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REGULATORY IMPACT ASSESSMENT

By Irene Lewis,2014-07-10 19:32
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REGULATORY IMPACT ASSESSMENT ...

    REGULATORY IMPACT ASSESSMENT

    1. Title of the Proposal

    thDirective 2005/60/EC of the European Parliament and of the Council of 26 October

    2005 on the prevention of the use of the financial system for the purpose of money rdlaundering and terrorist financing, the 3 Money Laundering Directive.

    2. Description of policy context, objectives and options

Policy Context

    Ireland’s current anti money laundering regime derives from the first EU Money

    Laundering Directive (1991) as amended by the second Directive (2001). These

    Directives in turn are based on the recommendations of the Financial Action Task

    Force on Money Laundering (FATF) the main international anti-money laundering

    organisation established by the G7 in 1989. Current Irish legislation requires the

    Financial Sector and other designated bodies (lawyers, accountants, auctioneers, tax

    advisers, and dealers in high value goods) to

    ? Identify their customers

    ? Report suspicious transactions to the Garda Siochana/Revenue Commissioners

    ? Keep records

    ? Have procedures in place, including staff training.

Explicit statement of the objectives that are being pursued

    The objective of the proposed legislation is to strengthen Ireland’s anti money

    laundering and anti terrorist funding legal framework by requiring the Financial Sector

    and other affected bodies to take additional measures to identify their customers

    particularly where situations of higher risk have been identified. More specifically the

    draft legislation will

    ? Consolidate existing anti money laundering legislation which has been amended

    on numerous occasions rd? Transpose the 3 Money Laundering Directive into Irish Law Transposition

    deadline 15 December 2007.

     rdThe transposition of the 3 Money Laundering Directive will bring Ireland into line with the most recent revision of the recommendations of the FATF, ensuring that Irish

    practice is in line with International standards. The principal new elements required by rdthe 3 Money Laundering Directive are

    ? Introduce a requirement for ongoing customer due diligence

    ? Require designated bodies to identify non-domestic politically exposed persons

    (PEPs)

    ? Require identification of beneficial ownership of legal entities; such as

    companies and trusts

    ? Introduce the concept of a risk based approach to the requirements of the

    Directive

    ? Extend money laundering obligations to Trust & Company Service Providers

    ? Introduce registration/licensing of Trust & Company Service Providers

    ? Have in place a system of compliance monitoring by non Financial Designated

    persons (lawyers, accountants, auctioneers, dealers in high value goods etc).

    ? Provide greater protection for employees making suspicious transaction reports

     rd Money Laundering Directive does not require major change in Transposition of the 3

    the existing regulatory framework which for the most part operates under the Financial

    Regulator. The new regulatory elements involve the requirement to licence or register

    those trust or company service providers who are not already regulated as solicitors,

    accountants or financial service providers. This category is understood to consist of

    fewer than 100 company formation agents.

    3. Identification of the various policy options

Option 1: No Change Policy

    This option would involve no change to the legislation or guidance currently in place.

    Given the requirement to transpose the Directive into National law a no change policy is

    not a realistic option. In addition, any suggestion of a less than rigorous regulatory

    environment could result in Ireland being seen as a haven for money laundering with

    adverse implications for the reputation of the Irish financial services industry.

Option 2: Making Changes required without legislation

    This option would involve no change to the current legislation and instead incorporate

    requirements of the Directive in to guidance for each sector. Realistically this is not an

    option due to our obligation as an EU Member State to transpose the Directive into

    national law. Current Sectoral Guidance constitutes recommendation as to good

    practice and does not have the legal standing of primary or secondary legislation

    although it can be taken “account of “ by a court in determining whether “a designated

    body or a member of staff has failed to make a report to the Gardaí and the Revenue

    Commissioners”.

     rdOption 3: Transpose the 3 Money Laundering Directive & update Guidance rdIn order to fulfil Ireland’s obligations imposed by the 3 Money Laundering Directive the

    appropriate approach to implementation is primary legislation, supplemented by

    Guidance. It should also be noted that Ireland’s current anti-money laundering regime

    was criticised by the FATF for what it regarded as an over reliance on guidance as

    distinct from legislative requirements.

    4. Identification of costs, benefits and impacts

Risks and assumptions

    Any option other than full transposition by legislation carries a significant risk of damage

    to Ireland’s reputation as a well regulated financial centre. It would also carry the risk of

    prosecution by the Commission for non-implementation of the Directive.

Costs and Benefits

    The cost of implementing the legislation will fall primarily on the financial sector and

    other designated persons i.e. solicitors, accountants, auctioneers, tax advisers, and

    cash dealers in high value goods and on regulators mainly the Financial Regulator.

    Most of these bodies already carry costs in relation to the implementation and

    monitoring of compliance with existing anti-money laundering rules. New costs will

    arise where existing IT systems etc require revision, new guidance requires to be

    issued and additional staff related costs including training are required. The bodies

    affected have not been able to provide reliable estimates of the likely additional costs

    involved as these costs would depend on the detailed requirements coming from the

    legislation and any subsequent regulatory guidance.

The Irish Bankers Federation who represent one of the main categories within the

    financial sector, have noted rd “Implementation of the 3 anti-money Laundering directive will have a significant cost impact across the sector, both in terms of once off set up costs and in terms of ongoing

    costs. Primary cost drivers in this regard include

    ? Risk assessment model development

    ? Increased data capture requirements

    ? Increased automation of processes

    ? Enhanced inter-system linkages

    ? Purchases of commercially generated lists

    ? Initial and ongoing staff training…. The risk based approach, appropriately developed and implemented, will balance the

    cost burden placed on individual firms and their customers with a realistic assessment

    of the threat of the firm being used in connection with ML or TF……”

The main accountancy representative body CCAB-I noted that “the anti-money

    laundering regime in the Republic of Ireland and its many difficulties has already been a

    very costly one for the accounting profession and if the existing difficulties are rdperpetuated whilst implementing the 3 Directive then it will be a costly regulatory

    regime on an ongoing basis” CCAB-I estimate once off costs to the accountancy profession at ?27million (including ?12m for training) with ongoing annual costs of

    almost ?7million.

The Law Society did not provide detailed cost estimates but noted that “it is clear, firstly,

    that solicitors’ firms incur substantial costs under the existing regime and, secondly that

    these will increase significantly if the Directive is implemented without taking into

    account the views of the Society….” The Law Society also noted that there may be costs which are impossible to quantify if the Directive is implemented in a way that

    gives rise to problems for Solicitors and their clients in areas such as the making of a

    will or a trust.

    5. Other impacts

    Impact Comment Impacts on national competitiveness As it is not proposed to impose

    obligations in excess of those required by

    the Directive or by the FATF

    recommendations Ireland’s competitive

    position internationally should not be

    affected. Impacts on the socially excluded or The transposing legislation should not vulnerable groups materially affect the position of these

    groups Whether the proposals involve a The obligation to licence / register Trust &

    significant policy change in an economic Company Service providers who are not market including an examination of the already regulated is not a significant policy impacts on consumers and competition change.

    The obligation to monitor compliance with

    the legislation by bodies affected by it is

    not a significant policy change.

    Impacts on the rights of citizens None Whether the proposal involves a The legislation will add to the existing significant compliance burden compliance burden in certain areas but

    this may be offset to some degree by the

    possibility now being given to the affected

    bodies to adopt a risk based approach.

    Impacts on the environment None

    6. Consultation

    The Department of Justice, Equality & Law Reform and the Department of Finance rdconducted extensive consultation on the impact of the 3 Money Laundering Directive by way of bi-lateral meetings with representatives of the financial sector and other

    bodies affected by the Directive. In addition an invitation was published on the

    Department of Finance website requesting written submissions on the potential impacts rdof the 3 Money Laundering Directive. Thirteen written submissions were received

    during this process. A summary of the comments received during the consultation

    period is set out in the attached table, together with an official response.

    7. Enforcement and Compliance

    Enforcement of the law on Money Laundering is primarily a matter for the Garda

    Siochana. The Financial Regulator and other sectoral regulatory authorities will have

    responsibility for monitoring compliance with the legislation as required by Article 37 of

    the Directive. It is not proposed to establish any new regulatory authority for the

    purpose of implementing the Directive. Where there is no existing regulatory authority,

    as for example in the case of trust and company service providers, certain accountants

   &