AML/CTF, Sanctions and Insider Trading
EU's Fifth Money Laundering Directive to Enter into Force July 2018
On June 19, 2018, the Fifth Money Laundering Directive was published in the Official Journal of the European Union and will enter into force on July 9, 2018. Member States must transpose the directive into their national laws within 18 months of that date. 5MLD makes a number of changes to the European Anti-Money Laundering and Counter-Terrorist Financing regime set out in the Fourth Money Laundering Directive.
The key changes introduced by 5MLD are:
- Extending the scope of "obliged entities" to include providers of exchange services between virtual and fiat currencies as well as custodian wallet providers. These entities will need to register in their home Member State.
- Harmonizing the application of enhanced customer due diligence for third countries that are determined by the European Commission to be high risk countries. Member States will be able to apply additional measures, where appropriate.
- Reducing the thresholds under which obliged entities are exempt from applying certain CDD measures to prepaid cards. The customer in a remote payment transaction exceeding EUR 50 will need to be identified. In addition, the use of anonymous prepaid cards issued outside the EU will only be permitted where the cards comply with requirements equivalent to EU laws.
- Enhancing the powers of and cooperation between Financial Intelligence Units, including giving them access to information and the ability to exchange it without impediments. This will include access to information on all types of virtual currencies, not only those that are serviced by providers of exchange services and custodian wallet providers.
- Requiring Member States to maintain lists of specific functions that qualify as prominent public functions to assist in the identification of politically exposed persons.
- Enhancing access to information on beneficial ownership across the EU and improving transparency in the ownership of companies and trusts.
5MLD is drafted as a minimum-harmonizing directive, which means EU Member States can apply more stringent requirements if they consider it necessary.
The Directive (EU) 2018/843 is available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018L0843&from=EN.
Bank Prudential Regulation & Regulatory Capital
European Banking Authority Updates Recommendations on Equivalence of Non-EU Confidentiality Regimes
On June 20, 2018, the European Banking Authority published an updated Final Report on recommendations on the equivalence of confidentiality regimes under the Capital Requirements Directive. The Final Report was originally published in April 2015.
The EBA has added three third-country national regulators to the current list of third-country national regulators whose confidentiality regimes can be regarded as equivalent with those in the EU, following an assessment of the professional secrecy and confidentiality frameworks under which they operate.
The new entries are:
- The Guernsey Financial Services Commission (the Bailiwick of Guernsey);
- The Superintendence of the Financial Services of the Central Bank of Uruguay (the Oriental Republic of Uruguay); and
- The Bank of Korea (the Republic of Korea).
The updated recommendations apply from June 21, 2018. The recommendations are intended to assist national regulators in the EU in their assessment of third-country equivalence with the aim of facilitating cooperation with third-country supervisory authorities and their participation in supervisory colleges overseeing international banks.
The updated Final Report is available at:
http://www.eba.europa.eu/documents/10180/2257858/Amended+Recommendation+on+equivalence+of+
confidentiality+regimes+%28EBA-Rec-2018-01%29.pdf.
European Central Bank Updates its Asset Quality Review Manual
On June 20, 2018, the European Central Bank published a revised version of its manual on the methodology for phase 2 of its Asset Quality Review, which forms part of the Comprehensive Assessment that the ECB and national regulators must make of relevant Eurozone banks under the EU Regulation on the Single Supervisory Mechanism. This revised version replaces the earlier version of the AQR manual published in 2014.
In Frequently Asked Questions published alongside the updated AQR manual, the ECB explains that the AQR manual has been updated to reflect the entry into force of the new accounting rules of International Financial Reporting Standard 9 on January 1, 2018. This has required some changes to the provisions of the AQR manual, in particular to incorporate new approaches to determining impairments and classifying financial instruments. The manual has also been updated to reflect their view that bank business models focused on investment services have become increasingly important for ECB Banking Supervision, in particular in the context of Brexit.
The AQR manual will be further updated if and when changes to the methodology in general, or to the calibration of specific methodological elements, are deemed necessary and material.
The updated AQR manual is available at: https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.assetqualityreviewmanual201806.en.pdf and the FAQ are available at: https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.assetqualityreviewmanual201806_QA.en.pdf.
European Banking Authority Consults on Use of Purchased Receivables Approach for Capital Requirements for Securitized Exposures
On June 19, 2018, the European Banking Authority launched a consultation on draft Regulatory Technical Standards on the conditions to allow institutions to calculate capital requirements, including on expected loss, arising from securitized exposures (known as KIRB) in accordance with the purchased receivables approach under the Capital Requirements Regulation.
As part of the new EU Securitization framework that will apply from January 1, 2019, an Amending Regulation makes amendments to the CRR to revise the capital requirements for securitizations.
The current securitization framework provides that a specific supervisory permission is needed for institutions other than originators to use the Internal Ratings Based approach to securitization capital. The Amending Regulation removes that specific approval and makes use of the Securitisation IRB Approach (known as the SEC-IRBA) conditional only on the IRB permissions of the credit risk framework and on the availability of sufficient information to compute KIRB. Under the CRR, as amended by the Amending Regulation, institutions that are permitted to apply to calculate their regulatory capital requirements for securitization positions may use provisions that normally apply to purchased receivables under the IRB framework for credit risk. Using the purchased receivables provisions, institutions can calculate KIRB and corresponding risk factors (probability of default and loss given default) and use the results as input into the SEC-IRBA. The Amending Regulation also permits the use of "proxy data" where sufficient, accurate or reliable data on the securitized exposures is not available for the calculation of KIRB.
The draft RTS set out details of the conditions under which institutions may use the provisions on purchased receivables in the context of securitization transactions. The RTS cover: (i) the general approach to the relationship between the IRB rules on purchased receivables and the SEC-IRBA framework; (ii) eligibility conditions to compute KIRB; (iii) IRB permissions and prior experience; (iv) eligibility to use the retail risk quantification standards; and (v) the use of proxy data.
The EBA intends to hold a public hearing on the proposals on September 4, 2018. Comments on the consultation are invited by September 19, 2018. The RTS will then be finalized and submitted to the European Commission for adoption.
The consultation paper is available at: http://www.eba.europa.eu/documents/10180/2256128/Consultation+Paper+on+RTS+on+the+calculation+of+Kirb+in+accordance+with+the+purchased+receivables+approach+%28EBA-CP-2018-10%29.pdf, the online response form is available at: http://bit.ly/2K0pVn5 and the registration page for the public hearing is available at: https://www.eba.europa.eu/news-press/calendar?p_p_id=8&_8_struts_action=%2Fcalendar%2Fview_event&_8_eventId=2256144.
To view the full article, please click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
