The Financial Intelligence Analysis Unit (FIAU) has proposed a series of amendments to Part I of the Implementing Procedures issued under the Prevention of Money Laundering and Funding of Terrorism Regulations (Subsidiary Legislation 373.01). These proposed amendments seek to make certain obligations more practicable particularly for the funds industry.
Customer due diligence when this has already been carried out by the customer’s agent (Section 4.3.3)
The Implementing Procedures already contemplate situations where a subject person is dealing with an agent of the customer rather than with the customer itself. Apart from obliging the subject person to identify and verify the customer, the Implementing Procedures also verify the identity details of the agent.
The proposed amendment contemplates easing the customer due diligence obligations of banks (as subject persons) when dealing with a customer agent. According to the proposed amendment, where accounts are opened by an agent on behalf of major international entities and the list of signatories is voluminous, rather than having to collect verification documents on each and every authorised signatory, it suffices to obtain the confirmation of the account holder that it has verified the identity of those signatories. This is the case where an institutional investor such as funds (the agent) opens an account for the investors (the principals).
Banks may only benefit from this mitigated customer due diligence obligation if the account holder is itself a subject person in Malta, or is established in the European Economic Area (EEA) or in a reputable jurisdiction wherein it is subject to equivalent due diligence obligations; and if there is no adverse information in its regard. Furthermore, the said mitigated customer due diligence must be applied on a risk basis, that is, it cannot be benefitted from where it is deemed that there is a high risk of money laundering or of financing of terrorism.
The amendment is clearly intended to avoid the doubling of customer due diligence processes on opening of accounts with banks when due diligence on the customer has already been carried out by an agent, such as an institutional investor, according to Maltese law or the equivalent.
Change in Fund Administrators (Section 4.6.6)
The Implementing Procedures adopt the general principle that when a subject person acquires the business of another subject person or of a third party it is not necessary to undertake customer due diligence measures again provided that it has also acquired the records of all customers and these are not deficient. The amendments propose a new sub-section to deal with the specific scenario of a subject person acquires the business of servicing a collective investment scheme from a previous fund administrator or from a third party service provider carrying out anti-money laundering (AML) and combating the financing of terrorism (CFT) obligations.
In such a case the fund administrator/third party service provider might not only have to transfer to the acquiring subject person the due diligence records on the collective investment scheme but also on its investors. A problem has arisen in the past since a particular investor might be an investor in the collective investment scheme to be serviced by the new subject person as well as an investor in another collective investment scheme which is to remain in the business of the previous fund administrator/third party service provider. The latter would not be able to transfer the due diligence records on that investor where a common set of documentation would have been collected.
In these circumstances, the proposed amendment seeks to allow the outgoing fund administrator/third party service provider to merely provide a copy (electronic or otherwise) of the documentation collected on the investor to the incoming subject person with a declaration outlining why the documentation in original cannot be made available.
Simplified due diligence (Section 184.108.40.206)
Where a customer presents low risk of money laundering or terrorist financing the subject person may carry out simplified due diligence. A proposed amendment seeks to highlight instances when simplified due diligence may apply, namely, where the customer is a collective investment scheme, a nominee holding financial instruments, or an omnibus securities’ account. In these instances, simplified due diligence means that the subject person would not have to identify the beneficiaries or customers of these entities. This is subject to the entities meeting their own customer due diligence obligations and to the subject person obtaining confirmation of this from them.
Outsourced/Group MLRO (Section 5.1.2)
A group of subject persons has the possibility of appointing a single Group Money Laundering Reporting Officer (MLRO). A new proposal seeks to extend such possibility to appoint a group MLRO to groups comprising entities undertaking equivalent relevant activities or relevant financial business outside of Malta.
The amendments to the Implementing Procedures being proposed are intended to better cater for particular situations encountered in the financial services industry. These amendments would be particularly helpful when dealing with entities which have several beneficiaries, like funds, and where dealing with customer due diligence obligations may encounter a number of difficulties due to the number of persons involved. The proposals seek, therefore, to avoid unnecessary duplication of due diligence measures by: allowing banks to rely on the due diligence carried out by the fund itself without having to carry out due diligence on each fund investor; allowing incoming fund administrators to better rely on the due diligence that had been carried out by the outgoing fund administrator; extending the application of simplified due diligence so that a subject person may rely on the due diligence carried out by the customer itself with respect to its beneficiaries; and allowing the appointment group MLROs.