Enhancing our program to keep you protected

Transcription

1 Edition 1, June 2018 Enhancing our program to keep you protected Welcome to the first edition of our quarterly T-UP newsletter to keep you informed of the enhancements we are making to meet regulatory requirements, industry best practices and risk management standards. We are committed to evolving our TA Program. Our enhancements are designed to address the required elements of investor due diligence, ensure we remain compliant with evolving regulatory expectations, and protect you and your clients. These developments will also enhance the quality of the user and investor experience. This edition of the T-UP covers enhancements through June 30, Should you have any questions, please do not hesitate to contact your TA Investor Relations Manager (TA IRM). 1 Enhanced Procedures for Handling Politically Exposed Person (PEP) Alerts on NSCC Accounts Where there is a potential PEP Alert on a NSCC account opening with an Investor Trade Instruction, BBH will open the account and process the trade while actioning the Alert. The account will be opened AML Non-Compliant and subject to restrictions on redemptions until the Alert is resolved. Any redemption activity will be escalated to BBH Compliance and the Client/Fund MLRO for review. If the Alert is resolved as non-pep, the Non-Compliant status and additional restrictions will be promptly removed (as long as the account is otherwise Compliant). If the Alert is resolved as a confirmed PEP, additional subscriptions will not be processed until the additional due diligence documentation is received. Any such subscription activity will be escalated to BBH Compliance and the Client/Fund MLRO for review. Effective Date: February 9, Impacts to Clients: Applicable to NSCC Accounts. Impacts to Investors: NSCC Participants will be permitted to open accounts and place subscriptions while potential PEP Alerts are in process. 2 Enhanced Source of Funds Due Diligence on Irish Legislative PEPs For Irish domiciled Clients/Funds, or where Ireland AML standards are otherwise applied, BBH performs additional due diligence measures on any PEP determined to be an Irish Legislative PEP. This is a PEP in an Irish-domiciled Fund (or where Ireland AML standards otherwise apply) that is determined to be the Investor or beneficial owner of the Investor (or beneficial owner of the account where the Investor is an intermediary). There is an existing requirement to identify Source of Funds (SoF) and Source of Wealth (SoW) for Irish Legislative PEPs. SoW requirement seeks to identify the source of the Investor s totality of wealth. SoF requirement is to identify the origin and means of transfer for funds that are involved in a transaction. SoF has traditionally been interpreted in the funds industry as identifying the physical origin of the Investor s subscription, i.e., the details of originating bank account. Evolving regulatory expectation is that SoF also requires identifying that sub-set of the Investor s wealth used to make each subscription, e.g. occupation, business activities, dividends.

2 This information must be ascertained as part of the account opening process as applicable and thereafter for each subscription of the Investor. Accordingly, BBH monitors the subscription activity in accounts with Irish Legislative PEPs and requests confirmation of SoF with respect to the subscription. An AML Non-Compliant status will be immediately applied to the Investor account and payments restricted while BBH is requesting and waiting for this due diligence documentation. Effective Date: April 23, Impacts to Clients: Applicable to Irish domiciled Clients/ Funds or where BBH performs TA AML Services based on Ireland AML Standards. Impacts to Investors: Documentary SoF will be required for each subscription trade for any Investor account determined to have an Irish Legislative PEP in addition to current Know Your Customer due diligence requirements at account opening, reactivation and/or reassessment. 3 US FinCEN CDD Rule On May 11,2016, the Financial Crimes Enforcement Network ( FinCEN ) published the Customer Due Diligence Requirements for Financial Institutions (the CDD Rule ) under the U.S. Bank Secrecy Act with an applicability date of May 11, The CDD Rule requires that where BBH performs TA AML Services based on U.S. AML Standards, BBH identify and verify the identity of Beneficial Owner(s) of all Legal Entity Investors (e.g., Corporations, LLCs/LPs and Funds) at the time the Investor account is opened, subject to certain exclusions and exemptions. Additionally, beneficial ownership information must be certified by an individual at the Legal Entity Investor with authority to act on the Investor account. The CDD Rule defines Beneficial Ownership as the Beneficial Owner(s) plus Designated Controller of a legal entity. A Beneficial Owner is any individual ultimately holding, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, a 25% or more equity interest of the Legal Entity Investor. The Beneficial Owner must be a natural person. If the Legal Entity Investor is acting on behalf of one or more of its underlying clients, FinCEN due diligence requirements will differ to current due diligence requirements. As the CDD Rule prescribes a risk-based approach when applying the ownership threshold, BBH will continue to apply its current AML Program requirements of 10% or more for high risk Investors and 25% or more for low/medium risk Investors. In addition, 100% verification will be applied (for the purposes of FinCEN) for investors that are personal investment companies. Designated Controller is a single individual with significant responsibility for managing the Legal Entity Investor (for example CEO, CFO, COO, Managing Member, General Partner, President, Vice President, Treasurer or any other individual who regularly performs similar functions). The Designated Controller must be a natural person. Certain Investor types are not included in the definition of Legal Entity Investor and are fully excluded1 from the CDD Rule. The Beneficial Owner Certification Form does not need to be obtained from excluded investor types. Certain Legal Entity Investors2 are subject only to Certification of the Designated Controller information and do not need to identify Beneficial Owner(s). Beneficial Ownership Certification and verification document required for Designated Controller only. Existing accounts are excluded from the scope of the Rules, however there is a Regulatory expectation that relevant information will be sought on a risk basis. The information will be sought when a trigger event 3 occurs, or during an account s scheduled reassessment after the applicability date. Subscription documentation should be updated to ensure that the necessary certification is provided at account opening, obviating the need to contact the investor for further information. Effective Date: May 11, Impact to Clients: Applicable to TA clients where BBH performs TA AML Services based on U.S. AML Standards (i.e., any fund contracted with BBH for TA AML Services based on U.S. AML Standards, including U.S., Cayman and BVI domiciled funds contracted with BBH&Co). Impact to Investors: Due diligence documentation in addition to current Know Your Customer due diligence requirements will be required for Investor accounts opened/ reactivated/reassessed from May 11, The Beneficial Ownership Certification form, certifying to information on both the Beneficial Owner(s) and Designated Controller, as well as verification documents for these individuals must be obtained for in-scope Legal Entity Investors. After receipt of the initial Beneficial Ownership Certification, BBH requires a periodic Attestation that there have been no changes to

3 the beneficial ownership information in the form. Should there be any changes to beneficial ownership information, an updated Beneficial Ownership Certification is required in advance of any subsequent account opening. Attestation that beneficial ownership information has not changed can be provided via from an individual with authority to act on the account, as part of an account opening instruction or in a written letter signed by an individual with authority to act on the account. 4 Updates to Country Risk Ratings On April 20, 2018, BBH TA changed the country risk ratings for Bonair, Sint Eusatius and Saba, each an island municipality of The Netherlands, to Low Risk. Effective June 26, 2018, BBH TA will increase the country risk ratings for nine countries to Very High Risk in accordance with European Commission s designation of these countries as high-risk third countries. Investors with geographic touchpoints to a Very High Risk country will be automatically rated with an overall risk rating of High. High risk investor accounts are subject to enhanced due diligence. The EU has designated fifteen countries high-risk third countries. Six of these, BBH TA currently rates as Very High Risk. Effective Date: June 26, Impacts to Clients and Investors: Applicable to new account openings effective June 26 and to existing accounts at next reassessment. 5 Enhanced PEP Assessment Procedures: Former PEP status BBH will enhance our PEP Assessment procedures to allow for Former PEP status to be factored into our analysis of PEP alerts for Irish or Luxembourg domiciled Clients/ Funds or where Ireland or Luxembourg AML standards are otherwise applied. In accordance with industry guidance and governing regulation, on a risk based approach, where it is deemed that the potential PEP is no longer entrusted with a prominent public function (for at least twelve months) and not otherwise recorded as a PEP on BBH TA records, an assessment will be undertaken to determine if there may be an additional exemption from classifying the investor account as a PEP account. The following factors will be utilized to determine if Former PEP status should be utilized to determine the investor or related party as a non-pep: 1. Has the Potential PEP been out of office for at least twelve months? 2. Is it reasonable to conclude from publicly available sources that the Potential PEP does not have informal or formal influence that he/she can still exercise? Effective June 26, 2018, BBH TA will increase the country risk ratings for four additional countries as follows: 3. Was the Potential PEP so senior that deeming him/her a non-pep raises reputational risk? e.g. Head of State, Senior Members of Royal Families. 4. Is the Potential PEP s current function linked in anyway with his/her prior role? 5. Is there any material negative news about the Potential PEP? Effective June 26, 2018, BBH will decrease the country risk ratings for six countries as follows: Where all the factors above have been documented, reviewed and approved by TA IOB/IOM Manager (or equivalent) and the BBH TA AML Compliance officer (or authorized delegate), the Fund MLRO (or authorized delegate) will be required to review, independently assess and provide written approval of the determination prior to account opening or immediately after identification for existing accounts. If the AML Compliance Officer and/or the Fund MLRO believes that the investor should be deemed a

4 PEP or otherwise believes additional information is required, the investor shall be deemed a PEP. Effective Date: June 30, Impacts to Clients: Applicable to Irish and Luxembourg domiciled Clients/Funds, or where BBH performs TA AML Services based on Ireland or Luxembourg AML Standards. The Fund MLRO (or authorized delegate) will be required to review, independently assess and provide written approval of the determination of Former PEP status prior to account opening or immediately after identification for existing accounts. Impacts to Investors: None expected. 6 Enhanced Client Approval Requirements for PEPs BBH have enhanced our PEP account approval requirements to require Client (i.e., Fund MLRO (or authorized senior management)) approval of any account associated with a PEP in accordance with BBH PEP Assessment procedures. Impacts to Clients: Applicable to Irish and Luxembourg domiciled Clients/Funds, or where BBH performs TA AML Services based on Ireland or Luxembourg AML Standards. BBH will in all instances obtain the written approval/ acceptance of all newly confirmed PEPs by the Fund MLRO (or authorized senior management) prior to account opening or immediately after identification for existing accounts. While most Clients currently approve PEPs, for any clients currently not approving PEPs, you will be asked to approve PEPs going forward. Impacts to Investors: None expected. 7 Investor Due Diligence File Reassessments This year BBH initiated a global redesign of its TA Investor On-Boarding Platform to improve the TA Client/Investor experience. Enhancements include greater automation of the account opening process; more robust operational and AML processes via systemic prompts, calculations and workflow queues; a centralized register to manage and track the lifecycle of account onboarding in real time; automated AML controls and consistency of applicable, and evolving, AML requirements; and enhanced oversight via dashboards and reporting. Phase 1, scheduled for delivery in August, 2018, will enhance initial data entry screens to support the account opening process and provide ability to capture all KYC data, including all interested parties, automated generation of an account risk rating and recording of screening results; provide ability to automatically generate document requirements, upload documents to satisfy these requirements and act as a document repository and provide ability to complete the account opening process including a dynamic workflow for validation checks and maker /checker activities, dual blind, in built audit trail and user access profiles based on role. To support the migration of existing files to IOB-R, BBH are reassessing the investor due diligence documentation of all active investor files. Reassessment will occur throughout and after the investor data migration and will ensure the new platform is complete and accurate, and all active investor files are compliant with current program requirements. During reassessment, BBH will incorporate current program requirements and anticipate future changes to the extent possible. Reassessments that result in requests for new or refreshed documentation/ information from the investor will be handled in accordance with current Reassessment Policy. Reassessment of all Investor accounts currently rated High and Medium Risk commenced in February 2018 (expected completion October 2018), with all Investor accounts currently rated Low Risk to be completed thereafter (expected completion Quarter ). Assessments will be sequenced based upon the above but will also be coordinated, to the extent viable, by Investor (those which may invest across multiple funds) and by TA Client/Fund. To the extent additional documentation is required and the Investor has multiple accounts on the register, there will be one single reach out communication covering all accounts. For the purposes of the reassessment project, BBH will manually inactivate accounts with zero holdings following a full redemption this will ensure reassessment and chasing does not occur until there is a trigger event on the account (e.g. a new trade, static data request from the investor), whereon a full review of the account to current standards will be undertaken. Effective Date: Ongoing. Impacts to Clients: None expected. Impacts to Investors: Reassessed accounts that require new/refreshed documentation will be subject to 90-day grace period per current Reassessment Policy. High risk investor accounts are reviewed annually per current ongoing monitoring procedures. Medium and Low risk investor accounts are reviewed every five years. Under this program enhancement, all Medium risk investor accounts will be reassessed in 2018 (expected completion October 2018) and all Low risk investor accounts will be reassessed in the next three years.

5 1 Governmental entities including central banks, U.S. state and local government entities, governmental institutions; U.S. Banks, Non U.S. Banks, securities broker-dealers and futures commission merchants located in a BBH approved jurisdiction; U.S.-based SEC or CFTC registered NBFIs including investment advisers and broker-dealers; U.S. State regulated insurance companies; Funds operated or advised by a U.S. Bank or U.S. SEC registered investment adviser; Open and Closed Ended 40 Act Funds; Public operating companies listed on U.S. stock exchanges and their U.S.- based subsidiaries. 2 Funds not operated or advised by a U.S. Bank or U.S. SEC registered investment adviser; Charities and non-profit organizations. 3 A trigger event is a specified change to investor static data details; a specified change to banking details; potential material sanctions, PEPs or negative news alerts; periodic file review based on risk rating or a specific investor transaction trigger.

6 NEW YORK BEIJING BOSTON CHARLOTTE CHICAGO DENVER DUBLIN GRAND CAYMAN HONG KONG JERSEY CITY KRAKÓW LONDON LUXEMBOURG NASHVILLE PHILADELPHIA TOKYO WILMINGTON ZÜRICH This publication is provided by Brown Brothers Harriman & Co. and its subsidiaries ( BBH ) to recipients, who are classified as Professional Clients or Eligible Counterparties if in the European Economic Area ( EEA ), solely for informational purposes. This does not constitute legal, tax or investment advice and is not intended as an offer to sell or a solicitation to buy securities or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code or for promotion, marketing or recommendation to third parties. This information has been obtained from sources believed to be reliable that are available upon request. This material does not comprise an offer of services. Any opinions expressed are subject to change without notice. Unauthorized use or distribution without the prior written permission of BBH is prohibited. This publication is approved for distribution in member states of the EEA by Brown Brothers Harriman Investor Services Limited, authorized and regulated by the Financial Conduct Authority (FCA). BBH is a service mark of Brown Brothers Harriman & Co., registered in the United States and other countries. Brown Brothers Harriman & Co All rights reserved. June _18