Strengthening the inter-relationship between theregulators and the financial institutions to mitigate

hchanceof discrepancies

Hussam Al-Abed

Bachir El Nakib Head of Compliance / MLRO

Industrial and Commercial Bank of China , Doha (QFC) Branch( )

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Why regulate financial & non-financial sector?

• Financial Markets are large and important• Financial Markets are large and important

• Financial stability is crucial to the well-being of a modern economyeconomy

• Investors may need protection from the risks posed by complex financial productsp

• Therefore…Regulator = TrustRegulator = Trust

Regulator’s Vs Financial Sector main goals

The main Regulator’s aim is to create successful circumstances for the financial sector:

1. - efficient fit bl / d i - - profitable /good services

- - more valuable money - - extended access to affordable services √ R l t d Fi h i il l √ Regulated Firms have similar goals

√ This creates a strong shared interest, despite inevitable tensions.

Regulator – Regulation and Regulated Companies

• Regulation can be either friend or foe to the main operating company or • Regulation can be either friend or foe to the main operating company or companies.

• Company and regulator have a common interest in the success of the sector.

• The best basis for this is successful main operators are: competitive/profitable/innovative competitive/profitable/innovative.

• However the regulator needs to enable effective competition to develop.

• Successful resolution of this tension depends on an effective working relationship.

Building an effective relationship between regulators and regulated companies

Main elements:

- Active management (on both sides)

- Practical arrangements, e.g. interconnection

- Provision of full information Provision of full information

- Arrangements to ensure compliance

- Straightforward approach to enforcement

International Standards Key considerations Regulators Vs Financial SectorVs Financial Sector

• MENAFATF Mutual Evaluation

• FATF HRJ Listingsg(Feb 2010 – Feb 2011)

• Qatar Remediation EffortsQatar Remediation Efforts

• MLRO Implementation

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MENAFATF Evaluations.docx

Background:

Undertake a self-assessment or gap analysis

• AML/CFT Self Assessment TemplateA tool to assist firms in determining the effectiveness of its AML/CFT– A tool to assist firms in determining the effectiveness of its AML/CFTpolicies and procedures.

– Not a checklist, not a Yes/No exercise.– Detailed description on how the firm meets the requirement is

expected– Assess & document the firm AML/CFT & fraud prevention programme

against each core requirement– A list of points that Firms should consider when assessing itselfA list of points that Firms should consider when assessing itself

against each requirement is provided– Rate its level of compliance: High, Medium, Low– AML Self Assessment.docx

Qatar Financial Centre Regulatory Authority 8

Qatar New AML/CFT Law (4) of 2010

Background:g

1. Cooperation with IMF and NAMLC Workshop February-March 2010 100125 Letter from FIU.pdfpM.Lesser.docx

1 Qatar listed by FATF as HRJ on 18 February 2010 after 1. Qatar listed by FATF as HRJ on 18 February 2010 after identification of deficiencies in Qatar’s previous AML/CFT legal framework (2002)

2. The new Law (4) came to light 18 March 2010 to protect Qatar from money laundering (ML) and the financing of terrorism (FT)

Law No. 4 of 2010 on Anti- Money Laundering and Combating the

QFC Regulatory Authority AML / CFT Rules 2010

Financing of Terrorism

Qatar Central Bank Guidelines of 2010 on Anti- Money Laundering and Combating the

Qatar Financial Markets Guidelines of 2010 on Anti- Money Laundering and Combating

• Aligned to Law No. 4 of 2010 on Anti- Money Laundering and

Anti Money Laundering and Combating the Financing of Terrorism

y g gthe Financing of Terrorism

Combating the Financing of Terrorism

• Ensure optimum compliance with FATF Recommendations and standardsstandards

Background to the new AML/CFT Rules

• close alignment with the FATF Recommendations and standards through the use of key FATF terms and terminology;standards through the use of key FATF terms and terminology;

• the rules set out a clear senior management responsibility forAML/CFT responsibilities and the development of an AML/CFT/ p p /programme;

• more sophisticated risk-based approach to addressing firms AML/CFTrisks; and

• a single set of rules designed and structured to closely alignwith how a firm would undertake the development and with how a firm would undertake the development and implementation of an AML/CFT program and the ongoingcompliance with AML/CFT regulatory requirements.

Qatar New AML/CFT Law (4) of 2010

Background:g4. QFCRA New Rulebook published 30/04/2010, revised

01/10/2010

5. New framework in line with Financial Action Task Force (FATF) international standards

6. In October 2010, the FATF publicly welcomed the significant progress in improving the AML/ CFT regimes in Qatar and noted that its jurisdictions met their commitments in their action plans regarding the strategic AML/CFT deficiencies that the FATF had identified in February 2010.(QNA)

FATF Public Statement & Imploving Global AML (1).doc

Overview of the AML/CFT Law

10 Sections

1. Definitions2. ML and FT Offences3. Disclosure system at customs4. National Anti-Money Laundering Committee (NAMLC)5. Qatar Financial Information Unit (QFIU) and Suspicious

Transaction Reporting (STR) System 6. Preventive Measures 7. Supervisory Authorities8. Investigative Procedures and Provisional Measures 9. International Cooperation10. Sanctions

Overview of the AML/CFT Law

Key Definitions include: Key Definitions include:

1. Proceeds of Crime - Any funds derived or obtained, directly or indirectly, from one of the predicate crimes listed in or indirectly, from one of the predicate crimes listed in Article 2 (all felonies, international conventions, list of proceeds generating crimes e.g. fraud, theft, smuggling )

2. Funds - Assets or properties of every kind3. Money Laundering –4. Financing of terrorism -5. Financial Institution (FI)– 14 categories 6. Designated Non Financial Businesses & Professions (DNFBPs)

– real estate agents, jewelers, lawyers, accountants, trust and company service providers

Key AML/CFT principles in Qatar

The 6 key AML/CFT principles cover the following areas:

Principle 1 – senior management responsibility;Principle 2 – risk-based approach;Principle 3 – know your customer;Principle 4 – effective reporting;p p gPrinciple 5 – high standard screening and appropriate

training; andPrinciple 6 – evidence of compliance.

Principle 6– evidence of compliance

• Principle 6 (Rule 1.2.6) requires a firm to be able to provide documentary evidence of its to provide documentary evidence of its compliance with the requirements of the AML/CFT Law and the Rules.

“Dear CEO” letters

Compliance confirmation letters from Firms on or before September 15th stating that the Firm has undertaken the following:

Review of Policies, Procedures, Systems and Controls Development & implementation of the risk-based approach Review customers files Enhancement of AML/CFT compliance culture Enhancement of AML/CFT compliance culture Training to relevant staff Independent Review of the AML framework

The letter should confirm whether or not the Firm is in compliance with the new The letter should confirm whether or not the Firm is in compliance with the new AML/CTF Rules 2010 of the QFC Regulatory Authority.

Areas of non-compliance + related remediation plan to be shared with the Regulatory AuthorityRegulatory Authority

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Who’s regulated by…..

RegulatorFIU

Firm

CEO Finance OfficerFacing Customer F ti

ComplianceMLRO CEO Finance OfficerFunctionMLRO

18© 2010 Compliance Alert

Approved Individuals – Controlled FunctionsControlled Functions Executive & Non-Executive Governance Function Mandatory1 Executive & Non Executive Governance Function Mandatory1 Senior Executive Function Mandatory2 Compliance Oversight Function Mandatory Money Laundering Reporting Function Mandatory3 Finance Function Mandatoryy Risk Management Function Mandatory4 Actuarial Function Mandatory5 Senior Management Function Customer Facing Function Mandatory6

1 Mandatory for subsidiaries only2 For subsidiaries the individual must be resident in Qatar3 Must be resident in Qatar4 Mandatory for Insurers onlyy y5 Mandatory for all Life Insurers and some General Insurers6 Mandatory for firms conducting Investment Business and Insurance Mediation Business

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Authorisation Criteria – Approved Individuals Details of the firm’s assessment of the individual’s competence to perform the 

proposed Controlled Functionproposed Controlled Function.

Career history for last 7 years (preferably provided with a copy of the individual’s CV) and explanations given for any gaps of longer than 6 months.

Other regulatory registrations – past and present.

Educational and professional qualifications that are relevant to the Controlled Function to be carried outFunction to be carried out.

Fitness and propriety questionnaire.

In summary to be considered fit and proper individuals must have the relevant In summary, to be considered fit and proper, individuals must have the relevant background, experience, education and skills to carry out their proposed function competently.  Included in our assessment of skills is the individual’s personality and character. This is particularly important for roles such as the Compliance Oversight Function and Money Laundering Reporting Function

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Function and Money Laundering Reporting Function.

Enforcement remedies

• Impose or vary conditions restrictions etc on an Authorisation or• Impose or vary conditions, restrictions etc on an Authorisation or Approval  [FSR Art 31(2) (A)]

• Withdraw an Authorisation/Approval or remove a Regulated Activity from a firm’s Authorisation [Art 31(2)(C)]a firm s Authorisation  [Art 31(2)(C)]

• Public censure [Art 58]

• Financial penalty [Art 59]

i f [ 60]• Appointment of manager [Art 60]

• Enforceable undertakings [Art 61]

• Directions power – prohibitions and/or requirements [Art 62]

• Injunctive relief [Art 63/64]

Qatar Financial Centre Regulatory Authority

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Annual MLRO Reporting

•Division 2.3C of the AML/CFT Rules of 2010Division 2.3C of the AML/CFT Rules of 2010

•What are the requirements?•Reporting by MLRO to senior managementp g y g•Minimum - annual reporting•Must assess the adequacy and effectiveness of the firms AML/CFT policies, procedures, systems and controls in preventing ML/TF•Rule 2.3.8(3)(a-k) prescriptive on the minimumareas to report on

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• Consideration of the MLRO report

Annual MLRO Reporting

• What must senior management do?• Consider each report made to it by the MLROp y• If deficiencies are identified – approve an action plan to

remedy • Reports must be given to senior management in sufficient Reports must be given to senior management in sufficient

time to allow senior management to deal with the report• Reporting cycle must be completed not later than 4

months after the firms financial year endsmonths after the firms financial year ends

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l O l dAnnual MLRO Report Template.docx

Adequacy and effectiveness - AML/CFTR 2.3.8 (2)

1. The report must assess the adequacy and effectiveness of the Firm’s AML/CFT policies, procedures, systems andcontrols in preventing money laundering and terrorist financing.

The AML/CFT policies procedures systems and controls are:The AML/CFT policies, procedures, systems and controls are:

Adequate Partially adequate Not adequate Not assessed yet

Comments: (How the adequacy assessment was conducted, areas of inadequacy…)

The AML/CFT policies, procedures, systems and controls are:

Effective Partially effective Not effective Not assessed yet

Comments: (How the effectiveness was assessed, areas of ineffectiveness…)

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Saudis form agency against money laundering and terror financing (Gulf News 28.03.11)

• Riyadh: Saudi Justice Minister Dr Mohammad Al Essa issued a decision on Saturday stipulating the establishment of a department to combat money laundering and terror financingto combat money laundering and terror financing.

• The creation of the new department comes within the framework of the activation of the ministry's role for the execution of a money laundering act issued eight years agolaundering act issued eight years ago.

• The decision coincides with the release of an international report placing Saudi Arabia in an advanced ranking among the G20 countries in terms of fighting money laundering and terror financingcountries in terms of fighting money laundering and terror financing.

DFSA censures Saxo Bank Dubai Limited

• Administrative Censure Saxo Bank DubaiAdministrative Censure Saxo Bank Dubai Limited March 2011.pdf

UAE banks detect 479 laundering cases Q1 - 2011

• UAE banks detected 479 money laundering cases in the first quarter of 2011 and reported them to the concerned authorities and officials said the high number indicated better surveillance and business upturn in the country.

• Central bank figures showed the total suspicious money laundering and• Central bank figures showed the total suspicious money laundering and terror funding cases stood at 572 in the first quarter of this year, most of which were detected and report by the country's 23 national banks and 28 foreign units.

• The figures showed 68 cases were reported by money exchange shops and the rest by insurance and other companies operating in the UAE.

• Speaking to reporters on Thursday, a senior anti-laundering official at the t l b k id d hi h b f 2 711 l d icentral bank said a record high number of 2,711 laundering cases were

reported in 2010, an increase of nearly 55 per cent of 2009, when they stood at 1,750. http://www.zawya.com/story.cfm/sidZAWYA20110423041759/UAE Banksttp // a ya co /sto y c /s d 0 0 30 59/U _ a s_Detect_479_Laundering_Cases

Qatar Financial Centre 2010 Decisions

On 05/05/2010 QFCRA imposes substantial Fine $506,000 on AL MAL BANK (Qatar) and withdraw Licence, due:

(i) Failing to keep proper accounting records that were appropriate to its business and that disclosed with reasonable accuracy its financial yposition; 

(ii) Failing to take adequate steps to ensure that its systems, resources, procedures and controls were at all times appropriate to its business;  p pp p ;

(iii) Failing to establish appropriate internal management and organisational structures, policies and procedures; 

(iv) Failing to maintain a register of members and other documentation(iv) Failing to maintain a register of members and other documentation required under the QFC Companies Regulations;  

(v) Failing to establish an effective and independent compliance function; 

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Qatar Financial Centre 2010 Decisions

05/05/2010 QFCRA imposes substantial Fine $506,000 on AL MAL BANK (Qatar) and withdraw Licence, due:

(vi) Failing to establish and operate effectively internal reporting mechanisms including arrangements to identify, measure, manage and control regulatory risks;and control regulatory  risks; 

(vii) Failing to maintain a Share Register or to issue Share Certificates for each share allotted or transferred;

( iii) F ili t id t i f ti t th R l t A th it(viii) Failing to provide accurate information to the Regulatory Authority regarding its controllers; 

(ix) Failing to ensure that the client funds were segregated from the Bank’s f d d b i th li t i t t th town funds and by paying the client money into an account that was 

not disclosed in the books and records of the Bank; and (x) Failing to ensure that its entire business operations were conducted in 

accordance with Shari’a

29© 2010 Compliance Alert

Is Too Much Compliance A Bad Thing?