Short overview of the French legal requirement for internal controls relating to the AML-CFT
Bastille Day Newsletter 2021 - Legislative, Regulatory & Policy Updates
On 16 January 2021, a new Order clarifying the requirements for internal controls relating to anti-money laundering and combating terrorist financing and assets freezing was published in the French Official Journal[i]. It came into force on 1 March 2021[ii] and describes the content of the AML-CFT system that entities subjected to AML-CFT obligations[iii] must put in place.
This text completes the Ordinance no.2020-115 of 12 February 2020[iv] transposing the fifth directive of the European Union on AML-CFT[v] and ensures France’s compliance with the last recommendations of the Financial Action Task Force (“FATF”, the intergovernmental AML-CFT body)[vi].
The entities subjected to AML-CFT obligations must identify, assess, and classify money laundering and terrorist financing risks, for existing products as well as when launching a new product, service or business practice[vii]. The level of risk must be assessed and updated according to the FATF, the European Commission and the OECD risk country lists[viii].
The internal control system must be formalized in writing with the necessary precision and has to be updated regularly to allow its implementation[ix].
Parent companies must establish and update a classification of risks identified and assessed at group level[x]. Procedures should be put in place to ensure the effectiveness of AML-CFT systems to reduce these risks[xi] and a group compliance officer must be appointed to this end[xii].
The Order also elaborates on the role of the AML-CFT Compliance Officer who is in charge of defining and monitoring the implementation of the AML-CFT system. In this capacity, that person must validate the risk classification, validate the AML-CFT internal procedures ensuring that information exchange and escalation procedures enable the effective and rapid transmission of the information required for the performance of their duties to the persons involved in the implementation of AML-CFT obligations. The Compliance Officer must also ensure that the subsidiaries and branches established abroad have mechanisms in place to monitor the compliance of their operations with local rules on the fight against money laundering and terrorist financing and the freezing of assets[xiii].
After informing the Autorité de Contrôle Prudentiel et de Resolution (“ACPR”)[xiv], the reporting entity may choose to entrust AML-CFT prevention to an external service provider[xv]. The Order describes the compulsory terms and conditions of outsourcing contracts, such as the description of the service provider’s tasks or its obligation to inform the reporting entity of any event affecting its mission[xvi]. Entities subjected to the Order must ensure that outsourcing contracts signed before March 2021 comply with the Order before 16 January 2022[xvii].
The Order reiterates the obligation to detect any transaction carried out for the benefit of persons subject to a freezing order, or any use of funds or resources held by persons subject to such an order[xviii]. Internal procedures must be put in place, particularly for the analysis of alerts relating to freezing orders and for the implementation of freezing measures and their lifting[xix].
Furthermore, the Order reaffirms the requirement to implement an internal control system for operations. The reporting entity must designate persons responsible for a specific permanent[xx] and periodic [xxi] Such persons must be independent from operational staff [xxii] and their identity must be communicated to the ACPR[xxiii].
Finally, the Order insists on the responsibility of the top management in the implementation of AML-CFT measures. To do so, they must have the necessary information[xxiv] to periodically monitor their effectiveness and take the necessary measures to remedy their inadequacy[xxv]. An annual report on the organisation of the internal control mechanisms must be drafted by the board or any other managing or governing body of the entity[xxvi].
Through the Order, the French legislator clearly intends to intensify its fight against threats related to money laundering, terrorist financing and the freezing of assets.
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