Financial Regulatory Bodies Crack Down on Anti-Money Laundering in British Indian Ocean Territory
New Regulations for Financial Institutions
The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 have set out new requirements for financial institutions operating in the British Indian Ocean Territory to prevent money laundering and terrorist financing. The regulations apply to a range of financial services providers, including:
- Banks
- Building societies
- Credit unions
- Investment managers
- Stockbrokers
- E-money institutions
- Payment institutions
- Consumer credit firms
- Financial advisors
- Investment firms
- Asset managers
- Safety deposit services
Requirements for Financial Institutions
Under the regulations, these entities must:
- Adopt risk-based customer due diligence measures
- Take steps to prevent their services from being used for money laundering or terrorist financing
- Identify and verify customers
- Monitor transactions
- Report suspicious activity to the National Crime Agency
Role of the Financial Conduct Authority (FCA)
The FCA requires all authorized firms subject to the Money Laundering Regulations to:
- Implement policies and procedures to minimize money laundering risk
- Have effective internal controls in place to monitor and manage compliance with anti-money laundering (AML) policies and procedures
Appointment of a Money Laundering Reporting Officer (MLRO)
Firms must appoint an MLRO who is responsible for supervising the firm’s compliance with its AML obligations. The MLRO must be knowledgeable about the money-laundering risks faced by the firm and ensure that steps are taken to mitigate those risks effectively.
Risk Assessment
A risk assessment of the firm’s business is central to meeting AML obligations, as it helps develop effective and proportionate prevention procedures. Firms must also keep their risk assessments up-to-date and monitor their procedures to ensure they continue to be appropriate for the business as it develops.
Guidance from the Joint Money Laundering Steering Group
The Joint Money Laundering Steering Group has produced guidance to help firms meet their AML obligations. The FCA has also provided guidance on good and poor practice in anti-money laundering, including examples of how firms can benchmark their existing systems or create new ones.
Non-Subject Entities
Mortgage brokers, general insurers, and general insurance brokers are not subject to the FCA’s AML rules but still need systems and controls in place to prevent financial crime. Many of these businesses choose to implement controls similar to those adopted by firms subject to the Money Laundering Regulations.
Risk-Based Approach
The risk-based approach to anti-money laundering means focusing on outputs, with a focus on applying AML resources where they will have the biggest impact. Firms must be proactive in seeking out information about money-laundering trends and threats from external sources, as well as relying on their own experiences and observations.
Customized Solutions
The FCA’s guidance emphasizes that firms’ practices will vary depending on the nature of the money-laundering risks they face and the type of products they sell. For example, a large retail bank may need to develop or purchase customer monitoring software, while a smaller organization may be able to monitor its customers using a low-tech solution.
Ongoing Review and Revision
Firms must be proactive in reviewing and revising their use of AML tools to fit the specific risks that they face. By adopting a risk-based approach, firms can effectively prevent money laundering and terrorist financing, while also minimizing the burden on legitimate businesses.