In December 2016, the Central Bank published its first Anti-Money Laundering Bulletin. These bulletins are intended to provide guidance and feedback to firms in complying with their anti-money laundering / countering the financing of terrorism ("AML/CFT") obligations. The first bulletin covers the topic of third party reliance.
A firm may rely on relevant third parties to complete certain customer due diligence ("CDD") measures, provided that there is a contractual arrangement in place with the third party and the third party undertakes to provide to the firm any CDD documents or information obtained as soon as practicable upon request.
In the context of investment funds, third party reliance arrangements between the fund or its administrator and a relevant third party that acts as a fund distributor or a nominee for underlying investors are common. In order to ensure that these arrangements meet the Central Bank's expectations, a fund and its administrator should ensure that:
- there is a signed agreement between the fund or its administrator and the relevant third party, in which the third party consents to being relied upon for these purposes and undertakes to provide any CDD documents or other information obtained as soon as practicable upon request;
- the signed agreement contains clear contractual terms in respect of the obligations of the third party to obtain and maintain the necessary CDD records and to provide the CDD documents upon request;
- the signed agreement does not contain any conditional language, whether explicit or implied, which may result in the inability of the third party to provide the CDD documents. For example, language which qualifies the obligation to provide the CDD documents, such as "to the extent permissible by law" or "subject to regulatory request", is not acceptable. This is of particular relevance where reliance is placed on a third party based in a jurisdiction that is subject to banking secrecy or similar restrictive rules; and
- policies and procedures are in place which set out an approach with regard to the identification, assessment, selection and monitoring of third party relationships, including the frequency of testing performed on such third parties to deliver the necessary CDD documents when requested.
The Central Bank has highlighted that reliance may only be placed on third parties to carry out CDD measures in relation to the identification and verification of a customer's identity and the establishment of the purpose and intended nature of the business relationship. Third parties may not be relied upon to carry out the ongoing monitoring of dealings with a customer, including identifying the source of wealth or source of funds.
The Central Bank recommends that regular assurance testing is carried out in respect of the third party arrangements to ensure that the CDD documents can be retrieved without undue delay and that the documentation received is sufficient.
Firms should take steps to ensure that any existing third party reliance arrangements comply with the applicable AML/CFT rules and take account of the guidance issued by the Central Bank in this regard. We suggest that, where third party reliance arrangements are in place, funds receive a report from the administrator about those arrangements meeting these requirements and that the report details the outcome of the testing carried out.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.