Stakeholder Letter - AML/ATF Sector Specific Guidance Notes for Investment Business Providers, Investment Funds and Fund Administrators (2017-07-25)

Summary

This is a stakeholder letter from the Bermuda Monetary Authority (BMA) consolidating comments received during consultation on the Sector-Specific Guidance Notes for Investment Business Providers, Investment Funds and Fund Administrators (the Investment GN), together with the BMA's responses. The Investment GN applies the general AML/ATF Guidance Notes to the investment sector and must be read alongside them. The letter clarifies BMA's expectations on customer due diligence, reliance/outsourcing, sanctions screening, intermediary oversight and employee screening, and confirms several textual amendments to the Investment GN.

• Due diligence and outsourcing: Regulated financial institutions (RFIs) may conduct CDD themselves, rely on third parties, or outsource the function (e.g. to a fund administrator), but remain ultimately responsible for compliance regardless of any outsourcing or reliance arrangement.
• Upstream/downstream relationships: Where an RFI (Downstream RFI) interfaces directly with investors it must conduct CDD; where a Customer RFI conducts business through an Upstream RFI, the Upstream RFI must confirm the Customer RFI has performed adequate CDD and the Customer RFI must be able to provide CDD information on request.
• Fund and investor CDD: Investment funds and fund administrators should conduct CDD on the shareholders/investors of the funds, and fund boards remain responsible for ensuring the fund complies with the legislative and regulatory framework even where due diligence is outsourced.
• Sanctions screening: RFIs must ensure no level of an investment or securities custody chain is owned or controlled by a sanctions target, and must maintain a sanctions screening regime even where relying on third parties such as prime brokers or investment advisors.
• Intermediary oversight: RFIs relying on intermediaries must be able to receive CDD information when needed and should periodically test intermediaries' willingness and ability to comply with the RFI's policies, consistent with Regulation 14 of the AML/ATF Regulations.
• Employee screening: RFIs must screen all relevant employees prior to hiring under Regulation 18(1)(c), and BMA will align the audit frequency wording in the Investment GN with the main AML/ATF GN (at least once a year, and more frequently where warranted).
• Wire transfer CDD threshold removed: BMA agreed to delete the requirement in paragraph III.104 to apply CDD to any wire transfer of $1,000 or more, in response to stakeholder feedback.
• Reasonable grounds standard: BMA agreed to remove references to a 'reasonable grounds to know or suspect' standard from the guidance (as it has no basis in current Bermuda legislation) pending legislative amendment to incorporate the FATF three-pronged test.
• Penalty correction: BMA will correct the guidance to reflect the actual statutory penalties under the Anti-Terrorism (Financial and other Measures) Act 2004 for failure to report (up to $10,000 fine or six months imprisonment on summary conviction; up to $100,000 fine or five years imprisonment on indictment).

The letter is explanatory and amends wording in the Investment GN rather than creating a wholly new regime; underlying obligations derive from the Proceeds of Crime (AML/ATF) Regulations and the AML/ATF GN, which this letter interprets for the investment business, funds and fund administration sector.

Key obligations

• RFIs conducting investment business, funds and fund administrators must conduct CDD on shareholders/investors and remain ultimately responsible even if CDD is outsourced or relied upon from third parties
• Fund administrators contracted to perform CDD cannot rely on another third party's due diligence findings to satisfy their contracted obligation
• Upstream RFIs must ensure Customer RFIs have conducted adequate CDD and can supply that information when required; Customer RFIs must be prepared to provide CDD information to other relevant RFIs on request
• RFIs must ensure that no level of an investment or securities custody chain is owned or controlled by a sanctions target and must maintain an effective sanctions screening regime
• RFIs must screen all relevant employees prior to hiring under Regulation 18(1)(c) and conduct AML/ATF audits at least once a calendar year, more frequently as warranted
• RFIs relying on intermediaries must periodically test the intermediaries' willingness and ability to provide CDD information, consistent with Regulation 14

Applies to

Investment business providers, Investment funds, Fund administrators, Regulated financial institutions (RFIs)