Financial Services (Customer Due Diligence Requirements for Banks, Leasing Companies or Discount Houses) Directive 2016

GOVERNMENT NOTICE NO. 12

FINANCIAL SERVICES ACT
(Cap. 44:05)

FINANCIAL SERVICES (CUSTOMER DUE DILIGENCE REQUIREMENTS FOR BANKS, LEASING COMPANIES OR DISCOUNT HOUSES) DIRECTIVE, 2016

ARRANGEMENT OF PARAGRAPHS

PARAGRAPH

1. Citation
2. Interpretation

PART II—OBJECTIVES

3. Objectives

*

10th June, 2016 27

PART III—REGULATORY REQUIREMENTS

4. Compliance with Regulations
5. Board responsibility
6. Customer acceptance policy
7. Communication of policy
8. Customer identification
9. Identification information for non face-to-face customers
10. Verification of identity
11. Ongoing monitoring of accounts and transactions
12. Exchange of information

PART IV—ENFORCEMENT

13. Monetary penalties

PART I — PRELIMINARY

IN EXERCISE of the powers conferred by section 34 of the Financial Services Act, I, CHARLES CHUKA, Registrar of Financial Institutions, make the following Directive—

1. —This Directive may be cited as the Financial Services (Customer Due Diligence
   Requirements For Banks, Leasing Companies Or Discount Citation Houses) Directive, 2016.

2. —In this Directive unless the context otherwise requires—

"bank" has the meaning ascribed to that term in the Banking Act; Interpretation

"cash" means any coin or paper money that is designated as legal tender in the country of issue and includes bearer bonds, travellers' cheques, postal notes and money orders;

"customer" means any person or entity that maintains an account with a bank, leasing company or discount house or persons on whose behalf an account is maintained as beneficial owners; the beneficiaries of transactions conducted by professional intermediaries; and any person or entity connected with a financial transaction who can pose a significant reputational or other risk to the bank, leasing company or discount house;

"financial institution" has the meaning ascribed to that term in the Banking Act;

"financial crime" has the meaning ascribed to that term in the Banking Cap. 44:01 Act;

"non face-to-face customers" is where a bank, leasing company or discount house, open an account on behalf of a customer who does not present himself for personal interview;

"Money 'Laundering Act" means the Money Laundering, Proceeds of Cap. 8:07 Serious Crime and Terrorist Financing Act;

*

28 10th June, 2016

"proceeds of crime" has the meaning ascribed to that term in the Money Cap. 8:07 Laundering Act;

"Regulations" means the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Regulations, 2011;

"senior management official" means—

(a) an executive officer;

(b) head of department or function;

(c) an official who reports either directly to the board of directors, to a committee of the board of directors or to an executive officer; or

(d) branch managers of a bank, leasing company or discount house that the Registrar declares as senior management officials;

"terrorist financing" has the meaning ascribed to that term in the Money Cap. 8:07 Laundering Act.

PART II — OBJECTIVES

Objectives 3. —The objectives of this Directive are to—

(a) ensure that banks, leasing companies or discount houses establish and regularly maintain sound know-your-customer policies, practices and procedures designed to determine the true identity of their customers as well as their customers' normal and expected transactions and sources of funds;

(b) facilitate compliance with the Money Laundering Act, Regulations, the Act and international best practices by banks, leasing companies or discount houses; and

(c) ensure that banks, leasing companies or discount houses operate with safe and sound banking practices so as to maintain the integrity of the financial sector.

PART III — REGULATORY REQUIREMENTS

Compliance 4. —(1) A bank, leasing company or discount house shall fully comply with with the Regulations. Regulations

Board 5. —The board of directors of a bank, leasing company or discount house responsibilities shall ensure that—

(a) approved Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) Programme Framework, Policies and Procedures are done on a regular basis;

(b) regular reports are received from the Compliance Officer on the design and operation of the AML/CFT Programme;

*

10th June, 2016 29

(c) regular reports are received from the internal and external Auditor on the independent testing of the AML/CFT Programme.

(d) all staff receive adequate ongoing training in AML/CFT Programme Framework.

6. —In addition to regulation 16 of the Regulations, a bank, leasing Customer
   company or discount house shall— acceptance policy

(a) have in place, as part of its risk management and internal control systems, an approved AML/CFT Programme Framework, adequate AML/CFT Policies, practices and procedures that promote high ethical and professional standards in order to prevent the bank, leasing company or discount house from being used by criminal elements;

(b) develop customer acceptance policy and procedures, including a description of the type of customers that are likely to pose a higher than average risk to the bank, leasing company or discount house;

(c) take into account factors such as background, country of origin, public or high profile position, linked accounts, business activities or other risk indicators of customers in preparing the policy;

(d) develop graduated customer acceptance policies and procedures that require more enhanced due diligence for higher risk customers; and

(e) ensure that a decision to enter into business relationship with politically exposed persons (PEPs) is made exclusively by senior management officials.

7. —A bank, leasing company or discount house shall ensure that Communica-
   relevant personnel are aware of the AML/CFT Policies and written tion of policy procedures, legal requirements contained in the Act and the Money Laundering Act.

8. —A bank, leasing company or discount house shall comply with the Customer
   provisions under Part II of the Regulations when identifying customers. This identification includes proper identification of minors and infants below the age of eighteen (18) years.

9. —A bank, leasing company or discount house shall— Identification
   information
   (a) apply the same customer identification procedures and for non face- on-going monitoring standards for a non face-to-face customer as for to-face those available for interview; and customers

(b) proactively assess various risks posed by emerging technologies and design customer identification procedures with due regard to the risks.

10. —In addition to provisions stipulated under regulations 9 to 15 of the Verification
    Regulations, a bank, leasing company or discount house shall— of identity

*

30 10th June, 2016

(a) establish a systematic procedure for verifying the identity of new customers and shall not enter into a business relationship until the identity of the customer has been satisfactorily established;

(b) document and enforce policies for identification of customers and those acting on their behalf;

(c) periodically review AML/CFT policies; or

(d) not enter into a business relation with any person or entity that is on the list of suspected terrorist organisations and individuals is on the list of suspected terrorist organisations and individuals approved by Malawi that is relevant to the bank, leasing company or discount house's operations.

Ongoing 11. —(1) The following provisions shall apply in addition to those monitoring of stated under regulation 22. accounts and transactions (2) A bank, leasing company or discount house shall—

(a) take reasonable steps to conduct ongoing scrutiny of any transaction undertaken throughout the course of the business relationship with a customer to ensure that the transaction being conducted is consistent with the bank, leasing company or discount house knowledge of the customer, the customer's business and risk profile, including where necessary, sources and applications of funds.

(b) ensure that it has adequate management information systems to provide timely information needed to identify, analyse and effectively monitor high risk customer accounts.

(c) pay particular attention to all complex, unusually large transactions and all unusual patterns of transactions that have no apparent or visible economic or lawful purposes, and shall examine as far as possible, the background and purpose of such transactions and set forth findings in writing.

(d) have an automated robust system in place to detect unusual or suspicious patterns of transactions.

Exchange of 12. —A bank, leasing company or discount house shall cooperate information spontaneously or upon request, with each other with respect to investigation and verification of identity of a prospective or an existing customer in accordance with the requirements of this Directive.

PART IV — ENFORCEMENT

Monetary 13. —(1) With respect to monetary penalties for violations of this penalties Directive that may be imposed by the Registrar, the following will apply—

(a) for a bank, leasing company or discount houses up to fifty million Kwacha (K50,000,000); and

(b) for natural persons who are members of the board of directors, or senior management up to ten million Kwacha (K10,000,000).

*

10th June, 2016 31

(2) With respect to bank, leasing company or discount house, the penalty in paragraph (1) (a) above shall be debited from the concerned bank, leasing company or discount house's main account maintained at the Reserve Bank of Malawi. The bank, leasing company or discount house shall be notified in writing prior to debiting the account.

(3) With respect to natural persons or where the bank, leasing company or discount house does not maintain an account with the Reserve Bank of Malawi, the penalty shall be paid through a bank, leasing company or discount house certified cheque payable to the Reserve Bank of Malawi within ten (10) working days after being notified by the Registrar.

(4) In addition to the monetary penalty imposed in paragraph 13 (1), the Cap. 44: 05 Registrar may impose directions, administrative penalties and enforcement action as provided under the Financial Services Act and the Banking Act. Cap. 44:01

Made this 27th day of May, 2016.

C. S. R. CHUKA
Registrar of Financial Institutions