Proposed Wire Transfer Legislation, Rules and Guidance28th February 2007
The Commission has prepared draft Bailiwick anti-money laundering and counter terrorist financing legislation on wire transfers to ensure that BACs can continue to be used by firms in the Islands for transfers between the Islands and the UK.
The draft Transfer of Funds (Guernsey/Alderney/Sark) Ordinance, 2007 is available here (PDF, 55 Kb). A draft of chapter 7 of the Commission’s proposed AML/CFT Handbook, which will replace the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism is available here.
The key international standard on wire transfers, Special Recommendation VII (SRVII) of the Financial Action Task Force, was developed to ensure that basic information on the originators of wire transfers would be immediately available to beneficiary financial institutions and appropriate authorities to facilitate the identification and reporting of suspicious transactions. Whilst the Commission has been mindful of SRVII, attention has been necessarily concentrated on the EU’s effort to meet the standard in order to protect the use of the BACs payment system for payments between the UK and the Crown Dependencies.
In order for EU Member States to comply with SRVII the European Commission has issued a Regulation on Information on the Payer Accompanying Transfers of Funds (the EU Regulation).
The drafting of the EU Regulation took over 2 years and resulted in an enormous amount of work having to be undertaken by the Crown Dependencies so that BACs can continue to be used by firms in the Islands for transfers between the Islands and the UK. The BACs payment system does not provide for the inclusion of full originator information which is required by the EU Regulation for transfers between third countries - such as the Crown Dependencies - and the EU. Full originator information is defined by the EU Regulation as being:-
- customer name; and
- account number or unique customer identifier (which can trace a transaction back to the customer identification information); and
- customer address (or customer date and place of birth, or national identity number, or customer identification number).
In light of the inability of BACs to carry this full originator information, it has been necessary to negotiate a position with the UK authorities and the European Commission whereby transfers between the UK and the Crown Dependencies can be treated as domestic EU transfers.
The EU Regulation lays down a framework which provides for the continued use of BACs by the Islands. In this connection, the United Kingdom has made a written request to the European Commission for authorisation to conclude agreements in respect of wire transfers between the UK and Guernsey (and the other Crown Dependencies). The act of making this request means that transfers of funds between the UK and the Crown Dependencies are being provisionally treated as domestic EU transfers. The European Commission will only approve the agreements if the Crown Dependencies implement "same rules" (i.e. equivalent) domestic legislation to that contained in the EU Regulation. The required legislation for the Bailiwick will be made by Ordinances made under the European Communities (Implementation) (Bailiwick of Guernsey) Law, 1994, and the Commission proposes that separate Ordinances will be made for each of Guernsey, Alderney and Sark. The draft legislation prepared by the Law Officers Chambers provides for transfers between Guernsey and the UK (and Jersey and the Isle of Man) to be accompanied by the originator’s account number or, where there is no such account number, a unique identifier.
As Guernsey must have domestic legislation equivalent to the EU Regulation, a significant number of requirements – more than would usually be the case – are included in the Ordinance rather than in regulations, rules or guidance. In order to assist financial services businesses to understand the contents of the Ordinance, much of the text in chapter 7 of the proposed AML/CFT Handbook paraphrases the policies, procedures and controls which will be required by the Ordinances to be established and maintained on wire transfers.
The paraphrasing of the text within chapter 7 of the Handbook represents the Commission’s own explanation of the Ordinances and is for the purposes of information and assistance only. The paraphrasing will not detract from the legal effect of the Ordinances or from their enforceability by the courts. The paraphrased text is contained within a clear box in order to separate the paraphrasing from other aspects of the chapter. The chapter also contains rules which must be followed in order to meet the requirements of the Ordinances. The rules are contained in blue shaded boxes. In light of the detail contained in the Ordinances, chapter 7 contains only a small amount of guidance.
References are made in the draft Ordinance to the 2007 regulations to be made under the Proceeds of Crime (Bailiwick of Guernsey) Law, 1999 and also to the Disclosure (Bailiwick of Guernsey) Law, 2007, neither of which are currently in force. In considering the request made by the UK referred to above, it is likely that the European Commission will request further information, such as a copy of our proposed legislation on wire transfers. In order to ensure the Commission is in a position to provide such information, it is necessary for consultation on the Ordinance to take place prior to consultation on the 2007 regulations. The 2007 regulations are being drafted to meet the requirements in respect of financial services businesses of the 40 Recommendations and 9 Special Recommendations issued by the Financial Action Task Force. The Commission proposes to issue these regulations, together with the proposed AML/CFT Handbook, for industry consultation in April. The Disclosure (Bailiwick of Guernsey) Law, 2007, will contain a direct requirement to make a report to the Financial Intelligence Service where there are reasonable grounds for knowing or suspecting that a transaction or activity involved a criminal act.
The Commission would welcome comments on the practicalities of the requirements of the draft Ordinance and the draft chapter 7 of the AML/CFT Handbook, and in particular the requirements for specific information to accompany transfers and for institutions to detect and deal with incoming transfers which are inadequate. This consultation will enable the legislation on wire transfers across the Bailiwick to be finalised. The Commission proposes to arrange for the parliaments of the Bailiwick to approve the appropriate legislation as early as possible but it is anticipated that the Ordinances will not come into force until the end of the year, so that the Ordinances will have effect from the same date as the new Disclosure Law, the 2007 regulations and the AML/CFT Handbook.
Please provide any comments by the close of business on 6 April 2007.
Director of Policy and International Affairs