On 1 June 2015, the Swiss Bankers Association (SBA) presented the revised version of the agreement on the Swiss banks’ code of conduct with regard to the exercise of due diligence (CDB 16). A revision of the CDB 08 had become necessary due to the forthcoming changes in the Anti-Money Laundering Act “AMLA” and the FINMA Anti-Money Laundering Ordinance “AMLO-FINMA”.
In the area of money laundering prevention, the CDB is one of the most important self-regulations of the Swiss financial center. It specifies different due diligence obligations within the scope of anti-money laundering, for example, the verification of the identity of the contracting partner or establishing the identity of the beneficial owner. Moreover, it contains regulations with regard to the active assistance in the flight of capital and in tax evasion.
Because of the revised recommendations of the Financial Action Taskforce (FATF), different changes in legislation became necessary. These changes will come in two phases: on 1 July 2015 and 1 January 2016, respectively. Now, the SBA presented the revised CDB. CDB 16 will become effective on 1 January 2016 together with the revised AMLA and AMLO-FINMA.
In addition to a new structure, CDB 16 contains major amendments to particular sections. The most important ones are the following:
- Concept of the Controller: The new concept is based on „Establishing the identity of the beneficial owner for operating legal entities and partnerships”. The so-called Controller is defined to be a private person who controls an operating legal entity or partnership either directly or indirectly by themselves or in concert with third parties by owning at least 25% of capital or voting rights. Such private persons could also control operating companies or partnerships in other ways and would therefore also be considered to be their beneficial owners. As a general rule, the identity of the Controller has to be established by the financial intermediary. The CDB 16 provides a new Form K in its appendix, which serves as a template for a confirmation in writing by the client.
CDB 16 allows a number of exceptions: public authorities, banks and other financial intermediaries, certain nonprofit organizations, ordinary partnerships, condominium ownership associations as well as co-owner associations do not have to confirm the identity of the Controller in writing (Form K).
Whereas in most cases the Controller will be identical with the beneficial owner, in relationships involving fiduciary ownership, the beneficial owner may be different from the Controller. Such circumstances will lead to the client having to provide a Form K as well as a Form A. Aside from client relationships involving fiduciary ownership, it is likely that the process of establishing the identity of the Controller could become cumbersome and difficult for clients with multilevel structures of ownership, split control and domiciles outside a GAFI-country.
- Holding and Real Estate Companies: Previously, real estate companies were not classified as domiciliary companies, which is why the beneficial owner did not have to be established. This privilege has been scrapped. With regard to holding companies, CDB 16 only states that they are not to be classified as domiciliary companies anymore. Therefore, when dealing with either company structure it will be necessary to assess individually whether Form K and / or Form A is required for the case on hand.
- New forms I, K, S und T: New forms were created for insurance wrappers, Controllers of operating legal entities, partnerships and foundations. Form T for trusts and Form S for foundations were adapted considerably. Form R is no longer an appendix of CDB 16, but its use can continue on a voluntary basis.
- Identifying Ordinary Partnerships: As a new requirement, the identity of at least one of the partners has to be verified. The incumbent rule, where the verification of the identity of the designated signatory is sufficient, will continue to apply only in exceptional cases. For all partners that are beneficial owners of assets subject to the business relationship, and whose identity was not verified in the first place, a corresponding written declaration (e.g. Form A) will be required.
CDB 16 will enter into force on 1 January 2016. Moreover, it is expected that the awaited commentary of the SBA will provide further clarification with regard to the implementation of CDB 16 and the use of the new forms.
What are the next steps?
The efforts needed to safeguard compliance with the new requirements must not be underestimated. Therefore, it is crucial to:
- conduct an impact assessment of the new regulation, which should cover the impact on all departments;
- set up a cross functional project involving compliance, legal, IT, operations and risk-specialists;
- review internal directives, amend processes and update systems in due time;
- analyze resource planning and employee trainings.
Because of different AMLA-relevant legislative amendments (e.g. AMLA, AMLO, AMLO-FINMA, CDB 16) effective 1 July 2015 and 1 January 2016 respectively, the most critical areas may be the IT-systems which will have to be updated (keyword: “Maintenance Windows”), the amendment of client onboarding processes and the training of affected employees.