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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- points 1.12-1.14 what information sources should be used to inform the business wide risk assessment
- 1.3 The relationship between inherent risk and the quality of controls.
This clarification should assist firms in identifying what data is relevant when assessing and rating inherent risk which will result in a more informed and tailored risk assessment. The updates on relationship between inherent risk and quality of controls will assist with identification of residual risk and to identify risk areas where additional controls are needed.
The changes to guidelines 2.21 are beneficial as the clarification highlights the additional risk associated with customers who actively try to avoid face-to-face interaction with the designated body as opposed to customers who choose to use this method out of convenience. While non-face-to-face customers can pose a higher risk of ML/TF it should be noted that most customers choose to avail of this method out of convenience where offered by a designated body. It should be noted that designated bodies will need to implement procedures to identify customers who actively try to avoid face-to-face interaction i.e. customers who attempt to purchase products on a non-face-to-face basis where not typically offered by the designated body via this channel.
We have noticed that amendments have been made in the consultation paper to the sectoral guideline for life insurance undertakings in section 14.16, Section 14.16 deals with the duty to identify the beneficial owner when a life insurance has been assigned to a third party. Following the amendments this duty has been tied to the beneficiary. This is not the case in the current version of this guideline (section 190).
Section 14.16 in the consultation paper (amendments in italics):Where the firm knows that the life insurance has been assigned to a third party, who will receive the value of the policy, they must identify the beneficiary and the beneficial owner of the beneficiary at the time of the assignment.
Section 190 in the current guideline
Where the firm knows that the life insurance has been assigned to a third party who will receive the value of the policy, they must identify the beneficial owner at the time of the assignment.
These amendments do not align with the corresponding provisions of the directive (article 13.5 second paragraph of directive [EU] 2015/849): In the case of assignment, in whole or in part, of the life or other investment related insurance to a third party, credit institutions and financial institutions aware of the assignment shall identify the beneficial owner at the time of the assignment to the natural or legal person or legal arrangement receiving for its own benefit the value of the policy assigned. On this basis we believe the EBA’s amendments go beyond the wording of the directive.
Question 1: Do you have any comments with the proposed changes to the Definitions section of the Guidelines?
No points to note. The additional clarifications around inherent and residual risk are useful as they provide additional clarification on how firms should assess their inherent risk.Question 2: Do you have any comments on the proposed amendments to Guideline 1 on risk assessment?
The additional guidance is useful in clarifying expectations in relating to:- points 1.12-1.14 what information sources should be used to inform the business wide risk assessment
- 1.3 The relationship between inherent risk and the quality of controls.
This clarification should assist firms in identifying what data is relevant when assessing and rating inherent risk which will result in a more informed and tailored risk assessment. The updates on relationship between inherent risk and quality of controls will assist with identification of residual risk and to identify risk areas where additional controls are needed.
Question 3: Do you have any comments on the proposed amendments to Guideline 2 on identifying ML/TF risk factors?
In respects of updates to Guideline 2.9, considering the legitimate or financial interest of customers or beneficial owners in other countries jurisdictions to determine risk level could potentially be excessive in the context of retail customers as it is likely these customers will not have interest outside of the state. This update appears most relevant in respect of wealth customers, corporate finance customers etc. where the customer or beneficial owners interests can extend across multiple jurisdictions. In this context, it seems the goal should be to assess if these customers generate wealth in any region associated with higher risks of Money Laundering/Terrorist Financing (ML/TF)The changes to guidelines 2.21 are beneficial as the clarification highlights the additional risk associated with customers who actively try to avoid face-to-face interaction with the designated body as opposed to customers who choose to use this method out of convenience. While non-face-to-face customers can pose a higher risk of ML/TF it should be noted that most customers choose to avail of this method out of convenience where offered by a designated body. It should be noted that designated bodies will need to implement procedures to identify customers who actively try to avoid face-to-face interaction i.e. customers who attempt to purchase products on a non-face-to-face basis where not typically offered by the designated body via this channel.
We have noticed that amendments have been made in the consultation paper to the sectoral guideline for life insurance undertakings in section 14.16, Section 14.16 deals with the duty to identify the beneficial owner when a life insurance has been assigned to a third party. Following the amendments this duty has been tied to the beneficiary. This is not the case in the current version of this guideline (section 190).
Section 14.16 in the consultation paper (amendments in italics):Where the firm knows that the life insurance has been assigned to a third party, who will receive the value of the policy, they must identify the beneficiary and the beneficial owner of the beneficiary at the time of the assignment.
Section 190 in the current guideline
Where the firm knows that the life insurance has been assigned to a third party who will receive the value of the policy, they must identify the beneficial owner at the time of the assignment.
These amendments do not align with the corresponding provisions of the directive (article 13.5 second paragraph of directive [EU] 2015/849): In the case of assignment, in whole or in part, of the life or other investment related insurance to a third party, credit institutions and financial institutions aware of the assignment shall identify the beneficial owner at the time of the assignment to the natural or legal person or legal arrangement receiving for its own benefit the value of the policy assigned. On this basis we believe the EBA’s amendments go beyond the wording of the directive.