Bank M2M Europe MAJOR ENHANCEMENTS IN AML/CTF COMPLIANCE AND OTHER RELEVANT DEVELOPMENTS

Transcription

1 Bank M2M Europe MAJOR ENHANCEMENTS IN AML/CTF COMPLIANCE AND OTHER RELEVANT DEVELOPMENTS

2 FACTSHEET MAJOR ENHANCEMENTS IN AML/CTF COMPLIANCE AND OTHER RELEVANT DEVELOPMENTS PROFILE OF THE BANK Brief description of the bank Bank M2M Europe is a boutique private bank operating in high value added market segment, with exclusive focus on servicing high net worth clients. Our target clients are wealthy individuals with investable assets exceeding EUR 1 million. Bank has less than 1,000 clients and derives most of the revenues from products related to servicing capital of wealthy families. Bank strives to deliver wealth management solutions matching those offered by leading global private banking service providers, aiming to be the leading provider of private banking services in the Baltics. Current strategy of the Bank was implemented in 2013 following change of shareholders structure, rebranding and full reshape of the management and product line of the Bank. Major business lines Main products offered to the clients are servicing day to day banking transactions of private clients (currently 45% of customer base) and SPVs (currently 55% of customer base) owned by our private clients, wealth management solutions including portfolio management and investment advisory, premium level payment cards, deposits, servicing fiduciary transactions and escrow accounts, lombard loans. Credit rating, if obtained on bank itself or financial instruments issued and/or enlisted Not rated.

3 Structure and profile of shareholders Ongoing transaction hereby majority (61%) shareholding in the Bank will change following obtaining regulatory approval. RESHAPING OF THE BUSINESS MODEL IF AML/CTF COMPLIANCE DETERMINED (noteworthy, visible and impactful) Reduction of dependency of transactional (payments) business line Since 2013 Bank s business model is focused on services related to capital management, with revenues from transactional (payments) business of less than 6% of total income and 11% of the fee income. Bank services just about 250 payments per week (in all currencies). Bank does not contemplate any changes in its business strategy. Diversification of lines of business/business lines to be developed in reshaped business model Bank does not contemplate changes in business model, target clients and the range of products. Bank will continue to focus on generating fee income predominantly derived from servicing of our clients capital. Reduction of turnover with shell companies Due to clients SPVs migration to transparent jurisdictions, turnover of shell companies decreased by approximately 15%. Bank implemented freeze on on-boarding of new accounts from non-transparent jurisdictions (only with Compliance Committee approval). Projections, figures proving sustainability of the business model in upcoming 3 years if turnover with shell companies reduced significantly Bank customers companies incorporated in nontransparent jurisdictions generally functions as UBO asset treasury, holding or investment companies and are not involved in transactional (trade) business (transactions). Revenue from servicing clients payments represents less than 6% of total income and 11% of the fee income. Therefore decrease of turnover of shell companies does not influence sustainability of the business model. CORPORATE GOVERNANCE Development of new policies and procedures Bank developed a set of amendments in its AML/CTF related Policies and Procedures to comply with new regulatory requirements and recommendations provided by US auditors Exiger LLC and Lewis Baach Kaufmann Middlemiss. Among the most significant: Development of new Money laundering and terrorism financing risk management strategy (defining risk management principles, risk appetite, risk exposure indicators) Updated AML/CTF/Sanctions compliance policy (detailed attention to sanctions compliance)

4 Implementation of customer risk scoring module Updated Employee AML/CTF training procedure (requirement for at least annual all employee roles based training, including external for responsible board member, Compliance team) Extended PEP definition (including local PEP s) Financial sanctions (UN, EU, national) compliance policy According to Banks AML/CTF/Sanctions compliance policy the Bank has ensured automated compliance to imposed financial sanctions (UN, EU, national as well HM Treasury). All incoming and outgoing transactions prior execution are being screened for potential match. In case of possible match transaction is automatically held and can be further processed after verification by Compliance department. OFAC adherence policy The Bank fully adheres to OFAC sanctions regimes. Increased transparency (improved quality of information provided in payments, publicly available reports on compliance etc.) Bank ensures that payments are accurate; transparent; contain clear and detailed economic purpose and essence; and correspond to customer s business/ personal nature. Strengthened management and/ or supervisory function Designated board member responsible for Banks AML/ CTF compliance. At least monthly meetings of Compliance Committee (review of Compliance department AML/ CTF monthly risk report). Monthly reporting to the Board. Quarterly reports to Board of Directors. Designated internal auditor with AML/CTF quality assurance function. Designated Sanctions officer (function) Designated Compliance specialist with direct sanction screening function. More than 10 years of experience in AML/CTF field. INTERNAL CONTROLS Structural changes, if any No structural changes. Changes in KYC/CDD/EDD/PEP/Financial Sanctions monitoring Implemented customer AML/CTF risk scoring. Increased level of documentation of CDD/EDD process results. Expanded application of PEP definition (including local PEP s and wider range of relatives). Acquired Accuity Compliance Link AML/CTF monitoring system used for blacklists, PEP and sanction screening.

5 Changes in on-boarding policies and procedures, including, on-barding via agents General freeze in on-boarding of new customers that are incorporated in non-transparent jurisdictions (only with Compliance Committee approval). Bank does not use Third parties (Agents) for customer on-boarding. Concise description of changes in compliance costs, personnel AML/CTF related compliance costs increased significantly (by approximately EUR 500 thousand or 7% of Bank s overall cost base) in 2016 and were related to such areas as: external trainings of all employees, new hires, acquisition of new IT solutions (Accuity Compliance Link), external independent testing. TRAINING OF THE STAFF Focused training provided in 2016, external/internal training In 2016 focused role based training was provided to all Banks employees by external training vendor Compliance Baltic. Tailored AML/CTF training was provided to customer service employees and management board by Compliance department. According to the Bank s Training policy role based AML/CTF trainings are provided at least annually to all employees, ad-hoc trainings upon significant changes and initial trainings to new employees. Bank maintains training materials, attendance minutes and knowledge test results. Compliance department employees, responsible board member and internal auditors are required at least annually attend external AML/CTF trainings/seminars/conferences. Additionally Bank has developed specific section in its intranet that is constantly updated with AML/CTF related news worldwide and available to all employees. On-going testing and certification Board member responsible for AML/CTF and Head of Compliance are currently in process towards a certification from the Association of Certified Anti-Money Laundering Specialists. INDEPENDENT TESTING US consultants independent testing outcome In June, 2016 Exiger LLC and Lewis Baach Kaufmann (US consultants) assessed Bank s AML Program by comparing it to regulatory requirements set forth in the BSA and the USAPA and their implementing regulations, OFAC, the Federal Financial Institutions Examination Council BSA/AML Examination Manual ( FFIEC Manual ), relevant enforcement actions, guidance promulgated by the Financial Action Task Force and industry best practices. Final Review Report was received at the end of February, 2017 and contained 24 Required Elements (recommendations) for compliance with the BSA/AML/ OFAC regulatory requirements and expectations.

6 Level of implementation of independent testing recommended elements Majority of recommendations were related to improvement of Bank s internal procedures and were implemented prior receipt of Final Review Report. Currently ~ 75% of recommendations are implemented. Bank continues to work on recommendations related to: quality assurance program, enterprise wide risk assessment, alert storage database. It is planned to complete implementation of all recommendations by the end of Further plans for validation of implementation of remediation plans Bank s Internal Audit plans to perform validation of recommendation implementation in Q Bank also plans to conduct independent review of implementation of remediation plan in Q / Q Internal audit function ability to carry on independent testing in the field of AML/CTF US consultants assessed that Banks internal auditor has Big 4 accounting firm experience, including substantive experience with AML. Internal audit performs audit of Bank s AML/CTF program at least annually. All auditors received internal and external trainings and continuously improve their knowledge in AML/CTF area. Other external audits, outcomes According to the FCMC requirements Bank must perform an independent audits of its AML/CTF systems compliance every 18 month. As described above, Bank plans to conduct independent review of implementation of remediation plan in Q / Q AUTOMATED SYSTEMS AND TOOLS Core banking system: name/ supplier Forpost/Forbis AML/CTF monitoring system: name/ supplier M2M in-house built system (includes 27 alerts generating rules) Sanctions screening system: name/ supplier / online 24/7 or T+1/2/3 Forpost/Forbis SUSPECT module. Lists are automatically uploaded every day. Screening is performed online 24/7. Accuity Compliance Link AML/CTF monitoring system used for blacklists, PEP and sanction screening online 24/7. Other databases Dow Jones Risk and Compliance data base/dow Jones Inc. SPARK/Interfax Lursoft/ SIA Lursoft IT

7 Closed gaps, improved effectiveness, particularly in management of international financial sanctions Implemented Customer AML/CTF risk scoring set the risk based approach in determination customers AML risk. DE-RISKING OF CUSTOMERS AND BUSINESS LINES Business lines exited Starting from 2016 bank freezed on-boarding of new customers incorporated in non-transparent jurisdictions. No business lines were exited as Bank considers its range of business lines/products launched in 2013 adequate for the de-risked environment aimed to be achieved by the Latvian banking sector. De-risked customers Quantity of de-risked customers 12% in Currently Bank has 135 accounts of SPVs domiciled in non-transparent jurisdictions. Shift in customer base by jurisdiction, reduction of AML/CTF risk level (scoring) among customers Existing customers who are using SPVs incorporated in non-transparent jurisdictions (British Virgin Islands, Panama ect) are migrating personal asset ownership structures to transparent jurisdictions. Bank expects that number of customers incorporated in non-transparent jurisdictions will not exceed 15% of the overall customer base by the end of 2017 (currently 22%). Changes in number of PEP customers 16 customers (8 local clients and 8 international clients) (2.6% of overall customer base) meet PEP criteria. This number is fairly constant. Reduction of AML/CFT risk level (scoring) among customers Bank did not have significant reduction of AML/CTF risk level. General customer account closure is related to above mentioned migration process. Target markets Wealthy families from Latvia, EU, Russia and other former- Soviet Union countries with investable capital of at least EUR 1 million willing to use Bank s private banking services to cater to their personal financial needs, as well as to serve international transactions of the businesses owned by them. Trends in customers structuring of their assets No changes, as business model, target clients and range of products was stable since FATCA, CRS implementation Bank has implemented in its procedures and practices all necessary requirements to be FATCA, CRS compliant. In 2016 bank had no FATCA reportable accounts, first CRS report will be done in July, 2017.