Regulators Crack Down on Financial Institutions’ Remuneration and AML Practices
In an effort to strengthen corporate governance and anti-money laundering (AML) regulations, regulatory authorities are cracking down on financial institutions that fail to comply with remuneration and AML requirements.
New Regulations
Under the new regulations, directors, senior management teams, and members of control bodies must adhere to strict remuneration policies that:
- Encourage good performance
- Promote acceptable risk management criteria
- Align with the entity’s strategies and business horizon
- Are revised periodically and monitored for correct application
Additionally, regulated entities are required to have a Remunerations Technical Committee in place, responsible for monitoring the design and function of an adequate remuneration system. This committee must provide independent recommendations on policies and practices to manage risk, capital, and liquidity.
AML Requirements
Financial institutions are also required to implement robust AML measures to prevent money laundering and terrorist financing. The regulations cover a range of activities, including:
- Systematic or substantial money exchange and transfer operations
- Administration of trusts or resource management carried out by individuals or legal entities who are not financial intermediaries
Regulated entities must comply with AML requirements, which include:
- Appointing a compliance officer
- Implementing know-your-client (KYC) and know-your-employee (KYE) procedures
- Regular reporting obligations for suspect transactions
Failure to comply can result in internal disciplinary actions by the company, as well as economic penalization or fines imposed by regulatory authorities.
Supervision and Consequences
The regulator, SUGEF, will supervise the application of remuneration policies and AML measures as part of its Corporate Governance Code. Breaching the requirements could have severe consequences for financial institutions, including potential fines and penalties.
Depositor Protection Regime
In related news, the regulator has also implemented a depositor protection regime to ensure that depositors are protected in case of bank failures. The Deposit Guarantee Fund (FGD) was created to provide coverage up to approximately USD10,000 per person/entity for deposits such as:
- Savings
- Accounts
- Investments opened in public banks, private banks, and non-bank financial entities
The FGD is administered by the Central Bank but operates independently, with a manager subordinated to its board of directors. Regulated entities contribute to the fund through premiums, which are based on risk factors.
Goals and Benefits
The depositor protection regime aims to provide confidence in the financial system and protect depositors from potential losses in case of bank failures.