Japan Asset Management Platform Group (JAMP) continues its guidance for current and prospective financial instruments business operators (FIBOs) on complying with Japan’s Act on Prevention of Transfer of Criminal Proceeds (the Act) ¹. The following article covers an investment advisor’s duty to “confirm at the time of transaction” as specified in the Order for Enforcement of the Act (the Order) ².
According to Article 7, paragraph 1, item (1) j of the Order, financial institutions that do not receive deposits of money are not obliged to "confirm at the time of transaction" under the Act. The FSA’s "Guidelines for Anti-Money Laundering and Combating the Financing of Terrorism" (February 19, 2021) ³ make clear the required and expected actions of "specified business operators” as prescribed in Article 2, paragraph 2 of the Act. which are supervised by the FSA (p. 5).
FSA's "Frequently Asked Questions on the Guidelines" (March 26, 2021) ⁴ advises "in the case of a risk-based approach to customer management, the ‘confirmation at the time of transaction’ provided in the Act and other laws and regulations is the minimum response [emphasis added], and it is inevitable that some additional measures should be taken. In any case, each financial institution, etc. is required to take appropriate actions in line with the purpose of the Guidelines, depending on its size and characteristics.” (p. 53)
Investment advisors are specified business operators under the Act, and confirmation at the time of transaction is required when conducting transactions that fall under the specified transactions. Although the Guidelines do not require confirmation at the time of transaction for transactions outside those specified transactions, the risk of money laundering and terrorist financing at financial institutions must be verified on a case-by-case basis, not limited to the provisions of the Act. Even when investment advisors do not receive direct deposits of money, financial authorities warn there could still be exposure to money laundering and terrorist financing through clients and partners.
To prevent being co-opted for criminal activity, FIBOs and investment advisors should consult the "National Risk Assessment of Money Laundering and Terrorist Financing (Investigation Report on Risk of Criminal Proceeds Transfer)" ⁵ and "Current Status and Issues of Countermeasures against Money Laundering and Terrorist Financing" ⁶ and establish a risk-based management system.
Relevant laws/articles (Except 3, the followings are not the latest versions mentioned in the above.):
1. Act on Prevention of Transfer of Criminal Proceeds
2. Order for Enforcement of Act on Prevention of Transfer of Criminal Proceeds
3. Guidelines for Anti-Money Laundering and Combating the Financing of Terrorism
4. English version not available
5. National Risk Assessment of Money Laundering and Terrorist Financing
6. English version not available
About JAMP: https://www.jamplatform.com/english/