Central Bank of The Bahamas PUBLIC CONSULTATION Proposed Revisions to the Guidelines on the Prevention of Money Laundering & Countering the Financing of Terrorism
I. INTRODUCTION 1. The Central Bank of The Bahamas (the Bank) continuously reviews its regulatory and supervisory framework with a view to safeguarding the reputation and standing of The Bahamas as a premier international financial centre which continues to comply fully with applicable international standards and best practices. As part of its ongoing efforts, the Bank is proposing amendments to the Guidelines on the Prevention of Money Laundering & Countering the Financing of Terrorism (the AML/CFT Guidelines) which were last updated in September, 2013. 2. The proposals set out in this Consultation Paper stem from a review of the AML/CFT Guidelines, as a part of a broader review of the country s anti-money laundering and counter terrorism financing ( AML/CFT ) regime. The goal of the review was to ensure that The Bahamas AML/CFT regime remains up-to-date in light of the latest changes to the Financial Action Task Force (FATF) Recommendations. 3. The FATF is an inter-governmental, standard setting body established to develop and promote policies and legislation to combat money laundering associated with organised crime, terrorism financing and, more recently, the proliferation of weapons of mass destruction. The FATF issues international standards to guide governments in their implementation of measures in these areas. In 2012 the FATF updated the Forty Recommendations and Nine Special Recommendations on anti-money laundering and countering the financing of terrorism ( the 2003 Standards ), now called the Forty Recommendations ( the Revised Standards ). The proposed amendments to the AML/CFT Guidelines draw reference from international best practice and the Revised Standards and in some instances, formalise existing supervisory expectations and Licensees practices. 4. Countries are routinely assessed for compliance with the FATF Recommendations. The Bahamas is scheduled to be assessed by the Caribbean Financial Action Task Force, a FATF-styled regional body, in December of this year. II. PROPOSED AMENDMENTS The proposed key amendments to the AML/CFT Guidelines and the rationale for the amendments are set out below. A tracked version of the AML/CFT Guidelines is set out in Annex A. I. NEW REQUIREMENTS 1. Assessing Risks and Applying a Risk-Based Approach Paragraphs 24, 24.1, 24.2, 28, 33 and 34 1.1 Currently, Licensees are required to implement a risk-rating framework appropriate to its business (i.e. products and customer-base); for the purpose of assessing the potential money laundering and terrorist financing risk which 1 P a g e
each client relationship poses to the Licensee. The AML/CFT Guidelines clearly outline this requirement at paragraphs 33, 34 and 35. The proposed amendments seek to clarify Licensees obligations in relation to assessing their money laundering and terrorist financing (ML/TF) risks and applying a risk based approach. 1.2 The key changes will include new obligations for Licensees to identify and assess the overall ML/TF risks they face, and to take steps to manage and mitigate the risks that are identified either by the Licensee itself or by the Central Bank or other relevant authorities. Such risk assessments should be documented and updated and reviewed on a regular basis. These changes align with the official adoption of the risk based approach set out in Recommendation 1 of the Revised Standards. II. CLARIFICATION AND/OR ENHANCEMENT OF EXISTING REQUIREMENTS 2. Verification of Customer Identity Paragraph 40 2.1 The proposed amendments will require Licensees to (i) identify customer s identify using reliable, independent source documents, data or information, and (ii) verify the identity of any person purporting to act on behalf of the customer and to confirm that such person is properly authorized to so act. The amendments reflect what already exists in practice and what is required under the provisions of the Financial Transactions Reporting Act 2000 (section 11) and the Financial Transactions Reporting Regulations 2000 (regulations 4, 5 and 6). 2.2 Corporate Clients Paragraph 77(iv) The AML/CFT Guidelines currently require Licensees to identify those persons with ultimate control over a company s business and assets, with particular attention being paid to any shareholders or others who exercise a significant influence over the affairs of the company. The proposed amendments seek to clarify the expectation that where no natural person is identified as a beneficial owner, Licensees are to identify and verify the identity of the relevant natural person who hold the position of senior managing official. 3. Failure to Satisfactorily complete CDD - Paragraph 44 (Nature and Scope of Activity) Paragraph 44 of the CBB AML/CFT Guidelines which sets out the options for Licensees to consider when they are unable to complete relevant CDD measures. The proposed amendment will introduce an additional option for Licensees to not open the account, commence the business relationship; or terminate the business relationship, where CDD measures are not completed. 4. Record Keeping Paragraphs 167, 206, 207, 209 and 223 2 P a g e
The proposed amendments will clarify existing requirements in relation to record keeping of CDD information and records, including the results of any analysis undertaken (e.g. inquiries to establish the background and purpose of complex, unusual large transactions) for the relevant statutory periods. 5. Politically Exposed Persons ( PEPs ) Paragraphs 159 to 161 In light of new developments in international standards and best practices with respect to PEPs, the amendments will introduce new definitions which will further clarify Licensees obligations with respect to PEPs, their family members and close associates. The amendments expand Licensees obligations to include beneficial owners and individuals who are, or have been entrusted with a prominent public function by an international organization. The amendments will also introduce a risked based approach with regard to performing CDD measures for certain categories of PEPs, including domestic PEPs. 6. Correspondent Banking - Paragraphs 149, 150, 151, 153, 154 and 157 The AML/CFT Guidelines detail most of the requirements of the Revised Standards which adopted the 2003 Standards without significant change. The proposed amendments will expand Licensees obligations in relation to correspondent relationships to include other similar relationships and to document the respective AML/CFT responsibilities of each institution rather than to document only, the responsibilities of respective KYC measures. 7. Money Value Services Paragraphs 187, 189 and 191 Money Transmission Service Providers (MTSPs) and their agents (Money Transmission Agents or MTAs) are subject to the same AML/CFT obligations and, the AML/CFT compliance of MTAs is routinely reviewed at the time of onsite inspection visits to MTSPs. To reflect the current practice, the amendments will include an explicit requirement for MTSPs to include their MTAs in their AML/CFT programmes and to monitor them for compliance. As MTSPs and MTAs are permitted to conduct wire transfers in The Bahamas, a new requirement for payee information to accompany a wire transfer will be added to reflect changes in the Revised Standards. 8. New Technologies Paragraph 115.1 The Revised Standards expand on the 2003 Standards relating to new technologies by creating specific obligations on risk assessment and mitigation. The AML/CFT Guidelines will be revised to clarify risk assessment and mitigation requirements in relation to new products, practices and technologies. 9. Electronic Payments Transfers Part VI Provisions under Section VI of the Guidelines, which address electronic payments transfers, will be amended to bring the Guidelines in line with additional requirements under the proposed new Wire Transfer Regulations. These provisions were issued for public consultation in October 2015, but have been included in this consultation paper and the accompanying draft Guidelines in Annex A, for ease of reference. 3 P a g e
10. Internal Controls and Foreign Branches and Subsidiaries Scope and Paragraphs 29.1 to 29.4 A key element of the Revised Standards is the implementation of group-wide AML/CFT programmes including policies and procedures for sharing information within the group for AML/CFT purposes. The amendments will clarify existing expectations on Licensees to develop and implement group policies and procedures for their branches and subsidiaries within the financial group. They will also include specific requirements for financial groups with regard to group-wide AML/CFT programmes and consistent application of home country standards on foreign branches and subsidiaries. 11. Higher Risk Countries Paragraph 141(d) Licensees are required to apply enhanced due diligence (EDD) on a risk sensitive basis for customers, business relationships or transactions under the AML/CFT Guidelines, and are encouraged to consult publicly available information to ensure that they are aware of countries / territories which may pose a higher risk. The amendments will clarify that EDD should be applied to countries for which this is called for by the FATF. 12. Transparency of Legal Arrangements - Paragraphs 45, 95(ii), 97, 99 and 100 12.1 The AML/CFT Guidelines set out the identity verification requirements with respect to trusts, including the requirement to verify the identity of settlors and other persons exercising effective control over the trust and beneficiaries. The proposed amendments will formalize and clarify the existing practice of trustees holding basic information on other regulated agents of, and service providers to, the trust, including investment advisors or managers, accountants, and tax advisors as a practical necessity in meeting their responsibilities under the trusteeship. The amendments will also clarify the requirement for Licensees to verify the identity of any natural person exercising ultimate ownership or control over the trust and to ensure that information obtained is both accurate and kept up to date. 12.2 The proposed amendments will enhance existing requirements to ensure that trustees disclose their status to Licensees when forming a business relationship or carrying out an occasional transaction above the threshold. III. CONSULTATION PERIOD The Bank invites interested parties to submit their comments on the proposals made in this consultation paper. All comments should be submitted no later than Wednesday 9 th December, 2015. Your comments and questions regarding the proposed changes should be directed to: 4 P a g e
The Policy Unit Bank Supervision Department Central Bank of The Bahamas Frederick & Market Streets P.O. Box N 4868 Nassau, Bahamas Tel (242) 302-2615 Fax (242) 356-3909 Email: Policy@centralbankbahamas.com 19 th November, 2015 5 P a g e