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How should firms adapt for AMLD5 - Waymark Tech Blog

How Should Firms Adapt for AMLD5?

New anti money laundering legislation has arrived and firms will have to move very quickly in order to comply if they have not already. Those that do not, will be unable to plead ignorance. Even so, many are lagging.

On 10th January, the Government introduced its Fifth EU Anti-Money Laundering Directive (AMLD5). It’s an update of existing legislation so it doesn’t involve a massive overhaul but firms still need to take immediate action to ensure they are compliant.

What’s new?

The new regulation will enhance the powers of the EU financial intelligence units and increase transparency around company trust and ownership using beneficial benefit ownership registers. It will also prevent risks associated with the use of virtual currencies for financing terrorism and enhance access to information for financial intelligence units.

Specific and complete identification of real holders of passbooks, bank accounts or e-wallets must be provided. Until now, they could be anonymous. The required subjects list has been expanded, particularly taking us into the realm of digital currencies. The registration processes of holders and trusts will also be expanded.

Electronic sources

With the new regulation coming so quickly after Christmas there isn’t much time to get ready and it’s easy to see how some companies might get caught out. Of all the changes, it’s the requirement for electronic documentation, where possible, which might cause the most problems.

The legislation states:
“(19) Information may be regarded as obtained from a reliable source which is independent of the person whose identity is being verified where […]
(a) it is obtained by means of an electronic identification process, including by using electronic identification means or by using a trust service (within the meanings of those terms in Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23rd July 2014 on electronic identification and trust services for electronic transactions in the internal market(11)); and…
If you do not have a reliable way of obtaining documentation which meets these standards, you’ll have to develop it quickly. “

Due diligence

When deciding on due diligence, firms will have to consider a number of risk factors, such as transactions from high-risk countries, if the customer is the beneficiary of a life insurance policy, a national of a third country seeking residence rights or if businesses relationships are not face to face. If a transaction is related to oil, arms, precious metals or tobacco products they will also have to take more care.

To cope with these new demands, firms will have to enhance their due diligence checks and install AML training for all staff. You’ll also have to use electronic verification wherever possible, although paper-based checks may still be available in some circumstances such as if they have been provided by the client from electronic sources. While the changes to AML5 are far from exhaustive, they do require a significant adjustment, some which are all too easy to overlook.

Press Release - Governor Software Waymark Tech

Press Release

Governor Software and Waymark Tech Announce Global Financial Regulatory Content Agreement. 

  • Governor Software’s regulatory compliance solution Governor Reg to utilise Waymark Tech Global Regulatory Content, enabling it to support Financial Institutions to meet Regulatory Compliance demands globally.

LONDON, February 11, 2020

Governor Software Ltd, an innovative governance and oversight solution provider, today announced it has become a global reseller of Waymark Tech’s, global financial regulatory content, including current regulations, regulatory news and regulatory change. This agreement launches Governor Software’s Governor Reg, regulatory compliance solution onto the world stage, as Governor Reg can now support compliance teams across all financial regulations worldwide.

Richard Pike, CEO and Founder of Governor Software stated: “This global agreement with Waymark Tech is a big step forward for Governor Software and Governor Reg.  Since April 2019, Governor Reg: FCA, a live version of the FCA Handbook, has been available to support UK compliance teams map, track and report regulatory compliance.  This agreement with Waymark Tech provides the regulatory content required to allow regulated financial institutions from all over the world map, track and report regulatory compliance as well as receive Regulatory Change updates and Regulator News on the day they take place. Governor Reg was initially developed in conjunction with the Financial Conduct Authority (FCA) in the UK, utilising Governor Software’s unique visualisation technology to provide FCA-authorised firms with a unique version of the FCA Handbook, allowing them benefits from improved search functions, increased visualisation of regulations and the ability to download specific modules, to being able to view changes by date using the history feature.”. 

Richard Pike further stated, “The decision to work with Waymark Tech follows a full review of a number Regulatory Content providers.  The technology that Waymark Tech, winner of Best NLP Regtech Firm 2019 in Wealth & Finance International’s 2019 Artificial Intelligence Awards and a RegTech 100 firm uses, is by far the best fit for Governor Software. Waymark Tech’s use of artificial intelligence to automate the extraction of regulatory requirements integrated seamlessly with Governor Reg and passed Governor Software technology stress tests.

Mark Holmes, CEO, Waymark Tech, said, “We are very pleased that Governor Software has selected Waymark Tech to provide the Global Regulatory Content for Governor Reg, as it is extended to the global market.  There is a great deal of synergy in the pairing of our technology and a lot of power in what we can jointly offer regulated financial firms worldwide to enable them to take full control of their compliance.”

About Governor Software

With offices in Dublin, London and New York, Governor Software Ltd supports senior risk and compliance executives at financial institutions maintain governance and oversight through clear visualisation of their regulatory obligations and risk appetite.

Founded in 2015 by CEO Richard Pike, the Governor Software team have first-hand experience of the production and oversight of governance information within financial institutions. Empowered with this unique knowledge, Governor Software have taken a fresh approach to addressing these challenges; using visualisation technology to efficiently tackle the issues associated with governance and oversight in their entirety.

Governor Software believe the opportunity for compliance and risk professionals to make governance and oversight a more robust and effective process is significant.
For more information visit: www.governorsoftware.com

About Waymark Tech

Founded in 2016, Waymark Tech is a UK based regtech and suptech firm that

believes in empowering their public and private sector subscribers to discover and synthesise the regulatory information that matters through the combination of passionate experts and innovative technology. For more information visit: www.waymark.tech  

Five Lessons - Waymark Tech Blog

Five Lessons From SMCR

The Senior Managers and Certification Regime (SMCR) is finally upon us. After years of preparation, the FCA has finally rolled it out to virtually all regulated firms in the UK. Anyone performing a role designated by the FCA as a senior manager position will now be given designated responsibilities for which they are personally responsible.

With the rules now fully implemented, what can we learn from the FCA’s statements and investigations so far?

Convictions are difficult

Despite a number of investigations using SMCR powers, there has only been one high profile conviction when Jes Staley was fined more than £642,000 for failing to act with due skill, care and diligence in his response to a whistleblower in 2016. In a large firm, it is proving difficult to conclusively prove that one person should be held accountable for wrongdoing. The burden of proof is on the FCA which makes it difficult to secure a conviction but…

… Convictions may be higher for smaller businesses

With SMCR now extended to solo-regulated firms, that conviction rate could climb. While it can be impossible to prove personal responsibility in a large corporation it will be much easier in a smaller firm.

Firms should be proactive against non-financial misconduct

Non-financial misconduct will form part of the FCA’s assessment about who is a fit and proper person. In a Dear CEO letter Johnathan Davidson, Executive Director of Supervision, retail and authorisation wrote: “Following recent, publicised incidents of non-financial misconduct in the wholesale general insurance sector, I am writing to set out our clear expectation that you should be proactive in tackling such issues.” The FCA says it expects firms to identify what drives bad misconduct and, ‘modify those drivers’ to improve conduct.

Governance, governance, governance

As another Dear CEO letter highlights, this time from Marc Teasdale, the FCA is disappointed about standards of governance:

“Overall standards of governance, particularly at the level of the regulated entity, generally fall below our expectations. Funds offered to retail investors in the UK do not consistently deliver good value, frequently due to failure to identify and manage conflicts of interest,” he wrote.

A key issue, according to Teasdale, is liquidity management in open-ended funds. Liquidity, he said, should remain the responsibility of the asset manager even if outsourced to a third-party provider. While it is possible to delegate control, it is not possible to delegate responsibility.

SMCR is an opportunity

Much depends on how companies choose to perceive SMCR. Some will see it as simply being a compliance project, another box to be ticked in order to satisfy the regulators. However, it helps businesses get their governance in order. It includes all the things that companies should be doing in any case and helps companies highlight risk. Those who see this as a positive element of strategy are likely to see real benefits.

Smaller businesses are still getting to grips with SMCR. There may be bumps along the way, but every investigation, enforcement action and statement from the FCA contains lessons for the wider sector.

Best NLP Regtech Firm 2019

Best NLP Regtech Firm 2019

The team at Waymark Tech are delighted to have been named Best NLP Regtech Firm 2019 in Wealth & Finance International’s 2019 Artificial Intelligence Awards!

To read more about the awards, see their press release here: https://lnkd.in/epXeiXA.

To see our award, it’s here: https://lnkd.in/edmbjsH.

Wealth & Finance International is dedicated to providing fund managers and institutional private investors around the world with the latest industry news across both traditional and alternative investment sectors.

FCA Issues First Fine Against Claims Management Firm - Waymark Tech Blog

FCA Issues First Fine Against Claims Management Firm

The FCA has issued its first fine against a claims management company since it took over regulation of the sector eight months ago. It’s a finding which should signal the need for financial institutions to maintain the highest standards of transparency when communicating to customers.

Essex-based Professional Personal Claims (PPC) was fined £70,000 by the regulator for misleading branding and for submitting inaccurate or misleading claims to banks.

The FCA also believed that the firm was attempting to give customers the impression that they were making claims direct to those banks, when this of course, was not the case. PPC operated websites with the logos of five banks which contained their domains. The FCA said that this muddied the water of what customers might expect.

Customers could easily have been confused that the claims were being submitted directly to the banks rather than through a claims management firm in return for a fee.

“PPC’s misleading website and marketing material suggested PPC was associated with the five banks when this was not the case,” said Mark Steward, Executive Director of Enforcement. “Claims management firms must ensure their advertising is accurate. Not only in terms of what they say about themselves and their services but also in terms of what is represented.”

A lack of detail

The second charge is arguably just as damaging. People use claims management firms because they either don’t want the hassle of making the claim themselves or they aren’t confident they will fill out the forms correctly.

However, according to the FCA, PPC submitted claim forms to the banks which were either misleading or contained the wrong information.

The claims had already been made by the former regulator before the FCA took over, which had received 14 complaints about the company. PPC had originally challenged the finding in court, before withdrawing their claim in September leaving the FCA to adjudicate the penalty.

What can we learn?

This fine comes at a difficult time for claims management firms. The end of the PPI deadline leaves many people wondering what the future will bring for them. The FCA has only around 350 firms registering with them, compared to 700 during the height of the claims process.

The reputation of the sector is also extremely shaky. It has been blamed for misleading customers and also creating a compensation culture which has cost the banks billions.

If claims management firms are to go forward, the FCA, has served notice that it expects it to adhere to the highest standards of accountability and transparency. Advertising must be scrupulously accurate, communication must be clear and they will need to ensure all documentation is accurate, complete and correct. That might be something of an adjustment to a sector which has often thrived on ambiguity.

Before the deadline, the FCA had launched a high-profile marketing campaign to inform people about their rights and ensure they understood that they could make the claim themselves without using a claims firm.

Going forward they will have to ensure they are whiter than white, being clear about what they offer, how much they charge and that they are not affiliated with any bank or financial institution.

Bumber year for FCA fines - Waymark Tech Blog

2019 Proves to be a Bumper Year for FCA Fines

New figures suggest 2019 was a big year for the FCA when it came to fines, as it gets increasingly tough on a range of oversights. From mis-selling, to company culture and failing to protect customers, the regulator is making good on its commitment to clean up the financial sector. The lesson for financial institutions is that compliance is becoming increasingly central to their business.

According to a report in the Financial Times, penalties levied by the FCA totaled £391 million in 2019 – six times higher than in 2018 and the highest since 2015. A growing number of those fines were in “block buster” territory with nine fines being higher than £10 million, compared to just two in 2018.

The dubious honour of the top offender goes to Standard Chartered who were fined £102 million in April as part of a wider $1.1 billion set of penalties for violating sanctions and failing to heed red flags about its customers, even when one of them opened an account with $500,000 stuffed in a suitcase.

The biggest fine for an individual was £76 million for Stewart Ford who was behind the so-called death bond firm Keydata.

The most common breach has been mis-selling with Carphone Warehouse and Standard Life both receiving fines of around £30 million.

Lessons to learn

The FCA is flexing its muscles and showing a greater willingness to use its powers and fight cases. That will mean a number of things going forward…

Costs of compliance is likely to grow: A recent survey from risk.net found that 62% of firms expect their total compliance budget to increase over the next 12 months and 64% expect the cost of senior compliance staff to increase.
Personal liability will rise: The same survey finds that 70% expect the personal liability of staff to rise. The arrival of SMCR is going to put senior managers directly under the spotlight.
Culture will need to improve: The FCA has made a number of statements about the value of culture and their intention to use it as a risk evaluator for compliance. Risk.net’s survey finds that 71% of firms expect more compliance involvement in establishing a compliant tone.
Leading by example: Senior figures will have to lead from the top. They must ensure an environment where positive behaviour is rewarded
Oversight: A common theme in breaches over the year has been a lack of oversight. Firms will be expected to demonstrate that they have done everything they can to ensure a positive culture is put in place and people on the front line are adhering to that culture day in day out.
Reporting and transparency: As a look at the breaches on our Global Regulatory database demonstrates, failure to respond quickly and be transparent exacerbates the scale of fines. Firms will need to be open about measures they are taking and to demonstrate that they have taken all reasonable steps to comply with the rules.

A busy year ahead

2020 is likely to be an extremely busy year as firms get used to new regulations and the stance taken by regulators. Compliance will be a constant issue and will be a drain on resources. Firms will help themselves by putting compliance front and centre, staying up to date with developments, learning lessons from the mistakes of others and establishing a positive culture which minimises the chances of further non-compliance.

Check your Conduct Before the FCA Does - Waymark Tech Blog

Check your Conduct Before the FCA Does

Over the past year, the FCA has increased its focus on conduct which is why it’s a good idea to investigate your own firm’s behaviour – before the FCA does it for you.

2019 began with the collapse of London Capital & Finance together with all the grizzly details that came with it. As the FCA’s investigations progressed, a picture emerged of a company in which misconduct was commonplace and went unchecked.

In response, the FCA said it planned to intervene more swiftly to protect the interests of investors and it has been true to its word. 2019 was a bumper year for fines, the biggest for four years hinting at a regulator which is becoming more confident and aggressive.

In particular, though, they have started to focus on the conduct and culture of a business because this, the FCA believes, is a prime indicator for which firms are more likely to experience compliance issues.

Monitoring conduct

In a recent letter to the insurance sector, the FCA warned that firms would be at risk of failing SMCR if they failed to address financial misconduct. Jonathan Davidson, Executive Director of Supervision, Retail and Authorisations at the FCA, said the letter had come as a result of “recent, publicised incidents of non-financial misconduct in the wholesale general insurance sector”.

The same message was again hammered home in a recent speech at the Personal Finance Society by Debbie Gupta, the FCA’s Director of Life Insurance and Financial Advice.

“We expect you to adhere to your regulatory and professional duty, to give suitable advice to clients by identifying those conflicts of interest and managing it.”

Although many of the misconduct fines issued in the past year relate to historic abuses, the FCA still believes there is a culture of putting a firm’s financial interests above those of its clients. Firms are failing in their oversight and allowing a culture to develop where non-compliance becomes highly likely.

Take steps now

The FCA, then, will be grilling firms over their conduct, so it makes sense to beat them to the punch.

Ultimately, the FCA will be asking five questions of firms and you will need good answers for all of them. They are:

  • 1. What proactive steps do you take as a firm to identify risks?
  • 2. How do you encourage individuals who work in the front, middle and back-office to be responsible for managing the conduct of their business?
  • 3. What support does the firm have to enable people to improve conduct within their area of the business?
  • 4. How does the Board maintain oversight and consider the implications of each strategic decision?
  • 5. Has the firm assessed whether any of their other activities could undermine their attempts to improve conduct?

Firms can start by identifying risks within their business. Those firms with higher degrees of permissions will require more extensive governance and oversight. Are people within the firm sufficiently competent to carry out their roles and are they given enough support?

Firms will need to maintain oversight and implement adequate controls to monitor conduct within their business. They will need to look at the strategic decisions senior managers will be making and what expectations are being placed on their employees.

Those who are too heavily incentivised for financial performance, rather than representing the interests of the customers, will be more likely to act against their best interests.

In other words, you should put yourself in the shoes of the FCA and start asking the questions they will. So, when they do come calling, you will have all the answers in place.

FCA Clamps Down on Mini Bonds- Waymark Tech Blog

FCA Clamps Down on Mini Bonds

The FCA is clamping down on mini bonds, but according to Andrew Bailey this is just the start.

Speaking to S&P Market Intelligence, Bailey said that the move should be seen as a sign of its growing assertiveness.

“Some of the most complex issues we deal with are things on the regulatory perimeters. Mini bonds are not within our regulatory perimeter, but the promotion of them can be,” he told S&P Global Market Intelligence.

On 26th November, the FCA said it was intervening to ban the mass marketing of mini bonds to anyone other than high net worth and sophisticated investors. The ban will remain in place for a year until they can think of an alternative permanent arrangement.

Mini bonds were integral to the £236 million collapse of London Capital & Finance which leaves almost 12,000 investors in danger of losing their savings. Because mini bonds are not usually covered by the financial compensation scheme, if things do go wrong, investors can be left exposed.

An independent investigation into the FCA’s handling at the behest of the Treasury is underway which has highlighted a number of shortcomings from the regulator.

The FCA has come in for extensive criticism from all quarters for a host of issues and is under pressure to up its game. This is a sign that it is willing to do this and to stray into areas which have not normally been under its sphere of its influence.

The problem was that FCA regulated London Capital & Finance but not the complex high risk investments themselves, which gave some investors a false sense of security. Because they saw London Capital & Finance was regulated, they naturally assumed that so were the investments, and that they would be covered by the financial compensation scheme.

London Capital & Finance, for the most part, were willing to allow that misconception to continue unchallenged. This grey area of regulation has now come under scrutiny, although the Government rejected a recommendation from the Treasury Select Committee to give the FCA more powers beyond its remit to expand the perimeter of what comes into regulation.

While some people believe the perimeter should remain where it is, Bailey argues this position is no longer tenable for most people. The idea that the FCA should not be responsible for enforcing regulation against some companies ‘is no longer sufficient.’

The ban is a year long temporary measure but the FCA plans to replace it with something more concrete. It’s a sign that they are willing to be more aggressive in their powers and expand the perimeter of what they plan to regulate.

The grey area will be squeezed and the regulator says it is working closely with Google to report those sites which are not following their guidelines. The message for companies selling unregulated products is that the loophole is closing. The FCA is pushing against its own perimeter and will expand its powers to the limit.

London Capital & Finance also contains a wider lesson for the financial world. Aside from the action from regulators, the public are less inclined to accept the difference between regulated and unregulated products. They will expect the same standard of clarity and responsibility across the entire spectrum.

Control and Governance: Lessons from the Janus Henderson Fine - Waymark Tech Blog

Control and Governance: Lessons from the Janus Henderson Fine

The FCA has fined Henderson Investment Funds almost £2 million for unfairly charging customers active fees on two funds which were effectively tracking one another. It’s a case which demonstrates the importance of having effective control systems in place.

The Henderson fine relates to the treatment of customers before and after a strategy change which meant that two funds became closet trackers. The regulator said that 4,500 retail customers had been treated unfairly in two funds: Henderson Japan Enhanced Equity and Henderson North American Enhanced Equity.

In 2011, Henderson Investment Fund Limited’s investment manager, Henderson Global Investors Limited, reduced the level of active management on both the Japan and North American funds.

This should have meant they stopped charging their clients active fees, but their institutional and retail investors received very different treatment. While institutional clients were informed promptly, the company continued to charge retail investors active management fees.

Retail investors received no information either by the amendment of the prospectus or any other methods. For five long years, therefore, these retail investors were being charged the same active fees as their institutional counterparts.

In total, the FCA says retail investors were charged approximately £1.9 million more than if they had been in a passive fund.

“For retail clients, the Japan and North American funds were in effect operating as “closet trackers” as the fees charged to them were inappropriate given the diminished level of active management,” said the FCA executive director of enforcement and market oversight Mark, Steward. “The matter is aggravated by the length of time HIFL took to identify the harm being caused to the retail investors and to fix it.”

Henderson has accepted the financial penalty and has also informed and compensated all the affected customers. An HIFL spokesperson said: “Janus Henderson Investments accepts the FCA’s findings and the financial penalty and has co-operated fully throughout the process. Affected clients had already been separately contacted and fully compensated.”

Even so, the episode still has warnings over the management and governance of funds. The FCA stated that the case was exacerbated because it took so long for the issue to be rectified.

The regulator identified serious weaknesses in their systems and controls of oversight, governance and management. For this reason, it took years before they spotted the issue and resolved it. The company has taken steps but it will face questions about why one set of customers were informed but another was not, and why they failed to flag up the system.

Firms will have to update their controls and governance procedures to ensure issues such as these are identified as soon as possible. It is not just the initial issue of non compliance which creates problems for the FCA, but the lack of internal controls which ensured different customers received substantially different levels of service.

A Warning Not to retain Personal Information Longer Than Necessary - Waymark Tech Blog

A Warning Not to retain Personal Information Longer Than Necessary

Eighteen months on from Europe’s General Data Protection Act coming into force, the multi million Euro fines after starting to roll in. After major actions in the UK and France, Germany followed suit with a €14.5 million fine against real estate company, Deutsche Wohnen SE.
The fine in this instance relates to the company’s retention of personal data. In this instance, the Berlin DPA considered that the real estate company had retained personal data longer than necessary and that this amounted to a breach for three reasons.

  • The controller did not have a legal ground for storing this data longer than needed.
  • Article 25 covering data protection by design and default, and integrating safeguards into the processing in order to satisfy the rights of subjects.
  • Article 5 relating to the processing of data.

Deutsche Wohnen was found to have failed to establish a data retention and deletion policy which was compliant with GDPR for the personal data of their tenants. This was made worse by the fact that an audit had revealed problems in 2017 and that a second audit in 2019 revealed the company had still not managed to implement a GDPR compliant process because it still couldn’t demonstrate effective clean up of its storage or legal grounds for holding the data longer than necessary.


What can we learn


The DPA’s decision is not final and Deutsche Wohnen has already said it plans to appeal, but the ruling does offer a number of key lessons…

Europe’s regulators are getting tough: The slow start to GDPR enforcement led many to wonder if regulators were willing to resort to the full extent of their powers. We’ve now seen a number of fines from regulators in the million Euro bracket which suggests they aren’t shying away from large scale fines.

  1. Data retention is a problem: A common theme in fines is the legal basis for retaining data. Firms will need to ensure they have a clear legal justification if they continue to hold data for longer than is absolutely necessary.
  2. Data retention and deletion processes are crucial: All firms must have clear systems to archive and delete data. Deutsche Wohnen could have used one of a number of commercially available systems which allow it to separate data and apply different archiving and deletion rules.

This is also the first action to be taken under the DPA’s new guidelines for GDPR enforcement. These divide all violations into five categories:

Step 1: Companies are filtered based on their size.
Step 2: Average turnover is calculated.
Step 3: Daily rate is calculated by dividing average annual turnover of the undertaking for the previous year by 360.
Step 4: Establishing fine corridors which assess the perceived severity of the offence.
Step 5: Classification of the specific GDPR infringement.

Data protection authorities are all taking their own approaches to enforcement and fine calculation. This adds to the complexity of managing compliance as, although each one refers to the same regulation, authorities may always adopt their own individual stances.

This could become more complicated post Brexit. Although the UK has adopted the GDPR framework and will continue to do so after Brexit, future governments would be free to make changes in the future.

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