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P2 FinCrime is built on the foundations of P2 Consulting and FS 101, both challengers in their respective markets. By combining the Financial Crime expertise of the FS 101 team with the project and programme management skills of P2 consulting we offer the best solutions to clients without the Big 4 overheads.

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In the first of our ‘Ask the Expert’ series, Phil Rolfe, P2 Consulting’s CEO, interviews financial crime and compliance expert Peter Hazlewood.

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Is DFS 504 The Next Regulatory Trojan Horse?

Phil Rolfe, Financial Services Director at P2 Consulting

30.01.19

I’m sure we all remember the heady days of FATCA. The US Dept. of Treasury had been wrestling with how to identify US persons who held assets abroad and may owe them tax, and rather than trying to reach around the world and identify the perpetrators themselves, they decided to get the global banking family to do it for them. Clearly the tens of millions of £/$/€ was not invested by banks voluntarily – it was done because the US threatened the withholding of 30% of US$ transaction, a big stick indeed for any financial entity hoping to operate globally.

FATCA blazed the trail and CRS was soon to follow…

Hot on the heels of FATCA came Common Reporting Standards (CRS), when the rest of the world woke up and realised the same mechanisms that had been built for the US could be adapted for them and lost tax revenue could be recouped with relatively little central government investment. Any one country on its own would have struggled to strong-arm the institutions, but by banding together under the OECD banner, the investment was secured and CRS came to life a few short years after FATCA.

What is the next big thing from across the pond?

Part 504 Banking Division Transaction Monitoring and Filtering Program Requirements and Certifications. Comprising six (short and surprisingly readable) pages of regulation from the Department of Financial Services (DFS) in New York, this piece of regulation heralds a new era of accountability in relation to Bank Secrecy Act / Anti Money Laundering and Office of Foreign Asset Control Monitoring and Filtering compliance.

On your marks, get set….

The regulation has been effective since January 2017 but the first reporting cycle is April 15th 2018 – reporting on compliance for the full year 2017. The expectation is that any company that clears dollars through New York should have spent last year building evidence stores and attestation frameworks. The real sting in the tail for organisations adhering to DFS 504 is on the final page – the regulation stipulates that the Board of Directors, or a senior officer, must sign an annual attestation. With the threat of corporate and personal fines the incentive to adhere to the rules is pretty high for those signing on the dotted line. It’s that word “accountability” again.

Global regulators following suit…

Now that the DFS NY has once again set an explicit annual attestation standard, how long before the other major global regulators join the party? If a financial institution is compliant to DFS NY regulations, then it should only be a small leap to attest that it is compliant with the FCA, Hong Kong Monetary Authority, Singapore Monetary Authority and BaFin rules, meaning local leaders will be held directly accountable to local regulators. In the UK, this links nicely to the Senior Managers and Certification Regime – it is seeking to make accountability unavoidable.

If your team has recently finished preparation for DFS 504 Certification, I would recommend reviewing the framework and starting to evaluate how it can be made ‘regulator agnostic’. It will not be long before the next wave of regulators joins the DFS party.

For further information please email phil@p2consulting.com or call +44 (0) 20 7099 0803


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