In this week's newsletter, we provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.

AML/CTF, Sanctions and Insider Trading

FinCEN Provides Temporary Exception Under the Beneficial Ownership Rule for CDs and Loan Accounts that Automatically Rollover or Renew

On May 16, 2018, the U.S. Financial Crimes Enforcement Network announced that it was granting a 90-day exception from compliance with the beneficial ownership requirements under its Customer Due Diligence Requirements for Financial Institutions rule. The exception is limited to certain financial products and services (i.e., certificates of deposit and loan accounts) that automatically rollover or renew and were established prior to the Beneficial Ownership Rule's compliance date of May 11, 2018. The Beneficial Ownership Rule requires covered financial institutions to identify and verify the identity of each natural person who directly or indirectly owns 25% or more of the equity interests of a legal entity customer, as well as one natural person with "significant responsibility to control, manage or direct" the legal entity customer. These requirements apply each time a new formal banking relationship with a legal entity customer is created, which includes each time a certificate of deposit is rolled over or a loan is rolled over or renewed. In granting this exceptive relief, FinCEN noted that some covered financial institutions have expressed concerns with their ability to comply with the Beneficial Ownership Rule with respect to these products, because the institutions have not been treating these rollovers or renewals as new accounts and have established processes to automatically rollover or renew these products. FinCEN will use the 90 days for which the exception is applicable to determine whether further exceptive relief is appropriate for these types of products that were established prior to the May 11, 2018 compliance date. The 90-day exceptive period is set to expire on August 9, 2018.

The full text of the FinCEN ruling is available at:
https://www.fincen.gov/sites/default/files/administrative_ruling/2018-05-16/FinCEN%20Ruling%20CD%20and%20Loan%20Rollover%20Relief_FINAL%20508.pdf.

UK Joint Money Laundering Steering Group Publishes Revised AML/CTF Guidance for Asset Finance and Syndicated Lending

On May 17, 2018, the U.K. Joint Money Laundering Steering Group finalized minor changes to Part II of its anti-money laundering and counter-terrorist financing guidance in relation to two sectors, namely asset finance and syndicated lending.

The JMLSG consulted on the proposed changes in a consultation that closed on March 30, 2018. The revisions do not make substantive changes to the existing guidance. Instead, the revised guidance provides clarification on the workings of these two sectors, how to identify customers and how risks should be assessed.

The JMLSG announcement is available at: http://www.jmlsg.org.uk/news/further-amendments-to-jmlsg-guidance2 and details of the JMLSG consultation is available at: http://www.jmlsg.org.uk/news/the-joint-money-laundering-steering-group-jmlsg-today-publishes-proposed-re.

EU Fifth Money Laundering Directive Adopted

On May 14, 2018, the Council of the European Union adopted the EU's Fifth Money Laundering Directive, following the agreement reached between the European Parliament and the Council in December 2017. 5MLD will amend the existing EU Money Laundering Directive. The key changes are:

  1. 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.
  2. 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.
  3. Reducing the thresholds under which obliged entities are exempt from applying certain CDD measures to prepaid cards. The customer
  4. 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.
  5. 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.
  6. Requiring Member States to maintain lists of specific functions that qualify as prominent public functions to assist in the identification of politically exposed persons.
  7. Enhancing access to information on beneficial ownership across the EU and improving transparency in the ownership of companies and trusts.

5MLD will enter into force 20 days after it has been published in the Official Journal of the European Union. Member States must transpose it into their national laws within 18 months of the date it enters into force.

The announcement is available at: http://www.consilium.europa.eu/en/press/press-releases/2018/05/14/money-laundering-and-terrorist-financing-new-rules-adopted/pdf and the agreed text of 5MLD is available at: http://data.consilium.europa.eu/doc/document/PE-72-2017-INIT/en/pdf.

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