When a specialized financial institution (SFI) undergoes onboarding at a foreign bank, broker, or depository, it quickly becomes clear that conventional KYC procedures don't apply to such clients. Unlike the Russian SFI, in foreign jurisdictions, SPVs aren't always a statutory category and are often a flexible instrument derived from corporate practice. What is often resolved abroad through free contract and discretionary provisions is enshrined in law in our country. Formally, an SFI is a limited liability company, but in essence, it's not a company in the classic sense, but a separate institution created under securities market law for the purpose of issuing bonds and structuring transactions.
For foreign compliance officials, this seems unusual. A client with no operational activity, no history, no reporting, and no ultimate beneficiary. Any such combination in standard AML checklists automatically increases the risk level. Explaining that an SFI shouldn't conduct business and isn't required to maintain account activity prior to issuing bonds can be difficult.
The sources of funds raise specific questions. The "source of funds" procedure is key for KYC. However, when a company is just establishing its infrastructure and hasn't yet conducted any transactions, a typical situation arises: the client doesn't have what the foreign bank expects. In such cases, we develop customized solutions for banks to ensure KYC is completed. Each time, this requires a unique set of explanations and opinions from our lawyers regarding the legal nature of the SFO.
In a number of countries, auditors additionally expect that structures similar to SFOs or management companies hold a local license or employ a qualified specialist with confirmed professional market participant status. Even if all transactions are conducted exclusively through a broker, such requirements can significantly slow down the onboarding process.
We are seeing growing interest in placements with index strategies implemented through SFOs. This is why opening accounts with foreign banks and brokerage firms is becoming an increasingly popular area of work. For us, this isn't just a formal procedure, but part of a comprehensive practice that requires building trust and demonstrating the legal and economic soundness of the structure.
Onboarding SFOs with foreign financial institutions doesn't require cookie-cutter solutions, but a deep understanding of the differences in legal systems and regulatory frameworks. We've already accumulated significant experience working with foreign banks, brokers, and depositories and developed practical approaches that enable successful KYC in various jurisdictions.
The Russian SFO may seem complex from the outside, but in practice, it's a transparent and stable structure based on clear legislative principles. We're able to explain this to those accustomed to a different logic, and that's precisely why our clients successfully open accounts and implement their strategies in international markets.
Authors: Anna Gorelova, CEO of FOCUS Management, Diana Krasnoslobodtseva, Head of Securities Operations and Interaction with Financial Institutions, FOCUS Management