How Financial Institutions Can Align with Regulatory Requirements
The continuing global regulatory focus on anti-money laundering (AML) and countering the financing of terrorism (CFT) has led governments to strengthen regulatory regimes around the world. In the European Union (EU), the Fourth Anti-Money Laundering Directive 2015/849/EU (4th AMLD) — the UK implementation of which came into effect in June 2017 — has brought about a number of changes to the way firms and regulators deal with AML/CFT issues. In the United States, the Financial Crimes Enforcement Network’s (FinCEN’s) new Customer Due Diligence Requirements for Financial Institutions Rule (CDD Rule) effective July 11, 2016, became applicable on May 11, 2018. The CDD Rule will require firms to look again at their approach to customer due diligence and has the potential to lead to increased regulatory scrutiny in this area.
Guidehouse Inc. compares the key parts of the 4th AMLD and the CDD Rule; discusses their impact on financial institutions subject to both sets of requirements; and offers recommendations to align with regulatory expectations.
All EU member states were required to implement the 4th AMLD (which replaced the previous Third Directive) by June 26, 2017. The purpose of the Directive is to remove ambiguities in the previous legislation, and improve consistency of AML and CFT rules across all EU member states. The primary areas of change relate to:
On May 11, 2016, FinCEN issued its long-awaited final rule on customer due diligence and beneficial ownership information requirements. To allow financial institutions sufficient time to incorporate any necessary changes, the compliance date was set for May 11, 2018, two years from the issuance of the final rule.
FinCEN issued the CDD Rule to clarify and strengthen CDD requirements for covered financial institutions.1 The CDD Rule has two parts. First, the rule requires the financial institution to collect beneficial ownership and control person information on its customers, subject to some exclusions and exemptions. Second, the CDD Rule amended the AML program requirements, adding to the existing four pillars a new fifth pillar requiring financial institutions to design risk-based procedures for conducting ongoing customer due diligence. The procedures must include developing a customer risk profile, and using that profile to conduct ongoing monitoring to update and maintain customer information, as well as identify and report suspicious activity. While a significant part of the new rule is framed by FinCEN as a clarification of existing regulatory expectations rather than new requirements, the key changes relate to:
There are a number of implications for financial institutions subject to both regulatory regimes, including:
1. On Nov. 21, 2017, FINRA issued Regulatory Notice 17-40: FinCEN’s Customer Due Diligence Requirements for Financial Institutions and FINRA Rule 3310.
Partner, Financial Services
Risk, Regulatory, and Compliance
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