Financial Institutions Urged to Exercise Caution When Dealing with Counterparties Subject to Regulatory Action

In order to maintain the integrity of the financial system, regulatory authorities are advising financial institutions (RFIs) to exercise extreme caution when dealing with counterparties that have been subject to regulatory action, such as fines for inadequate controls.

Enhanced Due Diligence Required

According to new guidelines, RFIs must conduct enhanced due diligence on such counterparties and re-evaluate their money laundering (ML) and terrorist financing (TF) risk. The decision to enter into or terminate a relationship with the counterparty should be based on the risks identified, including reputational risks.

Filing a Suspicious Activity Report

If a counterparty is found to have committed serious non-compliance issues, RFIs are advised to consider filing a Suspicious Activity Report (SAR) and terminating the relationship immediately.

Independent Audit Requirements

RFIs must conduct an independent audit of their anti-money laundering (AML) and terrorist financing (ATF) compliance program annually. The audit must be separate from any general audit and test all aspects of the AML/ATF program.

Auditor Qualifications

The auditor can either be an external service provider or an internal member of management who is not part of the daily compliance functions or day-to-day operations of the company. However, if a non-executive director (NED) conducts the audit, there must be other NEDs on the board to provide independence and constructive challenge.

Regulatory Expectations

The regulator expects the AML/ATF program to be implemented and working effectively, with an emphasis on:

• Risk assessment
• Customer due diligence
• Risk mitigation
• Ongoing monitoring
• Detecting and reporting suspicious activity
• Record-keeping and retention
• Reliance and outsourcing relationships

Compliance Testing

RFIs must also test compliance with relevant laws and regulations, assess employee knowledge of Bermuda AML/ATF regulations, and evaluate the adequacy of employee training and awareness programs.

Reporting Suspicious Activity

In cases where a SAR is filed, RFIs are advised not to probe around on customer due diligence too much as it may result in tipping off the client. The Financial Intelligence Agency (FIA) will confirm receipt of the report but will not provide updates or information on the status of the investigation.

Registering with GoAML

The FIA also advises RFIs to register with GoAML, even if they have never filed a SAR, to ensure that there is an avenue for reporting suspicious activity in the future.