Welcome to our Q3 Round-up covering the latest AML/CFT regulatory developments impacting the private markets.
This edition includes FinCEN’s Final Rule to combat illicit finance and national security risks in the investment adviser sector. Investment advisers covered by the rule will, amongst other things, be required to implement risk-based AML/CFT programs and apply Suspicious Activity Reporting policies. Also included are updated EU best practices for effective sanctions compliance, information from the FCA in relation to the Overseas Fund Regime and new guidance for financial institutions on establishing the source of wealth for their customers from the Monetary Authority of Singapore. Reach out to Louis Dodd or Askender Ouazzani for more information on any of these updates.
Europe
ELTIF Regulation – On 19 July, The European Commission issued a Delegated Regulation supplementing Regulation (EU) 2015/760 of the European Parliament and of the Council (‘ELTIF Regulation’).
The newly proposed Commission Delegated Regulation concerns:
- The circumstances when derivatives can be used for hedging;
- The requirements for an ELTIF’s redemption policy and liquidity management tools;
- The circumstances for the matching of transfer requests of units or shares of the ELTIF;
- Certain criteria for the disposal of ELTIF assets; and
- A common approach to the disclosure of the costs of investing into an ELTIF.
It will enter into force on the day following that of its publication in the Official Journal of the European Union.
The Council of the European Union has issued a paper providing an update of the EU best practices for the effective implementation restrictive measures (sanctions). The best practices, which are to be considered non-exhaustive recommendations for the effective implementation of restricted measures in line with EU laws and national legislation cover:
- Designation and identification of persons and entities subject to targeted restrictive measures;
- Financial restrictive measures;
- Prohibitions on the provision of goods; and
- Co-ordination and co-operation.
Switzerland
In July, the Swiss Financial Market Supervisory Authority (FINMA) issued its latest guidance on the regulatory landscape for stablecoins. This guidance builds on FINMA’s 2019 framework and addresses the evolving risks and challenges faced by stablecoin issuers and the banks that provide default guarantees. These new rules aim to clarify legal classifications, enforce anti-money laundering (AML) measures, and outline specific requirements for Swiss banks involved in stablecoin transactions.
Luxembourg
The CSSF has issued a reminder to the industry on specific communications between UCI Departments (Métier OPC) and investment fund managers (IFMs). The reminder follows the publication of an earlier communique in January, advising IFMs of the requirement to keep the email addresses of eDesk users and their corresponding roles up to date in order to ensure specific communications reach the relevant individuals.
France
The Bank of France’s Prudential Control and Resolution Authority released a Publication in July concerning Politically exposed persons (PEPs). PEPs are considered, at the international level, to be exposed to a “higher risk” of money laundering and its underlying offences, including corruption. European anti-money laundering regulations therefore impose on banks and life insurance companies an obligation to implement specific vigilance measures when conducting business with PEPs. However, the qualification of PEP does not in itself imply a generalized suspicion of the transactions carried out by the persons concerned.
Cyprus
In August, the Cyprus Securities and Exchange Commission (CySEC) published a Directive for the Prevention and Suppression of Money Laundering and Terrorist Financing (Amending) of 2024 – R.A.D. 282/2024. This new directive amends the CySEC Directive for the Prevention and Combating of Money Laundering and Terrorist Financing 2020. Key changes include an updated internal suspicious activity reporting template, new guidance around suspicious transactions and activities covering enhanced due diligence and customer identification requirements and an update on CySEC’s expectations with respect to the use of electronic verification methods.
United Kingdom
Overseas Fund Regime (OFR): The FCA has published a Policy Statement (PS24/7) on Implementing the Overseas Fund Regime. The policy statement incorporates the FCA’s response to feedback received in relation to a recent Consultation Paper (CP23/26) and sets out the final rules and guidance to be introduced following the consultation.
Further to this, the FCA has also issued an Update for Firms outlining the key dates and information on how to apply under the OFR. The gateway for new schemes (i.e. those not currently operating under the Temporary Marketing Permissions Regime (TMPR)) opened on 30 September 2024. For schemes in the TMPR landing slots will start in October 2024.
Jersey
MoneyVal has published its Fifth Round Mutual Evaluation report of Jersey’s AML and CTF measures following its examination in May this year. The positive report praises Jersey’s strong understanding of its ML/TF risks with the jurisdiction scoring well in both its effectiveness and technical compliance ratings in most areas. Specific actions Jersey will take following the report include: consulting on enhancements to background checks for principal and key persons, undertaking a review of how it assesses supervisory findings and ensuring that timely and proportionate enforcement action is taken.
In response to the growing trend towards asset tokenisation, the JFSC has published new guidance covering the tokenisation of real-world assets and initial coin / token offerings. The principles-based guidance can be applied to a wide array of tokenised products, including equities, units in a fund, and bonds. It achieves a set of regulatory guidance that more effectively responds to the distinct nature and use of tokenised assets.
USA
The U.S. continues to move towards greater compliance with international AML/CFT regulatory standards with the issuance of a Final Rule aimed at combatting illicit finance and national security threats in the Investment Adviser sector in August.
Investment advisers covered by the Final Rule will be required to:
- Implement a risk-based and reasonably designed AML/CFT program;
- Apply a Suspicious Activity Report (SARs) policy and make disclosures with FinCEN where appropriate;
- Keep certain records, such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rules); and
- Fulfil certain other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations, such as special information sharing procedures.
The Rule is effective from 1 January 2026.
Outbound Investment Security Program – The U.S. Department of the Treasury has issued an Advance Notice of Proposed Rule Making (ANPRM) seeking public comment on the implementation of an Executive Order (E.O.) of 9 August Addressing U.S. Investments in Certain National Security Technologies and Products in Countries of Concern.
Under the E.O.:
- The People’s Republic of China (along with the Special Administrative Region of Hong Kong and the Special Administrative Region of Macau) is identified as a country of concern.
- Three categories of national security technologies and products are to be covered by the program: semiconductors and microelectronics, quantum information technologies, and artificial intelligence.
- The Secretary of the Treasury has been directed to establish a program to prohibit or require notification of certain types of outbound investments by United States persons into certain entities located in or subject to the jurisdiction of a country of concern, and certain other entities owned by persons of a country of concern, involved in specific categories of advanced technologies and products.
The comment period for the ANPRM will be open for 45 days after its publication in the Federal Register.
Canada
In August, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) in partnership with the Canada Revenue Agency (CRA) issued an Operational Alert on Laundering the Proceeds of Tax Evasion in Real Estate. The alert is intended to provide a set of contextual risk indicators relating to non-compliance with tax laws in the real estate sector, including tax evasion to assist Canadian reporting entities in identifying the laundering of tax evasion proceeds through the financial system.
Singapore
In July, the Monetary Authority of Singapore (MAS) issued a circular for financial institutions (FIs) on establishing the sources of wealth of customers (SOW). The circular provides guidance to FIs in the wealth management sector on the establishment of the SOW of their customers, including the risk principles which should be considered in the design of their policies and procedures for establishing clients’ SOW in a risk-proportionate and reasonable manner.
