Peters & Peters

AML failures in DIFC-regulated firms lead to enforcement action

By Final Notice dated 2 November 2015, the Dubai Financial Services Authority (the “DFSA”) imposed a $640,000 financial penalty on the Dubai International Financial Centre branch of the Dutch bank ABN AMRO (“ABN”, or the “Bank”), for failures in the Bank’s anti-money laundering (“AML”) systems and controls.

The DFSA identified “widespreadcontraventions”, which in the regulator’s view merited the imposition of a significant financial penalty.  In particular, ABN had failed to:

  1. Identify and adequately assess the AML risk to which its business was exposed;
  2. Ensure that all of its employees were adequately trained and sufficiently understood ABN’s AML systems and controls;
  3. Undertake and document an adequate assessment of AML risk for every new customer relationship;
  4. Identify the beneficial ownership of every new customer at the beginning of a new customer relationship;
  5. Assign an appropriate risk rating to every customer, proportionate to that customer’s AML risk;
  6. Undertake and document customer due diligence (“CDD”) for every customer, and enhanced due diligence for customers assigned a high rating for AML risk;
  7. Undertake and document on-going CDD in relation to each of the Bank’s customers; or,
  8. Ensure that the policies, procedures, systems and controls it had in place were adequate to monitor and detect suspicious activity or transactions in relation to potential money laundering or terrorist financing.

All DFSA regulated firms operating in the DIFC are required to comply with the DFSA Principles for Authorised Firms (the “Principles”).  The Principles require, inter alia, a DFSA regulated firm to conduct its business activities with due skill, care and diligence (Principle 2); have adequate systems and controls in place (Principle 3); and, maintain adequate resources to conduct and manage its affairs (Principle 4).

ABN agreed that the failings identified by the DFSA meant that it was in breach of Principles 2, 3 and 4.  The Bank agreed to settle at an early stage, cooperated with the DFSA’s investigation and agreed to undertake any necessary remedial work, and in return was rewarded by a reduction in the total fine imposed by the regulator.

The Final Notice is the most recent of a series of regulatory enforcement actions brought by the DFSA against regulated firms on account of AML failings.  In April 2015, the DFSA fined Deutsche Bank $8.4million for a number of regulatory infringements, including deficient AML controls.  A $56,000 fine for AML failures was imposed on United Investment Bank in May 2015.

The DFSA Principles are broadly aligned with those promulgated by the UK Financial Conduct Authority (“FCA”) and applicable to UK regulated firms, and the action taken by the DFSA against ABN and other DIFC entities echoes similar enforcement activity taken by the then Financial Services Authority (now the FCA) following a critical Thematic Review into AML systems and controls in UK regulated firms.

It remains to be seen whether the DFSA will explore the other areas in which the FCA and its predecessor have found the systems and controls of UK-firms deficient (such as bribery and corruption, market abuse and conflicts of interest).  What is clear is that firms operating in the DIFC and neighbouring financial free zones will be subject to rigorous oversight, by regulators mandated with ensuring that the region’s financial hubs promote, and adhere to, international best practice in financial services regulation.

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