Business insight

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AML-FT: what you need to know

Published on July 27, 2020

LCB FT

The prevention of money laundering and terrorist financing (AML-FT) concerns the entire financial sector. To tackle these issues and comply with the regulatory framework, companies must implement effective control systems. Because they are the location where financial transactions take place, marketplaces and other crowdfunding platforms are also subject to AML-FT regulations. What exactly is it all about and can you ensure compliance.

A monitored ecosystem

In France, there are three separate entities responsible for combating money laundering and terrorist financing in the financial sector:

  • The financial intelligence unit TRACFIN (“Traitement du renseignement et action contre les circuits financiers clandestins” or “Intelligence and action against clandestine financial channels”),

  • The Autorité des marchés financiers (Financial Markets Authority or AMF),

  • The Autorité de contrôle prudentiel et de résolution (Prudential Control and Resolution Authority or ACPR.

 

While the AMF’s remit focuses on financial investment companies, the ACPR supervises the banking and insurance sectors. It is also responsible for ensuring compliance with AML-FT within marketplace and participatory financing platforms, since they carry out payment collection operations on behalf of third parties.

The 4th directive on AML-FT reflects the 40 recommendations issued by the FATF, the Financial Action Task Force, which are themselves incorporated in the Monetary and Financial Code (CMF). A 5th directive has also recently been transposed into French law.

These recommendations are grouped around 5 main objectives:

  • To combat money laundering and terrorist financing through preventive measures,

  • To provide the relevant authorities with the necessary powers,

  • To facilitate international cooperation,

  • To identify risks and develop policies for coordination,

  • To increase the transparency and availability of information on the beneficial owners of legal persons and legal structures.

 

For a marketplace, it is the last two points in particular that require special attention.

AML-FT: what preventive measures should be put in place for a marketplace?

In a dynamic environment, marketplaces and participatory finance platforms must constantly monitor the different regulatory developments to make sure that they are always compliant.

To address the issues of transparency and risk identification, they must also implement various monitoring measures:

  • Sanction List / PEP identification

  • Transaction monitoring

  • Internal procedures

 

These various measures should enable them to confirm the identity of their clients, whether they are legal or natural persons. This is why the ACPR imposes KYC and KYB identification requirements, particularly with regard to beneficial owners, in the form of guidelines.

KYC and KYB

KYC or Know Your Customer is about gathering and verifying information relating to the identity and integrity of your customers and partners. KYB or Know Your Business, is the equivalent procedure for companies and legal persons.

In practice, KYC and KYB procedures consist of gathering a number of official documents and confirming their authenticity. In a marketplace, all sellers are subject to these requirements, while in a crowdfunding platform, all parties are affected: investors, lenders, project owners and regular contributors.

The implementation of KYC and KYB procedures makes it possible to meet the regulatory AML-CFT due diligence requirements.

Record keeping

In the event of a suspected fraudulent transaction, platforms are legally bound to report it to the relevant authority in France: TRACFIN. In addition, the “best-effort” principle requires that a senior manager be appointed and that all documents relating to the identity of the various customers and the nature of the transactions carried out be retained for five years.

What are the risks in the event of non-compliance with AML-FT requirements?

Should the preventive measures be inadequate or a serious lack of due diligence occur, the ACPR can take several steps:

  • Appointment of a provisional administrator,

  • Decision to impose a financial penalty of up to 100 million euros or 10% of turnover,

  • Withdrawal of accreditation,

  • Issuing a prohibition from practising in the event of direct and personal liability.

 

These measures also carry a significant reputational risk. For example, Banque Postale was fined EUR 50 million in 2018 for failure to comply with AML-FT requirements. In other words, these preventive measures are not to be taken lightly.

The payment service provider, a partner in AML-CFT

Companies have the option of engaging the services of a third party to carry out their anti-money laundering and counter terrorist financing obligations. For marketplaces and other crowdfunding platforms, this is often the PSP, the payment service provider.

In addition to managing and securing payments, the PSP assists the platforms in complying with the legal obligations associated with AML-CFT. In particular, the PSP provides useful tools to facilitate KYC and KYB procedures.

White paper: Marketplace how should you choose your PSP?

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