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Changes in

Compliance & Regulation

Limerick, Galway, Mullingar

(See updated slides in relation to MCC 2017 and Grandfathering in particular)

Fergus Bradley February 2018

Nothing Stays the Same!

2018 – Nothing Stays the Same!

n AML/CFT/FS – 4th Directive, etc.

n MiFID Regulations

n Addendum to Consumer Protection Code

n Minimum Competency Code 2017

n PRIIPs

n GDPR

4th AML Directiven In place since 26th June 2017

n Awaiting legislation/SI to give effect to the Directive

n Awaiting any guidance from CBI, etc.

n AML/CFT is strong focus of the CBI

n Read Intermediary Times Aug ‘16 and Feb ‘17

CBI - RI inspection process

n Detailed Risk Evaluation Questionnaire

n Request for detailed supporting documentation

n Evidence of risk assessment completion

n Evidence of Board involvement and sign-off of policies, procedures, risk assessment

n Evidence of annual staff re-training, including attendees, confirmation of completion, presentations

Evaluation Questions

n Is AML an agenda item for Board meetings?

n How many times in last 12 months?

n Risk Assessment conducted/approved?

n What risk rating applied to various headings?

n What policies/procedures are in place?

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Trainingn All Board & senior management trained?

n Specialist training for MLRO?

n What training for new staff?

n Evidence of annual training – who received training, trainer, content?

n Records of everything?

Customer Due Diligence

n Risk profile of products/services?

n Breakdown of products/services by risk?

n Ultra High, High, Medium High, Medium Low, Low?

n Customer analysis under above?

n How many relationships/transactions rejected?

Financial Sanction/PEP checkingn Does EU/UN sanction take place & how?

n Does PEP checking take place & how?

n Frequency of checking?

n PEP’s and what countries?

n Non-resident clients?

n Remember PEP’s will include Irish PEP’s!!

On-going monitoringn Policies and Procedures review

n How is monitoring conducted?

n Pre-1995 customers?

n Customers living abroad?

n Systems e.g. MoneyAdvice, Wealthtrack?

n Suspicious Transaction Reporting?

Feedback emergingn Client on-boarding PEP checks

n Client on-boarding EU/UN Sanction checks

n If not ‘Face to Face’ sale, what ‘additional’ checks carried out? (Incl. low risk products)

n AML/CTF Training records – back to 2013 –attendees, providers, actual presentations

n Board – training, responsibility, oversight

Beneficial Owners Register

n Arises from 4ALMD – S.I. 560 of 2016

n Register required for most companies

n Need to record details of direct or indirect beneficial ownership i.e. 25% plus 1 share or greater

n Record name, DoB, address, statement of nature and extent of interest

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Addendum to the CPC 2017n Effective Jan 2018

n Dovetailing MiFID requirements for Investment Intermediaries obligations

n Addendum references MiFID Regulations and EU Commission Delegated Regulation 2017

n Not easy documents to read

Key Items in Addendumn Use of word ‘Independent’ in firm name or

description of services

n Provision of advice on an independent or non-independent basis

n Can’t be independent if commission received from product producer

n Suitability Statements – watch content changes for consumer ‘report’

More Key Items….n Conflicts of Interest – stronger focus

n Periodic suitability review - be careful what you commit to!

n If review, must be annual suitability review and possibly more often depending on risk profile of client or financial investments

n Target markets – product approval process, understand characteristics of products, etc.

And more….n Electronic recording of phone conversations

n If recording, the full MiFID rules apply

n If not recording, must follow up with note to client confirming key details – check the specific requirements of the Addendum!!

Minimum Competency Code 2017

n Published on 1/9/2017, effective 3/1/2018

n Partly driven by MiFID II, Mortgage Credit Regulations, Insurance Distribution Directive

n Consolidates previous updates to MCC 2011

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Changes

n Qualifications/Grandfathering

n Minimum of 1 key staff member to be involved in product design to meet prescribed standards

n CPD for all Board members of Mortgage Credit Intermediary firms

n Annual review of staff members development and experience needs – all firms!!

Grandfathering

n Will no longer apply to:- Debt Management services- Mortgage Credit Intermediaries (‘MCI’)

n Some transitional arrangements

n MCI’s must have qualification by 21/3/2019

n Credit Servicing – qualification by 8/7/2019

MiFID II services or activities

n Qualification plus…

n At least 6 months experience:- on a full-time equivalent basis- relevant to function by 3/1/2018

n Otherwise, qualification + 6 months experience on a full-time equivalent basis

Grandfathering – MiFID Bondsn Employees of Investment Intermediaries

authorised under the IIA may be able retain their Grandfathering to advise

n G/F Advisors in MiFID firms should check with the firm to see what rules apply to the firm

CPD Changes - MCI

n All Board members/Principals of MCI firms must complete CPD

n Applies to Non-Exec Directors and others in business not involved in MCI activities

n 6 hours CPD ‘in relation to mortgage credit agreements’

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PRIIPs

n ‘Packaged Retail & Insurance-based Investment Product’

n Introduces a KID (Key Investor Document)

n Effective 1 Jan 2018

n Product manufacturers developed KID’s

n KID is a standalone document max. 3 pages

KID for what products?

n Structured Bonds

n Unit linked insurance, unitised WP products

n Investment funds

n Derivatives

n Must be provided prior to sale?

n Paper preferred to face to face sale!

What products are excluded?

n UCITS products (until 2020)

n Pension policies

n Term assurance products

n Bank deposits

KID information

n What is this product?

n What are risks & what could I get?

n Risk reward profile file – 7 classes – different to ESMA!!

n What happens if manufacturer can’t pay out?

KID information

n Generic based on €10k SP or €1k AP

n What are the costs?- Summary Cost Indicator (‘SCI’)- Reduction in Yield (‘RIY’)

n How long should I hold the product?

n Can I take my money out?

n How can I complain?

The ‘KID’, The ‘SID’, and the ‘CIN’

Providers have choice to have:

n 1 Document - Single fund specific KID

Or

n 2 Documents - KID non fund specific plus a- SID (Fund specific Information)

n If insurance policy, still also need a CIN!

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Transparency

n Providers are taking interpretations

n Complex calculations from actuarial viewpoint

n Risk ratings are confusing

n Equity fund may be lower than Deposit fund!

n Advisors having difficulty getting to grips

n Spare a thought for the consumer!!

Example of Bond Client Docs

n Key Features Document

n ‘KID’

n Stockbroker Terms and Conditions

n Stockbroker Guide to Services and Charges

n Client Asset Key Information Document (‘CAKID’)

GDPR

n General Data Protection Regulations

n Effective 25 May 2018

n Start devising plans now

n Significant implications for all firms

Key changes

n Data Protection Officer may be needed

n Penalties – up to €20m or 4% of turnover

n Privacy by design – part of decision making

n Consent – freely specific, informed and unambiguous consent i.e. opt-in

GDPR – Key Changes

n Data breaches – mandatory reporting, failure to report could incur fine

n Legal redress – data subjects can sue

n Data access request – timescale reduced from 40 days

Become aware…

n Identify areas which could cause problems

n Review policies and procedures

n Sources – paper and electronic formats

n Where is information stored? Can it be easily accessed?

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Becoming Accountable

n Prepare inventory of personal data

n What data, why held?

n Why gathered, how was it obtained?

n Retention period

n How secure is data - encryption, accessibility

Communications…

n Review privacy wordings & Terms of Business

n Identify any potential gaps

n Extra information to client – legal basis for processing data, retention periods, right of complaints….

n Concise, easy to understand clear language

Retention….

n Data Retention Policy and timescales

n How can data be deleted – paper, electronic

n What is a suitable period to retain data

n Link to FSPO investigation > 6 years, potentially back to 2002!

Data Access Requests

n May not be able to charge fee

n Timescales down for provision of information

n Know where information is held - and how to access it

n Right to have information corrected

n Right to be ‘forgotten’ – what about regulatory obligations to retain data?

2018 – Nothing Stays the Same!

n AML/CFT/FS – 4th Directive, etc.

n MiFID Regulations

n Addendum to Consumer Protection Code

n Minimum Competency Code 2017

n PRIIPs

n GDPR