Simplified Due Diligence. Legislative changes. Hamish Armstrong Financial crime policy. Legislative changes (1) 26/11/2014. Legislative changes

Transcription

1 Simplified Due Diligence Hamish Armstrong Financial crime policy 1 Legislative changes 2 Legislative changes (1) Legislative changes Money Laundering (Amendment No. 6) (Jersey) Order 2013 ( MLO Amendment 6 ) In force with effect from 18 December 2013 Money Laundering (Amendment No. 7) (Jersey) Order 2014 ( MLO Amendment 7 ) In force with effect from 27 October

2 Legislative changes (2) MONEYVAL progress report Written analysis recommended Designation of higher risk customers in legislation, e.g. Non-residents Private banking Personal asset holding vehicles Companies with nominee shareholders/bearer shares Prohibition on application of simplified to customers in countries that do not comply with FATF Recommendations Identification of third parties on whose behalf customer acts even when simplified may be applied 4 Legislative changes (3) Article 15 Revised to require enhanced CDD Non-residents Private banking Personal asset holding vehicles Companies with nominee shareholders/bearer shares Articles 17 and 18 Revised to prevent the application of simplified identification to customers resident in countries that do not apply FATF Recommendations Appendix D2 of AML/CFT Handbook Sources 1 and 2 5 Legislative changes (4) Article 17 Basic information on third parties to be collected at time that simplified applied Consider value/extent of financial interest Find out ID information for those with significant interests Further details Consultation Paper No (issued June 2014) Feedback on Consultation Paper No. 3 (issued September 2014) 6 2

3 AML/CFT Handbooks 7 AML/CFT Handbooks (1) AML/CFT Handbooks Amendments consequential to MLO Amendment 6 and MLO Amendment 7 Other catch-up and presentational improvements Outlined in Position Paper AML 2014 (issued July 2014) 8 AML/CFT Handbooks (2) AML/CFT Handbooks Current section Topic Proposed section Section 3 Enhanced CDD Section 7 Section 4 Reliance on obliged persons Section 5 Section 4 Enhanced CDD (higher risk customers) Section 7 Section 4 Simplified CDD Section 7 Section 9 Existing customers Section 4 9 3

4 AML/CFT Handbooks (3) AML/CFT Handbooks Consultation Paper AML (issued August 2014) Closed Consultation Paper AML (issued September 2014) Closed Consultation Paper AML (issued October 2014) Closes on 28 November AML/CFT Handbooks (4) AML/CFT Handbooks Consultation Paper AML (issued November 2014) Sector specific section: trust company business Closes on 5 December 2014 Consultation Paper AML (to be issued early December 2014) Guidance paper: funds and fund operators One month consultation Consultation Paper AML (issued 21 November 2014) Product and service guide: prepaid cards One month consultation 19 December 11 AML/CFT Handbooks (5) AML/CFT Handbooks Supervision for compliance with new AML/CFT Codes From 1 January 2015 (or later as appropriate) Findings and recommendations to take account of time needed to remediate 12 4

5 Section 7 Enhanced and simplified identification 13 Section 7 (1) Article 18 Specific concessions in specific scenarios Revised to prevent the application of simplified identification to customers resident in countries that do not apply FATF Recommendations. See: Appendix D2 of AML/CFT Handbook Sources 1 and 2 14 Section 7 (2) Article 17 Relevant person need not find out identity of a third party on whose behalf a customer acts, or obtain evidence of identity, where customer is: Regulated and overseen by the Commission for AML/CFT compliance or equivalent business Wholly-owned by such person and fulfils conditions set out in Article 17(2) Application of concession is dependent upon status of relevant person and its customer five cases Application of concession is subject to conditions (and testing for some cases) 15 5

6 Section 7 (3) Cases One: relevant person s customer carries on deposit-taking, insurance business, funds services business, investment business, or holds a fund permit or certificate (or carries on equivalent business) Two: relevant person s customer acts in course of, or in respect of, unregulated or COBO-only fund (or carries on equivalent business) provided there is little risk of money laundering 16 Section 7 (4) Cases Three: relevant person carries on deposit-taking and its customer carries on trust company business (or equivalent business) provided there is little risk of money laundering Four: relevant person carries on deposit-taking and its customer is a lawyer carrying on business that is regulated for AML/CFT purposes provided there is little risk of money laundering Five: relevant person is a lawyer or accountant and its customer carries on trust company business (or equivalent business) provided there is little risk of money laundering 17 Section 7 (5) Conditions (all cases) One: relevant person assesses risk and makes written record of reason why it is appropriate to apply simplified, having regard to the risk of money laundering inherent in the customer s business and the higher risk of money laundering associated with that type of business should the customer fail to: Apply identification Keep records 18 6

7 Section 7 (6) Guidance (1); risk inherent in customer s business Consider: the general risk appetite of its customer; the geographic location of its customer s client base; the general nature of the customer s client base, e.g. whether institutional or private client; the nature of the services that the customer provides to its clients; the extent to which its customer carries on business with its clients on a non-face to face basis or clients are otherwise subject to enhanced CDD ; and the extent to which clients of its customer may be PEPs or present a higher risk of money laundering or financing of terrorism, and the sources of funds of such PEPs. 19 Section 7 (7) Guidance (2); risk of customer failing Consider: The stature and regulatory track record. The adequacy of the AML/CFT framework in the country or territory in which its customer is based. The adequacy of the AML/CFT supervisory regime to which its customer is subject. The adequacy of identification applied by its customer. The extent to which the customer itself relies on obliged parties (however described) to identify its clients and to hold evidence of identity, and whether such obliged parties are relevant persons or carry on an equivalent business. 20 Section 7 (8) Adequacy of identification Consider: Reviewing previous experience (if any) with the customer. Making specific enquiries, e.g. through use of a questionnaire or series of questions. Reviewing relevant policies and procedures. Where the customer is a member of a financial group, making enquiries concerning the extent to which group standards are applied to and assessed by the group s internal audit function. Conducting (or commissioning) sample testing of the adequacy of the customer s AML/CFT policies and procedures, whether through onsite visits, or through requesting specific CDD information and/or copy documentation to be provided. 21 7

8 Section 7 (9) Conditions (cases two to five only) Two: customer provides adequate assurance in writing that it has applied specified identification Three: customer provides adequate assurance in writing that: Information on identity found out will be provided on request and without delay Evidence of identity obtained under identification will be kept and provided on request and without delay [Note assurances may be provided through terms of business] 22 Section 7 (10) Testing (cases two to five only): Appropriate policies and procedures in place to apply necessary identification Identity is found out and evidence of identity obtained Information on identity found out and evidence of identity is kept Information on identity found out and evidence of identity is provided without delay on request Have regard to secrecy legislation CoP: If testing highlights failures, must review the application of simplified identification! 23 Section 7 (11) Exclusions ML/FT is suspected Customer presents higher ML/FT risk Risk inherent in the customers business/client base Risk that customer does not apply necessary identification Risk that customer does not keep records, or does not keep them for necessary period Customer has relevant connection to enhanced risk state Customer is resident in a country or territory that is not compliant with FATF Recommendations 24 8

9 Section 7 (12) New condition: Before applying simplified identification, a relevant person must: Consider the value and extent of each third party s financial interest in the product, arrangement, account or other investment vehicle offered to the customer by the relevant person; and Where the relevant person considers that the value or financial interest of the third party is significant, find out the identity of that person. 25 Section 7 (13) Guidance: Basic information to be collected Natural persons - name, address and date of birth Legal persons/arrangements name, date and country of incorporation (or equivalent), registered office address (or equivalent) Concerning any significant third party Designated- single third party clearly significant Pooled - 25% financial interest (for low risk) Executionary e.g. trading activity (by volume or value) Applied at the time simplified applied 26 Section 7 (14) Transitional/ existing customers? Not retrospective; no remediation project required But: apply identification where doubts about veracity or adequacy, etc So: if review of relationship highlights that documents, data or information are inadequate etc, apply simplified again (if appropriate) - including collection of basic data Designated collect basic information Pooled/executionary determine significance and collect basic information at that time 27 9

10 Key learning points 28 Key learning points Risk assessment is key! Assurances and testing must be appropriate! Basic info on significant third parties