STEP attends FATF meeting to discuss beneficial ownership regime

Emily Deane TEPSTEP attended a virtual meeting held by the Financial Action Task Force (FATF) on 18 March to discuss potential amendments to FATF Standards Recommendation 24 and its implementation. FATF announced its intention to review this area, which may lead to a comprehensive overhaul of the system of beneficial ownership (BO), at a private sector consultative forum in November 2020.

The meeting aimed to garner additional views on the key proposals for amendment to Recommendation 24 from Designated Non-Financial Business and Professions (DNFBPs) which include lawyers, trust and company service providers, notaries and other independent legal professionals.

The principal issues for discussion included:

  • The verification of BO information provided to the registry and whether a DNFBP could hold the information instead.
  • Whether DNFBPs have sufficient access to the BO registries in order to identify and verify the relevant beneficial ownership information.
  • Whether physical paper bearer shares are still necessary?
  • How can the sector define and adequately control nominee arrangements?
  • How could the process of identifying beneficial ownership be improved?

STEP noted the issue that the application of the rules around beneficial ownership is complex, which can create an ambiguous outcome due to confusion around the identification of natural persons. This confusion can lead to the rules not being applied correctly, resulting in inaccurate information being held. Licensed third parties which are obliged to hold information, such as trust companies, have a more rigorous process of identification and this could be beneficial to adopt.

STEP suggested that FATF target the accuracy of the information held, its effectiveness, and how often it is collected. It also suggested it would be preferable for jurisdictions to have multiple options, rather than the current highly prescriptive rules of identification, to ensure the accuracy of the information collected and verified. The overarching objective for review should be to strengthen the measures in place, and mitigate the obstacles to transparency and risks of misuse.

FATF confirms that it will continue to consult with the private sector and will publish a full consultation on written proposals in June. STEP will continue to keep members apprised of these developments in due course.

Emily Deane TEP, STEP Technical Counsel

STEP joins Anti-Money Laundering Europe webinar on the future of the EU’s fight against money laundering

Robert CaringtonOn 3 June, STEP joined a webinar hosted by Anti-Money Laundering Europe (AME) on the future of the European Union’s fight against money laundering.

John Riches TEP, Chair of STEP’s Public Policy Committee, was joined on the panel by Jérôme Deslandes, Cabinet of the Executive Vice President of the European Commission; and Piers Haben, Director for Banking Markets, Innovation and Consumers at the European Banking Authority (EBA). The chair was Mike Savarese, AME.

The webinar discussed the European Commission’s package on anti-money laundering (AML) published on 7 May.

Its main item was an action plan, accompanied by a list of high-risk third countries, and a methodology describing how these were chosen. The action plan aimed to address the weaknesses identified in research from 2019 and was based on the following six pillars:

  1. Better implementation of rules – This will be achieved by a number of tools particularly interconnection of beneficial ownership registers, more powers for the EBA and a focus on country-specific recommendations. The eventual aim is for an EU supervisory body responsible for conducting on-site examination on the effectiveness of the AML framework.
  2. Harmonised rulebook – This will be achieved by sharing information, integrating the latest Financial Action Task Force (FATF) standards and building on the good examples of member states.
  3. EU level supervision – This integrated AML system will need to be jointly run by the EU and national authorities.
  4. Coordination and support mechanisms for FIUs (Financial Intelligence Units) –Through common templates and tools, standards on feedback, support of joint analysis and training.
  5. Law enforcement and information sharing – New tools such as criminalisation of money laundering, a Directive on the use of financial information and rules on asset recovery (including mutual recognition of freezing orders) will be used.
  6. EU’s global role – This will be achieved through the new methodology and the list of high-risk third party jurisdictions that pose a threat to the EU’s financial system.

John Riches’ view on these developments from a private sector perspective, was that due to the rapid development of the EU’s AML framework, member states appear to have struggled to implement past incarnations of AML. He observed that there seemed to be an inconsistency in approach between states, resulting from a lack of clarity and practical guidance.

His main concerns were over beneficial ownership registers and transparency, and how this lack of clarity had made implementation of trust registers difficult, and also potentially unfair. He noted that the uncertainty over some of the provisions in the Fifth Anti-Money Laundering Directive showed a lack of understanding on how trusts work. He also voiced major concerns over the potential conflict of public registers versus privacy rights.

The panel heard that the EU is aiming to be assessed as a single jurisdiction, with a single supervisor and rule book, within five years, so will be recognised as such by FATF. This single approach is seen as being cheaper and more efficient, and a more effective way of achieving a stronger, more unified and robust system.

The event ended with John Riches stressing that the EC consultation should be much more than a box-ticking exercise, and something more meaningful, which will benefit everyone.

Robert Carington is Policy Executive at STEP

STEP Bahamas reports to the FATF Forum in Vienna

Vienna united nationsSTEP was invited to attend the Financial Action Task Force (FATF) Private Sector Consultative Forum in Vienna on 23-24 April.

The event consisted of several breakout sessions relating to FATF’s global priorities for Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) in 2018.

As part of the Forum, Cecil Ferguson TEP, Chair of STEP Bahamas and Bank Examiner of the Central Bank of the Bahamas, which is responsible for licensing, regulating and supervising financial institutions, was invited to report to attendees on the progress of the National Risk Assessment (NRA) in the Bahamas.

Cecil reported that the NRA process in the Bahamas had been very collaborative in nature, with participation from the public, private and NGO sectors. The country had embarked on a course to implement FATF’s Recommendation 1, with all sectors identifying key risk areas and resources allocated to the highly-exposed areas. A national co-ordinator was appointed to take responsibility for the process.

There were two elements to the money laundering and terrorist financing risk assessment at the country level, as well as at the financial institution and Designated Non-Financial Businesses and Professions (DNFP) level. The Bahamas engaged with the World Bank’s technical risk-assessment expert to assist in the initial process.

The process served to enhance and deepen the understanding of the Bahamas’ money laundering and terrorist financing threats and vulnerabilities, and focus its resources to address gaps in its AML/CFT regime. This included amending primary laws, regulations and guidelines as well as supervisory enforcement and frameworks.

Cecil concluded that the Bahamas’ NRA was adopted by the Cabinet in December 2017 and it has established a working group meeting weekly to ensure that the outcomes continue to be addressed.

STEP representatives also attended a closed session drafting group for lawyers, accountants and trust and corporate service providers (TCSPs) to discuss FATF’s Risk-Based Approach guidance. The review included discussions around the sectoral guidance of 2008 and potential areas of improvement focusing on beneficial ownership, suspicious transaction reporting obligations, terrorist financing risk indicators, and ongoing customer due diligence measures.

STEP will continue to engage on these issues with FATF and report back accordingly.

Emily Deane TEP is STEP Technical Counsel