Response to consultation on Guidelines on risk factors and simplified and enhanced customer due diligence
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However, how these guidelines will sit within the UK’s national regulatory system remains a grey area. Art. 8(1) of the Directive requires national authorities to take appropriate steps to identify and assess the risks of money laundering and terrorist financing, taking into account risk factors including those relating to their customers, countries or geographic areas, products, services, transactions or delivery channels. The Directive is silent as to how this rule is to be implemented, but in practice there is likelihood that guidance will be issued, which will be applicable to firms. Art. 18(4) of the Directive requires the ESAs to issue guidelines addressed to competent authorities and the credit institutions and financial institutions. The ESAs guidelines therefore will apply automatically to both national authorities and firms. This overlapping of national and EU-wide guidance can cause issues when it comes to implementation, ultimately causing confusion in both national authorities and firms. This potentially has the unwanted effect of making the guidelines unhelpful, not because of their content but because of their uncertain positioning within the UK’s national regulatory system. Further guidance on how these inconsistencies in the implementation framework of the risk-based approach can be dealt with would be desirable.
• A business model-based approach is more intuitive and user-friendly. It is easier and quicker to match requirements to a business model rather than to refer to legislation each time
• A firm may perform several business activities which would fall under different pieces of legislation, and having to identify each requirement out of a legally-driven directory could become problematic
• Legislation is subject to continuous evolution and amendment and there is no guarantee that a business activity that is now regulated just by one instrument will not be regulated by multiple instruments in the future: this would make the referencing even more complex.
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?
The Wealth Management Association believes that the content of the guidance will be helpful to firms in assessing ML/TF risk and in mapping these risks with a view to create effective policies and procedures.However, how these guidelines will sit within the UK’s national regulatory system remains a grey area. Art. 8(1) of the Directive requires national authorities to take appropriate steps to identify and assess the risks of money laundering and terrorist financing, taking into account risk factors including those relating to their customers, countries or geographic areas, products, services, transactions or delivery channels. The Directive is silent as to how this rule is to be implemented, but in practice there is likelihood that guidance will be issued, which will be applicable to firms. Art. 18(4) of the Directive requires the ESAs to issue guidelines addressed to competent authorities and the credit institutions and financial institutions. The ESAs guidelines therefore will apply automatically to both national authorities and firms. This overlapping of national and EU-wide guidance can cause issues when it comes to implementation, ultimately causing confusion in both national authorities and firms. This potentially has the unwanted effect of making the guidelines unhelpful, not because of their content but because of their uncertain positioning within the UK’s national regulatory system. Further guidance on how these inconsistencies in the implementation framework of the risk-based approach can be dealt with would be desirable.
b) Do you consider that these guidelines are conducive to competent authorities effectively monitoring firms’ compliance with applicable AML/CFT requirements in relation to individual risk assessments and the application of both simplified and enhanced customer due diligence measures?
Please refer to our comment above in relation to the application of the guidelines to firms.c) The guidelines in Title III of this consultation paper are organised by types of business. Respondents to this consultation paper are invited to express their views on whether such an approach gives sufficient clarity on the scope of application of the AMLD to the various entities subject to its requirements or whether it would be preferable to follow a legally-driven classification of the various sectors; for example, for the asset management sector, this would mean referring to entities covered by Directive 2009/65/EC and Directive 2011/61/EU and for the individual portfolio management or investment advice activities, or entities providing other investment services or activities, to entities covered by Directive 2014/65/EU.
The Wealth Management Association prefers the guidelines in Title III to be kept by types of business rather than legally driven, for the following reasons:• A business model-based approach is more intuitive and user-friendly. It is easier and quicker to match requirements to a business model rather than to refer to legislation each time
• A firm may perform several business activities which would fall under different pieces of legislation, and having to identify each requirement out of a legally-driven directory could become problematic
• Legislation is subject to continuous evolution and amendment and there is no guarantee that a business activity that is now regulated just by one instrument will not be regulated by multiple instruments in the future: this would make the referencing even more complex.