Primary tabs

Lloyds Banking Group

Lloyds Banking Group recognises the value the guidelines can give to assist firms in adopting risk-based AML/CTF policies and procedures. The guidelines should help drive a degree of consistency in implementation across the EU, both for firms and supervisors, in adopting a risk-based approach to AML/CTF.

Lloyds Banking contributed to, via the BBA, and supports the response to the consultation submitted by the European Banking Federation. The following comments are intended as an addendum to that submission.

The draft Guidelines provide helpful clarity at a high level of what is expected in terms of the approach to implementation of the 4th EU Money Laundering Directive. However, there is a lack of clarity around the expectations on firms in respect the following:

• Simplified Due Diligence
• Politically Exposed Persons
• Correspondent Banking

Simplified Customer Due Diligence (paras 41 – 45)

Whilst the guidance on Simplified Due Diligence provides greater flexibility for lower risk situations, the statement at paragraph 42 bullet 1 (ii) d) undermines this – “firms must make sure that...they do not defer CDD or delay obtaining relevant information about the customer where applicable legislation...does not permit this”.

It is important that Member States implementing legislation retains some flexibility in respect of regulated and listed firms, rather than replacing it with this guidance as, otherwise, this would have the effect of meaning Ultimate Beneficial Owner information is required for regulated and listed entities.

Such a restriction will mean that, unless other low risk scenarios are encoded in national laws, Simplified Due Diligence only really means deferring the timing of obtaining information, rather than reducing what needs to be obtained, under a risk-based approach.

Paragraph 42 bullet 4 suggests that set specific times for periodic reviews are not necessary and that firms may rely upon trigger events for low risk situations. This is welcome and chimes with the appropriate and proportionate application of the risk-based approach. However, the example later in the paragraph suggests that a new product or service or transaction threshold should be a trigger event. It is important this provision is defined at the right level, as it would be disproportionate for a retail customer opening a saving account to act as a trigger.

The expression that firms must make sure that this does not result in a de facto exemption from keeping Customer Due Diligence information up to date is unhelpful as it implies that a long-standing customer in a low risk situation would still need regular reviews to keep the due diligence material up to date rather than relying on triggers. Again, while the principle is sound, there should be some tolerance for some of the data to be not completely up to date, particularly in a retail environment.

Politically Exposed Persons

We welcome the guidance in paragraph 49 bullet 1 that the measures firms should take to establish the PEP’s source of wealth and the source of funds will depend on the degree of high risk associated with the business relationship.

Correspondent banking

The factors indicating lower risk in a correspondent bank (paragraph 76 bullet 1) does not cover all necessary areas. It is predicated on SWIFT RMA only, but many of the trading type relationships would go directly through exchanges and not through SWIFT. The definition therefore needs to be extended to include non-SWIFT scenarios.

Interestingly, paragraph 73 defines a correspondent banking relationship in the way the banking sector would recognise it. We question why we need a principal–to-principal definition in the product risk section, as paragraph 73 appears to exclude it. Paragraph 94 does, however, say that applying Simplified Due Diligence means referring back to Title II i.e. normal due diligence. However, this would mean a high risk customer acting on a principal-to-principal basis would still be covered by the correspondent banking requirements, which is excessive in many respects e.g. policies and procedures.

If paragraph 73 does not exclude principal-to principal relationships, then paragraph 94 should be amended to say “Where the correspondents consider that the Product, Services and risk factors are low, by virtue of the relationship being principal-to-principal, the requirements of Title II should apply.”
Lloyds Banking Group