February 8th, 2024 General

SECURITIES AND COMMODITIES AMENDMENT: ZOOM-IN ON ANTI-MONEY LAUNDERING MEASURES

The Securities & Commodities Authority recently issued an amendment to its regulatory Rule Book of Financial Activities and the Status Rectification Mechanisms (the “SCA Rulebook”) on 28 December 2023.

The regulatory body diligently oversees the adherence of entities holding SCA licenses to the stipulations outlined in Decree Federal Law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations.

The amendment introduces a fifth section to the SCA Rulebook focused on anti-money laundering measures and combating the funding of unlawful organizations.

What is the layout noticed under the SCA Rulebook’s amendment?

The amendment provides that SCA license applicants and SCA-licensed entities would need to abide by implementing an anti-money laundering policy that is effective to ensure compliance.

SCA license applicants will need to review their proposed anti-money laundering policies and SCA-licensed entities and adjust their internal anti-money laundering policies to ensure compliance.

The key takeaways out of the amendment

The Rulebook provides for a framework that focuses on managing and dealing with the particularities of digital assets.

Further, the Rulebook provided an essential obligation on concerned entities that must have a layout policy for reporting and ending relationships with suspicious customers.

The Rulebook provides the importance of complying with annual statements submissions and submissions of reports pertaining to the anti-money laundering activity, highlights the importance of record keeping of all files for a period of ten (10) years, the importance of staff confidentiality and non-disclosure obligations.

The amendment further sheds the light on the importance of keeping full confidentiality measures on all disclosures made or reporting submitted.

The obligations of the concerned entity’s management and the concerned entity in general lies within the hands of the member of the board of directors and member of the senior management in general. Whereas, he will be responsible as well as all staff members of the concerned entity of any behaviour that incites or includes the following:

  • Money laundering actions;
  • Financing of terrorism;
  • Financing of illegal organizations;
  • Reporting suspicious activity or transaction; and
  • Invading targeted financial penalties.
Group of companies rational and practical overview under the amendment

We note from our preliminary observation of the amendment that it provides framework of the group of companies.

The amendment sets the ground for a particular scenario where the anti-money laundering rules differ between relevant jurisdictions connected to the group of companies. The amendment tackles specifically the scenario when a jurisdiction’s rules would differ from the rules applied in the UAE.

It is stated in the SCA Rulebook that when the rules differ, the holding company or the concerned entity should request from its affiliate, branch to apply the higher criteria between both states criterias to the extent allowed under the laws of the other state.

In the event the other state laws does not permit the application of the UAE federal laws or the rule book’s rules, the concerned party must notify the SCA in writing and carry out additional measures to manage anti-money laundering risks that may be caused by the branch or the affiliate.

Risk based assessment

The risk-based assessment is covered under four main points and factors as follows:

  1. objective basis;
  2. Reasonable grounds basis;
  3. Positively detected basis; and
  4. Revised and renewed on regular and reasonable basis

The assessment applies on customers, business, due diligence, third party dependence and training.

High business-related risks that must be categorized, specified and detected. In counterpart the entity would need to implement and create efficient policies and systems for anti- money laundering.

The categorization and investigation phase relies effectively on the determination and investigation of the following factors:

  1. the customers and their activities;
  2. the countries and the geographical area;
  3. The products, services and business portfolio;
  4. The distribution lines and the business partners;
  5. The operations;
  6. The products and new activities; and
  7. The new technical tools.

In counterpart the concerned entity would need to undertake the following actions and abide by the below procedures to be in compliance with the amendment and the Rulebook:

  1. Develop and framework its policies;
  2. Apply procedural measures to comply with its policies and apply restrictions system;
  3. Ensure the minimization of high business-related risks;
  4. Evaluate the efficiency of the policies being implemented in order to prevent money laundering; and
  5. Ensure KYC requirements are met and conducted.
KYC requirements – Enhanced and simple Due Diligence (“DD”)

The SCA Rulebook provided certain criteria and conditions that must be fulfilled in order to deal with high risk or low risk customers. If high risk customer, the entity would need to conducted a thorough DD if he is low risk the DD would be simple and high level.

The execution of due diligence on behalf of the concerned party procedure

The due diligence conducted by a third party on behalf of the concerned entity is only allowed in certain conditions:

  1. The third-party is an entity licensed by the SCA or any other competent regulatory authority;
  2. The third-party is a financial institution licensed by the relevant competent authorities in the federation or any outside foreign institutions authorized and licensed by the government;
  3. The third-party is a law firm, an accounting firm or a financial auditing firm licensed by competent authorities in the government or specialized in anti-money laundering; or
  4. a member of the concerned entity.
Conclusion

In conclusion, the implementation of robust anti-money laundering and combatting of fraud rules is imperative for maintaining the integrity and stability of financial systems worldwide. This amendment to the SCA Rulebook is designed to detect, prevent, and mitigate the risks associated with money laundering and fraudulent activities, safeguarding the SCA activities in general.

Authors:  Yousef Al Amly, Partner and Rana Mostafa, Associate.

For further information, please contact Alex Saleh (alex.saleh@glaco.com) or Yousef Al Amly ( y.alamly@glaco.com )