FIU: New Regulation Applicable to Foreign Exchange and Financial Institutions

The Financial Information Unit (“UIF”) issued Resolution No. 30-E/2017 (the “Resolution”), to adjust Anti-Money Laundering and Terrorism Financing (“AML/TF”) regulations applicable to foreign exchange and financial institutions to the Financial Action Task Force Recommendations as of 2012, shifting such regulations to a risk-based approach. To this end, the UIF and the Central Bank of the Argentine Republic (“Central Bank”) formed a joint technical commission of officials of both institutions with the purpose of adapting the FATF 2012 Recommendations to the financial and foreign exchange sectors. Such commission also consulted private bank and foreign exchange associations. The Resolution abrogates prior Resolution No. 121/2011 on this matter and establishes the new obligations that financial and foreign exchange must comply with as Obliged Subjects under Article 20, subsections 1 and 2 of Law No. 25,246.

Among the many changes introduced by the Resolution, the following are the most salient:

1.     System for the Prevention of AML/TF

 

Financial and foreign exchange institutions must implement a system for the prevention of AML/TF (“Prevention System”), which must contain all policies, procedures and controls in place for AML/TF risk management regarding all the risks they are exposed to, as well as the compliance requirements imposed by applicable regulation.

2.     Risk Management

Financial and foreign exchange institutions must develop a methodology for the identification and evaluation of risks according to the nature and scope of their commercial activity, which takes into account the different risk factors which exist for each of its operating units. Such self-evaluation (the “Risk Self-Evaluation”) must be carried out on an annual basis and filed with the UIF, which may pose objections or demand modifications be made to the methodology of the Risk Self-Evaluation.

Financial and foreign exchange institutions must take into account at least the following AML/TF risk factors for the performance of the Risk Self-Evaluation: (i) clients and their relevant traits; (ii) the products and services offered by the institutions and the offer of such products through new technological channels; (iii) the means of distribution of their products used by the institutions; and, (iv) the risk factors as related to the geographical area where products are offered. Such items are the minimum disaggregated list to be used, and may be extended by the institutions as they see fit.

Once a financial or foreign exchange institution has identified and evaluated its risks, they must establish adequate and efficient mechanisms for the mitigation of such risks.

In light of their scope and business strategy, institutions must: (i) prepare a statement regarding their tolerance to AML/TF risk which reflects their accepted risk levels regarding customers, products and/or services, distribution channels and geographical areas; and, (ii) prepare policies regarding the acceptance of customers with high risk of AML/TF where the general and particular conditions to be followed in each case will be established, as well as a report of the customers the institutions will not transact with, as well as the reasons for such refusal.

3.     Amendments regarding the duties of Compliance Officers

 

The new risk-based approach provides changes to the duties assigned to Compliance Officers.

The Resolution allows conglomerates and/or parent companies to appoint a single Compliance Officer, in the measure that the tools for the daily administration and control of the operations allow him or her access to all necessary information in a timely manner.

4.     AML/TF Prevention Committee

 

Financial and foreign exchange institutions must set up an AML/TF Committee which may not overlap with the Audit Committee, but may overlap with the Risk Assessment Committee, whose task will be to support the Compliance Officer in the adoption and fulfillment of policies and procedures for the proper performance of the AML/TF Prevention System. Conglomerates and/or parent companies are allowed to appoint a single AML/TF Prevention Committee, as long as AML/TF Risk Management is centralized, and to the extent that the Committee is composed of a member of the board and or high level management of each company in the conglomerate.

5.     Task Outsourcing

 

Upon the proposal of the AML/TF Prevention Committee, and subject to the approval of the board or the highest corporate authority, administrative support tasks for the AML/TF Prevention System may be outsourced, subject to compliance with certain restrictions.

6.     Assessment of the AML/TF Prevention System

 

An assessment of the AML/TF Prevention System will be carried out in two stages: (i) an external independent reviewer with experience in AML/TF will assess the system and provide the results to the board and/or the highest corporate authority, who must take the necessary measures to correct any deficiencies or problems found; and, (ii) an internal yearly audit must be carried out regarding the system.

7.     Due Diligence    

 

The Resolution allows for the possibility of segregating customers according to the risk level that arises from the institutions’ analysis in accordance with the applicable risk criteria.

Moreover, the Resolution allows financial and foreign exchange institutions to take on new clients and identify them in a virtual manner, through the use of videoconferences or certain biometric measures.

Notwithstanding the customers’ risk levels, financial and foreign exchange institutions must follow up on customer due diligence as a means to keep an updated transactional profile on each customer. The profiles of High Risk customers must be updated on a yearly basis, Medium Risk every two years and a maximum of five years for Low Risk customers.

8.     Due Diligence made by other Obliged Subjects

Financial and foreign exchange institutions may base their analysis on due diligence carried out by other entities supervised by the Central Bank, the Argentine Securities Commission or the National Insurance Superintendence, except regarding continued due diligence, and subject to compliance with certain requirements as well as maintaining all liability for their obligations to report to the UIF.

9.     Private Banking

As a novelty, the Resolution imposes that Private Banking must be subject to Reinforced Due Diligence, subject to the fulfillment of the following criteria: (a) that the balance on the account is no less than the equivalent of ten million pesos (ARS10,000,000); (b) a manager has been assigned to the account; and, (c) the services accessed through such account are not generally available in the institutions’ public offices.

10.   Customer Disengagement             

The filing of suspicious operation report (“ROS”) in regards to a customer will not imply the automatic disengagement of such customer. Such disengagement will be subject to the Risk assessment carried out by the institution.

11.   Transactional Monitoring

Financial and foreign exchange institutions must monitor their customers’ transactions based on automatized procedures and alert systems which allow the institution to monitor their customers’ activities and update their profiles in a timely manner.

12.   Other applicable rules

The Resolution updates the requirements regarding electronic transfers and cash deposits, in this last case updating the minimum amounts to two hundred thousand pesos (ARS 200,000).

13.   Information Regimes

The information requirements to be filed before the UIF on their website have been updated to include: (i) High Amount Cash Transactions Report; (ii) International Transfer Report; and, (iii) Systematic Annual Report.

14.   Special Regime for Foreign Exchange Houses, Agencies and Offices

The Resolution establishes a differential regime for institutions included under Law No. 18,924, as amended and restated, which, due to the particulars of their businesses and volume are exempt from certain obligations imposed by the Resolution.

15.   Enactment

Although the Resolution abrogates Resolution No. 121/2011, it comes into force partially as of September 15, 2017.

Consequently, an implementation plan is set out, which demands financial and foreign exchange institutions to (i) have developed and documented identification and risk assessment methodology by December 31, 2017; (ii)   have a technical brief which reflects the results of the implementation of such methodology by March 31, 2018; and (iii) by June 30, 2018, financial and foreign institutions must have adjusted their policies and procedures in accordance with the results of their Risk Self-Evaluation, which must be included in their AML/TF Prevention Manual. All other items of the resolution which have not been deferred in time will come into force on September 15, 2017.