Due Diligence Dilemma

Increasing Legislation Equals Increasing Costs

Forensic & Litigation Consulting | Financial Institutions

May 13, 2016

Dilemma Files

The costs of meeting regulatory expectations in relation to financial crime have spiralled in recent years. Significant fines have been imposed by the FCA, and many firms have taken to exiting entire products, customer types (e.g. MSBs, religious charities and embassies) and jurisdictions, due to AML concerns and the costs of meeting regulatory expectations.

The policy of wholesale de-risking has not been without risks as Barclays Bank found when Wafic Said, the Syrian born billionaire, decided to sue the bank for closing his personal and business accounts.

The costs of complying with regulations are certain to increase even further. EU member states must implement the Fourth money laundering Directive (“4mlD”) into domestic legislation by 26 June 2017. The 4mlD introduces additional, specific legal requirements to carry out enhanced Due Diligence (“EDD”) for domestic Politically Exposed Persons (“PEPs”), where a customer is established in a high risk country, and/or where unusual transactions have been identified.

This article considers the new EDD requirements and provides suggestions for firms to consider when reviewing their systems and controls. in the event of Brexit, the UK will not be obliged to implement the 4MLD measures. However, it is expected the UK government will continue to align itself with Financial action Task Force (“FATF”) requirements and international best practise for financial crime systems and controls. Therefore it is likely that these measures will be implemented in the UK, regardless of the outcome of the referendum. Firms should use the next fourteen months to review their systems and controls, and prepare themselves for 4MLD.


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