26th May 2020
It may be said that when the cat is away, the mice will play, but ensuring that a subject person having a robust and clearly outlined and implemented client acceptance procedure, as well as steady ongoing monitoring, would make it difficult for any criminal to carry out financial fraud, to find ways to exploit and filter through any weaknesses in a financial system. This is important at all times, especially more so in times of crisis where one needs to continue to adapt whilst facing unprecedented circumstances and challenges.
The Know Your Client (KYC) procedure implemented by a subject person prior to onboarding a client may be a lengthy and at times frustrating procedure, but a necessity in today’s world where risk tolerance levels are being drastically reduced. The ongoing changes in the EU’s AML directive are always aimed at closing gaps that allow criminals and terrorists to launder their ill-gotten gains. Since the first directive in 1990 the EU has been working at strengthening its fight against money laundering. As Gate keepers, subject persons are expected to fully implement the EU Directives as transposed into law and following guideline and procedures as published by the Competent Authority of each member state.
Customer due diligence collection, record keeping, ongoing monitoring and risk assessment involves the collection of documentation and information to enable the subject person to confirm the identity and verify the involvements within a structure and the beneficial owners, the activities and transactions undertaken by an entity, all in accordance with the subject person’s client acceptance policies and ongoing monitoring procedures. The process aids subject persons to identify and verify and prove true and lawful transactions and business dealings. This process is extensive and requires investment by a subject person and the training necessary to ensure internal policies are abided by.
The Financial Action Task Force (FATF) has outlined concerns and challenges which are linked to the ongoing global pandemic. The organisation has acknowledged that although as a result of such pandemic, there has been a shift from what was previously referred to as a ‘norm’ to the ability to work remotely, emphasis has been made for subject persons to ensure that AML/CFT efforts should remain resilient and encouraged regulators, financial intelligent units, law enforcement authorities and so forth to provide the necessary guidance and support to the private sector on ‘how national AML/CFT laws and regulations will be applied during the current crisis’. It has also been noted that other sources have stressed on this point as many argue that financial crime remains a serious threat and this pandemic might be the right time for criminals to strike.
Working in such conditions has brought about concerns and challenges. Firstly, remote working has led to a significant reduction of face-to-face meetings which in turn may lead to subject persons needing to adopt an enhanced customer due diligence collection exercise. However, one is to argue whether with the advancement in technology to aid a subject person to virtually meet a client, would still be considered and regarded as having met the client. The FIAU Implementing Procedures outlines additional verification measures as listed in Section 18.104.22.168 that may be adopted by a subject person remotely. Subject persons might still come across difficulties when it comes to the collection of hard-copy documentation due to the limited access to courier services
Given the above, the FIAU has also noted that subject persons have felt the need to seek guidance as to how to conquer the obstacles which ongoing monitoring and onboarding processes may bring. Whilst noting that the global pandemic has shifted the way business is carried out, the FIAU has encouraged all subject persons to refer to the Implementing Procedures with great attention.
On the 6th May 2020 the FIAU issued a Guidance Note – Covid-19: Remaining Vigilant Against a Changing Criminal Landscape, which, as this name implies, provides guidance by (i) outlining examples on the manners and trends and the forms in which illicit behaviour and new criminal activities may come to light, (ii) mitigating money laundering risk by revisiting and also updating a subject person’s Customer Risk Assessment in line with the FIAU’s Implementing Procedures Part I and (iii) Remote Onboarding Procedures highlighting the importance that a subject person should be giving to adapt their policies and procedures to allow the subject person to continue fulfilling their regulatory obligations. The Guidance Note also concludes by encouraging subject persons to make use of non-face-to-face verification measures in line with the insisted practice of social distancing. One may agree that the switch to virtual verification may be risky, however, the FATF released a circular in March 2020, ‘FATF Guidance on Digital Identity in Brief’ which highlights the benefits of trustworthy digital identity for identifying people remotely for onboarding. However, before going forward, subject persons should ensure that the digital systems being implemented are robust and are authorised by the relevant authorities.
Over its years as one of Malta’s leading Corporate Service Providers, Fenlex has ensured and invested in robust KYC and Anti Money Laundering policies, procedures and platforms.
If you need any assistance in understanding your obligations as a subject person or guidance on becoming compliant please feel free to contact us at firstname.lastname@example.org