The latest Financial Action Task Force (FATF) recommendations set new guidelines for the information that legal entities, including corporates, should hold and maintain about themselves. The author answers below some critical questions about the implications for corporates.
What is FATF and what key point of the recommendations is most relevant to corporates?
Neil Jeans: The Financial Action Task Force (FATF) is an intergovernmental organisation established in July 1989 as a G7 initiative to develop policies to combat money laundering and address threats to the international financial system.
In terms of the 2012 FATF recommendations, one of the key points is that there is a minimum amount of legal entity information that should be obtained, recorded and made available by an organisation.
What is the most important message that corporates need to take away from the recommendations?
The critical point is that the onus is now on the corporate to provide up-to-date client identity documents. It is no longer sufficient to wait for your bank or financial institution (FI) to ask for the necessary information and, importantly, there could be legal implications if a corporate does not maintain and update their identity documents with their FI.
What impact have the recommendations had around the globe?
The recommendations are already filtering into legislation around the globe. In Europe, the Fourth Money Laundering Directive (4MLD) has passed its final legislative hurdle and will become law across EU member states in two years, following a vote in the European Parliament. It introduces key requirements around holding legal entity identity data, including beneficial ownership, and companies must be able to transmit this information effectively to “obliged entities.”
In Australia, the Australian Transaction Reports and Analysis Centre (AUSTRAC) amended its AML/CFT Rules in June 2014 to include, inter alia, the collection, monitoring and maintenance of information about beneficial owners, and details of the management and organisational structure. The requirements extend to all legal entities.
And, in the US, the Financial Crimes Enforcement Network’s (FinCEN) proposed rules document also indicates a move towards more stringent customer due diligence requirements, including more information about beneficial ownership.
Other countries, as they prepare for the next round of FATF mutual evaluations – which assess a country’s compliance with the FATF recommendations – are also moving to amend their legislation.
What challenges does this create for corporates?
Corporates will now be obligated by law to collect, collate, verify, store, maintain and deliver relevant, up-to-date information about their organisations on an ongoing basis. This will place additional strain on existing resources, especially the treasury function, whose current role it is to provide identity documents to FIs for the opening and maintenance of bank accounts.
Moreover, each country will transpose the recommendations into their own national law. This could lead to banks and FIs interpreting them differently, resulting in different document requests and corporations needing to collect more information than is strictly necessary.
There are also very real concerns over how confidential information will be stored and securely delivered. On top of this, organisations have no control over who can access their confidential information once they have released it.
What should corporates do now?
Corporates must weigh up the advantages of being early adopters of these expected regulations against the risk of the proposed legislation changing. My recommendation is that it would be advisable for corporates to view these expected changes as a catalyst to amend current processes and find solutions to remain compliant.
Innovative solutions, including Thomson Reuters’ Org ID, can significantly ease the burden by providing a holistic solution for corporates to maintain, store and securely distribute their confidential client identity documents to their FIs. What is clear is that the rate of regulatory change shows no sign of abating. The prudent corporate will take steps now in order to stay ahead of the regulatory curve.
- This article was originally published by Thomson Reuters Informer
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