AML/CTF, Sanctions and Insider Trading
US Federal Financial Regulatory Agencies Release Joint Statement on Sharing Bank Secrecy Act Resources
On October 3, 2018, the U.S. Federal Reserve, FinCEN, OCC, FDIC and NCUA released an interagency statement regarding the sharing of Bank Secrecy Act resources among banks through collaborative arrangements intended to improve efficiency, reduce costs and benefit from specialized expertise by pooling resources among banks. The agencies stated that these types of collaborative arrangements may be more suitable for community banks with smaller footprints and less complex risk profiles. The agencies also provided examples of how these collaborative agreements may be effectively used in the BSA context, such as developing policies and procedures, processes and reports; providing for independent testing of BSA/AML programs; and leveraging pooled resources to provide BSA/AML training. The agencies also stated that special care and consideration should be taken with respect to collaborative arrangements to ensure proper evaluation of risk considerations and corresponding mitigation and that sharing of a BSA officer among banks may be problematic.
The agencies noted that the statement did not apply to collaborative arrangements formed for sharing information pursuant to Section 314(b) of the USA PATRIOT Act, nor are banks participating in a collaborative arrangement an association for purposes of Section 314(b) of the USA PATRIOT Act.
The full text of the interagency statement is available at: https://www.occ.treas.gov/news-issuances/news-releases/2018/nr-ia-2018-107a.pdf.
Financial Action Task Force Clarifies Virtual Asset Regulation
On October 19, 2018, the Financial Action Task Force published the outcomes of its plenary on October 17-19, 2018. The FATF considered key issues such as the operations and streamlining of the FATF, major and other strategic initiatives and mutual evaluations.
One of the major initiatives covered by the plenary was the regulation of virtual assets. The G20 Finance Ministers & Central Bank Governors communiqué following their July 2018 Buenos Aires meeting called on the FATF to clarify, by October 2018, how its global anti-money laundering and counter-terrorist financing standards apply to crypto assets. At its October plenary, the FATF adopted amendments to the FATF Recommendations and Glossary at the plenary and issued a statement on the regulation of virtual assets. The FATF has done this to clarify that its standards apply to exchanges, wallet providers and providers of financial services for Initial Coin Offerings. Jurisdictions should therefore ensure that virtual asset service providers are subject to AML/CTF regulations. However, jurisdictions are able to choose which category of regulated entity virtual asset service providers should fall into. Jurisdictions that opt to prohibit virtual assets and the activities related to them would not need to implement any AML/CTF measures. The FATF also clarifies that the FATF Recommendations require monitoring and supervision for AML/CTF purposes only and that it is not implying that virtual asset service providers should be regulated for any other purpose, such as investor protection or financial stability. The FATF statement confirms that the FATF will update its guidance on a risk-based approach to regulating virtual asset service providers as well as the guidance for authorities on identifying and investigating potentially illicit virtual asset activities. The FATF will also review the scope of activities of the Recommendations and Glossary in the next year and may update these if necessary.
Another major issue discussed by the plenary was CTF. The plenary confirmed that CTF continues to be a priority under the FATF's presidency and it agreed to focus on: (i) the effective investigation and prosecution of financing terrorism; (ii) developing guidance to assist countries to better understand their terrorist financing risks; and (iii) enhancing training across the FATF global network on terrorist financing risks, asset freezing, information sharing and disrupting terrorist financing.
The FATF plenary also considered its work on proliferation financing, another priority of the FATF's presidency. The FATF has begun a project considering whether to expand its Recommendations applicable to proliferation financing, enhancing implementation of existing obligations and developing best practices to counter proliferation financing. The FATF outcomes from the plenary indicate that FATF is exploring whether there is support for revising the Recommendations before it prepares any detailed revision proposals.
The FATF plenary also covered future work on digital identification. The FATF will prepare guidance on digital identity, which will include endorsement by national authorities as a test for acceptability of digital identity. The FATF intends to finalize the guidance by June 2019 following consultation with private sector experts.
The FATF plenary outcomes are available at: http://www.fatf-gafi.org/publications/fatfgeneral/documents/outcomes-plenary-october-2018.html, the statement on regulation of virtual assets is available at: http://www.fatf-gafi.org/publications/fatfrecommendations/documents/regulation-virtual-assets.html and the FATF Recommendations are available at: http://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html.
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