Annex1 - Synopsis of the Guidance
Effective from 11/11/2021| Purpose of this Guidance | Purpose | The purpose of this Guidance is to assist the understanding of risks and effective performance by the Licensed Exchange Houses ("LEH") of their AML/CFT statutory obligations. The FATF's Mutual Evaluation Report of the UAE issued in April 2020 stated that the Money or Value Transfer Services' sector, including the Exchange Houses' sector, is weighted as highly important in terms of risk and materiality in the UAE. The inherent risk and materiality of these sectors has been notably increased by their exposure to cash transactions. |
| Applicability | This Guidance applies to all Exchange Houses that are licensed and supervised by the CBUAE. | |
| Risks Related to the Exchange House Sector | The Exchange House sector provides widely used financial services to diverse customer sectors. While the majority of its Exchange Business is legitimate in purpose, it can be abused to facilitate illegal activity, including terrorist financing, money laundering, and other type of criminal activity. This is due to the simplicity and speed of transactions, worldwide reach, global regulatory disparity and often cash-based nature of transactions. Exchange Houses may also potentially be abused by criminal groups and corrupt employees or agents co-operating with criminals, who may seek to own an Exchange House outright, or indirectly through an associate or could seek to coerce employees through financial incentives. | |
| Regulation and Supervision of Exchange Houses | The Exchange Houses sector is regulated by the Regulations and the Standards issued by the CBUAE. For more detail and information, please refer to Chapter 16 on AML/CFT Compliance of the Standards for the Regulations Regarding Licensing and Monitoring of Exchange Business (Version 1.20 of November 2021 amending Version 1.10 of February 2018 ("The Standards")). LEH are supervised by the CBUAE, which may examine the activities of the LEH at any time it deems appropriate to ensure proper compliance with their statutory obligations under the legal and regulatory framework in the UAE, or impose supervisory action or administrative and financial sanctions for violations. | |
| AML/CFT Compliance Program for LEH | AML/CFT Program | LEH must carefully design, document and effectively implement an AML/CFT Program in line with the provisions of the Standards, AML-CFT Law, and AML-CFT Decision. When designing or updating their AML/CFT programs, the scope of the AML/CFT Program should be proportionate to the level of the risk posed by the LEH's size, scale, complexity, the nature and volume of its Exchange Business, the nature of its customer base, the business relationships it maintains, and the geographic areas in which it operates. |
| Risk Assessment | LEH must develop a risk assessment in order to understand how and to what extent it is vulnerable to ML/TF, and help determine the nature and extent of AML/CFT resources necessary to mitigate and manage that risk, which should cover all relevant factors including but not limited to: • Customer risk; • Products and services risk; • Delivery channel risk; • New technologies risk; • Jurisdiction or geographic risk; • Counterparty risk; and • Other areas of risk. | |
| Policies and Procedures | LEH must establish and implement comprehensive and documented AML/CFT policies and procedures to enable them to effectively manage and mitigate the risks identified. They must be approved, reviewed and updated, annually at a minimum, to ensure that they are consistent with the legal and regulatory framework in the UAE and other international best practices, and effective in mitigating existing as well as emerging ML/FT risks. | |
| Governance and the Compliance Officer | The core of an effective risk-based program is an appropriately experienced AML/CFT Compliance Officer who understands the LEH's risks and obligations and who has the resources and autonomy necessary to ensure that the LEH's program is effective. The role of Compliance Officer must be limited to tasks related to AML/CFT compliance and not be combined with any other functions of the LEH to avoid conflict of interest from multiple roles. The LEH must also appoint an Alternate Compliance Officer. | |
| Customer Due Diligence and Ongoing Monitoring | The goal of the CDD process is to ensure that LEH understand who their customer is and the purpose for which the customer will use the LEH's services. Where an LEH cannot satisfy itself that it understands a customer, then it must not accept the customer. If there is an existing business relationship, the LEH should not continue it. LEH should also consider filing an suspicious transaction report ("STR") or suspicious activity report ("SAR") or other report types to the FIU as discussed in section 5 of the Guidance. The Standards require three types of KYC processes that must be applied depending on the customer's risk and the nature of the transaction and customer. These are Customer Identification (CID); Customer Due Diligence (CDD); and Enhanced Due Diligence (EDD). Please refer to the table in Section 4.4 on when to use each KYC measure and to the respective paragraphs in the Standards for the detailed requirements. LEH are required to ensure that the documents, data or information obtained under CDD measures are up-to-date and appropriate by reviewing the records, particularly those of high-risk customer categories. Unless otherwise required, LEH should update the KYC information on customers and counterparties on a risk-based schedule, with KYC on higher-risk customers being updated more frequently. When customer's characteristics has changed, LEH should risk-rate the customer again, and, where necessary, conduct EDD. | |
| Transaction Monitoring | LEH must continuously monitor all their transactions to ensure that the transactions conducted are consistent with the information they have about the customer, their type of activity and the risks they pose, including, when necessary, the source of funds. All LEH should have a form of transaction monitoring system in place in order to monitor for any suspicious transactions to and from customers; failure to have such a system in place may not only cost an LEH its reputation, but also lead to large fines and other penalties. For more information and details, please consult the CBUAE's Guidance for Licensed Financial Institutions on Transaction Monitoring Screening and Sanction screening. | |
| Sanctions Obligations and Freezing Without Delay | LEH are required to promptly apply directives issued by the Competent Authorities of the UAE for implementing the decisions issued by the United Nations Security Council under Chapter VII of the Charter of the United Nations and the requirements set by Cabinet Decision 74 of 2020 regarding Targeted Financial Sanctions. For more information and details, please consult the Standards, the Executive Office of the Committee for Goods and Materials Subjected to Import and Export Control's Guidance on Targeted Financial Sanctions for Financial Institutions and designated non-financial business and professions, the CBUAE's Guidance for Licensed Financial Institutions on the Implementation of Targeted Financial Sanctions as well as the CBUAE's Guidance for Licensed Financial institutions on Transaction Monitoring Screening and Sanctions screening. Furthermore, LEH must sign up for the Integrated Enquiries Management System (IEMS) introduced by the FIU to automate and facilitate the execution process of requests for information, implementing decisions of public prosecutions and any other type of ML/FT requests. | |
| Training | LEH must provide comprehensive AML/CFT compliance training to all employees, which should be relevant to the LEH's ML/FT risks, business activities and up to date with the latest legal and regulatory obligations and internal controls. It should be tailored to particular lines of business within the LEH, equipping employees with a sound understanding of specialized ML/FT risks they are likely to face and their obligations in relation to those risks, and provided to all new employees within thirty calendar days from the date of joining and regularly thereafter proportionate to their ML/FT risk exposure. | |
| Independent Audit | Independent auditing must be undertaken regularly to review and assess the effectiveness of the AML/CFT compliance policies, procedures, systems and controls, and their compliance with the LEH's obligations by the LEH's Internal Audit Department. In addition, "agreed-upon procedures" for the review of the AML/CFT Compliance function must be performed by external auditors annually. | |
| Record-Keeping | LEH must retain all records, documents, data and statistics for all transactions for a minimum period of five (5) years from the date of completion of the transaction or termination of the business relationship or from the closing date of the account. Records must be maintained in an organized manner so as to permit data analysis and, where relevant, the tracking of financial transactions. | |
| Managing Employee Risk | The LEH must implement an appropriate recruitment and Know Your Employee ("KYE") process for hiring employees and confirm the background of applicants prior to placing them in employment. The level of vetting procedures applied should reflect the ML/FT risks to which individual employees are exposed in their assigned roles. | |
| Reporting Obligations | Reporting to the CBUAE | LEH must submit reports to the CBUAE, which may be updated from time to time in terms of the frequency and form of submission and their deadline. For the submission of periodical returns/reports via the online system, the LEH must obtain access to the CBUAE reporting portals, such as its Integrated Regulatory Reporting System ("IRR"), Remittance Reporting System ("RRS") and/or other applicable system. |
| Reporting to the FIU | LEH must file without any delay a STR, SAR or other report types with the FIU using the "goAML" portal when they have reasonable grounds to suspect that a transaction, attempted transaction, or funds constitute, in whole or in part, regardless of the amount, the proceeds of crime, are related to a crime, or are intended to be used in a crime. Please consult the CBUAE's Guidance for Licensed Financial institutions on Suspicious Transaction Reporting for further information. | |
| Prohibition of Tipping Off | The prohibition on tipping off means that the LEH or its employees must not inform customers or any persons or third parties, either directly or indirectly, that their transactions are subject to monitoring, under investigation or have been reported to the FIU as suspicious transactions. | |