Consultation on a new Anti-Money Laundering and Combating Terrorist Financing ("AML/CTF") Rulebook closed on 17th January 2010 and the issue of a new single AML/CTF Rulebook by the Qatar Financial Services Regulatory Authority ("QFCRA") is imminent. The new Rulebook will apply to all financial institutions and DNFBPs¹ conducting business in or from the QFC. This article outlines the reasons for producing a new rulebook and summarises the key proposed changes.

Background

Money laundering, including the potential misuse of financial institutions to finance terrorist activity, is a problem of major concern for governments, regulators and financial institutions around the world. The Financial Action Task Force ("FATF"), an inter-governmental organisation established in 1989, was set up to develop and promote national and international policies globally to combat the threat of money laundering and, since 2001, the threat posed by terrorist financing. Over the past 21 years, FATF has developed 40 Recommendations which comprise the basic framework for anti-money laundering efforts in member states. FATF has also created nine Special Recommendations on terrorist financing. Together these comprise the 40 + 9 Recommendations which have been implemented in the national laws of over 100 jurisdictions². However, FATF has no role in tracking the movements of international money launderers or in bringing criminal prosecutions. This is left to the regulators and investigating authorities in each national jurisdiction.

Reasons for a new QFC AML/CTF Rulebook

The existing QFCRA AML\CTF framework is embedded among AML regulations and three separate rulebooks: the Anti-Money Laundering (AMLR), Individuals (INDI) and General (GENE). The revised rulebook will be self-contained ie all AML/CTF requirements for authorised and relevant licensed firms are contained in one rulebook rather than spread across a number of rulebooks and regulations. The stated objectives of this more "user friendly" approach are twofold:

  • To facilitate optimum compliance with FATF Recommendations and
  • To assist and support effective implementation of the Rules by QFC firms.

Also, the re-structured Rulebook represents a fresh approach to the current rules of the QFCRA. In particular, there is a distinct departure from the current AMLR which contains significant supplementary guidance notes and appendices.

Summary of key changes

There are five key changes which have been introduced based on feedback from authorised and licensed firms and the practical supervisory experience of the QFCRA in implementing the AML/CTF framework to date. These are set out below.

Overarching Principles

Helpfully, the new Rulebook contains six key Principles which govern how firms are to meet the AML/CTF requirements and these are the foundation of the Rulebook. The Principles are re-inforced by more detailed Rules which expand on how the Principles must be met. The Principles cover the following areas:

  • Principle 1: Senior Management Responsibility
  • Principle 2: Risk-based approach
  • Principle 3: Know Your Customer (KYC)
  • Principle 4: Effective Reporting
  • Principle 5: High standard screening and appropriate training and
  • Principle 6: Evidence of compliance.

Alignment with FATF

The Rulebook has been brought closely into line with the FATF Recommendations and standards through the use of key FATF terms and terminology. The source of a Rule, where applicable, is cross-referenced to the relevant FATF Recommendation. For example, the methodology proposed to implement a risk-based approach (see below) derives directly from FATF Recommendation 15.

Senior Management Responsibility

Recognising that an effective AML/CTF programme relies fundamentally on the engagement of senior management, the new Rulebook places clear overall responsibility on the senior management of the regulated firm. The senior management is tasked with ensuring that the policies, procedures, systems and controls of the firm adequately address the requirements of the Qatari AML/CTF Laws and QFCRA Rules.

Risk-based approach

The Rulebook introduces a more sophisticated risk-based approach to identifying and monitoring AML/CTF risks by the use of a so called threat matrix³. This involves profiling every business relationship and developing a risk profile based on at least four key elements in relation to each customer:

  • Customer risk
  • Product risk
  • Interface risk
  • Jurisdiction risk.

Implementation of an effective AML/CTF programme

Finally, the design and structure of the single Rulebook aims to mirror how a regulated firm would undertake the development and implementation of an AML/CTF programme of effective controls and how it would ensure ongoing compliance with regulatory requirements. However, the substance of the AML/CTF requirements remains, basically, unchanged.

Conclusion

The revised and re-structured new single AML/CTF Rulebook represents a change in style rather than any fundamental change in substance. There is little or no direct impact on the clients of regulated firms. Once the initial change is absorbed, there is likely to be a significant benefit both for the QFCRA in taking into account in their supervision the ongoing development of FATF standards and for firms who should find the new Rulebook simpler to navigate.

Endnotes

1 DNFBPs are designated non-financial businesses and professions which are included in the scope of the FATF 40 + 9 Recommendations. The major categories of DNFBPs are lawyers, accountants, real estate agents, dealers in precious stones and metals and casinos.
2 The principal Qatari Laws which implement a FATF compliant framework in the QFC are: Law No (11) of 2004 (Penal Code of Qatar), Law No (23) of 2004 (Code of Criminal Procedures), Administrative Order No (1-2004) establishing the FIU and its organisational structure, Anti-Money Laundering Law No (28) of 2002, Decree Law No (21) of 2003 amending some Provisions of Law No. (28) of 2002 on Anti-Money Laundering and Law No (3) of 2004 on Combating Terrorism.
3 The source of this requirement is FATF Recommendation 15.

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