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Industry Spotlight > Broker Dealers

MFA, Others, Comment on Changing Money-Laundering

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WASHINGTON (–The Managed Funds Association mailed the Secretariat of the Financial Action Task Force, Paris, its comments on the FATF’s consultation paper aimed especially at choking off terrorist finances.

On May 31, the FATF released a consultation paper on its review of its 40 recommendations on money laundering. In particular, the FATF said that it was interested in customer identification and due diligence by the whole range of financial institutions, suspicious transaction reporting, and regulation and supervision. In section 3.3 of this consultation paper, the FATF said that there is a potentially higher risk of money laundering where there is little or no face-to-face contact with a customer.

The MFA is concerned about that distinction. “Non face-to-face subscriptions to hedge funds are well accepted throughout the hedge fund industry, as well as in the mutual fund industry. A hedge fund, by its nature, is an investment company that relies on investor subscription agreements to gather investor information and to satisfy domestic and foreign regulatory obligations,” wrote MFA president John G. Gaine Aug. 30.

Mr. Gaine’s letter referenced and praised a more detailed critique of the FATF’s work submitted jointly by the Securities Industry Association, the Futures Industry Association, and the Investment Company Institute. The National Futures Association and the Futures and Options Association have each also submitted comment, each likewise referencing that from the SIA, et al.

The SIA letter contends that “heightened due diligence for all or most non-face-to-face scenarios” is “likely to have grave consequences for the securities and related industries.” It would also reduce the ability of the commenting associations and their members to combat money laundering and terrorist financing, by “diverting resources to accounts that are not necessarily more vulnerable to money laundering risks.”

Each of the commenting associations expressed concern that the FATF is taking the regulatory template that exists in connection with banks and applying it without adequate flexibility to the circumstances of other financial intermediaries. Each association also affirmed its commitment to the public policy objective of preventing, detecting, and sanctioning money laundering.

“MFA and its members are committed to assisting the government of the United States and international bodies such as the FATF in deterring and preventing money laundering and terrorist financing,” wrote Mr. Gaine.

“In that regard, MFA has met numerous times in Washington D.C. with representatives of the United States Treasury, the Securities and Exchange Commission, and the Commodity Futures Trading Commission to explain aspects of the hedge fund industry and MFA’s proactive approach in deterring money laundering with the adoption of anti-money laundering (“AML”) Guidance standards for the industry.”


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