DFSA Latest Developments

Includes:

  • DFSA Accept EU from Rasmala Investment Bank Limited
  • DFSA Trade Finance Report 2016
DFSA Accept EU from Rasmala Investment Bank Limited

The Dubai Financial Services Authority (DFSA) has accepted an Enforceable Undertaking (EU) from Rasmala Investment Bank Limited (RIBL). This followed the regulator having raised concerns that the bank’s anti-money laundering systems and controls were insufficient (largely in relation to customer due diligence efforts) and that it had been providing the financial service of Providing Custody without the requisite licence.

The DFSA is of the view that, in the course of its business for some of its clients, RIBL safeguards and administers Client Investments for those clients and is, therefore exceeding the scope of its licence. RIBL has agreed to hire an expert to remedy the concerns communicated by the DFSA and to pay a total of USD 60,000 in penalties.

Whilst RIBL has not agreed to the DFSA’s conclusion and in fact argues that it merely holds or controls Client Investments as part of its Investment business (a Financial Service that it is licenced to do), this is a warning to Firms to take a close look at their actual operations and processes to consider if aspects of their activity may go beyond the permissions they have been granted by the regulator. CCL is equipped to support Firms in this regard, we can:

  • Carry out independent reviews of your policies and procedures, identifying any actual or potential oversights;
  • Assist Firms in establishing and effectively implementing newer, more robust mitigating systems and controls;
  • Guide and prepare Firms ahead of visits and assessments by the regulator; and
  • Provide post-DFSA remediation support.
DFSA Trade Finance Report 2016

The Dubai Financial Services Authority (DFSA) has released its Trade Finance Report 2016. It discusses the increasing presence of trade associated with the financial services globally, as well as regionally, and therefore growing responsibility of the DFSA to effectively regulate this activity. The report mentioned concerns held by international bodies such as the Financial Action Task Force who has highlighted the growing threat of Trade-Based Money Laundering. In fact, the DFSA described this attitude as the catalyst for its 2015 Trade Finance Thematic Review, observations from which are depicted in the report and include the following:

• Background
- The Dubai International Financial Centre has seen a growth in trade finance activity. From $202,000,000 of trade finance assets in 2008 to $9,412,000,000 in 2015;
- The most common goods financed by firms are commodities (i.e. crude oil, oil products, gas, soft commodities and automobile);
- The DFSA feel the need to mitigate the risk of trade-based money laundering (TBML) and its review assessed firms’ systems and controls in this regard; and
- A survey was sent to 300 firms and 17 of these had on-site visits from the DFSA (including almost half of the 26 banks that were engaged in trade finance at the time).

• General Observations
- There is a lack of awareness of trade finance risks and inadequate focus on specific financial crime risks that are associated with trade; and
- There is an over-reliance on credit risk awareness and a failing to dedicate the same to TBML risks.

• Business Model and Governance
- Main concerns relate to outsourcing with firms being unable to explain how these outsourced functions are being carried out.

• Skills, Knowledge and Experience
- There is a lack of specific and tailored information in firms’ training with regards to Red Flags. Training also fails to discuss case studies to enable staff to apply the training in real life; and
- Trade finance in specialised and greater emphasis needs to be placed on recruitment procedures to ensure staff are sufficiently skilful, knowledgeable and experienced.

• AML Business Risk Assessment (BRA)
- There is a lack of understanding as to the objective of a BRA; and
- Firms’ BRAs fail to identify the TBML risks that they are exposed to by not suitably assessing their trade finance activities.

• Customer Risk Assessment
- Scoring not reflective of trade finance-related risks.

• On-Boarding Customer Due Diligence (CDD) and On-Going CDD
- There is a failure to monitor for higher risk transactions on a risk-based approach.
- Controls need to be improved for on-going CDD, transaction monitoring and risks associated with dual use goods.
- Whilst the DFSA recognised that the CDD carried out at the on-boarding stage was better, the regulator did identify a need to capture more information at this point to drive the on-going monitoring (particularly for higher risk transactions pertaining to customers’ behavior, deal structures and goods).
- There is an over-reliance on employees’ experience as a component for monitoring customer transactions for Red Flags.
- There is a focus on managing sanction breaches risks but not enough on anti-money laundering breaches risk management

On the 22nd November. CCL Academy will be running a Trade Based Money Laundering & Terrorist Financing course. For further details, click here.


Further information
If you would like to discuss these latest developments in more detail, please contact:
Carwyn Evans (CEvans@cclcompliance.com)

Middle East Regulatory Updates

Includes:

  • Listed Companies in Saudi to Use IFRS
  • Central Bank of Bahrain Approved New BIM Rules
  • Listed Companies in Bahrain Transfer to Electronic Registry
  • UAE SCA and GCC Board Directors Institute Collaborate
  • Saudi CMA Approve REITFs Rules
  • DIEDC to Establish Sharia-Compliance Trade Bank
  • FTA to Set Up in the UAE
  • International Calls for External Sharia Audit
  • ADGM Named MENA Financial Centre of the Year
Listed Companies in Saudi to Use IFRS

The Saudi Capital Markets Authority (CMA) has changed the accounting standards for its 175 listed companies. From 2017, the companies will need to adopt International Financial Reporting Standards (IFRS). This will bring them in line with nations all over the globe but could pose a challenge for the majority of firms that currently use SOCPA – a local accountancy standard – (only banks and insurers use IFRS in Saudi Arabia currently).

The biggest impact that this change will have concerns how the IFRS requirements for annual evaluations will affect organisations’ books. SOCPA does not require assets to be re-evaluated but instead, continue to use the initial acquisition value in all further calculations. This means that the potential devaluation of some assets would leave books looking worse off under the new IFRS.

Central Bank of Bahrain Approved New BIM Rules

The Central Bank of Bahrain has approved the Bahrain Investment Market (BIM) Rules, as prepared by the Bahrain Bourse. The BIM is an initiative developed to support small and medium-sized enterprises (SMEs). It is characterised by more manageable associated listing costs and more diverse investment opportunities for investors.

Listed Companies in Bahrain Transfer to Electronic Registry

Following the issuance of Resolution No (5) by the Bahrain Bourse (BB), 92% of its companies have transferred their shares to the new electronic registry – the Clearing, Settlement and Central Depository Registry. This move, instigated by the BB, aims to promote regional and international integration and provide investors with more opportunities to contribute to these listed companies by utilising efficient financial technology and applying best practice.

UAE SCA and GCC Board Directors Institute Collaborate

A Memorandum of Understanding has been signed by the UAE Securities and Commodities Authority (SCA) and the GCC Board Directors Institute. The parties agreed to work together on training and education programmes and to improve corporate governance in listed companies. This is with a view to reinforce the UAE stock exchange market.

Saudi CMA Approve REITFs Rules

Further to the August edition of our Middle East Regulatory Update, the Saudi Capital Markets Authority (CMA) has now approved the rules for Real Estate Investment Traded Funds (REITFs).

DIEDC to Establish Sharia-Compliant Trade Bank

The Dubai Islamic Economy Development Centre (DIEDC) is seeking approval from the UAE Central Bank for a wholesale licence for its new bank. The proposed Emirates Trade Bank looks to become the world’s first sharia-compliant trade bank. It will offer “integrated trade and international commodity financing solutions...It will be a new source of liquidity for trading between Islamic countries”.

FTA to Set Up in the UAE

A decree was passed in the UAE last month which looks to establish a Federal Tax Authority (FTA). This is in coordination with plans to introduce VAT and corporation tax to the country. The FTA will collect data and information on taxes, as well as issuing guidance to tax payers.

International Calls for External Sharia Audit

The Bahrain Institute of Banking and Finance released a report – compiled by the Islamic Finance Council UK (UKIFC) and the International Shariah Research Academy for Islamic Finance (ISRA) – calling for an audit of sharia compliance in Islamic finance. UKIFC and ISRA report that an independent sharia audit will provide assurance to the stakeholders that will further develop the Islamic finance industry.

ADGM Named MENA Financial Centre of the Year

The Abu Dhabi Global Market (ADGM) has been named as the ‘Financial Centre of the Year (MENA)’ by the Global Investor Magazine. It is a promising endorsement for the centre which, in its first year of operations, licenced and registered almost 160 companies. Aspects of the ADGM that were commended by the publication include its “focus on developing a conducive ecosystem to support the needs of stakeholders and embracing Fintech”.


Further Information
If you would like to discuss these updates in more detail, please contact:
Christopher Hobbs (CHobbs@cclcompliance.com)

 

International Updates

Includes:

  • FinCEN Issue Advisory on Cybercrime
  • OCC Issue Guidance for Maintaining High-Risk Relationships
  • US Sanctions Programme Against Myanmar Ended
  • Sri Lankan Agencies Sign AML and CTF MoU
  • AUSTRAC and CAMLMAC Sign MoU
  • BRICS Nations Call for International UN Convention
  • Kenyan FRC’S Authority to be Bolstered
  • Jersey Set to Regulate Virtual Currencies
  • Blockchain Prototype Designed for SSE
  • SECP Provide Feedback on Panama Papers
FinCEN Issue Advisory on Cybercrime

The Financial Crimes Enforcement Network (FinCEN) issued an advisory note on combating cybercrime last month. Amongst the recommendations for financial institutions (FIs) was the advice that FIs should:

Report cybercrime through mandatory and/or voluntary suspicious activity reports, working with anti-money laundering and cyber security units to identify what this suspicious activity looks like and when to report; and
Share information with other FIs, including cyber-related information.
The publication aims to guide FIs on how to meet their Bank Secrecy Act obligations in relation to a growing environment of cyber-events and cyber-enabled crime.

OCC Issue Guidance for Maintaining High-Risk Relationships

The Office of the Comptroller of the Currency (OCC) has issued anticipated guidance to direct banks on best practice for complying with the US Bank Secrecy Act. A recent trend has been observed which sees organisations avoiding risk by terminating correspondent banking accounts with institutions in high-risk jurisdictions – rather than putting in place mitigating measures. The OCC has advised financial institutions to conduct periodic re-evaluations of foreign correspondent relationships to determine what the reasonable action should be going forward. The OCD guidance also details the features of an effective re-evaluation programme and how it should be carried out.

US Sanctions Programme Against Myanmar Ended

The US has officially ended its sanctions programme against Myanmar following the significant moves that the Asian country has taken towards democracy. This includes releasing the country from any economic sanctions that were being administered by the Treasury.

Sri Lankan Agencies Sign AML and CTF MoU

The Financial Intelligence Unit (FIU) of Sri Lanka signed a Memorandum of Understanding (MoU) with the Department of Immigration and Emigration last month. Information sharing and cooperative approaches to investigations and prosecutions were some of the provisions which the two agencies agreed upon to increase anti-money laundering (AML) and counter-terrorism financing (CTF) efforts.

AUSTRAC and CAMLMAC Sign MoU

The Australian Transaction Reports and Analysis Centre (AUSTRAC) and the China Anti-Money Laundering Monitoring Analysis Centre (CAMLMAC) signed a Memorandum of Understanding (MoU) last month which enhances their ability to go after the perpetrators of financial crime by agreeing to share financial intelligence.

BRICS Nations Call for International UN Convention

At the annual BRICS nations summit (Brazil, Russia, India, China and South Africa), the group adopted a declaration which beseeched all nations to implement the United Nations (UN) Comprehensive Convention on International Terrorism. This UN approach provides measures for combating terrorism, sources of financing of terrorism and radicalisation, with the BRICS nations believing that a globally coordinated assault would be the most effective.

Kenyan FRC’S Authority to be Bolstered

The powers of the Kenyan Financial Reporting Centre (FRC) are to be expanded thanks to changes that have been proposed to the country’s Proceeds of Crime and Anti-Money Laundering (Amendment) Bill 2015. It affords the FRC with the authority to impose civil penalties on individuals and corporations that do not comply with its rules, thus creating a much more effective deterrent figure.

Jersey Set to Regulate Virtual Currencies

Jersey has created the new Proceeds of Crime (Supervisory Bodies)(Virtual Currency Exchange Business)(Exemption)(Jersey) Order 2016 which looks to regulate cryptocurrency exchanges. The law obligates digital currency exchanges with an annual turnover of GBP150,000 or more to comply with registration and regulatory requirements within 3 months of achieving that figure.

Blockchain Prototype Designed for SSE

The Sydney Stock Exchange (SSE) has communicated its progress in developing an “instantaneous settle-and-transfer-upon-trade platform”. In collaboration with Bit Trade Labs, the SSE has created a blockchain prototype which has designed a smart register that can be used to settle securities on an equities market in real time.

SECP Provide Feedback on Panama Papers

The Securities and Exchange Commission of Pakistan (SECP) has updated the National Assembly Standing Committee on Finance on Pakistan’s involvement in the Panama Papers incident. SECP reported that none of the Pakistani companies identified in the leak made any direct investments in the off-shore companies identified. However, there are incidences of investment coming from the individuals associated with the Pakistani companies.

As a future countermeasure, the SECP has drafted the new Companies Bill 2016. It obligates every shareholder, director and officer of local companies – who hold shares in a foreign company or body corporate – to report the amount of their beneficial ownership and/or any other interests they hold outside of Pakistan. This will be maintained on what is to be called the Companies Global Register of Beneficial Ownership. Provisions in the bill will also require local companies to reveal any investments in securities that they hold in a foreign company or body corporate.


Further information
If you would like to discuss these updates in more detail, please contact:
Nigel Pasea (NPasea@cclcompliance.com)

Financial Crime

Includes:

  • FATF Update Jurisdictions Lists
  • FATF Release Publication on Beneficial Ownership
FATF Update Jurisdictions Lists

The Financial Action Task Force (FATF) held a plenary meeting in October and updated its publications accordingly:

  • It continued to call on members to apply counter measures to the Democratic People’s Republic of Korea (DPRK) for – in addition to its failure to address the significant deficiencies in its anti-money laundering (AML) and counter-terrorism financing (CTF) regime – its financing and proliferation of weapons of mass destruction; and
  • Guyana was recognised for its progress in meeting the commitments of its action plan with FATF and is therefore no longer subject to the supranational body’s on-going AML and CTF compliance process.

The FATF lists for high-risk and non-cooperative jurisdictions, therefore, looks like this:

FATF Public Statement (call for action) Improving Global AML/CTF Compliance:

  • Iran
  • Democratic People's Republic of Korea (North Korea)

FATF Public Statement (call for action) Improving Global AML/CTF Compliance:
On-going Process (other monitored jurisdictions)

  • Afghanistan
  • Bosnia and Herzegovina
  • Iraq
  • Lao PDR
  • Syria
  • Uganda
  • Vanuatu
  • Yemen
FATF Release Publication on Beneficial Ownership

The Financial Action Task Force (FATF) released a report last month regarding its recommendations on beneficial ownership. FATF stressed the importance of implementing these as this will be a factor that the agency considers when evaluating the anti-money laundering frameworks of countries in the future. The report has set thorough guidance to help jurisdictions reach acceptable standards of transparency and in the collation of beneficial ownership information.

Further information
If you would like a more detailed discussion on these or other enforcement actions, please contact:
Carwyn Evans (CEvans@cclcompliance.com)

Enforcement Action

Includes:

  • Ulster Bank Receive Fine for Significant Failings
  • Oman CMA Revoke Licence of Securities Business
  • Further Action Taken by MAS in 1MDB Scandal
  • Chicago Branch of Mega Financial Raise Concerns
Ulster Bank Receive Fine for Significant Failings

Ulster Bank has been fined EUR 3,300,000 by the Central Bank of Ireland for failing to comply with anti-money laundering (AML) legislation. The breaches came from 8 branches, spanning the 6 year period from 2010 and include two significant findings. The violations include:

  • Failing to put in place an outsourcing policy for 11 months;
  • Failing to put in place service level agreements for outsourced activities;
  • Failing to conduct an AML business risk assessment for 2 years;
  • Inadequate AML business risk assessment conducted;
  • Failing to conduct due diligence on 64,900 customers to whom the bank provided new products; and
  • Inadequate training for non-executive directors.
Oman CMA Revoke Licence of Securities Business

The securities business licence of International Financial Services LLC has been revoked by the Capital Market Authority (CMA) of Oman, due to the firm’s failure to meet its licensing terms, conditions and requirements.

Further Action Taken by MAS in 1MDB Scandal

Further to the August edition of the Middle East Regulatory Update where Falcon Private Bank Limited had been stopped from taking on new business by the Monetary Authority of Singapore (MAS), the regulator has now withdrawn the merchant bank status of the Singapore branch. This action is all in relation to the bank’s anti-money laundering failures that were identified as part of the 1MDB investigation.

Chicago Branch of Mega Financial Raise Concerns

Having been thrown under the spotlight by the Panama Papers Leak, the New York branch of Mega Financial was fined USD 180,000,000 in August and now, deficiencies have been identified in the compliance controls of the group’s Chicago branch. So far, the manager of the windy city entity has been replaced but it is not yet known if further monetary penalties will follow.

In addition, with respect to the fact that Mega Financial is a Taiwan-state run institution, the Chairman of the country’s Financial Supervisory Commission has stepped down from his post in a reputational damage control move by the regulator.


Further information
If you would like a more detailed discussion on these or other enforcement actions, please contact:
Carwyn Evans (CEvans@cclcompliance.com)

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