This edition includes the latest proposed US regulatory changes covering customer identification program requirements and the introduction of a risk-based approach with respect to AML/CFT programs. It also includes the EU’s fourteenth package of Russian Sanctions, FCA guidance on the treatment of Politically Exposed Persons (PEPs) and the FATF’s most recent consolidated risk assessment ratings.
If you have questions on any of these updates or would like to discuss how IDR can assist you with keeping abreast of international regulatory requirements contact Louis Dodd or Askender Ouazzani.
Europe
The European Parliament has adopted a package of laws strengthening the EU’s toolkit to fight money-laundering and terrorist financing. Amongst other things the new laws will:
- Ensure that people with a legitimate interest will have access to beneficial ownership information held in national registries and interconnected at EU level.
- Give Financial Intelligence Units (FIUs) more powers to analyse and detect money laundering and terrorist financing cases as well as to suspend suspicious transactions.
- Include enhanced due diligence measures and checks on customers’ identity, after which so-called obliged entities (e.g. banks, assets and crypto assets managers or real and virtual estate agents) have to report suspicious activities to FIUs and other competent authorities
- Establish a new supervisory authority – the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA).
On 24 June, the EU unveiled its fourteenth package of sanctions against Russia in response to its ongoing aggression against Ukraine. This latest round targets 69 individuals and 47 entities involved in undermining Ukraine’s sovereignty. Overall, EU restrictive measures now apply to over 2,200 individuals and entities.
ESMA has issued a Call for Evidence on the review of UCITS Eligible Asset Directive (EAD). This Call for Evidence is of particular interest for investors and consumer groups interested in retail investment products, management companies of Undertakings for Collective Investment in Transferable Securities (UCITS), self-managed UCITS investment companies, depositaries of UCITS and trade associations. Contributions should be submitted online using the available reply form by Wednesday 7 August.
Luxembourg
The CSSF has issued a Communiqué concerning non-profit organisations and the fight against terrorism financing. The communiqué highlights a significant risk of terrorist financing within certain non-profit organizations, particularly those operating abroad. In line with FATF guidance, it emphasises that NPOs do not all pose the same risk of abuse for TF purposes and therefore must be subject to a factual and risk-based analysis to avoid stigmatising all NPOs.
Switzerland
In June, FINMA published guidance on the management of operational risks by fund management companies and managers of collective assets. In this guidance, it describes the weaknesses it has identified and outlines measures aimed at achieving appropriate risk management.
France
French Court rejects loss deduction for a foreign Permanent Establishment (PE) – The French Supreme Administrative Court has ruled against the deduction of final losses incurred by a PE in another EU Member State from the parent company’s taxable profits in France. In what represents a significant decision, the court denied a French company’s claim to offset losses from its Luxembourg PE against its French tax base. The court determined that the difference in treatment between domestic branches and foreign PEs does not violate EU freedom of establishment principles. This ruling reinforces the distinct tax treatment of PEs and domestic entities within the EU context.
United Kingdom
The FCA has called on firms to improve the treatment of politically exposed persons (PEPs). Under legislation adopted by Parliament, financial firms are required to do extra checks on PEPs. Due to concerns about how firms in the UK are meeting these requirements the FCA has undertaken a review. Most firms in its review did not subject PEPs to excessive or disproportionate checks and none would deny them an account based on their status. However, the review found all firms could improve.
Consultation on Guidance surrounding UK PEPs – The FCA is consulting on changes to its Guidance for firms on applying a proportionate and risk-based approach to UK PEPs their relatives and close associates for AML purposes. The guidance is open for consultation until 18 October 2024.
Jersey
The JFSC has updated the Jersey Private Fund Guide to improve the Jersey Private Fund regime. Key changes relate to areas including carry and/or co-investment vehicles, investor eligibility and governing body expectations. It also covers changes to the section that deals with arrangements that are not to be treated as JPFs and adds certain consequential changes/references to the Money Laundering (Jersey) Order 2008 and the JFSC’s Outsourcing Policy in the guide.
Jersey has made updates to the countries and territories in its AML/CFT/CPF Handbook appendices in line with the latest FATF Statements. Monaco and Venezuela have been added. Türkiye and Jamaica have been removed.
Guernsey
The GFSC issued a Policy Statement on its approach to fund tokenisation. The statement recognises the role tokenisation could play in improving efficiency within Capital Markets, advocates caution with respect to ‘more advanced features’ of fund tokenisation (e.g. public permissionless blockchains) and draws a clear distinction between the tokenisation of regulated funds and crypto or virtual asset issuances.
The Commission has made updates to its Handbook on Countering Financial Crime (AML/CFT/CPF) (the “Handbook”)
- Chapter 1 of the Handbook has been updated to include guidance to licensed firms relating to offences detailed with section 48MA of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 and section 74A of the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002 relating respectively to the failure to prevent money laundering and the failure to prevent terrorist financing.
- Minor technical changes have been made to Schedule 3 to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999.
- Under sections 48MA and 74A, a firm licensed under the Regulatory Laws (for the purposes of this section, the “licensed firm”) is guilty of an offence if a person is engaged in money laundering or terrorist financing when acting in the capacity of a person associated with the licensed firm, unless the licensed firm can prove it had in place prevention procedures in relation to the activities of the person associated with the licensed firm when the money laundering or terrorist financing offence occurred.
- If the licensed firm has in place effective policies, procedures and controls to counter ML, TF and PF which are in line with the requirements of Schedule 3 and the Handbook, they could be considered towards prevention procedures in relation to the offences under section 48MA of the Law and section 74A of The Terrorism Law.
USA
FinCEN has issued a proposal to Strengthen and Modernize Financial Institutions’ programs to fight Money Laundering and Terrorist Financing. Described by FinCEN Director Andrea Gacki, as a “milestone in FinCEN’s efforts to implement the AML Act”, the proposed rule would make establishing a risk-based AML/CFT program a regulatory requirement for those financial institutions which it covers.
SEC and FinCEN Proposals for Customer Identification Program Requirements – The SEC and FinCEN have jointly proposed a new rule that would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish, document, and maintain written customer identification programs (CIPs).
Cayman Islands
The Anti-Money Laundering (Amendment) Regulations, 2024, were published by the Cayman Islands government on April 19, 2024, and are now in force. The amended regulations improve the Cayman Islands’ efforts in tackling money laundering, proliferation financing, and terrorist financing.
The key updates include:
- Counter-Terrorism and Proliferation References: Clarifications and definition changes extending the regulations to counter-terrorist and proliferation financing measures.
- Risk Assessments: Requirements must be updated and available upon request by regulatory authorities.
- Penalties and Administrative Fines: Offences committed by an entity with the consent, connivance, or neglect of a director, manager, or secretary can now lead to fines against such individuals.
- Enhanced Due Diligence: Requirements for enhanced due diligence have been expanded in the context of higher proliferation financing risks to include specific requirements for sanctions screening.
- Records and Reporting: Proliferation financing considerations are now included in the requirements for maintaining records, reporting to regulatory authorities, and reporting suspicious activities.
- Designated Non-Financial Businesses and Professions (DNFBPs): DNFBPs must now notify their supervisory authority of any change in their AML risk assessment. DNFBPs are also required to expand the information provided during registration with their relevant supervisory authority, including the identities of their AML officers and beneficial owners.
Singapore
Singapore has published its updated Terrorism Financing (TF) National Risk Assessment (NRA) and National Strategy for Countering the Financing of Terrorism (CFT) as part of its continuous efforts to deal with the threat of terrorism. The updated 2024 TF NRA articulates the latest TF threats and vulnerable sectors in Singapore. It takes into account key developments since the last TF NRA in 2020, such as the evolving global and regional terrorism landscape, growth of the digital economy and financial services in Asia, and emerging TF risk typologies. The 2024 TF NRA supports the refreshed objectives of Singapore’s National Strategy for CFT, launched in 2022, namely to detect, prevent and disrupt TF activities.
The Monetary Authority of Singapore (MAS) Expands Industry Collaboration to Scale Asset Tokenisation for Financial Services – MAS has announced the expansion of initiatives to scale asset tokenisation for financial services. This includes partnering with global industry associations and financial institutions to drive common asset tokenisation standards in fixed income, foreign exchange (FX) and asset and wealth management.
International
The FATF has reviewed its list of jurisdictions under increased monitoring, also known as the ‘grey list’. Monaco and Venezuela have been added to the list whilst Jamaica and Türkiye have been removed.
In July, the FATF issued updated consolidated assessment ratings – An up-to-date overview of the ratings that assessed countries obtained for effectiveness and technical compliance is available here.
