Warning: The contents of this presentation were correct on 17th September 2019, the date of presenting, and should be used only as a reference for ...
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Warning: The contents of this presentation were correct on 17th September 2019, the date of presenting, and should be used only as a reference for those who attended the full presentation.
Regulatory Upstream 2019
Presentation
for the
LIA
Presented by
Ms. Evelyn Hanrahan
Compliance Governance & Training Ltd
1
This presentation is not an exhaustive list of your regulatory requirements
This presentation does not fulfil your Training requirements under the CJA
The content of this presentation does not constitute legal advice
• Insurance Distribution Regulations (IDR)
• Central Bank of Ireland AML/CFT Survey
• Criminal Justice (Money Laundering and Terrorist Financing)
(Amendment) Act 2018
2
Insurance Distribution Regulations 2018 (SI.229)
• Came into effect 1st October 2018
• IDR replaces the Insurance Mediation Regulations 2005 (IMR)
• Firms currently authorised under IMR will continue to be authorised under
IDR with the Central Bank of Ireland. This is reflected on the CBI Registers.
• Insurance Policies been removed from the IIA, Insurance Policies are no
longer be defined as an ‘investment instrument’ under the IIA.
•
3
Investment Intermediaries Act 1995 (IIA) • Insurance Policies are no longer be defined as an ‘investment instrument’ under the IIA • If you are a Financial Brokerage offering advice on Insurance Policies from Insurance Companies only you may wish to consider whether it is appropriate to your firms business model, now and in the future, to continue to retain your IIA authorisation? • If you are a Financial Brokerage offering advice on Insurance Policies AND Investment Instruments* you will need to retain your IIA authorisation. NOTE: Some IIA *Investment Instruments are subject to the Addendum to CPC taking account of the Analogous Requirements of the MiFID Regulations 2017. CAUTION: Seek professional advice BEFORE making a decision on these matters. 4 •
IDR: Referral Only
• CBI have confirmed that a referral is not a regulated activity under IDR.
• If you are referring IDR business only (not IIA or Mortgages) and being paid for these
referrals, you no longer require Central Bank of Ireland authorisation.
• CPC contacting consumers still applies, GDPR rules too
• What other factors should I be aware of……………………..
• How would such a referral payment be structured?
5
IDR: Insurance based Investment Products • Based on the information currently available, the IDR Regulation reference payments to 3rd parties by an intermediary (IDR Section 41. (5)) • There are very specific disclosure required under IDR to the customer when advising on insurance –based investment products which must be observed . i.e. payments to 3rd parties: 51 ( c ) all costs and related charges of the insurance-based investment product* recommended or marketed to the customer, including the cost of advice, where relevant, and how the customer may pay for it, also including any third party payments. • Insurance –based investment products these are products which acquire a maturity or surrender value; where that value is wholly or partially exposed (directly/indirectly) to market fluctuations. • Excluding • Life Assurance contracts, death, injury sickness or disability 6 • Pension Products • Occupational Pension Schemes
IDR: Referral
• Structure of Referral Payment, if relevant/appropriate:
• Commission is a payment for regulated activities, a referral in no longer a regulated
activity. A fee for a referral payment may therefore be subject to VAT*
• What is still UNKNOWN is that the Central Bank and the Dept. of Finance have yet to
finalise the remuneration section of IDR and may require full disclosure of third party
payments on all policies/products.; not just investment products. The outcome of
CP116 ‘Intermediary Inducements’ will also inform this process.
*Get Professional Accounting/Tax advice BEFORE engaging in this activity
7
Remuneration
• CP 116 – Nov 2017 responses Closed March 2018.
• *The Payment of Commission to Intermediaries is currently the focus of ongoing
work by the Central Bank. The outcome of this work may be used to further inform
decisions on relevant discretions under IDR.
*Transposition of EU Directive 2016/97 on IDD. Dept. of Finance Feedback Statement March 2018
The outcome of CP 116 will impact on implementation of IDR in your business
8
IDR: Terms of Business & Advice • The Terms of Business is a customer facing document, the core CPC content still stands some new points of information which must be provided to a client. The Terms of Business a suitable medium to provide this information; • How your firm provides Advice? • On the basis of a ‘fair and personal analysis’ OR • under contractual obligation with one or more insurance undertakings (tied) name entity/entities OR • not under a contractual obligation nor offers advice on a fair and personal analysis (limited advice). List insurance Undertaking with which your firm holds appointments 9
IDR: Terms of Business & Advice
• How you are remunerated: fee, commission, other economic benefit or a
combination of these? Must state clearly to customers. CP 116 outcomes awaited!
• Independent Advice: only if a fee based model AND access to a sufficient range of
products available on the market to ensure that the customers objectives can be
suitably met and are NOT limited to the insurance products of those entities having
close links with the intermediary.
10Periodic Assessment of Suitability • Apply to Insurance Based Investment Products under IDR AND • Investment Products which are subject to The Analogous Requirements under CPC for MiFID II Products (IIA firms) • Periodic Assessment of Suitability: state whether you will provide this assessment, or not, your Terms of Business document as suitable place for this statement. • Frequency of assessment at minimum annually or more often, depending on the risk profile of the client and the type of financial instruments recommended.’ This is not a re-issue of the original Statement of Suitability, it is a written confirmation of how the investment product continues to meets the customer’s preferences, objectives, 11 risk profile etc.
IDR: Remuneration of Employees • Duty of Care to the Customer is the priority • Conflicts of interest between employee remuneration and the customer must be identified and mitigated. • Employers must not incentivise or remunerate the performance of their employees in a manner that would conflict with their duty of care to the customer. • Have a written Variable 12 Remuneration Procedure in place.
Fitness & Probity Standards
13Fitness & Probity Standards
• Fitness & Probity Standards: How do you demonstrate that your team are;
Competent, Capable – Honesty, Integrity – Financially Sound
• Are you revisiting the Due Diligence carried out in the past? Do you need to refresh
the information? Have you a procedure for this review?
• What about recruiting new Control Function staff? What is your Due Diligence
Procedure – new employees existing.
• Central Bank at Roadshows in November 2017 gave over an hour to this topic,
sharing what had been their POOR experience when auditing Fitness & Probity Due
Diligence files.
This in NOT a box ticking exercise
14€200,000 fine 12th Dec 2017
• The Central Bank’s enforcement investigation identified that the regulated entity
failed to introduce adequate systems or controls to ensure that individuals holding
CFs and PCFs complied with the Fitness and Probity Standards (the ‘Standards’).
nor
• take reasonable steps to satisfy itself that its CFs and PCFs complied with the
Standards.
• When hiring new staff and for failing to conduct the requisite level of due diligence
for the ongoing assessment of CFs and PCFs.
15April 2019 Fitness & Probity ‘Dear CEO’
• Central Bank issues 7 page letter to ALL regulated entities stating the poor
compliance with the Fitness & Probity Regime they have experienced at inspection
and what they want firms to action.........................
Conclusion of Dear CEO letter :
• ‘Firms have the first line of responsibility under the Fitness and Probity Regime.
Firms must ensure people subject to the regime are fit and proper. Further, this
responsibility does not end following the hiring of staff; you must ensure that your
staff are fit and proper on an on-going basis. Where Firms fall short, the Central Bank
will take appropriate action.
16April 2019 Fitness & Probity ‘Dear CEO’
• This letter should be read with The Guidance on Fitness and Probity Standards (the
“Guidance”)14.
The Central Bank, in light of this letter, expects you together with your board to review
your Firm’s fitness and probity policies, procedures and practices and address any
shortcomings. Firms should be in a position to demonstrate how the issues raised in
this letter have been considered, and to explain and evidence any remedial actions
taken.’
It is now 6 months since this letter was issued.
This letter contained a ‘call to action’ what have you done to evidence the seriousness
in which you viewed the content of this letter?
17Criminal Justice (Money Laundering and Terrorist
Financing) (Amendment) Act 2018
18Stakeholders in preventing
ML/TF
19Central Bank AML/CFT Survey August 2019
CBI outbound survey to better inform FUTURE INSPECTIONS
• Does your Firm provide any of the following products:
• Life Assurance
• Pension
• Savings & Investments
• If yes:
• Based on the most recently available information, what percentage of total
income/turnover derives from these products:
• Life Assurance
• Pension
• Savings & Investments 20
•
•Central Bank AML/CFT Survey August 2019
• Based on the most recently available information, how many of the Firms
total number of clients/customers relate to:
• Life Assurance products insert total number of clients/customers
• Pension products insert total number of clients/customers
• Savings & Investments products insert total number of clients/customers
•
• Does your Firm operate a client premium account in relation to Life
Assurance, Pension, and Savings and Investments products?
• Yes/No.
21Focus of 4th ML Directive
• The Fourth EU Money Laundering Directive (“4AMLD”) was transposed
into Irish law with the enactment on 14 November 2018 of the
Criminal Justice (Money Laundering and Terrorist Financing)
(Amendment) Act 2018 (the “Act”).
• The Act, which was commenced on 26 November 2018, amends the
Criminal Justice (Money Laundering and Terrorist Financing) Act 2010
to incorporate the requirements of 4AMLD into the existing legislative
framework.
• 5th Directive (5AMLD) entered into force 9 July 2018. Transposition
deadline for member states 10 Jan 2020
• 6th Directive (6AMLD) Transposition deadline Dec. 2020
22CBI Guidelines for the Financial Sector – September 2019 • Following the enactment of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018 the Central Bank of Ireland has published guidelines in order to assist Credit and Financial Institutions and Intermediaries in understanding their AML/CFT obligations. • The CBI have affirmed that the Guidelines do NOT constitute secondary legislation and firms must always refer direct to the CJA 2010 when ascertaining their statutory obligations. • In the event of a discrepancy between the Guidelines and the CJA 23 2010 the CJA 2010 will apply.
What is Anti Money Laundering?
• While anti-money laundering (AML) and combating the financing of terrorism (CFT)
preventative measures are dealt with together in the CJA 2010, it is important to
note that a distinction exists in the nature of the two offences;
• For money laundering to occur, the funds involved must be the proceeds of criminal
conduct.
• The CJA Act defines Money Laundering very widely to include all forms of handling
or possessing the proceeds, where the person knows or believes such proceeds is or
represents the proceeds of criminal conduct, including possessing the proceeds of
one‘s own crime, and facilitating any handling or possession of such proceeds.
24What is Terrorist Financing
• For terrorist financing to occur, the source of funds is irrelevant, i.e. the funds can be
from a legitimate or illegitimate source. The key consideration when taking measures
to prevent terrorist financing is to examine the intended use or destination of the
funds as opposed to its origin.
• What is Terrorist Financing?
• The offence of terrorist financing involves the provision, collection or receipt of funds
with the intent or knowledge that the funds will be used to carry out an act of
terrorism or any act intended to cause death or serious bodily injury. It also includes
collecting or receiving funds intending that they be used or knowing that they will be
used for the benefit of a terrorist group
25Money Muling (Ireland)
• Students have been warned not to allow their bank accounts to be used to
transfer money on behalf of criminals as to do so is committing the offence
of money laundering.
• Gardai are investigating a €2m fraud involving "Money Mules” - people who
transfer money illegally on behalf of others.
• The probe, led by the Garda National Economic Crime Bureau (GNECB), is
believed to involve some 200 "Money Mule” accounts which have
transferred funds which are the proceeds of a multi-million euro fraud.
https://www.garda.ie/en/about-us/specialist-units/garda-national-economic-crime-bureau/money-
muling.html
26How does this work……..
27The Central Register
of
Beneficial Ownership of Companies and
Industrial and Provident Societies
www.rbo.gov.ie
28Beneficial Ownership
• What is the purpose of the Central Register of Beneficial Ownership?
• To improve corporate trust and transparency in Ireland and the EU by
making it clear to law enforcement agencies, regulators, obliged
entities, other businesses and the public about who ultimately owns
and controls Irish companies and industrial and provident societies.
29Beneficial Ownership
The aim of the Directive is to deter money
laundering and terrorist financing and to help
sanction those who hide their ownership or
control of Irish companies/societies for the
purpose of facilitating illegal activities.
30Why is there a 25% threshold?
• In setting out the different means by which a natural person can control a
company/society, the EU Directive specifically includes anyone who owns or
controls more than 25% of shares or voting rights.
• In instances where companies/societies have a large number of shares, a
shareholder can have 25% of the overall available shares plus one extra share. For
example: Company X has 1,000,000 shares at €1 each. If any person holds 250,000
(25%) or less shares, then they do not qualify under this requirement. However, if
the shareholder owns or controls 250,001 shares then they qualify as a beneficial
owner and details of same must be registered on the RBO This applies to all issued
shares.
Source: www.rbo.gov.ie
31Why is there a 25% threshold?
Please note that the percentage test in relation to ownership of shares
is not be the only method to determine who the ultimate beneficial
owner is – control of voting rights and control via other means must
also be considered.
• If in doubt, a company/society should seek legal advice to assist it
in establishing who its beneficial owners are.
Source: www.rbo.gov.ie
32Corporate Vehicles The appeal to criminals & terrorists lies in the fact that corporate vehicles can be misused to circumvent controls by disguising the identity of known or suspected criminals and the source of funds or assets. It is anticipated that the new ‘rules’ will make this more difficult.
Beneficial Ownership of Trust
• Irish Transposition (29th Jan’19) of the European Union (Anti Money
Laundering: Beneficial Ownership of Trust) Regulation 2019. This
amends the European Union Anti Money Laundering: Beneficial
Ownership of Corporate Entities) 2016 (the 2016 Regulations) (15th
Nov 2016)
• Establish and maintain a ‘beneficial ownership register’ for the trust
• Access to register – Revenue commissioners and/or any state
competent authority
• Unanticipated consequences of Occupational Pension Schemes,
which are ultimately held in trust for the members, regardless of
how many members are in the scheme.
34Criminal Justice (Money Laundering and Terrorist
Financing) (Amendment) Act 2018
Risk Based Assessment
35Business Risk Assessment
‘A business risk assessment should consist of two distinct but
related steps:
• Identifying ML and TF risks relevant to a Firm’s business;
and
• Assessing the identified ML and TF risks in order to understand
how to mitigate those risks.
• Resources should be allocated so that the areas of greatest risk
identified receives the highest attention’
CBI Guidelines 2019
36Risk Based Approach • For example, a large retail bank with many customers will likely need to develop or purchase customer monitoring software, but a smaller organisation may be able to monitor its customers using a low-tech solution. • Firms applying a risk-based approach need to be proactive in seeking out information about money-laundering trends and threats from external sources relying on their own experiences and observations. • This allows firms to effectively review and revise their use of AML tools to fit the specific risks that they face. 37
Risks Assessment & CDD
• Business Risk Assessments; minimum risk factors to be taken into
account: Customer Type, Product, Geographical, Delivery Channel
and Transaction Type.
This is a ‘living document’ not just a once a year exercise.
• 4AMLD abolishes the previous automatic derogations from the
Customer Due Diligence (CDD) requirements;
• Customer Due Diligence; previous exemption for Specified
Customers and Specified Products are NO LONGER available.
• Individual Risk Assessments will determine the CDD measures to
be applied in the business and to individuals and transactions
38
•Policies and Procedures
• Internal Policies and Procedures
• The Act gives more detail on the types of policies and procedures that your
firm must have in place to prevent ML/TF.
Examples:
New Product Procedures to counter risks that may arise from the use of new
products or practices arising from technological developments.
Training Procedures: firms should ensure that the AML/CFT Training contains
an assessment or examination, firms must be in a position to demonstrate the
effectiveness of training and staff understanding of such training.
39PEP’s
• Politically Exposed Persons (PEPs) Extends to Resident PEPs –
Enhanced CDD applies.
• Senior Management must approve continuing with the relationship
with the existing customers who are now PEPs under the new
definition and give permission at the on-boarding of any new
customers who are PEPs.
• Ongoing monitoring of customer base to pick up on changes in PEP
status. Frequency of monitoring - links to risk assessment.
40PEP’s Politically Exposed Persons Specified Individuals (a) heads of State, heads of government, government ministers and deputy or assistant ministers;* (b) members of parliaments;* (c) members of a supreme court, constitutional court or of other high-level judicial bodies whose decisions (except in exceptional circumstances) are not subject to further appeal;* (d) member of courts of auditors or of the board of central banks;* (e) ambassadors, chargés d'affaires and high-ranking officers in the armed forces.* Members of the administrative, management or supervisory bodies of State-owned enterprises. and include positions of prominent public function in preceding year but exclude middle ranking or more junior officials in (a)-(f) 41 * (defined as ‘specified official’ in law)
Ceasing to be a PEP’s
• When a PEP ceases to be a PEP the Obliged Entity must take into
account the continuing risk posed by this person for a least 12 months
until the obliged entity deems it that this person poses no further
risks specific to PEPs
• You will have to avail of an professional automated PEP checking
mechanism – too onerous a requirement to try and do this yourself.
42Corporate Governance
• Board meetings, minutes CLEARLY demonstrating Board challenge, discussion,
decision making and sign off of new AML/CFT/FS Risk Assessments P & P’s
etc.
• From a Central Bank regulatory perspective this is where the focus of recent
inspections have been, rather than on Customer Due Diligence
documentation.
43What are Financial Sanctions?
• Financial sanctions are restrictive measures imposed on individuals or
entities in an effort to curtail their activities and to exert pressure and
influence on them. These restrictive measures include, but are not limited
to, financial sanctions, trade sanctions, restrictions on travel or civil
aviation restrictions.
• EU & UN Financial Sanction Lists must be checked before on boarding a
client and as part of ongoing monitoring process.
Obligation to comply with EU Council Regulations and the United Nations Security Council Sanctions
Committees (“UN Sanctions Committee(s)") in the terrorist financing context. The EU gives legal effect to
Targeted Financial Sanction designations by the UN Sanctions Committees through EU Council
Regulations.
44FS & Ireland
• THE SANCTIONS AGAINST the Russian parent company of Limerick
manufacturing firm Aughinish Alumina have been lifted.
• The US had previously imposed sanctions on companies it said was linked to
Russian oligarch Oleg Deripraska. Included on this list was manufacturing
giant Rusal, the parent company of Aughinish Alumina
• In December ‘ 18 the US Treasury said it would lift the sanctions, with Rusal
agreeing to reduce the stake in it owned by Deripraska………………………….
45Monitoring Obligations
• To ensure compliance with the EU Council Regulations and to prevent the
financing of terrorism, it is necessary to monitor customers and
transactions against both the EU and UN Sanctions Committees lists
relating to terrorism.
• The lists are regularly updated and must be frequently checked to ensure
that they are the latest ones available.
• All natural and legal persons are obliged to comply with financial sanctions and can do so by
monitoring the EU and UN lists and taking appropriate action as required
46Central Bank of Ireland
AML/CFT Fines & Sanctions
47Appian Asset Management Ltd
• Fined €443,000 by the Central Bank of Ireland
• The Central Bank said in a statement that it had reprimanded Dublin-based
fund management company for “significant breaches across three
regulatory regimes:
• client asset,
• anti-money laundering, failure to follow own procedures, failure to provide
staff training.
• fitness and probity”.
• The Central Bank added that “had it not been for the financial position of
the firm, the Central Bank would have imposed a financial penalty of
€825,000”.
48
• Did not report Fraud to Garda or RevenueCampbell O’Connor & Co.
MiFID firm providing stockbroking services
• Fined €280,000 by the Central Bank of Ireland
• Failure to conduct appropriate money laundering/terrorist financing
(“ML/TF”) risk assessment.
• Failure to adopt adequate policies and procedures for preventing and
detecting ML/TF.
• Failure to monitor and scrutinise customer transactions.
• Failure to provide training to staff on identifying suspicious transactions.
• Failure to ensure that all necessary arrangements were in place with third
parties whom the Firm relied on to conduct customer due diligence
measures on the Firm’s customers.
49Thank You for your Kind Attention
www.compliancegovernanceandtraining.ie
info@compliancegovernanceandtraining.ie
50
This presentation is not an exhaustive list of your regulatory requirements
This presentation does not fulfil your Training requirements under the CJA
The content of this presentation does not constitute legal adviceYou can also read
