DOC

REGULATORY IMPACT ASSESSMENT

By Irene Lewis,2014-07-10 19:32
8 views 0
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

    /tax advisers or dealers in high value goods, it is proposed to assign the compliance

    monitoring role to a new dedicated unit within the Department of Justice, Equality and

    Law Reform. This is estimated to involve an additional annual cost of ?0.6 million.

    8. Review

    The draft legislation will require each Regulatory Body to report annually on the

    measures it has taken to monitor compliance by the bodies for whom it is responsible.

    It should also be noted that the Directive itself (Article 42) requires the Commission to thdraw up a report on its implementation by 15 December 2009 and at three-yearly

    intervals thereafter.

    REGULATORY IMPACT ASSESSMENT

     Directive 2005/60/EC on the prevention of the use of the financial

    system for the purpose of money laundering and terrorist financing

    Article Summary of comments made during the Official Response

    consultation process Article 1: Consideration should be given to removing There is no direct equivalent in Irish Law Offence of Money the current “all crimes” predicate offence in for the Directive definition of “serious Laundering/ Terrorist favour of a limitation to serious offences as crimes”. funding required by the Directive.

    There is a need to factor in the risk that This issue is dealt with in the draft bill

    Designated Bodies could legitimately (Head 20) which repeats an existing

    “handle the proceeds of crime” provision of the 1994 Act to the effect

    Possible Solution Offer a defence of that a designated person who has made

    “action in good faith” a report and follows any directions of the

    Garda Siochana does not commit an

    offence. Article 2: Clarification is required on definitions for The relevant definitions are set out in the Designated Persons “Auditor”, “External Accountant”, “Tax draft Bill (Head 2)

    Advisor”.

    The position of insolvency practitioners Insolvency practitioners are designated

    who operate outside any regulated under Head 3 of the draft Bill.

    professional body should be clarified

    there is also a competition issue here.

    Remove the anomaly in S.I. No 3 of 2004 This S.I. is repealed and the relevant

    which appears to limit the obligations of provisions of the draft Bill remove this

    auctioneers to cases where payment is anomaly.

    made in cash.

    Implementing legislation should recognise This is dealt with in Head 3 (4) of the

    that companies owned exclusively by a draft Bill.

    regulated group entity in connection with a

    professional practice which includes

    providing trustee services are covered by

    Article 2(3) (b).

    Article 3: PEP’s see under Article 13 Definitions

    Article 4: No material comments in relation to this There are no current proposals to extend

     article. the list of designated persons beyond

    Extension to other those listed in the Directive. bodies

    Article 5:

     It is important from a competitiveness point The draft Bill reflects the requirements of Power of MS to of view that the authorities avoid any “gold-the Directive and does not go beyond adopt stricter plating” of the Directive’s requirements. them to any material extent. measures

    Article 6: No material comments in relation to this Ban on anonymous article.

    accounts

    Article 7 Circumstances There is a need for maximum flexibility in Head 12 of the draft Bill provides some requiring Customer the legislation to take account of practical flexibility in this area [guidance notes will Due Diligence elements (e.g. time lag due to contact with elaborate further on this issue].

     other jurisdictions, language barriers etc.)

    Business may be lost due to time lags. [see

    under Article 9 below]

    Suggested approaches to implementation The draft Bill adopts a risk based

    approach to its requirements as provided ? Seek ID on a risk sensitive basis.

    for in the Directive. Institutions should focus resources

    where risk is greatest.

    ? Ongoing monitoring of transactions

    maybe more important than initial

    identification.

    ? Eliminate a tick box approach ? It may be necessary to buy

    additional, more sophisticated

    systems.

    Article 8 Head 12 of the draft Bill provides some ? Establishing beneficial ownership

    Measures required flexibility in this area. Guidance notes will can take some time/resources -

    for Customer Due elaborate further on this issue. includes need to understand

    Diligence complex layers of legal documents

     what is considered acceptable

     timeframe? What exactly will be

     required to satisfy this obligation?

    Head 18 of the draft Bill makes ? There will be a learning curve for

    provision for identification by a third Designated Bodies in identifying

    party beneficial ownership is there

     scope for one designated body

     relying on another DB with

     expertise in the area of

     identification of beneficial owner?

    The draft Bill adopts a risk based ? Favour approach where basic

    approach. requirements of Article 8 will be in

     primary legislation with the details

     in guidance/regulation. A risk

     based approach needs to be

     embodied in transposing

     legislation.

    Relevant bodies will be consulted on ? Timing the legislative timescale

    the timing for commencement of the should allow for the extensive work

    Bill. required from the bodies affected,

     including preparation of guidance

     notes, upgrading of IT systems,

     staff training etc

     ? A risk based approach would

    This is the approach adopted. suggest that guidance notes

     should be principles based.

The use of a risk based approach should ? ML Guidelines or Legislation

    facilitate this. should not become a barrier to

     access to the financial system.

The draft Bill has taken account of this ? Industry should have level playing

    consideration. All designated persons field. Legislation/guidance should

    will be subject to compliance monitoring not introduce competitive

    by a competent authority. distortions.

Head 12 of the draft Bill provides some ? CDD creates particular issues for

    flexibility in this area. Guidance notes will people operating in an

    elaborate further on this issue. International arena - can be difficult

     in jurisdictions where there is a

     language barrier.

Guidance notes will elaborate further on ? What level of enquiry into

    this issue. customer’s source of funds will be

     required?

Article 9.5 contains a specific exemption Implementing legislation should take

    for legal advice. This is dealt with in the account of the fact that in certain

    draft bill at head 13(2). It is also relevant circumstances where a solicitor is asked to

    that solicitors and other independent provide a service connected with a trust,

    legal professionals are designated the request for ID from beneficiaries and

    persons for the purposes of the draft bill potential beneficiaries may compromise the

    only “ when they participate, whether by settlor or other parties.

    acting on behalf of and for their client in

    any financial or real estate transaction, Implementing legislation should provide

    or by assisting in the planning or that where a trustee etc is seeking legal

    execution of transactions for their advice in relation to a trust the solicitor

    client …” (Head 3). should only be obliged to obtain ID for that

     individual.

A solicitor is required to identify the It is suggested that a solicitor or other

    beneficial owners of a trust only where service provider, in setting up or advising a

    the trust is the solicitor's client. The trust may identify beneficiaries using

    Directive requires that "risk-based and identification from trust documents

    adequate measures" be taken to verify provided the identity of the beneficiary or

    the class of beneficiaries is reasonably the identity of the beneficial owner of a

    clear (or at least can be ultimately customer (Article 8.1). A solicitor should

    ascertained). also be able to demonstrate to the

     competent authorities that the measures

     taken are adequate in view of the risks of

     money laundering and terrorist financing.

    Charitable Trusts should be subject to The Directive allows for identification by

    special concession regarding the class of beneficiary in this type of case.

    identification of beneficiaries. The Draft Bill reflects this in Head 2 -

     definition of beneficial owner. It is not

     clear what special concession could be

    made in the case of charities which

    would not conflict with the requirements

    of the Directive. This issue also needs to

    be viewed against the background of

    international concern about the potential

    misuse of charities for money laundering

    and terrorist funding.

    Article 9 Art 9(5) - careful drafting is required for this Head 13 of the draft Bill does not make

     item legislation should not make report to reporting mandatory in these

    Timing of Gardai/Revenue mandatory where circumstances.

    Verification of Identity identification under Article 8 has not been

     completed.

    Transposition needs to take account of Head 24 (3) (d) of the draft Bill provides

    position of legal profession in particular for this.

    solicitors should not be guilty of a tipping -

    off offence where client is informed of end

    of relationship.

    [Use of risk based approach when seeking

    additional identification from existing clients

    needs careful drafting in particular legal

    profession needs protection against tipping The draft Bill provides for identification of

     off offence.] existing customers at appropriate times

     on a risk sensitive basis see Head

     12(7).

    Art 9 (6) (identity verification of existing

    customers) not currently provided for in

    Irish legislation.

    This could amount to tipping-off.

    Article 10: No material comments in relation to this

     article. Casinos

    Article 11: Legislation should implement this article in The draft Bill implements this in full.

    Simplified Due full particularly re derogation in Article Diligence 11.2(b) (Lawyers pooled account).

    As regards specifying products legislation The provisions in the Draft Bill related to ting to

    should allow flexibility to take account of products reflect the Directive

    new products.

    Article 12 : No material comments in relation to this Prohibition on article.

    applying Simplified

    DD to certain third

    countries.

    Article 13: Enhanced CDD focus should be on The Directive effectively requires both Enhanced Customer ongoing monitoring rather than additional approaches and the Draft Bill reflects Due Diligence ID. this.

    Some jurisdictions have a policy of not This Article of the Directive sets out

    issuing “Bank References” - this would options one of which is requiring

    cause problems in implementing Article 13 confirmatory certification (not a Bank

    2 (b). Is there a need to raise this at EU Reference) by a credit or financial

    level? institution. Accordingly there should be

     enough scope here to ensure that the

     Article can be implemented.

    Article 13 (4) (5) - For PEP’S and This is a matter for elaboration in

    Correspondent Banking it is suggested that guidance notes.

Report this document

For any questions or suggestions please email
cust-service@docsford.com