Response to consultation on Guidelines on risk factors and simplified and enhanced customer due diligence
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The Guidelines generally enhance the Risk Based Approach in a coherent and meaningful way. We make the following suggestions:
1. (Title II - Assessing and managing risk - general part) - Point 18 Notion of equivalent country"
The new AML Directive does not recognise the principle of "equivalent country" for third countries, outside the EU. We are concerned about what seems to be a restrictive approach that does not consider that other non-EU FATF members might implement AML requirements equivalent to those in place in the EU. We fear that this would heavily impact cross-border relationships with customers outside the EU.
2. (Title III - Chapter 1 - Sectoral Guidelines to correspondent banks - Point 75) "Risk Factors"
The Guidelines could helpfully refer to the recently launched International Securities Services Association (ISSA) Financial Crime Compliance Principles (http://www.issanet.org/e/1/news/155-2015-09-04-fccp.html). These Guidelines aim to provide guidance to custodians on how best to manage the risks that arise from the layers of intermediation between securities issues and ultimate beneficial owners. The Principles are broadly consistent with the policy aims of these new Guidelines and in particular, provide participants with practical guidance on the question of transparency of ownership and control intermediated securities custody arrangements
3. (Title III - Chapter 1 - Sectoral Guidelines to correspondent banks - Point 84) "Usage of CDD questionnaire"
The rationale why CDD questionnaires provided by international organisations (e.g. such as the Wolfsberg questionnaire) are not suitable to help correspondents complying with their obligations is unclear and not in line with common practice.
4. (Title III - Chapter 1 - Sectoral Guidelines to correspondent banks) Point 90 "Identify, and verify the identity of the respondent and their Beneficial Owners"
There is no standardised definition of Beneficial Owners. As a consequence, use of the term could lead to confusion as it might refer to either the natural person(s) who ultimately own(s) or controls the customer and /or the natural person(s) on whose behalf a transaction or activity is being conducted. More clarity on what is meant by Beneficial Owners would help avoiding misinterpretations.
5. (Title III - Chapter 9: Sectoral guidelines for providers of investment funds) Point 212 "Intermediaries"
We agree that the intermediary can be considered as the direct counterparty of the firm but suggest to delete the last sentence which states that "the firm should treat the intermediary's customers as the fund's beneficial owners". We believe that the relationship between the firm and intermediaries should here be considered in the same way as the one between correspondent banks and respondents."
a) Do you consider that these guidelines are conducive to firms adopting risk-based, proportionate and effective AML/CFT policies and procedures in line with the requirements set out in Directive (EU) 2015/849?
This response covers the views of all CSDs within the Euroclear Group. Euroclear is the world’s largest post-trade provider of securities settlement services in fixed income, ETFs, equities, and funds. We serve a global client base out of our Head Office in Brussels and from our domestic European CSDs.The Guidelines generally enhance the Risk Based Approach in a coherent and meaningful way. We make the following suggestions:
1. (Title II - Assessing and managing risk - general part) - Point 18 Notion of equivalent country"
The new AML Directive does not recognise the principle of "equivalent country" for third countries, outside the EU. We are concerned about what seems to be a restrictive approach that does not consider that other non-EU FATF members might implement AML requirements equivalent to those in place in the EU. We fear that this would heavily impact cross-border relationships with customers outside the EU.
2. (Title III - Chapter 1 - Sectoral Guidelines to correspondent banks - Point 75) "Risk Factors"
The Guidelines could helpfully refer to the recently launched International Securities Services Association (ISSA) Financial Crime Compliance Principles (http://www.issanet.org/e/1/news/155-2015-09-04-fccp.html). These Guidelines aim to provide guidance to custodians on how best to manage the risks that arise from the layers of intermediation between securities issues and ultimate beneficial owners. The Principles are broadly consistent with the policy aims of these new Guidelines and in particular, provide participants with practical guidance on the question of transparency of ownership and control intermediated securities custody arrangements
3. (Title III - Chapter 1 - Sectoral Guidelines to correspondent banks - Point 84) "Usage of CDD questionnaire"
The rationale why CDD questionnaires provided by international organisations (e.g. such as the Wolfsberg questionnaire) are not suitable to help correspondents complying with their obligations is unclear and not in line with common practice.
4. (Title III - Chapter 1 - Sectoral Guidelines to correspondent banks) Point 90 "Identify, and verify the identity of the respondent and their Beneficial Owners"
There is no standardised definition of Beneficial Owners. As a consequence, use of the term could lead to confusion as it might refer to either the natural person(s) who ultimately own(s) or controls the customer and /or the natural person(s) on whose behalf a transaction or activity is being conducted. More clarity on what is meant by Beneficial Owners would help avoiding misinterpretations.
5. (Title III - Chapter 9: Sectoral guidelines for providers of investment funds) Point 212 "Intermediaries"
We agree that the intermediary can be considered as the direct counterparty of the firm but suggest to delete the last sentence which states that "the firm should treat the intermediary's customers as the fund's beneficial owners". We believe that the relationship between the firm and intermediaries should here be considered in the same way as the one between correspondent banks and respondents."