Contents. Jersey Financial Services Commission. Refresher Series Simplified Customer Due Diligence

Transcription

1 Jersey Financial Services Commission Refresher Series Simplified Customer Due Diligence Andrew Le Brun Hamish Armstrong Financial Crime Policy Contents Purpose Customer Due Diligence Simplified CDD what is it? MLO Article 18 Interplay with Enhanced CDD Key Learning Points Questions / Surgery 1

2 Purpose Purpose Nothing new Reminder / refresher Areas of most interest / confusion ECDD SCDD Reliance Beneficial ownership Common queries Questions / Surgery 2

3 Customer Due Diligence Customer Due Diligence MLO Article 3(1): means identification measures and on-going monitoring. MLO Article 3(2): identification measures: identifying customer (3rd parties; BOs) obtaining information on the purpose and intended nature MLO Article 3(5): identification measures includes: obtaining customer relationship info and risk assessment 3

4 Customer Due Diligence MLO Article 3(1): means identification measures and on-going monitoring. MLO Article 3(3): on-going monitoring: scrutinizing transactions/activity* throughout course of business relationship undertaking reviews to ensure that docs, data and info is up-to-date and relevant again in course of business relationship Customer Due Diligence CDD ID measures CDD Identification Measures Risk assessment ID Customer ID Third parties Risk assessment ID customer / 3 rd parties Where customer not individual: ID person acting for customer Verify authority to act Auth to act / ownership & control / ID BOs Nature and purpose On-going monitoring Transactions / activity Docs / info On-going monitoring Obtain info on purpose/nature Scrutinizing transactions/activity Keep docs/info up-to-date Understand Ownership/control structure ID Beneficial Owners/Controllers 4

5 Simplified CDD what is it? Simplified CDD what is it? FATF concept Lower risk of ML/TF Assessed by country or institution Commensurate with the risk; e.g: Delayed verification Less frequent updating Money Laundering Order Article 17 3 rd parties Article 18 Specific scenarios Specific simplification permitted Reduced monitoring Inferring purpose and nature of relationship 5

6 What may be simplified? Relevant person need not find out identity of a third party on whose behalf a customer acts, or obtain evidence of identity* CDD Identification Measures Risk assessment ID Customer ID Third parties * Where customer not individual: ID person acting for customer Verify authority to act Everything else remains! Understand Ownership/control structure ID Beneficial Owners/Controllers Obtain info on purpose/nature On-going monitoring Scrutinizing transactions/activity Keep docs/info up-to-date 6

7 Conditions Customer is: Regulated and overseen by the Commission for AML/CFT compliance or equivalent business ; or Wholly-owned by such person and fulfils strict conditions set out in Article 17(2) Application of concession is dependent upon status of relevant person and its customer five cases Application of concession is subject to conditions: Risk assessment Assurances (not for Case 1) Testing (not for Case 1) Collection of basic information Article 17 of MLO - no. of customers per location 32% 55% 1% 12% Jersey Guernsey & IoM Outside of Appendix B Appendix B countries (calculated field) 7

8 Five Cases 1. Customer is a deposit-taker, insurance / funds / investment business, etc. Different from other cases, fewer conditions 2. Customer acting with respect to an unregulated or COBO fund NB little risk : closed-ended, no liquid market, no third party redemption 3. Deposit-taker with a TCB client NB little risk : temporary client accounts and aggregated deposits 4. Deposit-taker with a lawyer client NB little risk : only with respect to Jersey property transactions. Not mixed accounts; not all accounts opened by a lawyer 5. Lawyer / accountant with TCB client NB little risk : provision of generic information in right context Industry survey on application of Article 17 Use of Article 17 is primarily in relation to Case 1 (relevant person or equivalent) Minimal use of Case 2, 3 or 4 8

9 Exclusions ML/FT is suspected Customer presents higher ML/FT risk Risk inherent in the customer s business / client base Risk that customer does not apply necessary identification measures Risk that customer does not keep records, or does not keep them for necessary period Customer has relevant connection to enhanced risk state (NB: relevant connection includes BO or third party) (See Appendix D1) Customer is resident in a country or territory that is not compliant with FATF Recommendations (See Appendix D2 sources 1 and 2) Identification of 3 rd parties replaced by Before applying simplified identification measures, a relevant person must: Consider value and extent of each third party s financial interest; and Where the financial interest is significant, find out the identity of that person. Guidance: Basic information to be collected Natural persons - name, address and date of birth Legal persons / arrangements name, date and country of incorporation / registration (or equivalent), registered office address (or equivalent) Concerning any significant third party Designated / Pooled, e.g. 25% / Executionary Significant at the time simplified measures applied 9

10 Separate products Relevant Person, e.g. bank Customer, e.g. depositor Customer, e.g. depositor Customer, e.g. depositor 1% 1% 1% 25% 1% 1% plus 70 others at 1% Single product Relevant Person, e.g. fund 10% 50% Customer Customer Customer Customer Customer Customer Customer 1% 1% 1% 1% 25% 1% 60% 1% 1% plus 72 others at 1% plus 36 others at 1% 10

11 Common query: Transitional / existing customers? Not retrospective; no remediation project required But: apply identification measures where doubts about veracity or adequacy, etc. of documents or information already collected So: if periodic or trigger based review of relationship highlights that documents, data or information are inadequate etc., apply simplified measures again (if appropriate) - including collection of basic data Designated collect basic information Pooled / executionary determine significance and collect basic information at that time Other Guidance available: Basel IOSCO Wolfsberg ISSA 4 th EU Money Laundering Directive? 11

12 MLO Article 18 MLO Article 18(3) to (6) Lower risk products Article 18 (3) employee scheme (4) pension linked insurance CDD Identification Measures Risk assessment* ID Customer ID Third parties Where customer not individual: ID person acting for customer verify authority to act (5) life insurance premium under 1,750 (6) life insurance premium under 750pa Identification measures under Article 13 are not required Obtain info on purpose/nature* Understand Ownership/control structure ID Beneficial Owners/Controllers On-going monitoring Scrutinizing transactions/activity Keep docs/info up-to-date 12

13 MLO Article 18(3) to (6) Still required Form of customer risk assessment Obtain info on nature and purpose On-going monitoring Exclusions ML/FT is suspected Customer presents higher ML/FT risk Customer is resident in a country or territory that is not compliant with FATF Recommendations (Appendix D2 sources 1 and 2) Customer has relevant connection to enhanced risk state (Appendix D1) MLO Article 18(6A) Lower risk customers Article 18(6A) Jersey Public Authority Listed body corporate* Need not comply with: CDD Identification Measures Risk assessment ID Customer ID Third parties Where customer not individual: ID person acting for customer verify authority to act Article 3(2)(c)(i), re identifying a person acting on behalf of the customer Understand Ownership/control structure ID Beneficial Owners/Controllers Article 3(2)(a) Obtain info on purpose/nature Article 3(2)(c)(ii) Article 3(2)(c)(iii) On-going monitoring Scrutinizing transactions/activity Keep docs/info up-to-date 13

14 MLO Article 18(6A) Common query: listed body corporate must be on an IOSCO compliant market or a regulated market IOSCO compliant? fully implement or broadly implement Principles 16 and 17 (see IMF assessments at: Regulated market? See Part III of Guidance published by the UK s JMLSG and ESMA website at NB: Does not include AIM MLO Article 18(6A) Still required Customer risk assessment Identify third parties Verify authority to act Obtain info on nature and purpose On-going monitoring Exclusions ML/FT suspected / higher ML/FT risk Non FATF compliant country / customer has relevant connection to enhanced risk state 14

15 MLO Article 18(7) Lower risk customer Art 18(7) regulated person or equivalent business Need not comply with: Article 3(2)(a) Article 3(2)(c) CDD Identification Measures Risk assessment ID Customer ID Third parties Where customer not individual: Obtain info on purpose/nature ID person acting for customer verify authority to act Understand Ownership/control structure ID Beneficial Owners/Controllers On-going monitoring Scrutinizing transactions/activity Keep docs/info up-to-date MLO Article 18(7) Article 18(7) of the MLO - no. of customers per location 36% 22% 11% 31% Jersey Guernsey & IoM Outside of Appendix B Appendix B countries (calculated field) 15

16 MLO Article 18(7) Article 18(7) of the MLO - location of the customer where the customer is a regulated TCSP or equivalent 15% 4% 10% 71% Jersey Guernsey & IoM Outside of Appendix B Appendix B countries (calculated field) MLO Article 18(7) Still required Customer risk assessment Identify third parties Obtain info on nature and purpose On-going monitoring Exclusions ML/FT suspected / higher ML/FT risk Non FATF compliant country / customer has relevant connection to enhanced risk state 16

17 MLO Article 18(8) Lower risk representative Article 18(8) customer is represented by an employee of a regulated business CDD Identification Measures Risk assessment ID Customer ID Third parties Where customer not individual: ID person acting for customer verify authority to act Need not comply with: Article 3(2)(c)(i), re identifying a person acting on behalf of the customer On-going monitoring Obtain info on purpose/nature Scrutinizing transactions/activity Keep docs/info up-todate Understand Ownership/control structure ID Beneficial Owners/Controllers MLO Article 18(8) Still required Customer risk assessment Identify customer, third parties, beneficial owners (ownership and control structure) Verify authority to act Obtain info on nature and purpose On-going monitoring Exclusions ML/FT suspected / higher ML/FT risk Non FATF compliant country / customer has relevant connection to enhanced risk state 17

18 MLO Article 18(8A) Lower risk transaction Article 18(8A) Lawyers / estate agents with respect to a contract passed before the courts CDD Identification Measures Risk assessment ID Customer ID Third parties Where customer not individual: ID person acting for customer verify authority to act Need not comply with requirement to obtain evidence of identity Obtain info on purpose/nature Understand Ownership/control structure ID Beneficial Owners/Controllers On-going monitoring Scrutinizing transactions/activity Keep docs/info up-to-date MLO Article 18(8A) Still required Everything, with respect to gathering information Exclusions ML/FT is suspected Customer presents higher ML/FT risk Customer is resident in a country or territory that is not compliant with FATF Recommendations (Appendix D2 sources 1 and 2) Customer has relevant connection to enhanced risk state (Appendix D1) 18

19 Interplay with Enhanced CDD Interplay with simplified CDD Enhanced CDD measures vs simplified identification measures Cannot apply simplified CDD in a higher risk scenario (or appendix D2 sources 1+2!) BUT: enhanced CDD is not always on the basis of higher risk Can simplify one element of CDD and enhance another Factors indicating enhanced and simplified are not necessarily mutually exclusive E.g. customer is non-resident company whose securities traded on IOSCO - compliant market E.g. 3rd party who is PEP 19

20 Key Learning Points Key Learning Points Article 17 Risk assessment Assurances and testing must be appropriate Basic info on significant third parties Article 18 Does not switch off everything! Specific elements reduced in specific scenarios 20

21 Jersey Financial Services Commission Q&A 21