Consultation paper No.8 2016 Proposed funds section of AML/CFT Handbook Hamish Armstrong Kate Berry
Overview › Background › Consultation process / timing › Proposed funds section › Areas of focus › Summary
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Background › History › Late 2015: establish key issues, areas of concern › High level concepts › JFA › Compliance officers › Supervision teams
› Developed proposals Slide no 3
Consultation › Consultation paper No.8 2016 › Issued 23 September 2016 › Proposes new section for inclusion in the AML/CFT Handbook › Invites submissions – closes 25 November 2016 › Publish new section in Q1 2017 Slide no 4
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Proposed Funds Section Overview
Proposed Funds Section Overview › Nothing new › No law changes › No new Codes (regulatory requirements)
› Explains application of existing framework to funds › Gives fund-specific examples › More detail NB: supplements existing Handbook sections! Slide no 6
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Proposed Funds Section Overview › Reiterates that all Funds and Fund Operators have statutory AML/CFT obligations in relation to their Customer(s) › Provides guidance on who is the Customer with respect to a Relevant Person who is a either a Fund Operator or a Fund
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Investor Customer
Investor Customer
Investor Customer
Investor Customer
Fund Relevant Person
Investor Customer
Fund Customer
Investor Customer
Fund Customer
Fund Customer
Fund Customer
Fund Operator Relevant person
Fund Customer
Fund Customer
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Proposed Funds Section Overview Provides practical guidance on conducting Risk Assessments, by: › Providing Risk Factors in relation to a Business Risk Assessment (14.2.2) › Detailing potential Risk Indicators for Customer Risk Assessments (14.2.3) › Suggesting an approach to risk assessments for SPV Governing Bodies (14.2.4) › Reiterating that Risk Assessments must be documented (14.2.5) Slide no 9
Proposed Funds Section Overview Provides Guidance (14.3) on how Article 3 of the Money Laundering Order applies to Funds and Fund Operators particularly focusing on: › Beneficial ownership and control › The “Three Tier Test”
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Proposed Funds Section Provides guidance in the following areas: › › › › › › › ›
Unit Trusts (14.3.3.) Passive Investors (14.3.4) Multiple Layered Entities (14.3.6) Nominees/Investment Managers (14.3.7) Deferred Verification (14.4) Failure to Complete Identification Measures (14.5) Trigger Events (14.6) Enhanced Customer Due Diligence Measures (14.9) Slide no 11
Proposed Funds Section Overview › Provides guidance on the circumstances where, although the CDD obligations remain, a Relevant Person may not undertake all CDD Measures themselves: › Applying Simplified Identification Measures (14.8.1) › Relying on an Obliged Person (14.8.2) › Outsourcing by appointing a delegate (14.8.4)
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Areas of Focus
Areas of Focus 1. Scope - application of the guidance to regulated and unregulated funds and fund operators 2. Differences in the application of CDD measures by funds and fund operators 3. Practical application of CDD, including risk factors and higher risk indicators 4. Avoiding duplication of effort, including simplified CDD, reliance and outsourcing Slide no 14
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1. Scope › Legislation vs Codes of Practice › Exemptions? ›
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AML/ CFT Handbook Part 4: Section 1 “Proceeds of Crime (Jersey) Law 1999 - Schedule 2”
Confirms general applicability of AML/CFT statutory obligations to all Funds and Fund Operators
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2. Funds v Fund Operators › Key feature of funds regime; often misunderstood › Every relevant person has obligations pursuant to the Money Laundering Order. ›
Obligations and CDD measures may differ
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Different roles, risk appetites and risk assessments
“the administrator does all that…” is not sufficient! Slide no 16
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Funds v Fund Operators Administrator
Auditor
Manager Legal adviser Investment adviser Custodian
Fund
Lender Distributor
Class G director Asset manager Slide no 17
3. Risk Factors/Risk Indicators › Business Risk Assessments and Customer Risk Assessments › Lists of potential risk factors/indicators
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Risk Factors
Investors/Target Market (paragraphs 22 and 24)
Instigator/ Promoter Creator
Fund Operators (paragraphs 24 and 26)
(paragraphs 24 and 25)
Fund (paragraph 21)
Governing Body
Finance
(paragraphs 24 and 27)
(paragraphs 24 and 28)
Investments (paragraph 23) Slide no 19
4.
Avoiding Duplication
› Simplified Identification Measures (14.8.1) › Reliance on Obliged Persons (14.8.2) › Obtaining Copy documentation from a regulated trust and company service provider in the Crown Dependencies (14.8.3) › Outsourcing (14.8.4)
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Simplified ID Measures › Always refer to Handbook section 7 › Reminders: › Specific risk assessment (for application of simplified DD) required, in addition to CRA › Prohibitions › Differences between Article 17 and Article 18 › Only “switches off” certain aspects of CDD Slide no 21
Simplified ID Measures Risk assessment
CDD
ID customer Identification measures
ID third parties ID person acting for authority toto actact ID person acting for customer Verify Verify authority customer Where Where customer not Understand ownership/control structure Understand ownership/control structure customer not
individual: individual:
beneficial owners/controllers IDID beneficial owners/controllers
Obtain information on purpose/nature Ongoing monitoring Always required
Scrutinising transactions/activity Keep document/information up to date Article 17 simplifies this obligation
Article 18(7) removes this obligation. Does not apply to third parties Slide no 22
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Reliance › Always refer to Handbook section 5 › Reminders: › What identification measures do you need to apply? › Who are you intending to rely upon? › What identification information and evidence has the obliged person obtained? › Does the information and evidence obtained by the obliged person match your requirements? Slide no 23
Reliance › Take care: › Obliged person may have different obligations (fund / operator) › Obliged person may have different risk assessment / risk appetite
› Only “rely” for certain aspects of CDD
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Reliance Risk assessment
CDD
ID ID customer customer ID third parties
Identification measures Where customer not individual:
ID ID person person acting acting for for customer customer
Verify Verify authority authority to to act act
Understand Understand ownership/control ownership/control structure structure
ID ID beneficial beneficial owners/controllers owners/controllers Obtain information on purpose/nature Scrutinising transactions/activity
Ongoing monitoring Always required
Keep document/information up to date Article 16(1) allows reliance upon obliged person Slide no 25
Copy Documents Refer to Handbook sections 4.4.5 and 4.5.7 Reminders: › Particular circumstances when copy docs from a TCB may be used as evidence of identity › Not “reliance”, but similar risk assessment, confirmations, etc Very narrow set of circumstances › Only TCB › Only certain individuals › Only certain documents Slide no 26
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Outsourcing ›
Always refer to Handbook Part 1 › section 2.4.4 and section 5 (para 12) › Common practice: e.g. fund outsources CDD function to administrator › Reminders: ›
Relevant person remains responsible!
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How do you ensure it is being performed adequately? Oversight, MI, etc?
Adequate documentation, to include: ›
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Nature and scope of obligations outsourced; provisions for monitoring, updating, retention and termination Permissions required from the investor for obtaining, holding and using the information for other purposes (data protection) “Ownership” of the investor information
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Summary Nothing new › › ›
No new obligations Clarifications of existing obligations and application in fund context More detailed guidance / examples
Areas of focus › › › ›
Scope Funds v Fund Operators Risk factors and higher risk indicators Avoiding duplication
Submissions › ›
Closes 25 November Papers and submission form on JFSC website
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http://www.jerseyfsc.org/pdf/2016-09-23-Consultation-Paper-No-8-AML-Funds-Section.pdf Slide no 28
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