Regulatory changes to combat money laundering
As a consequence of the issues identified and published in the Financial Action Task Force on Money Laundering (FATF) mutual evaluation report on Switzerland in 2016, as a part of various counter measures and an enhanced follow-up procedure, FINMA has recently presented its draft of the revised Anti-Money Laundering Ordinance (AMLO-FINMA). In substance, the amended AMLO-FINMA sets out in more detail the requirements for global monitoring of the alleged shortcomings or risks. The revised AMLO-FINMA will enter into force on 1 January 2020.
Changes made to the Anti-Money Laundering Ordinance (AMLO-FINMA)
The most important changes of the AMLO-FINMA rules are as follows:
- for cash transactions and subscription of not listed collective investment schemes, the threshold amount for the identification of the contracting partner and beneficiary shall decrease from CHF 25,000 to CHF 15,000;
- financial intermediaries with branches and group companies abroad shall maintain increased reporting, monitoring and control procedures to monitor legal and reputational risks globally;
- domiciliary companies shall be reviewed to explain their purpose, documented and at the same time the complexity of the legal structure (whereby a complex structures is an indication for a business relationship with a higher risk) evaluated;
- with respect to payment orders, financial intermediaries shall ensure that the information on the contracting party is accurate and complete as well as the information on the beneficiary;
- regarding risk classifications: business relations with clients domiciled in a country categorized by the FATF as so called «high-risk» or «non-cooperative» country shall be considered per se as high-risk business relationships;
the (top) management body shall be responsible for and decide whether to submit suspicious activity reports. However, the decision power whether to report may be delegated to an independent body, meaning a body with a minority of members involved in the operating business.
Changes made to the Code of Conduct with regard to the Exercise of Due Diligence (CDB)
The most important changes of the CDB 20 rules are as follows:
- for cash transactions, the threshold amount for the identification of the contracting partner shall decrease from CHF 25,000 to CHF 15,000;
- if an account is opened and remains incompletely documented regarding the contracting party, beneficial owner and/or controlling person, it shall be blocked for all transactions after no more than 30 days (compared to the 90 days stipulated in the CDB 16). Subsequently, if the missing information or documents cannot be provided, the business relationship shall be annulled;
- in exceptional cases, it shall be allowed to make use of an incompletely documented account, given only particular information or documents are missing or not provided in the
- appropriate form and the usage of the account is deemed appropriate according to a risk-based assessment;
- the FINMA Circular 2016/7 regarding video and online identification shall be incorporated (online identification in adherence to the applicable FINMA rules shall be equivalent to common face-to-face identification) into the CDB;
- The abbreviated process for simple cases regarding a self-indictment has been updated: As a prerequisite for its execution, the bank shall not only submit all documents, but also a report from an audit firm, which shall illustrate the underlying facts surrounding the self-indictment and indicate the regulations in the code of conduct concerned.
Implications of the new regulatory framework for financial intermediaries
The implications by the revised framework for financial intermediaries and in particular banks remain to be seen. However, it is manifest that certain amendments are of material nature. For example, the revised requirements of global monitoring, investigation of legal structures, in particular domiciliary companies, the specified rules regarding internal risk assessments of business relationships and/or transactions or the organizational requirements regarding AML-reporting stipulate enhanced obligations and ask for adequate internal measures.
In addition, the necessity of identification for cash transactions of CHF 15,000 or more will bring new challenges for financial intermediaries and demand for appropriate training of personal and the set-up of adequate (technical) control processes. Moreover, clients will have significant less time to provide the necessary account documentation before the bank is obliged to block the account. Banks will have to imply stricter account opening procedures enabling abidance to the 30-day deadline triggering the blockage of any in- or outgoing transfer. Despite the exception rule creates a certain leeway, banks are likely to take a restrictive approach regarding account openings, carefully considering whether it is expedient to take any risk at all.
The revised AMLO-FINMA and CDB 20 shall become effective on 1 January 2020. Despite the new rules will only apply to new business relations entered into after 1 January 2020, concerned financial intermediaries are well advised to start as early as possible to introduce new or amend existing internal policies, employee trainings, reporting lines, onboarding processes, risk controls or any other necessary measure accordingly, not only to avoid violations, but also to benefit best from the new opportunities, such as the possibility of online identification.
Please do not hesitate to contact us for any assistance with the implementation of the new AMLO-FINMA and CDB rules and/or legal advice in connection with the revised framework.