Financial Information Unit Amends Anti-Money Laundering and Terrorism Financing Regulations Applicable to Capital Markets Participants

The Financial Information Unit (“UIF,” after its acronym in Spanish) issued Resolution No. 21/2018 (the “Resolution”),which aims to adjust Anti-Money Laundering and Terrorism Financing (“AML/TF”) regulations applicable to capital markets participants to the Financial Action Task Force Recommendations as of 2012, shifting such regulations to a risk-based approach. To this end, the UIF consulted with the Argentine Securities Commission (Comisión Nacional de Valores or “CNV”) with the purpose of adapting the FATF 2012 Recommendations to the capital markets sector. Such commission also consulted capital markets entities (such as markets and agents) and capital market associations. The Resolution abrogates prior Resolution No. 229/2011 on this matter and partially abrogates Resolution No. 140/2012 regarding financial trusts with public offering, its trustees, settlors and any individuals or entities directly or indirectly related to financial trusts, and establishes the new obligations that capital markets participants must comply with as reporting entities pursuant to Article 20 (4) (5) and (22) of Law No. 25,246, including Broker Dealers and Trading Agents, when acting in the scope of capital markets and  Administrative Agents for Collective Investment Products of Mutual Funds (the “Reporting Entities”).

Among the many changes introduced by the Resolution, the following are the most important:

1. System for the Prevention of AML/TF

Reporting Entities must implement a system for the prevention of AML/TF (“Prevention System”), which must contain all policies, procedures and controls in place for AML/TF risk management regarding all the risks they are exposed to, as well as the compliance requirements imposed by the applicable regulation.

2. Risk Management

Reporting Entities must develop a methodology for the identification and evaluation of risks according to the nature and scope of their commercial activities, which takes into account the different risk factors which exist for each of its operating units. Such self-evaluation (the “Risk Self-Evaluation”) must be carried out on an annual basis and filed with the UIF, which may pose objections or demand that modifications be made to the methodology of the Risk Self-Evaluation.

Reporting Entities must consider, at least, the following AML/TF risk factors for the performance of the Risk Self-Evaluation: (i) clients and their main traits; (ii) the products and services offered by the Reporting Entities and the offer of such products through new technological channels; (iii) the means of distribution of their products used by the Reporting Entities; and (iv) the risk factors as related to the geographical area where products are offered. Such items are the minimum disaggregated list to be used, and may be extended by the Reporting Entities as they see fit.

Once a Reporting Entity has identified and evaluated risks, it must establish adequate and efficient mechanisms for the mitigation of such risks.

In light of their scope and business strategy, Reporting Entities must: (i) prepare a statement regarding their tolerance to AML/TF risk which reflects their accepted risk levels regarding customers, products and/or services, distribution channels and geographical areas; and, (ii) prepare policies regarding the acceptance of customers with high risk of AML/TF where the general and particular conditions to be followed in each case will be established, as well as a detailed list of the customers the institutions will not do transactions with, as well as the reasons for such refusal.

3. Amendments regarding the duties of Compliance Officers

The new risk-based approach provides changes to the duties assigned to Compliance Officers.

The Resolution allows conglomerates and/or parent companies to appoint a single Corporate Compliance Officer, to the extent that the tools for the daily administration and control of the operations allow him or her access to all necessary information in a timely manner.

4. AML/TF Prevention Committee

Reporting Entities must set up a AML/TF Committee which may not be integrated by the Internal Control manager, although it may be integrated by the Risk manager, whose task will be to provide support for the Compliance Officer in the adoption and fulfillment of policies and procedures for the proper performance of the AML/TF Prevention System. Conglomerates and/or parent companies are allowed to appoint a single AML/TF Corporate Prevention Committee, as long as AML/TF Risk Management is centralized, and to the extent that the Committee is comprised of a member of the board and or high level management of each company in the conglomerate.

Reporting Entities which, as a result of their Risk Self-Evaluation consider a Committee unnecessary may dispense of such, although all of the Committee’s responsibilities will be assumed by the Compliance Officer. The decision above, its reasoning and analysis must be documented in the Risk Self-Evaluation and may be revised by the UIF.

5. Task Outsourcing

Upon the proposal of the AML/TF Prevention Committee, and subject to the approval of the board or the highest corporate authority, administrative support tasks for the AML/TF Prevention System may be outsourced, subject to compliance with certain restrictions.

6. Document Preservation

The original term for the preservation of documents is reduced from 10 to 5 years, except when such documents are related to unusual or suspicious operations.

7. Assessment of the AML/TF Prevention System

An assessment of the AML/TF Prevention System will be carried out in two stages: (i) an external independent reviewer with experience in AML/TF, as established in Resolution 67-E/2017, as amended, will assess the system and provide the results to the board and/or the highest corporate authority, who must take the necessary measures to correct any deficiencies or problems found; and, (ii) an internal yearly audit must be carried out regarding the system.

8. Due Diligence    

The Resolution allows the segregation of customers according to the risk level provided by the Reporting Entities’ analysis in accordance to the applicable risk criteria.

The Resolution allows Reporting Entities belonging to a same group to enter into reciprocity agreements which allows them to share client files, subject to obtaining clients’ prior approval, in accordance with article 5(1) of Law No. 25.326.

Notwithstanding the obligation of Reporting Entities to maintain the confidentiality of their clients’ information, such clients may require Reporting Entities to share all the information and documentation contained in their files regarding identification with other Reporting Entities listed in sections 1, 2, 4, 5, 8, 9, 10, 11, 13, 16, 20 and 22 of article 20 of Law No. 25,246 (which includes entities from the financial, insurance and capital markets sectors), as amended, when it is to be used for the initiation of an account or a commercial relation.

The Resolution sets specific conditions for the identification of trusts.

Moreover, the Resolution allows Reporting Entities to take on new clients and identify them in a virtual manner, through the use of videoconferences or certain biometric measures.

Notwithstanding the customers’ risk levels, financial and foreign exchange institutions must follow up on customer due diligence as a means to keep an updated transactional profile on each customer. The profiles of High Risk customers must be updated on a yearly basis, Medium Risk every two years and a maximum of five years for Low Risk customers.

9. Due Diligence made by other Reporting Entities

Reporting Entities may base their analysis on due diligence carried out by other entities supervised by the Argentine Central Bank ( “BCRA” after its Spanish acronym), the CNV or the Argentine Insurance Superintendence, except regarding continued due diligence, and subject to compliance with certain requirements as well as maintaining all liability for their obligations to report to the UIF.

10. Clients supervised abroad

As a novelty, the Resolution establishes a special identification and follow-up regime for clients which carry out financial activities and are authorized, regulated and supervised adequately from an AML/CTF standpoint under FATF recommendations in the original jurisdictions, as long as such jurisdictions are not considered non-cooperative or high risk by the FATF, are subject to authorization and control by their regulatory overseers and such overseers have agreements in place with the BCRA and/or the CNV.

11. Customer Disengagement           

The filing of a Suspicious Operation Report (“ROS”) in regards to a customer will not imply the automatic disengagement of such customer. Such disengagement will be subject to the Risk assessment carried out by the institution.

12. Transactional Monitoring

Reporting Entities must monitor their customers transactions based on automatized procedures and alert systems which allow the institution to monitor their customers’ activities and update their profiles in a timely manner.

13. Information Regimes

The information requirements to be filed with the UIF through their website have been updated to include: (i) Broker Dealers and Trading Agents must report brokerage accounts (discriminating between operational and dormant accounts); (ii) international securities transfers; and (iii) all Reporting Entities must file Systematic Annual Reports.

14. Special Regime for Trading Agents

The Resolution establishes a differential regime for Trading Agents which, by the nature of their activity do not receive or dispose of third party cash or securities, and may carry out the Risk Self-Evaluation every 2 years.

15. Enactment

Although the Resolution abrogates Resolution No. 229/2011 and partially abrogates Resolution No. 140/2012, it comes into force partially as from June 1, 2018.

Consequently, an implementation plan is set out, which demands Reporting Entities to (i) have developed and documented identification and risk assessment methodology by September 30, 2018; (ii) by December 31, 2018 they must have a technical brief which reflects the results of the implementation of such methodology; and (iii) by March 31, 2019, financial and foreign institutions must have adjusted their policies and procedures in accordance with the results of their Risk Self-Evaluation, which must be included in their AML/TF Prevention Manual; and (iv) compliance with the new information regimes established by the Resolution will enter into force on September 30, 2018. All other items of the resolution which have not been deferred in time will come into force on June 1, 2018.