On October 15, 2020, the Financial Markets Recovery Act 2020 entered into force. This Recovery Act brings a number of changes to the Prevention of Money Laundering and Financing of Terrorism Act (Wwft). The mandatory vetting of employees and day-to-day policymakers is one of these changes, or CDD examination of CDD employees. Leon Bex, legal consultant at consulting firm Charco & Dique, talks about this new obligation.
The amendment is part of the implementation of the Fourth Anti-Money Laundering Directive (AMLD 4) into Dutch law. The directive requires institutions to have policies, controls and procedures in place in several areas. Employee vetting is one of these topics. This point was previously not included in Dutch legislation, and this amendment corrects that.
But reliability testing is not entirely new. The Financial Supervision Act (Wft), the Prudential Regulation Decree (Bpr) and the Financial Undertakings Conduct Supervision Decree (Bgfo) already include standards for reliability testing for persons in integrity-sensitive positions, as well as employees directly engaged in the provision of financial services. Bex lists some of them.
Sections 4:9 and 4:10 Wft specify which persons must meet the requirements on suitability and reliability, respectively.
Article 13 Bpr places an obligation on financial companies to make a reasoned assessment of the trustworthiness of persons they intend to appoint to integrity-sensitive positions.
Article 28 of the Bgfo places the obligation on certain financial service providers that care must be taken to ensure that the reliability of, among others, the employees directly engaged in providing financial services is beyond doubt.
"However, the amendment to Article 35 Wwft goes further. Indeed, it is obvious that all employees will be subject to a 'pre-employment screening'. And as for the 'in-employment screening,' there is room to do this risk-based, depending on the position and any risk signals," Bex said.
For those who have already conducted the Wft review on all employees, nothing is likely to change. However, banks that have applied the Wft review to a limited group of employees will have to consider whether a new or additional review should be conducted.
"However, it does not explicitly describe what is to be vetted. The Explanatory Memorandum only indicates that the vetting is related to the risk of the institution being used for money laundering or terrorist financing. Also Article 8 of AMLD 4 does not give any further interpretation of the concept of vetting," Bex interpreted the change.
The Financial Action Task Force (FATF) says in its recommendations that a financial institution should have adequate screening procedures to ensure high standards in hiring. And that the type and extent of this screening should be appropriate, taking into account the risk of money laundering, terrorist financing and the size of the institution.
Thus, the degree of Wwft scrutiny required depends on the duties of a particular employee. "For example, an account manager who performs client research himself will have to be tested more strictly than an employee in the Administration department. A more stringent test could include an additional additional background check or requesting multiple references."
The Wwft review is also related to the risks, nature and size of a company. A large bank active in real estate and trade finance, unlike a small investment institution with a few Dutch investors, will also be expected to subject its employees to more stringent vetting.
How often the review should be done is also not specified. ''Judging from the text of article 35 Wwft, there is no mention of a periodic review, as this is clearly indicated for training in the same article,'' says Bex. ''For now, we assume that the review must take place when hiring an employee and possibly when there are signals of an integrity violation by an employee.''
