Author: Susannah Cogman
Late 2018 and early 2019 saw a flurry of regulatory developments and proposals relating to anti-money laundering. We have reported on these in brief in our regular corporate crime updates, but for those who have been – for example – too immersed in Brexit to read the underlying documents in detail, we have taken this opportunity to bring together an overview of, and commentary on, a number of recent anti-money laundering/counter-terrorist financing (“AML/CTF”) developments. In particular, we discuss in this briefing:
- the FCA’s report on data submitted in the first annual financial crime data return;
- recent developments in the EU’s list of high risk third countries;
- amendments to compliance requirements in respect of anonymous safety deposit boxes;
- the FCA’s thematic review on money laundering risks in the e-money sector;
- a Decision Notice issued by the FCA to a CEO for failings in his oversight of his bank’s AML systems and inadequate supervision of the MLRO to whom he had delegated relevant responsibilities;
- proposals relating to money laundering supervision in the EU;
- the FATF’s Mutual Evaluation Review of the UK;
- FATF guidance on a risk-based approach to the securities sector;
- other FATF developments of interest, in particular in relation to virtual assets;
- reform of the UK Suspicious Activity Reporting regime;
- a recent RUSI paper on the scale of money laundering in the UK;
- AML-related amendments to the Financial Crime Guide (FC), following consultation GC 18/1; and
- an overview of the current position regarding AML compliance post-Brexit, in the event of a no-deal exit.
Please click here to read our full briefing.
Authors: Sarah Thomas, Cat Dankos and Hywel Jenkins
At the end of January, the UK Financial Conduct Authority (FCA) issued a further consultation paper (CP19/4, the CP) on the Senior Managers and Certification Regime (SMCR). Responses to the CP are requested by 23 April 2019. Alongside other minor proposed changes which seek to “optimise” the SMCR, the key proposals are:
- For all firms (banks, insurers, and all solo regulated firms), the legal function will not need to have a SMF Manager responsible for it.
- Responsibility still has to be allocated to someone, but that individual does not need to be a SMF Manager.
- The FCA expects the Head of Legal to be a certified function and that the conduct rules will apply to all legal staff.
- Banks and insurers need to think about whether to change their SMF Manager allocations in light of this confirmation (as well as statements of responsibility and responsibilities map), and how to depict the position of the legal function on their responsibilities map.
- For all firms (banks, insurers and solo regulated firms) the certification regime definition of the ‘client dealing’ function has been clarified (with a narrowing effect). It will exclude individuals who have no scope to exercise discretion.
- Insurers and banks may wish to cross-check their existing pool of client dealing staff against the proposed new definition in readiness for the final rules.
- For solo regulated firms, the FCA has expanded the scope of the forthcoming Enhanced regime to cover more intermediaries.
- For limited scope solo regulated firms, Manager Conduct Rule 4 (SC4) will be amended to cover non-approved executive directors.
The European Commission has announced that it has started implementing its Brexit “no deal” Contingency Action Plan given the continuing uncertainty regarding ratification of the Withdrawal Agreement in the UK. This follows the Commission’s communication of 13 November 2018 which provided details of the types of contingency measures that it intended to take in a variety of areas, as well as the 78 preparedness notices from Commission departments on how Brexit will change law and policy. Continue reading
On 19 December 2018, the Hong Kong Monetary Authority (HKMA) announced that it will introduce supervisory measures (Supervisory Measures) focused specifically on measuring authorised institutions’ (AI) progress in implementing reforms to their culture. The Supervisory Measures include requiring AIs to complete and return self-assessment forms regarding their culture to the HKMA, and undertaking on-site reviews focused specifically on culture. For our full briefing on the supervisory measures, please click here.
On 6 December 2018, the Securities and Futures Commission (SFC) published the conclusions to its consultation on proposed amendments to the Code on Unit Trusts and Mutual Funds (UT Code). The proposed amendments are aimed at updating the regulatory regime for SFC-authorised funds and addressing the risks posed by financial innovation and other developments. Continue reading
The Financial Stability Board (FSB) released on 23 November 2018 its recommendations on the types of data regulators should be collecting from financial institutions (FIs) regarding compensation tools, as part of its workplan to address misconduct risk in FIs. This data is intended to help regulators monitor the effectiveness of FIs’ compensation structures in addressing misconduct risk and assessing whether additional measures are required.
To read our full briefing on the matter, please click here.
Last Friday, the SFC announced (via a circular) that it had commenced a thematic review of selected licensed corporations (LCs) to assess their risk governance and oversight frameworks as well as risk management practices. Continue reading
Yesterday, the Securities and Futures Commission (SFC) published a statement (Statement), together with a press release, setting out its new regulatory framework for virtual assets (also known as cryptocurrencies, crypto-assets and digital tokens). Continue reading
On October 11, 2018, the Financial Crimes Enforcement Network (“FinCEN”) issued official guidance entitled “Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System” (the “Advisory”). The Advisory intends to help US financial institutions to “better detect potentially illicit transactions related to the Islamic Republic of Iran.” The Advisory also aims to help foreign financial institutions understand the obligations of their US affiliates and avoid the breach of US sanctions laws.
According to the Advisory, the Iranian regime accesses, and abuses, the international financial system using a variety of methods. These methods include:
- Using senior officials of the Central Bank of Iran to help procure hard currency and conduct transactions for the benefit of the Islamic Revolutionary Guard Corps-Qods Force (“IRGC-QF”) and the Lebanese Hizballah.
- Using exchange houses to hide the origin of funds and to procure foreign currency for the IRGC-QF, through the use of front companies and complex currency exchange networks. Exchange houses and trading companies have also been used to process funds transfers to evade sanctions laws.
- Using front and shell companies in order to help procure various goods and technologies that enable malign actors to further their illicit activities. Such goods and technologies include printing equipment, dual-use equipment (in support of Iran’s ballistic missile programs), and aviation-related materials.
- Using deceptive shipping practices to hide the connection between certain business activities and Iran and thus evade US sanctions.
- Using gold and other precious metals to help facilitate the sale of Iranian oil and other goods, and to further evade the imposition of US sanctions.
- Using virtual currencies to evade US sanctions.
The Advisory stresses repeatedly that US financial institutions should be particularly cautious at this time, in light of the fact that all sanctions on Iran previously lifted under the Joint Comprehensive Plan of Action (JCPOA) are to be reimposed (or already have been reimposed) following 90- and 180-day wind-down periods. Because of this, FinCEN expects that the evasive, deceptive, and illicit activities described above will increase in frequency. In order to better assist with the detection of deceptive activities, FinCEN provides a set of “red flags” that financial institutions should review and keep in mind when analyzing specific transactions.
Finally, the Advisory reminds US financial institutions of their various obligations under US sanctions laws, the USA Patriot Act, the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), and other related regulations.
We continue to monitor developments in this area. Please contact the authors of this newsletter or your usual Herbert Smith Freehills contact for more information.