ISSA panel on financial crime compliance: it’s all about changing behaviours

Earlier this year the ISSA (International Securities Services Association) Working Group was tasked with understanding the specific challenges in financial crime compliance, and reviewing the growing range of transparency regulations to provide a series of clear, actionable and measurable principles for the industry to follow.

One of the pressing issues they faced was the growing demand from clients and regulators for the segregation of accounts. The Group explained how the principles would subject omnibus accounts operated by firms to a much higher level of scrutiny – including specific conditions to give providers a much better overview over the uses of the accounts, such as information around the type of business and jurisdictions operated within. The panel explained how the standards would help to promote due diligence of custodians for their clients, as well as clarity around beneficial owners.

For now, the principles have been designed as intentionally broad in scope as ISSA looks to address transparency within the wider market, with a focus on cross-border settlement and custody, explains Mark Gem, Member of the Executive Board at Clearstream. “We need to ensure that the standards are both practical and achievable in a realistic timeframe”. He also noted that ISSA “aren’t currently in a position to legislate different uses of account structure around the world, nor do they have the authority to intervene in any domestic market, hence the current focus on cross-border for the time being.”

However, Thomas Zeeb, CEO of SIX Securities Services, believes that the wider issue at stake is how the principles will impact market behaviours. “When it boils down to it, the real objective of these principles is to address and change behaviour in the market, that’s the end game.” says Zeeb. “Ultimately, the principles are intended to be applied agnostically. How they get applied within certain jurisdictions and financial institutions is not necessarily relevant.”

Gem added: “Each market will move at a different pace depending on current issues faced and legislation, and as it stands, the principles are ultimately designed to apply to many different ‘tools’, irrespective of account structures.”

Whilst it’s still too early to determine what could happen post acceptance of the standards, or indeed what the main hurdles could be moving forward, the panel did discuss have further plans to cement the principles in the short to mid-term. “ISSA will seek to address issues such as introducing a standardised contractual language, to ensure that the market remains on the same page” said Oliver Gofffard, Head of Compliance and Ethics at Euroclear. Goffard also noted that the Group will need to continue exploring the improvement and extended application of the principles to other aspects of the market: “The Working Group will continue to exist and see what else we can do with the principles to evolve them to the extent where more areas are covered.”

Until then, enabling further transparency within the market remains the priority – and as with all regulation, market participation will be key. “Whilst these principles now apply, it will come down to the commitment of various providers to not only adopt the principles themselves, but to communicate them throughout the chain” added Zeeb.

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