Financial Crime World

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British Indian Ocean Territory Tightens Anti-Money Laundering Regulations

The British Indian Ocean Territory (BIOT) has implemented new anti-money laundering (AML) regulations aimed at strengthening its defenses against financial crime. The changes, which came into effect on September 1st, are part of a broader effort to comply with international standards and prevent the misuse of the territory’s financial systems.

Proliferation Financing Measures

One key aspect of the new regulations is the incorporation of measures to mitigate the risk of proliferation financing (PF). PF refers to the provision of funds or financial services used for the manufacture, acquisition, development, or transport of nuclear, chemical, or biological weapons. The UK Government’s consultation on the matter found that there was limited knowledge on PF within financial services generally, and the new regulations aim to address this gap.

  • Under the amended Money Laundering and Terrorist Financing Regulations (MLRs), firms will be required to conduct a robust risk assessment to determine their exposure to PF risk.
  • Firms must then tailor existing controls such as customer due diligence, customer and payment screening, and transaction monitoring systems to effectively identify PF risk.
  • Additional PF-specific controls may also be necessary.

Enhanced Supervision Powers

Another change introduced in the amended regulations gives AML/CFT supervisors the right to view the contents of Suspicious Activity Reports (SARs) submitted by firms and individuals supervised by them. This move is aimed at improving the quality of SARs, which have been a focus area for regulators since the FinCEN files were leaked.

Crypto Exchange Regulations

From September 2023, crypto asset exchange providers and custodian wallet providers in BIOT will be subject to the Financial Action Taskforce’s (FATF) “Travel Rule”. This means they will be required to share originator and beneficiary data with each other during fiat-crypto transactions exceeding EUR 1,000 in value.

  • The FATF’s Travel Rule requires crypto exchanges to verify customer identities and report certain information about transactions.
  • The rule applies to all transactions above a certain threshold, including those involving unhosted wallets.

Implications for Firms

The new regulations will require firms in BIOT to review their systems and controls to ensure compliance with the amended MLRs. Senior managers should also ensure that major shareholders and controllers are committed to financial crime compliance, particularly given the difficulties crypto firms have had obtaining regulatory approval.

Key Takeaways:

  • Firms must conduct a robust risk assessment to determine their exposure to PF risk.
  • Existing controls such as customer due diligence, customer and payment screening, and transaction monitoring systems must be tailored to identify PF risk.
  • Additional PF-specific controls may be necessary.
  • Crypto asset exchange providers and custodian wallet providers will be subject to the FATF’s Travel Rule from September 2023.

In conclusion, the British Indian Ocean Territory’s updated anti-money laundering regulations aim to strengthen its defenses against financial crime and prevent the misuse of its financial systems. Firms in the territory must be aware of the changes and take steps to comply with the new requirements to avoid reputational damage and potential penalties.