Annex III - Sector-Specific Guidance Notes for the Securities Sector (2022)

Summary

This is Annex III of the BMA's 2022 AML/ATF Guidance Notes, providing sector-specific guidance for the securities sector. It supplements (but does not replace) the general AML/ATF Guidance Notes and explains how AML/ATF obligations under Bermuda's Proceeds of Crime Act 1997 (POCA), the POCA (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008, the Anti-Terrorism (Financial and Other Measures) Act 2004 and related regulations apply specifically to securities sector business.

• Who it covers: Persons carrying on investment business, fund administration, or operating investment funds; persons providing specified financial activities under Schedule 3 of POCA (e.g. trading in money market instruments, foreign exchange, transferable securities, commodity futures); non-licensed persons (NLPs) required to register under the POCA SEA; independent professionals providing legal or accountancy services relating to securities transactions; and financial groups designated under POCA Section 42B.
• Core areas addressed: Senior management responsibilities and internal controls, links between securities business and AML/ATF policies, ownership/management/employee screening, risk-based approach and ML/TF risk factors specific to securities business, customer due diligence (including beneficial ownership and intermediary due diligence), reliance on intermediaries and outsourcing, simplified and enhanced due diligence, international sanctions, ongoing monitoring and trigger events, suspicious activity reporting, employee training, and record-keeping.
• Status of guidance: Issued by the BMA under Section 5(2) of the POCA SEA and approved by the Minister of Legal Affairs; courts and the BMA must consider whether a person has followed this guidance when assessing compliance breaches. Provisions described using 'must' are mandatory; those using 'should' describe expected means of meeting obligations, with departures to be documented and justifiable.

The annex sets out detailed senior management duties and internal control requirements, and highlights penalties for non-compliance, including criminal fines/imprisonment under POCR Regulation 19 and civil penalties of up to 10 million dollars under Section 20 of the POCA SEA. It also lists extensive risk indicators relevant to securities sector customers, products, delivery channels and intermediaries to aid risk-based AML/ATF compliance.

Key obligations

• Senior management of RFIs conducting securities sector business must ensure compliance with AML/ATF acts and regulations, approve AML/ATF policies and procedures, identify and mitigate ML/TF risks, and keep risk assessments current and documented.
• RFIs must appoint a compliance officer at managerial level to oversee AML/ATF policies, procedures and controls, and appoint a reporting officer to process disclosures.
• RFIs must screen employees, owners, directors and managers against high standards under Regulation 18(1)(c).
• RFIs must ensure adequate resources are devoted to AML/ATF compliance and provide appropriate training to relevant employees.
• RFIs must, at least once per calendar year, independently audit and test their AML/ATF policies, procedures and controls for effectiveness.
• RFIs must establish and maintain detailed policies, procedures and controls adequate to forestall and prevent ML/TF operations.
• Where an RFI has branches, subsidiaries, representative offices or group members outside Bermuda, it must communicate its AML/ATF policies to them and ensure they apply AML/ATF measures at least equivalent to Bermuda's requirements.
• RFIs must conduct customer due diligence, including verifying beneficial ownership and intermediary information, and apply enhanced due diligence where higher risk is identified.
• RFIs must maintain adequate record-keeping and monitor for suspicious activity, reporting as required and avoiding tipping-off.

Applies to

persons carrying on investment business, fund administrators, investment fund operators, non-licensed persons (NLP) registered under POCA SEA, independent professionals providing legal or accountancy services related to securities transactions, financial groups designated under POCA Section 42B, AML/ATF regulated financial institutions (RFIs) conducting securities sector business

Deadlines

• at least once per calendar year: RFIs must independently audit and test their AML/ATF policies, procedures and controls for effectiveness.