Response to consultation on draft Guidelines under Articles 17 and 18(4) of Directive (EU) 2015/849 on customer due diligence and ML/TF risk factors
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15-3 d) All structured products should not be considered as a factor of increasing risk.
15-4 We suggest changing this point to:
« The following factors may contribute to reducing risk:
a) The product, service or entity is subject to mandatory transparency and/or disclosure requirements.
b) The regulated services »
15-5 It is essential to keep the risk-based approach which enables to focus on the most important risks.
15-5 b) iii. The fact that the customer is regulated decreases the risks, but being unregulated does not involve a specific risk increase
15-5 b) v. We suggest removing “holds another prominent position”, as it is impossible to check
15-5 c) We suggest removing “pharmaceuticals and healthcare”
15-6 We suggest adding to the list: “d) listed companies in an EEA jurisdiction”
15-7 c) We suggest removing this point from 15-7 and adding it instead to the chapter dedicated to assets.
15-9 This point should remove the mention of MiFiD and EMIR, as it can be confusing. Investment firms always use all information available.
15-10 As suggest on point 15-9, this point refers to MIFID and it can be confusing. We suggest removing this point.
15-11 a) We suggest removing this point.
16-3 c) We suggest removing this point, as we believe money launderers most likely focus on short-term investments
16-4 b) We suggest removing the mention to guidelines 8 and 14, which do not apply to funds and fund managers
16-5 b) We suggest adding “as long as the recommended minimum investment duration is not short-term. The fund managers are focused on medium and long term, except monetary funds, which are conducting investments within a day.”
16-5 c) The fund managers do not always know when customers are going to buy or subscribe to the fund. We suggest removing this point.
16-7 b) We would suggest precising what the terms encompass.
16-9 We suggest adding “c) the listed companies”.
16-10 a) As only distributors can monitor transactions resulting from complex distribution channels, we would like to change the terms, to highlight their responsibility.
16-11 a) We suggest changing this point to:
“The fund admits only a designated type of low-risk investor, such as regulated firms investing as a principal (e.g. life companies), corporate pension schemes or listed companies.”
16-12 a) We suggest changing this point to:
“The customers’ or beneficial owners’ funds have been located in jurisdictions associated with higher ML/TF risk, in particular those associated with higher levels of predicate offences to money laundering.”
16-20
We would like to focus on the point suggesting for the fund or fund manager to “take risk- sensitive measures to identify, and verify the identity of, the investors underlying the financial intermediary, as these investors could be beneficial owners of the funds invested through the intermediary.” Where the intermediary is an AMLD regulated entity, i.e. an obliged entity under AMLD and supervised by a national competent authority, it is already required to perform their due diligence process on its customers. Requiring asset managers to perform diligence duties on the intermediaries’ customers would imply that regulators consider that intermediaries are underperforming when it comes to their own diligence duties and asset managers are asked to take over this responsibility. At the same time, such a duplicative process for the same underlying investor will unnecessarily increase the burden for all financial institutions involved and distract all important resources from other higher risk areas.
Furthermore, if a retail fund is market through intermediaries, the probability of having an investor who owns 25% or more of the fund is zero.
An investor can only be beneficial owner of the funds if invest through a dedicated fund. In this case, asset managers don’t go through distributors to market this fund.
We suggest changing this point to:
“In the situations described in guideline 16.14(c), where the financial intermediary is the fund or fund manager’s customer, the fund or fund manager should apply risk-sensitive CDD measures to the financial intermediary. To the extent permitted by national law, in low-risk situations, funds or fund managers may apply SDD measures similar to those described in Title I of these guidelines, subject to the following conditions:
a) The financial intermediary is subject to AML/CFT obligations in an EEA jurisdiction or in a third country that has AML/CFT requirements that are not less robust than those required by Directive (EU) 2015/849.
b) The financial intermediary is effectively supervised for compliance with these requirements.
c) The fund or fund manager has taken risk-sensitive steps to be satisfied that the ML/TF risk associated with the business relationship is low, based on, inter alia, the fund or fund manager’s assessment of the financial intermediary’s business, the types of clients the intermediary’s business serves and the jurisdictions the intermediary’s business is exposed to.
d) The fund or fund manager has taken risk-sensitive steps to be satisfied that the intermediary applies robust and risk-sensitive CDD measures to its own customers and its customers’ beneficial owners. As part of this, the fund or fund manager should take risk-sensitive measures to assess the adequacy of the intermediary’s CDD policies and procedures, for example by referring to publicly available information about the intermediary’s compliance record or liaising directly with the intermediary.
e) The fund or fund manager has taken risk-sensitive steps to be satisfied that the intermediary will provide CDD information and documents on the underlying investors immediately upon request, for example by including relevant provisions in a contract with the intermediary or by sample-testing the intermediary’s ability to provide CDD information upon request.
Outside cases a) to e), The fund or fund manager should also take risk sensitive measures to identify, and where relevant, verify the identity of, the investors underlying customers of the financial intermediary that invest in the fund, as these investors customers may increase the implied risk associated with could be beneficial owners of the funds invested through the intermediary.”
16.20 e) It needs clarification as access to customer’s files is not permitted under data protection & bank secrecy regulations in most countries. For this reason, we suggest changing this point to: “The fund or fund manager has taken risk-sensitive steps to be satisfied that the intermediary will provide, where relevant, CDD information and documents on the underlying investors upon request in a reasonable manner and timeframe immediately upon request, for example by including relevant provisions in a contract with the intermediary or by sample-testing the intermediary’s ability to provide CDD information upon request.”
Question 15: Do you have any comments on the proposed amendments to Guideline 15 for investment firms?
15-3 c) As the unusual aspects of mirror trades or transactions are difficult to assess, we suggest to delete « That appear unusual ».15-3 d) All structured products should not be considered as a factor of increasing risk.
15-4 We suggest changing this point to:
« The following factors may contribute to reducing risk:
a) The product, service or entity is subject to mandatory transparency and/or disclosure requirements.
b) The regulated services »
15-5 It is essential to keep the risk-based approach which enables to focus on the most important risks.
15-5 b) iii. The fact that the customer is regulated decreases the risks, but being unregulated does not involve a specific risk increase
15-5 b) v. We suggest removing “holds another prominent position”, as it is impossible to check
15-5 c) We suggest removing “pharmaceuticals and healthcare”
15-6 We suggest adding to the list: “d) listed companies in an EEA jurisdiction”
15-7 c) We suggest removing this point from 15-7 and adding it instead to the chapter dedicated to assets.
15-9 This point should remove the mention of MiFiD and EMIR, as it can be confusing. Investment firms always use all information available.
15-10 As suggest on point 15-9, this point refers to MIFID and it can be confusing. We suggest removing this point.
15-11 a) We suggest removing this point.
Question 16: Do you have any comments on the proposed amendments to Guideline 16 for providers of investment funds and the definition of customer in this Guideline?
16-3 b) We suggest removing real estate funds, as many of them have a high number of investors16-3 c) We suggest removing this point, as we believe money launderers most likely focus on short-term investments
16-4 b) We suggest removing the mention to guidelines 8 and 14, which do not apply to funds and fund managers
16-5 b) We suggest adding “as long as the recommended minimum investment duration is not short-term. The fund managers are focused on medium and long term, except monetary funds, which are conducting investments within a day.”
16-5 c) The fund managers do not always know when customers are going to buy or subscribe to the fund. We suggest removing this point.
16-7 b) We would suggest precising what the terms encompass.
16-9 We suggest adding “c) the listed companies”.
16-10 a) As only distributors can monitor transactions resulting from complex distribution channels, we would like to change the terms, to highlight their responsibility.
16-11 a) We suggest changing this point to:
“The fund admits only a designated type of low-risk investor, such as regulated firms investing as a principal (e.g. life companies), corporate pension schemes or listed companies.”
16-12 a) We suggest changing this point to:
“The customers’ or beneficial owners’ funds have been located in jurisdictions associated with higher ML/TF risk, in particular those associated with higher levels of predicate offences to money laundering.”
16-20
We would like to focus on the point suggesting for the fund or fund manager to “take risk- sensitive measures to identify, and verify the identity of, the investors underlying the financial intermediary, as these investors could be beneficial owners of the funds invested through the intermediary.” Where the intermediary is an AMLD regulated entity, i.e. an obliged entity under AMLD and supervised by a national competent authority, it is already required to perform their due diligence process on its customers. Requiring asset managers to perform diligence duties on the intermediaries’ customers would imply that regulators consider that intermediaries are underperforming when it comes to their own diligence duties and asset managers are asked to take over this responsibility. At the same time, such a duplicative process for the same underlying investor will unnecessarily increase the burden for all financial institutions involved and distract all important resources from other higher risk areas.
Furthermore, if a retail fund is market through intermediaries, the probability of having an investor who owns 25% or more of the fund is zero.
An investor can only be beneficial owner of the funds if invest through a dedicated fund. In this case, asset managers don’t go through distributors to market this fund.
We suggest changing this point to:
“In the situations described in guideline 16.14(c), where the financial intermediary is the fund or fund manager’s customer, the fund or fund manager should apply risk-sensitive CDD measures to the financial intermediary. To the extent permitted by national law, in low-risk situations, funds or fund managers may apply SDD measures similar to those described in Title I of these guidelines, subject to the following conditions:
a) The financial intermediary is subject to AML/CFT obligations in an EEA jurisdiction or in a third country that has AML/CFT requirements that are not less robust than those required by Directive (EU) 2015/849.
b) The financial intermediary is effectively supervised for compliance with these requirements.
c) The fund or fund manager has taken risk-sensitive steps to be satisfied that the ML/TF risk associated with the business relationship is low, based on, inter alia, the fund or fund manager’s assessment of the financial intermediary’s business, the types of clients the intermediary’s business serves and the jurisdictions the intermediary’s business is exposed to.
d) The fund or fund manager has taken risk-sensitive steps to be satisfied that the intermediary applies robust and risk-sensitive CDD measures to its own customers and its customers’ beneficial owners. As part of this, the fund or fund manager should take risk-sensitive measures to assess the adequacy of the intermediary’s CDD policies and procedures, for example by referring to publicly available information about the intermediary’s compliance record or liaising directly with the intermediary.
e) The fund or fund manager has taken risk-sensitive steps to be satisfied that the intermediary will provide CDD information and documents on the underlying investors immediately upon request, for example by including relevant provisions in a contract with the intermediary or by sample-testing the intermediary’s ability to provide CDD information upon request.
Outside cases a) to e), The fund or fund manager should also take risk sensitive measures to identify, and where relevant, verify the identity of, the investors underlying customers of the financial intermediary that invest in the fund, as these investors customers may increase the implied risk associated with could be beneficial owners of the funds invested through the intermediary.”
16.20 e) It needs clarification as access to customer’s files is not permitted under data protection & bank secrecy regulations in most countries. For this reason, we suggest changing this point to: “The fund or fund manager has taken risk-sensitive steps to be satisfied that the intermediary will provide, where relevant, CDD information and documents on the underlying investors upon request in a reasonable manner and timeframe immediately upon request, for example by including relevant provisions in a contract with the intermediary or by sample-testing the intermediary’s ability to provide CDD information upon request.”