Financial Action Task Force publishes report on professional money launderers

The Financial Task Force (FATF) has recently published a report that looks at the techniques and tools used by professional money launders (PMLs). This is the first time the FATF has undertaken a project which concentrates on PMLs that specialise in enabling criminals to evade anti-money laundering and counter terrorist financing safeguards and sanctions in order to enjoy the profits from illegal activities.

The report aims to assist authorities to target PMLs as well as the structures that they utilise to launder funds and to disrupt and dismantle the groups involved in this illegal activity so that crime does not pay. Continue Reading

No Contractual Duty Owed to Customers by Banks when Conducting FCA Review into IRHPs

The Court of Appeal in Elite Property Holdings Limited, Decolace Properties Limited v Barclays Bank Plc [2018] EWCA Civ 1688 considered the appellants’ Application for permission to appeal against the Mercantile Court Judge’s decision to strike out part of the Appellants claims against the Respondent Bank. Whilst the application concerned permission to appeal, this was the first occassion on which the Court had considered whether or not a bank owed a contractual duty to customers in relation to its conduct of the review of the sale of interest rate hedging products (“IRHPs“) pursuant to an agreement with the Financial Conduct Authority (“FCA“). Therefore, the Court of Appeal gave permission for the judgment to be cited.

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FCA’s Anti-Money Laundering Report highlights focus on firms’ financial crime controls

The Financial Conduct Authority (FCA) published its annual Anti-Money Laundering Report on 19 July 2018, for the year ended 31 March 2018.

In the report, the FCA reminded firms that due to the size and global nature of the UK financial industry, financial crime and AML remains a significant risk and is therefore one of the FCA’s key priorities. Continue Reading

Commercial Court upholds ISDA English jurisdiction clause over Italian jurisdiction clause in finance agreement

Background

A recent interim hearing in the Commercial Court in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2018] EWHC 1670 (Comm) concerned the determination of jurisdiction where one party asserts that a dispute falls under the jurisdiction of the English Court under a standard form International Swaps and Derivatives Association (“ISDA“) documentation, and the other party asserts that it is in fact a foreign Court which should deal with the dispute pursuant to a different agreement entered into by the parties.

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FCA and PRA Consider Crypto-Assets

Hot on the heels of the FCA’s recent “Dear CEO” letter, the PRA has sent its own reminder to regulated firms considering, or already holding, crypto-assets.

Whilst the FCA focussed on mitigating the financial crime risks faced from use of crypto-assets, the PRA focussed on the risk of exposure to these developing assets which (in the words of the PRA) “have exhibited high price volatility and relative illiquidity” and in the view of the FCA carry the potential for abuse.

PRA’s expectations regarding exposure to crypto-assets

The PRA has stated:

  • The risks of crypto-assets should be subject to full consideration by the board and highest levels of management.
  • Where any planned business involves direct exposure to crypto-assets or to entities heavily exposed to crypto-assets, an approved, appropriate, individual with a Senior (Insurance) Management Function should be directly involved in the review, and should sign off on the risk assessment framework. Firms should notify the PRA of that responsible individual.
  • Incentives provided for involvement in crypto-assets should not encourage excessive risk-taking.
  • Firms should ensure they have appropriate expertise to assess their risks of crypto-asset exposure.
  • Extensive due diligence should be undertaken before taking on an exposure to crypto-assets.
  • Safeguards against all related risks need to be maintained. The perceived risks of crypto-assets encompass not just financial risks, but also operational risks (including cyber risks) and reputational damage. However firms should assess and set out their own consideration of the risks.

The PRA expects firms to inform their supervisory contact of any planned crypto-asset exposure or activity. The PRA acknowledges in the letter that classification of a crypto-asset will depend on the precise feature of the asset, though confirm that crypto-assets “should not be considered as currency for prudential purposes.”

FCA’s good practice for handling financial crime risks posed by crypto-assets

The FCA’s reminders were:

  • Enhanced scrutiny of clients/prospective clients and their activities may be required when these involve significant business or revenues derived from crypto-related activities.
  • It may be appropriate to consider:
    • Developing staff knowledge and expertise on crypto-assets to ensure clients/activities with a higher risk of financial crime can be identified.
    • Financial crime frameworks that keep pace with the fast-moving developments and which should adequately cater for relevant crypto-related activities.
    • Client engagement to understand the nature of their crypto-asset business.
    • Due diligence on key individuals.
    • Considering clients’ own due diligence processes where those clients offer forms of crypto-exchange services.
    • When looking at an Initial Coin Offering (ICO), the issuance’s investor base, organisers, the intended use and functionality of the token, and jurisdiction.
  • The risks associated with different businesses involved in crypto-assets will differ. It will not be appropriate to approach all clients involved with crypto-assets in the same way.
  • Where customers hold crypto-assets, or these will be the source of funds, the same risk criteria should be used as applied to other sources of wealth/funds. Although the evidential trail for crypto-assets may be weaker, the evidential test to be satisfied does not change.
  • There may be heightened risk of investment fraud where retail clients are contributing substantial sums to ICOs.

Crypto-assets remain a developing area, both in respect of the products and services on offer, and the regulatory landscape that applies. The guidance and/or requirements emanating from both the FCA and PRA are likely to change as the benefits, risks and types of crypto-assets continue to develop. Indeed, the PRA’s letter anticipates that supervisory or policy updates may be required in due course.

Future developments will include the outcome of the Treasury Committee’s inquiry into digital currencies, which has the potential to result in further regulation. Firms either involved in, with customers involved in, or with exposure to entities involved in, crypto-assets will need to stay abreast if the FCA and/or PRA’s approach to crypto-assets as these develop.

FCA’s Director of Enforcement speaks on whether the financial services industry has improved ten years on from the Financial Crisis

At the recent Banking Litigation and Regulation Forum, the FCA’s Director of Enforcement and Market Oversight, Mark Steward, discussed the measures implemented by the FCA to tackle the loss of confidence and trust in the financial industry following the Financial Crisis.

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Court of Appeal guidance on when the limitation period can be extended for negligence claims under s14A of the Limitation Act 1980

The Court of Appeal decision in Mr Nobu Su v Clarksons Platou Futures Limited and another [2018] EWCA Civ 1115 from earlier this month concerns the interpretation and application of s14A of the Limitation Act 1980 (“s14A”) and when a claimant is deemed to have ‘knowledge’ of the negligence in order to extend the limitation period under s14A.

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