the country of incorporation;
  • Must not support activities in any countries considered prohibited by Banking Circle² ;
  • Not sponsor or support any act of violence, hate or terrorism.

• Holding companies of private individuals with operations in investment. They must:
  
  • Be onboarded by Banking Circles’ Clients, who must be a Private Bank

Restricted Client Types and Restricted Payment Flows (applicable both for directly and indirectly onboarded Clients)

Banking Circle has placed restrictions on the Client types listed below. The Client types and restrictions are:

• Affiliate Marketing schemes, including network marketing, referral marketing, multilevel marketing. These businesses must:
  
  • Not be established as a multilevel scheme for the purpose of circumventing credit card schemes rules;
  • Comply, in letter and in practice, with distant marketing or online selling legislation, including US negative option features and EU withdrawal rights, or equivalent;
  • Not engage in aggressive tax planning or transfer pricing, make use of nominees or similar structures to hide or mask true beneficial ownership of the entities involved in the scheme;
  • Not have unfair pricing or charges, or withdrawal / cancellation rights that cannot be effectively exercised without unfair costs or penalties.

• Corporate service provider and other legal and accounting services, including the following
  
  • (a) Auditors, External Accountants, and Tax Advisors
    • • Professionals providing auditing, accounting, and tax advisory services.
  • (b) Notaries and Other Independent Legal Professionals
    • • When acting on behalf of or for their clients in financial or real estate transactions.
      • When assisting in the planning or execution of transactions related to:
      • Buying and selling of real property or business entities.
      • Managing client money, securities, or other assets
      • Opening or managing bank, savings, or securities accounts. o Organizing contributions necessary for the creation, operation, or management of companies.
      • Creating, operating, or managing trusts, companies, foundations, or similar structures.
  • (c) Company Service Providers
    • • Where not already covered under categories (a) or (b).

• Crowdfunding, crowdlending and similar activities businesses. These businesses must:
  
  • Hold the appropriate license in the country or territory where they are established and provide services to,
  • Have three full years´ or more track record, and
  • Be established within the countries permitted for Correspondent Banking relationships.

• Crypto-asset service providers matching the following definition: Offering professional services offering any of the following services or carrying out any of the following activities:
  (a) providing custody and administration of crypto-assets on behalf of clients;
  (b) operation of a trading platform for crypto-assets;
  (c) exchange of crypto-assets for funds;
  (d) exchange of crypto-assets for other crypto-assets;
  (e) execution of orders for crypto-assets on behalf of clients;
  (f) placing of crypto-assets;
  (g) reception and transmission of orders for crypto-assets on behalf of clients;
  (h) providing advice on crypto-assets;
  (i) providing portfolio management on crypto-assets;
  (j) providing transfer services for crypto-assets on behalf of clients.
  These businesses must:
  • • • Be authorised by a competent authority in the UK/EEA or in countries approved for correspondent banking and comply with FATF recommendation relevant for virtual currencies;
      • The experience of the senior management and leadership team must be of an acceptable risk profile, including the experience and qualifications of the MLRO, Compliance team and Onboarding team. (The MLRO, Compliance team and Onboarding team must not have any conflicts of interest, for example they should be independent of any income generating departments);
      • Not offer privacy coins or any encrypted transactions which does not support travel rule. The list of prohibited products is maintained by the Compliance department of Banking Circle;

Note: If the crypto-asset service provider is directly onboarded by Banking Circle, they must in addition:

• • • • Be serviced by the relationship personnel designated as being able to support crypto-asset service providers.
      • Have in place appropriate transaction monitoring tools, which includes identifying signs of mixers/tumblers. These tools must be deemed satisfactory upon review by Banking Circle’s Business AML department. An expectation is that the monitoring must have solid Know Your Transaction (“KYT”) methodologies.
  • Institutional proprietary trading companies, blockchain related projects and similar that are not VASPs i.e., does not provide regulated activity in the jurisdiction they operate in can be onboarded as corporate client subject to enhanced due diligence, which includes additional focus on source of wealth, adverse media and tax compliance.
  • Any stablecoin issued by Banking Circle, may only be marketed to crypto-asset service providers already onboarded by Banking Circle.

• Pharmaceuticals. These businesses must:
  
  • Possess the appropriate licenses in those jurisdictions where they are established or sell products into.

• Gambling. These businesses must:
  
  • Be incorporated in one of the following jurisdictions: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Liechtenstein, Estonia, Finland, France, Germany, Gibraltar, Greece, Greenland, Hungary, Isle of Man, Italy, Ireland, Latvia, Malta, Poland, Portugal, Romania (subject to the business holding 2nd Class Gambling license), Spain, Slovakia, Sweden and United Kingdom. Additional countries may only be accepted with explicit approval from Banking Circle’s Compliance department;
  • Only perform the following activities: online gambling, betting, poker, sport, horse racing, skill games (except for Portugal where such activity is prohibited), casino, lottery, arcade;
  • Have a relevant license (as required) where they are established or provide services to, including by means of a website in a country-specific language;
  • Be registered on the local countries gambling commission;
  • Be subject to EU or UK equivalent AML requirements; o Have no material negative media which could result in material reputational damage for Banking Circle and/or the Luxembourg financial centre.

Note: If the Gambling Client is to be directly onboarded by Banking Circle, the Gambling Client must:

• • Be established more than five years;
  • Be serviced by the relationship personnel designated as being able to support gambling Clients; and
  • The payment flow for all directly onboarded Gambling Clients must not exceed 5% of Banking Circle’s overall processed payment flow in any rolling 12 month period.

• Import/export and cross-border logistics companies including maritime and landbased shipping. These businesses:
  
  • Must exercise supply chain due diligence to ensure that recipients and counterparties to a transaction are not sending or receiving commodities that may trigger sectoral sanctions.
  • May not have activities involving countries considered prohibited by Banking Circle,
  • May not deal with goods or counterparties considered prohibited by Banking Circle,
• If a bank/NBFI Client wishes to process transactions through Banking Circle on behalf of customers in the category of import/export and cross-border logistics, the Client must ensure that their customers meet the above requirements. In addition, the Client must be able to demonstrate knowledge of trade-based money laundering and sanctions/proliferation risk and have adequate controls in place.
• High value goods (Defined by BC as goods sold for 10,000 EUR or more), including precious metals and stones, arts and antiques, other valuable commodities, sale of vehicles. These businesses must:
  
  • Be located in countries approved for correspondent banking relationships.

• Weapons for hobbies (i.e. knives and accessories for weapons intended for hunting, fishing and recreational activities; antique weapons or collectibles). These businesses must:
  
  • Be evidenced to be for legitimate sport or recreational activities and not for military or dual use purposes.

• Weapons of war, automatic weapons, ammunitions, military vehicles or military hardware such as military drones or radars, including merchants involved in the sales, intermediation or commerce of arms and weapons conditional upon the arms/weapons manufacturer being domiciled in EEA or a jurisdiction where BC Group is present
  
  • If manufacturer/merchant is onboarded by a client, the client must:
    • Demonstrate due diligence aimed to ensure that customers within this restricted industry adhere to all relevant export restrictions, including but not limited to the obligation to contractually prohibit the re-export from third countries to countries subject to the export restrictions.
    • Have a suitable ABC program, including an enterprise-wide risk assessment of bribery and corruption and targeted mitigation measures against bribery and corruption for areas/activities identified as high risk in the enterprise-wide risk assessment.

• Financial services firms, where Correspondent Banking is provided by Banking Circle:
  
  • Banking Circle’s direct Clients must be licensed in one of the Countries Permitted for Correspondent Banking Relationships (noted below in section 13):
    • If the Client has customers who are Financial services firms, the locations of these underlying customers are subject to review and their acceptance will be determined case by case on a risk based approach taking into consideration their license, and their risk profile, which will include reviewing the underlying customer base, and locations, and risk of the services provided.
    • If the firm provides CFDs or any investment products (an investment firm), these firms must:
      • Undergo Enhanced Due Diligence to ensure they perform Suitability and Appropriateness testing;
      • Be located in a country permitted for Correspondent Banking Services, or if located outside, adapting a global AML program with requirements similar to the EU and where the client also holds a license in a country permitted for correspondent banking services which is a client of Banking Circle.

Note: If the investment firm Client is directly onboarded by Banking Circle, they must:

• • • •  Be serviced by the relationship personnel designated as being able to support these types of Clients.

• Special Purpose Vehicles (SPVs), trusts or holding companies
  
  • May be onboarded directly by Banking Circle as part of Banking Circle’s investment funds offering. The SPV, trust or holding company must:
    • Be introduced and where relevant managed by a licensed CSP
    • The introducer/manager must be subject due diligence and approved by OCM
    • If there is no CSP that is appropriately licensed, the SPV, fund or holding company must be subject to BC’s highest level of due diligence.

• Marketplaces. These businesses must:
  
  • Have a three year or more track record;
  • Onboard sellers under financial services-equivalent standards; and
  • Not process flows through Banking Circle that relate to goods or services that are prohibited within this policy.

• UK and Ireland Limited Partnerships. This includes Limited Partnerships (LP), including Scottish Limited Partnerships (SLP) and Limited Liability Partnerships (LLP). These businesses must:
  
  • Have partners/ownership in the country of domicile.LPs, SLPs and LLPs with a legitimate nature and purpose of business and transparent ownership/control are within appetite, but subject to restrictions. Examples include Fund structures that often use these formations.

Markets and High Risk Territories

Permitted Client Solicitation

Banking Circle shall only solicit clients in countries or territories where it holds the appropriate permissions to operate and provide services. Clients from other countries or territories cannot be approached and are only acceptable on a reverse solicitation basis, subject to the following conditions:

• The client has approached Banking Circle on their own initiative, without any solicitation from Banking Circle or its agents.
• The relationship originated as part of an industry event, such as Money 20/20 or SIBOS.

Prohibited Countries and Territories

Banking Circle shall not, under any circumstances, engage with clients established in or significantly exposed to, nor facilitate the transmission of funds to or from, the following:

• Sanctioned or embargoed countries/territories, particularly those subject to restrictions issued by the regulatory bodies of jurisdictions where Banking Circle operates.
• Jurisdictions with serious strategic deficiencies, or those designated as non-cooperative by the Financial Action Task Force (FATF/GAFI).
• Any other countries or territories deemed incompatible with Banking Circle’s risk appetite.

Restrictions on Payments to High-Risk Territories

Banking Circle imposes restrictions on payments to High-Risk Territories, as defined in the Banking Circle Country Risk Matrix. Payments may only be approved by the Client Due Diligence (CDD) team if one of the following applies:

• Broader Scope Extension: The High-Risk Territory is covered by a broader scope extension, and the risks associated with payments to or from this jurisdiction have been assessed and approved by by Onboarding Committee Meeting (OCM).
• Individual Approval Request: The High-Risk Territory has been submitted for approval with sufficient due diligence information to confirm the client has the necessary risk management framework in place.

Products, Services, Scopes

Banking Circle shall not provide products or services, nor be associated with scopes, that:

• Are designed to obfuscate, partially or in full, the source or destination of funds or the identity of underlying beneficial owners. In particular it shall avoid, to the furthest extent possible, any of the following not justified by the nature of the Client´s business:
  
  • Circular transactions between two or more Clients;
  • Layering of transactions between entities belonging to the same or connected beneficial owners;
  • Back-to-back loans; o Commingling of assets belonging to different Clients;
  • Anonymous or pseudo-anonymous accounts;
  • Transactions that do not have a clear purpose.
• Are obviously designed to circumvent laws or regulations that would otherwise apply to a Client or Banking Circle itself.

Tax/Fiscally Sensitive Structures

Banking Circle has no appetite to support business models or ownership structures that are geared towards any form of tax fraud or tax evasion and shall not provide services that support the establishment of such business models or of opaque ownership structures.

Examples of ownership structures that are considered opaque and therefore prohibited for both direct clients of Banking Circle and underlying customers includes the following:

• Business registered at virtual addresses (including mailbox and unoccupied offices) with no clear operational or physical presence in the same country
• Ownership and/or control is opaque with no clear business rationale
• Structures that include nominee owners/controllers (including nominee directors and partners)
• Entities with no physical presence and/or operations in the country of registration (shell companies)
• Nature and purpose of business is unclear or cannot be easily verified

Countries within Risk Appetite for Correspondent Service Relationships

All Clients of Banking Circle, making use of Correspondent Banking services offered by Banking Circle, will exclusively be regulated entities subject to AML/CTF professional obligations and situated in:

• European Economic Area (i.e. European Union Member States plus Iceland, Liechtenstein and Norway);
• United Kingdom (including Gibraltar, and excluding Crown dependencies such as: Isle of Man, Guernsey, Jersey);
• Switzerland;
• United States of America;
• Canada;
• Australia;
• New Zealand;
• Hong Kong;
• Singapore;
• Japan;
• China;
• India;
• Malaysia;
• South Korea;
• Thailand.

¹ See section of ML/TF risk.
² Refer to Banking Circle’s Country Risk Matrix.