As global markets continue to recover from the financial crisis of 2008, the wealth and asset management sector is under regulatory spotlight as firms look for effective ways to protect against anti-money laundering and financial crime. Compliance with AML, KYC, and sanctions requirements continue to be a key focus area for management, and firms are under pressure to demonstrate a robust compliance framework to ensure legal requirements are met at both a regional and global level.
With total global assets under management expected to increase from $71.9 trillion in 2013 to $102.3 trillion in 2020 -- a gain of 42 percent over seven years -- non-compliance stakes will continue to rise with increased fines, deferred prosecution agreements, and targeted management accountability for AML and sanctions violations.
Like any other type of business in the financial services sector, asset management firms are subject to strict rules regarding money laundering and terrorist financing put in place by regulators. The regulations that are in place vary from one jurisdiction to another, so we have provided a snapshot of the regulatory regime for some of the major markets.
In the U.S., financial regulation as a whole is handled by several different agencies. In the case of asset and wealth management, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed a set of anti-money laundering (AML) requirements for U.S. investment advisers in August 2015. Under the proposed rules, advisers that are registered with the Securities and Exchange Commission (SEC) must establish AML programs and report suspicious activities related to money laundering and terrorist financing. These advisers must also comply with sections of the Bank Secrecy Act (BSA) that requires them to assist government agencies in the detection and prevention of money laundering.
For Canadian asset management companies, the requirements are already well-established and overseen by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Any individual or entity authorized under provincial legislation to provide portfolio management or investment advising services is considered a securities dealer under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). All securities dealers are required by the PCMLTFA to have a compliance regime in place as well as report any suspicious transactions to FINTRAC, keep detailed account records, and verify clients’ identities.
The latest set of AML regulations for the European Union (EU), the fourth Anti-Money Laundering Directive (AMLD IV), was published in June 2015. EU member states have until June 2017 to implement the new requirements of AMLD IV on a national level. AMLD IV brings the EU’s money laundering laws into greater alignment with those of the U.S., which will help to simplify compliance management for asset managers operating in both jurisdictions. Two key changes since the last revision of the Directive are a risk-based approach to compliance and the inclusion of domestic individuals on politically exposed persons (PEP) watchlists.
The Australian Transaction Reports and Analysis Centre (AUSTRAC) is Australia’s regulator that oversees compliance for asset management firms in that country. Under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), these companies fall under items 33, 34, and 54 of Table 1 as providing designated financial services. Similar to other jurisdictions, asset managers in Australia are required to have an AML program in place, report suspicious transactions, and keep detailed account records. One notable difference is the availability of a government-managed online document verification system that can be used in the customer due diligence or know your customer (KYC) process.
Like banks, asset and wealth management companies are subject to the same regulatory requirements when it comes to AML/KYC/CTF compliance. Although there are still some differences between jurisdictions, there is a greater movement towards converging regulations on an international level. There are certainly benefits to promoting greater cross-border compliance through harmonization of rules.
In a truly global economy, the need for stronger collaboration between financial regulators in different countries has reached a critical point. Regulatory convergence can encourage greater movement of foreign capital as barriers to investors are removed.
What do you think are the greatest challenges for cross-border compliance for wealth and asset management firms?