The following posts provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
EU Countering Money Laundering By Criminal Law Directive Will Apply From December 2020
The EU Countering Money Laundering by Criminal Law Directive has been published in the Official Journal of the European Union. The Directive will complement the Fifth Money Laundering Directive, which was adopted in May 2018.
The U.K., Ireland and Denmark have not adopted the new Directive. In the U.K., this mirrors the approach taken by the U.K. in relation to EU criminal sanctions for market manipulation where it has implemented its own national regime.
The new Directive will enter into force on December 3, 2018. EU member states that have adopted the Directive must transpose the new provisions into national law by that date.
Draft EU Guidelines on Supervisory Cooperation on Anti-Money Laundering and Countering the Financing of Terrorism
The Joint Committee of the European Supervisory Authorities have launched a consultation on draft joint guidelines on the cooperation and information exchange between national regulators supervising banks and other financial institutions for compliance with Anti-Money Laundering and Countering the Financing of Terrorism rules. The Fourth Money Laundering Directive requires that EU member states allow, without undue restriction, the exchange of information and provision of assistance between national regulators. The ESA's proposed guidelines aim to set out how that can be achieved in practice. The ESAs are proposing that a college of supervisors should be established where a financial institution is supervised in three or more EU member states. The draft guidelines set out rules on the establishment and operation of the colleges. For firms that do not require a college but which operate in two member states, the ESAs propose a process for the bilateral exchange of information between national regulators.
The consultation closes on February 8, 2019.
View the consultation paper.
Financial Action Task Force Publishes Final Guidance on a Risk-Based Approach for the Securities Sector
The Financial Action Task Force has published the finalized version of its Guidance on a Risk-Based Approach for the Securities Sector. The finalized Guidance was adopted at the FATF's plenary meeting held on October 17—19, 2018. The FATF has developed the Guidance in conjunction with the private sector, to assist governments, regulators, Financial Intelligence Units and participants in the securities sector to adopt a risk-based approach to anti-money laundering and countering the financing of terrorism.
The final Guidance sets out the key principles involved in applying a risk-based approach to AML and CTF. Separate sections provide specific guidance to securities providers and intermediaries and to securities supervisors on the effective implementation of a risk-based approach. Annexes provide examples of supervisory practices that have been adopted and examples of suspicious activity indicators relevant to securities.
The Guidance is non-binding. It should be read in conjunction with the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation and the 2009 Report on Money Laundering and Terrorist Financing.
View the final Guidance.
View details of the consultation on draft Guidance.
View details of further outcomes of the FATF's October 2018 plenary.
European Banking Authority Sets Out Its Work Priorities for 2019
The European Banking Authority has published its Work Programme for 2019, setting out details of, and planned main outputs from, 37 separate work streams across the following five key strategic priorities:
- Leading the Basel III implementation in the EU.
- Understanding risks and opportunities arising from financial innovation.
- Collecting, disseminating and analyzing banking data.
- Ensuring a smooth relocation of the EBA to Paris.
- Fostering the increase of the loss-absorbing capacity of the EU banking system.
The EBA also confirms that work related to Brexit will remain a horizontal priority for the EBA in 2019 and explains that the EBA's other activities may be affected in the future by Brexit-related developments. Should that be the case, any substantial change in the work programme will be communicated in due time, in order to seek steering and approval from its Management Board and Board of Supervisors.
View the EBA's 2019 Work Programme.
UK Serious Fraud Office Charges Former Banker With Conspiracy To Defraud For Manipulation of Euro Interbank Offered Rate
The U.K. Serious Fraud Office has charged a former banker with conspiracy to defraud, as part of its investigation into the manipulation of the Euro Interbank Offered Rate.
The former banker was arrested in Italy in August 2018 after his trip to the country activated a European Arrest Warrant that had been secured by the SFO in 2016. Italian authorities ruled on October 12, 2018 that he should be extradited to the U.K. and he was charged with conspiracy to defraud at Westminster Magistrates’ court on October 20, 2018.
The next hearing will take place at Southwark Crown Court on October 24, 2018.
View the SFO's announcement.
EU Supervisory Authority Reports on ICO and Crypto-Asset Risks and Potential Regulation
The European Securities and Markets Authority has published an own-initiative report prepared by its Securities and Markets Stakeholder Group. The purpose of the report is to provide advice to ESMA on steps it might take to contain the risks of Initial Coin Offerings and crypto-assets, on top of existing regulation.
In the report, the term “crypto-assets” is used to refer to coins, tokens, virtual and cryptocurrencies or other digital or virtual assets collectively. The acronym "ICO" is used to refer to an initial offering of any crypto-asset. The report sets out a taxonomy of crypto-assets, based on the distinction between payment tokens, utility tokens, asset tokens and hybrids used by the Swiss Financial Market Supervisory Authority (FINMA).
Financial Action Task Force Clarifies Virtual Asset Regulation
The Financial Action Task Force has published the outcomes of its plenary on October 17-19, 2018. The FATF considered key issues such as the operations and streamlining of the FATF, major and other strategic initiatives and mutual evaluations.
One of the major initiatives covered by the plenary was the regulation of virtual assets. The G20 Finance Ministers & Central Bank Governors communiqué following their July 2018 Buenos Aires meeting called on the FATF to clarify, by October 2018, how its global anti-money laundering and counter-terrorist financing standards apply to crypto assets. At its October plenary, the FATF adopted amendments to the FATF Recommendations and Glossary at the plenary and issued a statement on the regulation of virtual assets. The FATF has done this to clarify that its standards apply to exchanges, wallet providers and providers of financial services for Initial Coin Offerings. Jurisdictions should therefore ensure that virtual asset service providers are subject to AML/CTF regulations. However, jurisdictions are able to choose which category of regulated entity virtual asset service providers should fall into.
UK Government's Guidance on Approach to Sanctions in a 'Hard Brexit' Scenario
The U.K. Foreign and Commonwealth Office has published guidance on the U.K. government's approach to implementing sanctions in the event that no deal is agreed between the EU and the U.K. on the U.K.'s exit from the EU. If there is no deal, the U.K. will leave the EU on March 29, 2019.
The U.K. currently implements sanctions agreed by the UN Security Council, according to international law requirements, and the EU, as provided for in EU legislation and U.K. implementing legislation. In the event of a "hard Brexit," the U.K. would continue to implement sanctions agreed by the UN Security Council and would have the power to adopt other sanctions under the Sanctions and Anti-Money Laundering Act 2018. The FCO would publish the names of individuals and organizations subject to U.K. sanctions.
European Supervisors Announce 2019 Work Priorities
The Joint Committee of the European Supervisory Authorities (that is, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) has published its 2019 Work Programme. EIOPA will Chair the Joint Committee in 2019. The Work Programme provides details of the Joint Committee's key workstreams for 2019.
UK Office of Financial Sanctions Implementation Publishes First Annual Review
The U.K. Office of Financial Sanctions Implementation has published its Annual Review for the period from April 2017 to March 2018. OFSI was established in March 2016 with the objective of raising awareness of financial sanctions, assessing and addressing suspected sanctions breaches and providing a professional service to the public and industry. The Annual Review provides an overview of:
- U.N. and EU financial sanction regimes implemented by OFSI;
- OFSI's work on asset freezing and a breakdown of funds frozen;
- action taken by OFSI following reports of suspected breaches of financial sanctions;
- licenses issued by OFSI during the period; and
- awareness-raising activities.
View the Annual Report.
UK Regulator Finds E-Money Firms Have Effective Anti-Money Laundering Controls
The Financial Conduct Authority has published a report on the outcome of its thematic review into money laundering and terrorist financing risks in the e-money sector. The report focuses on e-money products, including prepaid cards and digital wallets. The FCA assessed the anti-money laundering and counter-terrorist financing controls of 13 authorized Electronic Money Institutions and registered small Electronic Money Institutions. The review included consideration of business models that involve distributing e-money through agents and distributors.
The FCA's review did not cover activities that are not regulated by the FCA (for instance, gift cards that can be used only within a limited network or prepaid products denominated in a cryptocurrency) or money remittance services provided by the EMIs.
US Federal Financial Regulatory Agencies Release Joint Statement on Sharing Bank Secrecy Act Resources
The U.S. Board of Governors of the Federal Reserve System, Financial Crimes Enforcement Network, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and National Credit Union Administration released an interagency statement regarding the sharing of Bank Secrecy Act resources among banks through collaborative arrangements intended to improve efficiency, reduce costs, and benefit from specialized expertise by pooling resources among banks.
UK Brokerage Firm Fined for Inadequate Controls Against Potential Market Abuse
The U.K. Financial Conduct Authority has published a Decision Notice (dated June 7, 2018) imposing a fine of £409,300 on a U.K. brokerage firm for failure to take reasonable care to organize and control its affairs responsibly and effectively with adequate risk management systems in relation to the detection and reporting of potential instances of market abuse.
US Federal Judge Affirms Commodity Futures Trading Commission's Authority to Police Virtual Currency Fraud
The U.S. District Court for the District of Massachusetts issued an order confirming that the Commodity Futures Trading Commission maintains the authority to police virtual currency fraud. The order was issued in response to a motion to dismiss charges against My Big Coin Pay, Inc. and several individuals for operating a fraudulent virtual currency scheme through which they solicited customers to purchase a virtual currency known as My Big Coin (MBC).
The CFTC's initial enforcement order, filed in January 2018, accused the defendants of operating a fraudulent virtual currency scheme through which they solicited more than $6 million from customers throughout the U.S. by making false and misleading claims that MBC was actively being traded, was backed by gold and could be used anywhere MasterCard credit cards were accepted. The defendants also were alleged to have misrepresented MBC's daily trading price in reports on its website, when no daily trading price existed because MBC was not actively being traded.
UK Conduct Regulator Consults on its Approach to Technical Standards and Guidelines Under the Revised Payment Services Directive
The U.K. Financial Conduct Authority has launched a consultation on its approach to implementing Regulatory Technical Standards and related Guidelines developed by the European Banking Authority to supplement provisions of the revised Payment Services Directive. The FCA's consultation focuses in particular on the RTS for strong customer authentication and common and secure open standards of communication. These RTS impose obligations on payment service providers to increase the security of customers' payments made by card and other means and also set out requirements on account servicing payment service providers (ASPSPs) relating to the third party providers of Account Information Services (AIS) and Payment Initiation Services (PIS) that were brought within the regulatory regime by PSD2.
The consultation includes proposals on new fraud reporting requirements reflecting PSD2 fraud reporting guidelines published by the EBA in July 2018. The FCA is also consulting on proposed changes to its Payment Services and E-Money Approach Document to reflect other legislative changes and clarify its expectations.
The EBA consulted between June and August 2018 on proposed Guidelines on aspects of the RTS. The FCA's proposed implementation approach is premised on the assumption that the final Guidelines will be largely as consulted on and the FCA will adjust its approach if necessary when the finalized Guidelines are published.
European Commission Proposes Enhancements to the European Banking Authority's Supervisory Powers for Anti-Money Laundering
The European Commission has published a Communication setting out a broad strategy for strengthening the EU's framework for anti-money laundering supervision. The Communication is accompanied by a fact sheet setting out Questions and Answers on the strategy.
The Commission notes that, despite the recent strengthening of the EU's framework, through the Fourth Money Laundering Directive (4MLD) and the forthcoming Fifth Money Laundering Directive (5MLD), there are concerns that gaps remain in the EU's supervisory framework. The Commission highlights that there is no clear articulation between the prudential and anti-money laundering rules for financial institutions. It identifies shortcomings in the reaction time of national supervisors and in the level of cooperation and information sharing both between prudential and anti-money laundering supervisors and on a cross-border basis between EU supervisors and other supervisors based both within and outside the EU. While the Commission recognizes that 5MLD will remove certain obstacles to cooperation between anti-money laundering and prudential supervisors, it also notes that further steps are necessary to ensure effective supervisory cooperation, especially where financial institutions operate across borders.
Financial Action Task Force Publishes Report on Professional Money Laundering
The Financial Action Task Force has published a report on professional money laundering. The report is intended to assist authorities to target professional money launderers and the structures that they set up and use to launder money and to disrupt the organizations of their criminal clients. PMLs are referred to by the FATF as "individuals, organisations and networks that are involved in third-party laundering for a fee or commission." PMLs specialize in providing professional money laundering services, such as locating investments or purchasing assets, establishing companies or legal arrangements, acting as nominees, recruiting and managing networks of cash couriers or money mules, providing account management services and creating and registering financial accounts. By providing detailed explanations of the roles performed by PMLs, the FATF aim to facilitate the identification and understanding of how PMLs operate. The report provides recent examples of financial organizations acquired by criminal operations or co-opted to aid money laundering and focuses on some of the common methods used to launder funds, such as trade-based money laundering, account settlement mechanism and underground banking.
UK Secondary Legislation Published to Align Ring-Fencing With Financial Sanctions Legislation
The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) (Amendment) Order 2018 has been made and will come into force on October 31, 2018.
The Amendment Order amends the definition of a "core deposit" (set out in The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014) for the purposes of the U.K. framework for the ring-fencing of retail from wholesale/investment banking. Under the U.K. framework, if a deposit is not a "core deposit," then carrying on the regulated activity of accepting deposits in relation to that non-core deposit can take place in the non-ring-fenced bank.
G20 Sets October 2018 Deadline for Financial Action Task Force to Clarify AML/CTF Standards For Crypto Assets
The G20 Finance Ministers & Central Bank Governors have issued a communiqué following their meeting in Buenos Aires on July 21 - 22, 2018. Among other things, the communiqué requests that the Financial Action Task Force clarify, by October 2018, how its global anti-money laundering and counter-terrorist financing standards apply to crypto assets.
The FATF's global standards (also known as the 40 Recommendations) promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. However, the FATF standards do not refer explicitly to crypto assets or the associated service providers and intermediaries, which creates uncertainty as to the scope of AML/CTF obligations that may apply to them.
UK Proposals for a Register of Beneficial Ownership for Foreign Entities
The U.K.'s Government Department for Business, Energy & Industrial Strategy has launched a consultation on a draft Bill that would introduce a register of beneficial owners for overseas legal entities that own U.K. property. Since April 6, 2016, the U.K. has required U.K. companies, limited liability partnerships and societates europaeae to establish and maintain a register of persons with significant control over them and since June 30, 2016 and those entities have been required to file such information with Companies House where it is publicly available on the People with Significant Control register.
Currently, information about overseas owners of land or property is often limited to the entity's name and territory of incorporation and it is unclear who ultimately owns and/or controls the entity. The aim of the draft Bill is to prevent and combat the use of land in the U.K. by overseas entities for the purposes of laundering money or investing illicit funds.
UK Law Commission Seeks Input on Proposals for Reform of Anti-Money Laundering and Counter-Terrorism Financing Law in England and Wales
The Law Commission has published a substantial consultation paper entitled "Anti-Money Laundering: the SARs Regime," seeking views on proposals to reform the law of England and Wales governing anti-money laundering. In particular, the report considers issues around Suspicious Activity Reports, which are the mechanism by which the private sector make disclosures relating to money laundering and terrorism financing.
The Law Commission has identified a number of legal difficulties that arise from the current regime and, following extensive fact-finding meetings with stakeholders, it has also identified a number of issues in the current regime that are causing particular practical difficulties. In the consultation paper, the Law Commission: (i) identifies the most pressing problems and proposes provisional solutions to improve the current regime; (ii) consults on reforming the consent regime within the Proceeds of Crime Act 2002 (POCA), which sets out the process whereby an individual who suspects that they are dealing with the proceeds of crime can seek permission to complete a transaction by disclosing their suspicion to the U.K. Financial Intelligence Unit of the National Crime Agency; and (iii) seeks to generate and consider ideas for long term reform.
Financial Action Task Force Reports to G20 and Announces Priority Work for 2018-2019
The Financial Action Task Force has published its report to the G20 Finance Ministers and Central Bank Governors. The report gives an overview of recent FATF work and its proposed next steps in its current workstreams. The United States takes over the FATF Presidency for the period July 2018 to June 2019 and has separately published a document summarizing its priority and other initiatives for the duration of its presidency.
EU Final Guidelines on Fraud Reporting Under the Payment Services Directive
The European Banking Authority has published final Guidelines on fraud reporting under the revised Payment Services Directive. PSD2 aims to increase the security of electronic payments and decrease the risk of fraud. The Directive, which has applied since January 13, 2018, requires Payment Service Providers to provide, at least on an annual basis, data on fraud relating to different means of payment to their national regulator. The regulators must in turn provide such data in aggregated form to the EBA and the European Central Bank. Existing data reporting practices vary across the EU. The EBA has worked with the ECB to develop these Guidelines to ensure that data is reported consistently and that the data is comparable and reliable.
The final Guidelines are addressed to PSPs, except account information service providers, and to their national regulators. The Guidelines cover payment transactions that have been initiated and executed, including the acquiring of payment transactions for card payments, identified by reference to: (a) fraudulent payment transactions data over a defined period of time; and (b) payment transactions over the same defined period. The Guidelines also set out how national regulators should aggregate the data.
Financial Action Task Force and Egmont Group Publish Research Findings on Concealment of Beneficial Ownership
The Financial Action Task Force has issued a detailed report on the concealment of beneficial ownership, assessing how legal persons, legal arrangements and professional intermediaries can help criminals conceal wealth and illicit assets. The aim of the report is to help national authorities including financial intelligence units, financial institutions and other professional service providers in understanding the nature of the risks that they face. The report was prepared in conjunction with the Egmont Group of financial intelligence units.
The FATF and the Egmont Group together identified the need for further analysis of the vulnerabilities associated with beneficial ownership, with a particular focus on the involvement of professional intermediaries, to guide global responses. Their joint report brings together the results of analysis of open-source research, public intelligence reports, classified intelligence holdings and public and private sector experience and expertise. It sets out a comprehensive overview of the main characteristics and vulnerabilities that lead to the misuse of legal persons and arrangements, and the exploitation of professional intermediaries, to conceal beneficial ownership.
The report identifies a number of issues for consideration to help address the vulnerabilities associated with the concealment of beneficial ownership.
View the FATF-Egmont Group report.
Financial Action Task Force Seeks Input on Draft Risk-Based Approach Guidance for the Securities Sector
The Financial Action Task Force has published for consultation draft Risk-Based Approach Guidance for the securities sector. The FATF is developing the Guidance to assist countries, regulators, Financial Intelligence Units and participants in the securities sector to adopt a risk-based approach to anti-money laundering and countering financing of terrorism. The draft Guidance aims to assist in the risk-based design and implementation of applicable AML/CFT measures by providing general guidelines and examples of current practices and facilitate the effective implementation and supervision of national AML/CFT measures by focusing on risks and on mitigation measures. The FATF is also hoping that the draft Guidance will aid the development of a common understanding of what the risk-based approach to AML/CFT entails in the context of the securities sector. The Guidance will not be binding once it is finalized. The draft Guidance should be read in conjunction with the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation and the 2009 Report on Money Laundering and Terrorist Financing.
UK Prudential Regulator Sets out Expectations on Firms' Exposures to Crypto-Assets
The U.K. Prudential Regulation Authority has published a "Dear CEO" letter, addressed to the Chief Executive Officers of banks, insurance companies and designated investment firms. The purpose of the letter is to remind firms of their relevant obligations under the PRA rules and to communicate the PRA's expectations regarding firms' exposures to crypto-assets.
Crypto-assets have exhibited high price volatility and relative illiquidity and may also be vulnerable to fraud and manipulation, which raises concerns about potential misconduct and poses issues for market integrity. The PRA's letter does not define crypto-assets, but the Financial Conduct Authority uses this term to refer to any publicly available electronic medium of exchange that features a distributed ledger and a decentralized system for exchange. The FCA recently published a "Dear CEO" letter outlining best practice for firms in handling the financial crime risks that crypto-assets can pose.
EU's Fifth Money Laundering Directive to Enter into Force July 2018
The Fifth Money Laundering Directive has been published in the Official Journal of the European Union and will enter into force on July 9, 2018. Member States must transpose the directive into their national laws within 18 months of that date. 5MLD makes a number of changes to the European Anti-Money Laundering and Counter-Terrorist Financing regime set out in the Fourth Money Laundering Directive.
The key changes introduced by 5MLD are:
1. Extending the scope of "obliged entities" to include providers of exchange services between virtual and fiat currencies as well as custodian wallet providers. These entities will need to register in their home Member State.
2. Harmonizing the application of enhanced customer due diligence for third countries that are determined by the European Commission to be high risk countries. Member States will be able to apply additional measures, where appropriate.
UK Financial Conduct Authority Sets out Good Practice for Handling Financial Crime Risks from Crypto-Assets
The U.K. Financial Conduct Authority has published a "Dear CEO" letter to U.K. authorized banks, setting out its views on best practice that banks should adopt for handling the financial crime risks that may be posed by so-called crypto-assets. The FCA uses this term to refer to any publicly available electronic medium of exchange that features a distributed ledger and a decentralized system for exchange. Crypto-assets include crypto-currencies, a well-known example of which is Bitcoin. The FCA acknowledges that crypto-assets can be used without any criminal motives. However, the fact that crypto-assets can be held relatively anonymously and can be readily transferred between countries can make them attractive for criminal purposes. Banks should adopt proportionate measures to mitigate the risk that they are used to facilitate financial crimes involving crypto-assets.
EU Agrees Countering Money Laundering by Criminal Law Directive
The Council of the European Union and the European Parliament have announced their agreement on new EU criminal sanctions for money laundering. The proposed Countering Money Laundering by Criminal Law Directive will complement the Fifth Money Laundering Directive, which was adopted in May 2018.
The new Directive establishes minimum rules on the definition of criminal offences and sanctions in the area of money laundering. Member states will be required to implement national laws providing for money laundering offences by individuals to be punishable by a maximum term of imprisonment of at least four years. National laws will continue to provide for additional measures, such as fines, temporary or permanent exclusion from public tender procedures, grants and concessions, and national laws will also provide for national courts to take into account any aggravating factors for sentencing.
European Commission Proposes Legislation to Promote SME Growth Markets
The European Commission has published a proposal for a Regulation to amend the Market Abuse Regulation and the new Prospectus Regulation. The aim of the proposed Regulation is to promote the use of SME Growth Markets by making technical adjustments to the MAR and the new PR to make the regulatory framework applying to listed Small and Medium-sized Enterprises more proportionate and to foster the liquidity of equity instruments listed on SME Growth Markets, while maintaining a high level of investor protection and market integrity. The proposed Regulation is in line with the objectives of the EU Capital Markets Union of reducing the overreliance on bank funding and diversifying market-based sources of financing for European companies.
SME Growth Markets are a new sub-category of multilateral trading facility introduced by the revised Markets in Financial Instruments Directive in January 2018. Companies listed on an SME Growth Market are required to comply with MAR and the PR and are impacted by some aspects of MiFID II. The adjustments in the proposal for a Regulation are designed to lower the administrative burden and costs for issuers on SME Growth Markets stemming from compliance with MAR and the PR and to address regulatory shortcomings in MAR that can affect the liquidity of SME financial instruments. The European Commission has also published a separate proposal for a regulation amending delegated legislation under MiFID II to address regulatory barriers to the take-up of the SME Growth Markets.
UK Sanctions and Anti-Money Laundering Act 2018 Receives Royal Assent
The Sanctions and Anti-Money Laundering Act 2018 has received Royal Assent and came partly into force on May 23, 2018. The majority of the provisions of the Act will enter into force on a day appointed by the Secretary of State. The Act will provide a domestic sanctions framework after the U.K. leaves the EU, enabling the U.K. to continue to meet its international obligations and use sanctions as a national security and foreign policy tool.
The Act's provisions empower the U.K. Government to make sanctions regulations to be imposed, where appropriate, to comply with United Nations obligations or other international obligations, to further the prevention of terrorism, for the purposes of national security or international peace and security, or to further foreign policy objectives. The Act also empowers the U.K. Government to create, amend and update regulations for the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system.
View the Sanctions and Anti-Money Laundering Act 2018.
New Memorandum of Understanding Signed Between UK Financial Conduct Authority and Insolvency Service
The U.K. Financial Conduct Authority and the Insolvency Service have signed a Memorandum of Understanding to establish a framework for their cooperation in matters of common interest.
Both the FCA and the IS have statutory powers of investigation and enforcement under their respective enabling legislation. Both organizations are also legally obliged, from May 25, 2018, to handle personal information according to the requirements of the EU General Data Protection Regulation.
The areas of cooperation include misconduct, investigations and enforcement within their respective remits.
The MoU outlines the structure and process for the FCA and IS to be able to exchange information (including personal data) and intelligence, in a lawful and proportionate manner, to further their respective objectives. The MoU includes details of the circumstances in which the FCA will be permitted to disclose confidential information (such disclosure generally being prohibited under the Financial Services and Markets Act 2000) and outlines how each of the two organizations will treat information that is subject to legal professional privilege, including the circumstances in which privilege might be waived. The FCA and IS have agreed to apply a number of principles for the exchange and use of information, including the sharing of intelligence, the use of information for investigations and enforcement or other action, how data security controls will be applied and how data breaches will be handled.
The FCA and IS will monitor the effectiveness of the MoU and review it from time to time as necessary. The MoU has been published on the website of each organization.
View the MoU.
Updated Guidance on Monetary Penalties for Financial Sanctions Breaches Published by UK Office of Financial Sanctions Implementation
The Office of Financial Sanctions Implementation has published an updated version of its guidance on monetary penalties for breaches of financial sanctions. The guidance was first published in April 2017. The update sets out more detail on OFSI's expectations around voluntary disclosure of breaches of financial sanctions. The chapter on the right of individuals to appeal to the Upper Tribunal has also been updated.
View the updated guidance.
UK Joint Money Laundering Steering Group Publishes Revised AML/CTF Guidance For Asset Finance and Syndicated Lending
The U.K. Joint Money Laundering Steering Group has finalized minor changes to Part II of its anti-money laundering and counter-terrorist financing guidance in relation to two sectors, namely asset finance and syndicated lending.
The JMLSG consulted on the proposed changes in a consultation that closed on March 30, 2018. The revisions do not make substantive changes to the existing guidance. Instead, the revised guidance provides clarification on the workings of these two sectors, how to identify customers and how risks should be assessed.
View the JMLSG announcement.
View details of the JMLSG consultation.
FinCEN Provides Temporary Exception Under the Beneficial Ownership Rule for CDs and Loan Accounts that Automatically Rollover or Renew
The U.S. Financial Crimes Enforcement Network announced that it was granting a 90-day exception from compliance with the beneficial ownership requirements under its Customer Due Diligence Requirements for Financial Institutions rule.
EU Fifth Money Laundering Directive Adopted
The Council of the European Union has adopted the EU's Fifth Money Laundering Directive, following the agreement reached between the European Parliament and the Council in December 2017. 5MLD will amend the existing EU Money Laundering Directive.
FFIEC Publishes Customer Due Diligence and Beneficial Ownership Overviews and Examination Procedures
The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency, and U.S. Federal Deposit Insurance Corporation published the customer due diligence and beneficial ownership examination sections of the Federal Financial Institutions Examination Council BSA/AML Examination Manual.
Final Global Strategy to Address Wholesale Payments Fraud
Following a consultation late last year, the Committee on Payments and Market Infrastructure has published the final strategy for reducing the risk of wholesale payments fraud related to endpoint security. The strategy is directed to all relevant public and private sector stakeholders in reducing the risk of wholesale payments fraud, including the operators of wholesale payments systems and messaging networks, their participants and relevant regulators and authorities responsible for supervising these operators and participants.
The strategy comprises seven elements that are intended to work holistically for preventing, detecting, responding to and communicating about wholesale payments fraud. The elements are:
1. Identifying and understanding the range of risks;
2. Establishing endpoint security requirements;
3. Promoting adherence;
4. Providing and using information and tools to improve prevention and detection;
5. Responding in a timely way to potential fraud;
6. Supporting ongoing education, awareness and information-sharing; and
7. Learning, evolving and coordinating.
The CPMI and each of its member central banks have committed to promoting the effective operationalization of the strategy within and across jurisdictions and systems. They will be monitoring progress in 2018 and 2019 with a view to assessing whether further action is needed.
View the strategy.
European Commission Adopts Delegated Legislation on Central Contact Points for AML/CTF Purposes
The European Commission has adopted a draft delegated regulation under the Fourth Money Laundering Directive. The draft regulation sets out Regulatory Technical Standards on the criteria that EU Member States should use when deciding whether or not payment service providers or electronic money institutions that are headquartered in another EEA Member State and that operate establishments (other than a branch) in their territory should appoint a central contact point for compliance with anti-money laundering and counter-terrorist financing obligations. The draft regulation also sets out RTS on the functions that may be entrusted to such a central contact point.
The draft regulation will now be subject to a three-month scrutiny period by the European Parliament and the Council of the European Union. Following this period, should neither of the co-legislators object, the draft regulation will then be published in the Official Journal of the European Union and enter into force twenty days later. Once in force, the delegated regulation will have direct effect across the EU.
View the draft delegated regulation.
FINRA Updates AML Rules to Conform to Upcoming Customer Due Diligence Requirements
The Financial Industry Regulatory Authority published amendments to FINRA Rule 3310, the anti-money laundering compliance program rule. The FINRA amendments seek to harmonize Rule 3310 with the Customer Due Diligence Requirements for Financial Institutions rule issued by the U.S. Financial Crimes Enforcement Network on May 11, 2016. Amended Rule 3310 requires firms to conduct ongoing customer due diligence, establish procedures to understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, maintain and update customer information, including information regarding the beneficial ownership of legal entity customers. Amended Rule 3310 becomes effective on May 11, 2018, which coincides with the compliance date for FinCEN’s CDD Rule.
View full text of Regulatory Notice 18-19.
Financial Action Task Force Publishes Outcomes of its 2018 Private Sector Consultative Forum
The Financial Action Task Force held its annual private sector consultative forum in Vienna on April 23 – 24, 2018. The annual forum provides a platform for the FATF to learn more about the private sector's views and concerns on issues related to anti-money laundering and countering the financing of terrorism. Attendees at the forum included representatives from the financial sector and other businesses and professions subject to AML/CTF obligations.
UK Regulator Warns CEOs of Listed Companies About Their Obligations on Irredeemable Preference Shares
The U.K. Financial Conduct Authority has published a "Dear CEO" letter to the Chief Executive Officers of U.K. listed companies on capital instruments expressed to be perpetual, irredeemable or in some other way that suggests permanence. The FCA wishes to ensure that investors have access to all the information necessary for them to be able to assess properly the risks and rewards attaching to such shares. The letter lists the information that listed companies may wish to make readily accessible to all holders and potential holders of such shares, including:
- the terms and conditions of the instrument as included in the original prospectus or similar document issued at the time of the offer or admission of the shares, and details of any changes made after the issue of the shares;
- the articles of association of the issuer, particularly the articles relevant to the shares concerned; and
- a Q&A or similar publication.
European Commission Proposes Legislation Broadening Access to Centralized Financial Information
The European Commission has published a proposal for a directive aimed at increasing security within EU member states and across the EU by improving access to financial information, including bank account information, to the relevant authorities and bodies in charge for the prevention, investigation and prosecution of serious forms of crimes. It is envisaged that this will enhance their ability to conduct financial investigations and analysis and improve their cooperation. In addition, the proposal contains measures to improve the ability of Financial Intelligence Units to carry out their tasks under the 4th Money Laundering Directive.
Currently, most EU national authorities competent for the prevention, detection, investigation or prosecution of criminal offences do not have direct access to information on the identity of bank account holders held in centralized account registries or data retrieval systems. Indeed, such registries and systems are currently only operational in 15 EU member states and the relevant authorities only have direct access in 6 of those member states. This lack of, or lack of access to, centralized information means the relevant authorities must send blanket information requests to all financial institutions. Delays in replies to these blanket requests can significantly hamper criminal investigations.
US Financial Crimes Enforcement Network Releases Customer Due Diligence FAQs
The U.S. Financial Crimes Enforcement Network released answers to 37 frequently asked questions regarding its final rule on Customer Due Diligence Requirements for Financial Institutions, which was published in the Federal Register on May 11, 2016 and amended on September 29, 2017. This is the second series of FAQs FinCEN has released. The FAQs cover various topics in connection with the requirement that financial institutions obtain beneficial ownership information for legal entity customers, including the beneficial ownership threshold and its interaction with other AML program obligations, collection and verification of identifying information, particularly for legal entity customers with complex ownership structures and the definition of “legal entity customer,” including the treatment of foreign financial institutions. The FAQs also provide guidance regarding the beneficial ownership certification requirement, including when a single customer opens multiple accounts and in respect of product or service renewals, obligations to update beneficial ownership information and requirements to understand the nature and purpose of the customer relationship.
View FinCEN FAQs.
UK Regulator Proposes Guidance on Obligations to Counter Insider Dealing and Market Manipulation
The Financial Conduct Authority has launched a consultation on adding a proposed chapter on insider dealing and market manipulation to its Financial Crime Guide. The Financial Crime Guide is not part of the FCA's rules but it is a guide to assist firms in implementing the regulator's rules. A firm that does not comply with the Guide is not necessarily deemed by the FCA to be in breach of the rules. However, the FCA expects firms to use the guide to inform their financial crime systems and controls.
The FCA is proposing to add a new chapter on insider dealing and market manipulation to the Financial Crime Guide. The EU Market Abuse Regulation, which applies directly across the EU, requires firms arranging or executing transactions to establish and maintain effective arrangements, systems and controls to detect and report suspicious transactions. The FCA emphasizes that the U.K. rules extend these obligations under MAR and require firms to also counter the risk of financial crime. The FCA explains that this 'countering' obligation extends to insider dealing and market manipulation.
The consultation paper also covers other minor amendments proposed by the FCA, including updating the Guide to reflect the introduction of the Money Laundering Regulations 2017 and removing outdated references on Sanctions.
Responses to the consultation are due by June 28, 2018. The FCA intends the final revised Guide to come into effect on October 1, 2018
View the consultation paper.
View the existing Financial Crime Guide.
Financial Action Task Force Launches Survey on Correspondent Banking Guidance
The Financial Action Task Force has launched an online private sector survey on correspondent banking and the usefulness of its 2016 Guidance on correspondent banking services. The Guidance was published in response to increased concerns about so-called "de-risking," whereby financial institutions avoid, rather than manage, the risks associated with money laundering or terrorist financing by terminating business relations with entire regions or classes of customers. The FATF considers that de-risking is inconsistent with FATF Recommendations, that it has negatively impacted correspondent banking and that it may result in financial transactions being directed into less regulated areas, which would reduce transparency and increase exposure to money laundering and terrorist financing risks.
The FATF wants to assess whether its Guidance is helping to address the de-risking issues. The survey is intended to track their understanding of adoption and usefulness of the guidance.
The survey is open until April 16, 2018.
View the survey.
View the 2016 Guidance on correspondent banking.
Wolfsberg Group Issues Frequently Asked Questions on Country Risk
The Wolfsberg Group has published a set of Frequently Asked Questions on financial crime country risk. Country risk is the additional risk created by investing in, or lending cross border to, a foreign country in the context of credit facilities.
The FAQs cover: (i) the meaning of country risk in the context of financial crime compliance; (ii) the data sources that should be considered when developing a methodology to assess country risk; (iii) the frequency with which data sources should be refreshed; (iv) how sanctions should be considered in country risk methodologies; (v) the models or methodologies available to financial institutions to measure country risk, and how (and how frequently) financial institutions should test and validate their effectiveness; (vi) matters to be considered when purchasing and using an off-the-shelf commercial product to determine financial crime country risk ratings; (vii) whether there is standard or conventional methodology to assess country risk; (viii) how missing data points should be dealt with; (ix) whether overrides or discretionary risk rating changes should be allowed; (x) who should maintain ownership of the organization's FCCR Methodology; (xi) who uses the assessment results and how are the ratings disseminated; (xii) how the FCCR rating methodology should drive customer due diligence and enhanced due diligence requirements; and (xiii) whether a financial institution should have a country risk assessment expressed as a country risk rating.
G20 Communiqué Calls for Recommendations for Regulation of Crypto-Assets
The G20 has published a Communiqué following the meeting of Finance Ministers & Central Bank Governors in Buenos Aires on March 19 – 20, 2018.
Among other things, the Communiqué states that the G20 welcomes the finalization of Basel III and remains committed to full, timely and consistent implementation and finalization of the reforms. The G20 looks forward to the outcome of the evaluation of the reforms to identify and address any unintended consequences, which is being led by the Financial Stability Board.
The G20 also commits to continue to address the decline in correspondent banking relationships. It welcomes the FSB's March 2018 progress report on correspondent banking and calls on the FSB to monitor, with the FATF, the International Monetary Fund, the World Bank Group and the Global Partnership for Financial Inclusion, the adoption of the recommendations in the FSB's March 2018 report "Stocktake of Remittance Service Providers' Access to Banking Services."
Financial Action Task Force Report to G20 Finance Ministers and Central Bank Governors
The Financial Action Task Force has published its report to G20 Finance Ministers and Central Bank Governors, in advance of their meeting in Buenos Aires scheduled for March 19 – 20, 2018. In the report, the FATF reiterates its commitment to tackle all sources, techniques and channels used in terrorist financing and to continue its work to increase financial transparency and improve the environment for remittances.
The report gives an overview of the FATF's recent work by providing stock-takes on the following workstreams:
- strengthening the FATF's institutional basis, governance and capacity;
- countering the financing of terrorism and proliferation;
- improving transparency and the availability of beneficial ownership information;
- supporting financial inclusion and access to regulated financial services;
- bank de-risking and the impact on remittances;
- FATF engagement with judges and prosecutors to improve the effectiveness of the criminal justice system; and
- the risks and opportunities of FinTech, RegTech and virtual currencies.
Financial Stability Board Action Plan on Access to Banking Services by Remittance Providers
The Financial Stability Board has published two reports relating to its actions to address the decline in correspondent banking. The first report is a progress report addressed to the G20 Finance Ministers and Central Bank Governors on the FSB's four-point action plan to assess and address the decline in correspondent banking relationships. It sets out the actions taken since the FSB's July 2017 progress report and describes the work that remains to be completed at international level and implemented at national level by regulators and banks. That work includes:
- Implementing the recommendations and action plan on access to banking services by remittance providers (set out in the second report, which is described below);
- National implementation of the new Financial Action Task Force and revised Basel Committee guidance on correspondent banking, which the FSB thinks can mostly be achieved by national regulators issuing statements to clarify their expectations so that they are reflected in supervisory practices as well as banks' risk management practices;
- Improving efficiencies in and enhancing standardization of Know Your Customer utilities, including encouraging the use of the Wolfsberg Correspondent Banking Due Diligence Questionnaire; and
- Progressing the enhancement and further development of solutions to capture the trade finance components of correspondent banking.