Date of Notice of Consultation Paper: 18 April 2018
Deadline for providing comments: 20 May 2018
The Dubai Financial Services
Authority (“DFSA”) has issued Consultation Paper No. 120 (“CP”) proposing
changes to the AML module of the DFSA Rulebook.
The DFSA has clarified that
changes have been proposed in light of the upcoming Financial Action Task Force (FATF) Mutual Evaluation of
UAE, scheduled to take place in the second half of 2019. Enhancements to the
DFSA’s AML module have been considered to ensure the DFSA AML regime is
compliant with the FATF’s 2012 Recommendations.
Summary of proposed changes: Given below is a summary of
some of the key changes/enhancements proposed in the CP:
(a) New products, practices and technologies:
- Firms are required to ensure that they have assessed and identified money laundering risks relating to new products, practices and technologies before any of these are launched.
- Appropriate measures should be taken by firms to mitigate any risks identified.
(b) Customer risk assessment:
- Guidance on potential factors which could signify a higher or lower risk of money laundering has been replaced by Rules.
- Firms are required to obtain information on, and take into consideration, the customer’s business while undertaking a customer risk assessment.
- The DFSA has clarified what are considered to be “credible sources” in relation to evaluating jurisdiction risks associated with customers. These include the FATF, the IMF, the World Bank and the OECD.
(c) Customer due diligence (CDD):
- Amendments have been proposed to the current section 7.3 of the AML module, describing in more detail the customer due diligence to be undertaken by firms.
- New Rules have been introduced (removing information currently contained as Guidance) listing requirements for verifying the identity of customers and their beneficial owners (where customers are individuals/body corporates/foundations/trusts/similar arrangements).
- Amended definitions of source of funds (‘SoF’) and source of wealth (‘SoW’) have been introduced.
- The existing requirement under AML 7.3.1 for firms to understand a customer’s SoF and SoW while undertaking CDD has been removed, however, it is to be noted that while carrying out a customer risk assessment, in some cases, firms may still have to identify a customer’s SoF or SoW. Further, identification and verification of a customer’s SoF and SoW is still required when undertaking enhanced due diligence.
(d) Politically Exposed Persons (PEPs):
- New Rules have been introduced to clarify what action the DFSA expects firms to carry out while undertaking enhanced due diligence on PEPs, including where a beneficiary of a life insurance policy (or similar) is a PEP.
(e) Beneficial Owners:
- A new definition of Beneficial Owners has been introduced, along with new Rules on how Beneficial Owners are to be identified by firms where the customer is a body corporate, foundation, trust and in relation to life insurance/similar policies.
- Where a customer is subject to adequate public disclosure requirements (for instance, where the customer has shares listed on a Regulated Exchange), firms are not required to identify and verify the Beneficial Owner.
(f) Other miscellaneous amendments:
- Reliance on a third party: Where reliance is placed on a third party for CDD, firms are required to take into consideration the factors now listed under new Rules when assessing the AML regime applicable to the third party.
- Electronic fund transfers: Existing Rules on wire transfers are proposed to be replaced entirely with new Rules describing the application of the section, definitions for terms used and introducing other requirements to ensure the regime is in compliance with relevant FATF recommendations.
- Government, regulatory and international findings: While complying with applicable findings, recommendations, guidance, sanctions, etc., firms are required to take into consideration the measures listed in the new Rule.
- Group, branches and subsidiaries: Where a DIFC firm has a branch or subsidiary in another jurisdiction, the firm must require the branch/subsidiary to apply the higher of the two standards (i.e. higher of DFSA AML Rules or the rules applicable in the other jurisdiction). Further, firms that are part of a Group are required to ensure they have adequate policies and procedures in place for sharing of AML information between Group entities.
Conclusion:
While there are a number of changes proposed to the DFSA’s AML module, it is not believed that these will significantly alter the DFSA’s existing AML regime and approach to CDD. However, when the amendments will come into force, relevant firms in the DIFC will be required to:
(a) review their existing AML related policies and procedures and ascertain what changes are required to be made thereto;
(b) update their existing AML manuals/related documentation to ensure they are in line with the new AML Rules;
(c) update the AML portion of their compliance monitoring programme to ensure it is in line with the new Rules; and
(d) provide training to relevant employees on the new Rules and changes made to internal documents, policies and procedures.
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