FATF revision of Recommendation 25

The Financial Action Task Force (FATF) aims to better meet its objective of preventing the misuse of legal arrangements for money laundering and terrorist financing (ML/TF) and therefore conducts a review of its Recommendation 25 (R.25) and the Interpretive Note on their transparency and beneficial ownership (BO).

WSBI-ESBG response to the public consultation
General position
• The fragmented regulatory landscape is an issue for obtaining information from other jurisdictions.
• Guidance for implementing R.25 rules would improve the timely availability and accuracy of BO information.
• Resourcing and funding of the implementation of the R.25 requirements pose potential challenges.
Scope of legal arrangements, risk assessment and foreign trusts
• Regarding the potential limitation of the scope of risk assessment and mitigation obligation to such legal arrangements that have sufficient links with the countries, a sectoral risk assessment for legal persons and arrangements should be considered as a “sufficient link”.
• The new suggested risk assessment allows for the application of enhanced due diligence measures and also provides for how best to mitigate risks associated with different products and services.
Obligations of trustees under R.25
• When extending the requirement to obtain and hold information on beneficiaries or classes of beneficiaries to objects of powers of discretionary trusts, who may derive a benefit form a trust in the future, it should be referred to professional service providers such as lawyers, notaries, accountants, etc.
• Regarding the nexus of such obligations based on residence of trustees or location where the trusts are administered, it would be difficult to verify or authenticate information provided by trustees from other jurisdictions. Some trustees may reside from high-risk jurisdictions.
Definition of beneficial owners
• A standalone definition for BO in the context of legal arrangements might create a clear distinction between a BO for legal arrangements and for legal persons, but could lead to confusion. For a harmonised definition, the interpretive note should provide clarifications on, e.g., the element of “control” in a trust.
• Information regarding beneficiaries should be publicly available to promote transparency.
Obstacles to transparency
• Trusts that are owned or controlled by a company with various directors or nominee shareholders in different jurisdictions could be used to obscure ownership in legal arrangements.
• Flee/flight clauses are used as a protective mechanism for members and the interest of the trust. The enforceability of such clauses might be challenging.
• Key obstacles to transparency of trusts and other legal arrangements are the lack of uniform know-your-customer (KYC) standards as well as the use of professional intermediaries. Furthermore, the identification of BO of nominee shareholders, directors or various stocks can be difficult.
Approach in collecting beneficial ownership information
• Incomplete mandatory KYC information collected by other agents or service providers incl. trust and company service providers are observed to be an issue, as well as a fragmented regulatory landscape.
• A multi-pronged approach should be followed for accessing BO information of legal arrangements.
Adequate, accurate and up-to-date information
• The notion of “independently sourced/obtained documents, data or information” in the definition of accurate information poses an issue for the private sector as it is difficult to obtain adequate information

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An opportunity for the banking sector to work with informal savings groups in Morocco

Scale2Save Campaign

Micro savings, maximum impact.

Télécharger l'étude de casDownload the case study

Tontine, an ancestral practice, is tending to modernize : thanks to digital technology

Tontine, an ancestral practice, is tending to modernize thanks to digital technology.
The objective of the research is to conduct a qualitative and quantitative study case based on qualitative and quantitative identifies opportunities related to the launch of a digital tontine offer. Tontine from an ancestral practice to a modernized version thanks to digital technology
Download the study in French or English to access key findings around mobile payment, funding sources, participation to informal savings groups, smartphone and mobile internet penetration in Morocco.

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Young people matter: A case study from Postbank in Kenya

Scale2Save Campaign

Micro savings, maximum impact.

Scale2Save partner drives financial literacy to impart entrepreneurial skills. ​
BRUSSELS, 12 August 2020 —​ David Rutere needed help as he navigated how to pay for a double-major in mathematics and economics from The University of Nairobi. “I faced financial constraints that greatly hindered realising my educational and investment goals. Although I was on campus, I struggled to pay for my fees and meet daily needs."

In 2016, he attended one of the financial literacy sessions on campus organised by Postbank, a Scale2Save partner and government-owned postal savings bank primarily engaged in the mobilisation of savings for national development. ​​

“The PostBank-led sessions equipped me with life skills,” he said, “and inculcated a saving culture within me. Many will say that savings without a source of revenue is impossible, however, I think that savings from miscellaneous expenses is possible to do and wonderful to achieve. Through the programme, I learned how to save, budget, set financial goals and how to invest.”

The lessons learned paid off for David. In 2016, he opened a savings account and signed a three-year saving contract, where he committed to save KSh150 (US$ .50) a day. He saved 150 shillings every day consistently for three years and on maturity of the funds in 2019 he amassed in hand to invest KSh180,000, roughly equal to US$1,800.

“Immediately, I invested in horticultural farming where I began back in my rural home in Embu by constructing a greenhouse worth KSh200,000. A short while later, I started farming capsicum, a common type of pepper,” he added.

Rutere views the venture as a way to realise food security in the country, thereby contributing to the UN sustainable development goals, namely SDG1 on eradicating poverty as well as SDG2 on ending hunger, achieving food security and promoting sustainable agriculture. Similarly, his efforts also contribute to the “big four” agenda of the Kenyan government on improving livelihoods by ensuring food security in the country.

He shared: “I am now a proud, self-employed student because of my simple savings. I have a monthly income of KSh40,000 ($USD400) that enables me to fully pay for my school fees at the university and cater to my daily upkeep.”

Why Kenyan youth matter

According to the 2019 Kenya national census, three-fourths of its 47.6 million population are children and youth, with youth aged 18 to 34 years of age making up 29% of Kenya’s populace. The youth age bracket offers a huge potential to be a force to build a positive economic future for the country, both collectively and as individual agents of progress and change. With youth unemployment in Kenya standing at a staggering 22 per cent according to 2018 ILO estimates, there is need to constantly equip youth with entrepreneurship and life skills to help them navigate through this challenge.

Postbank Kenya, financial literacy, and youth

Postbank Kenya has been on the forefront in running financial literacy programmes for both in-school and out-of-school youth. Students in universities and colleges become empowered through sessions on financial literacy, entrepreneurship skills and enhancing soft skills in the workplace. For those out of school, the programme equips youth with entrepreneurial skills to start and run small businesses in line with their interests and passions. Since the onset of these initiatives, youths have been able to set financial goals and work towards them. There has also been an attitude change in youth entering the job market and informal sector. Most of the youths involved in the PostkBank effort have been able to set up small businesses ranging from agri-business and online stores to boda boda operations, which provide bicycle and motorcycle taxis commonly found in East Africa. Similarly, the savings habits of the youth that have been involved in the programme have proven encouraging.

Postbank Kenya continues to visit sectors where youth are employed to impart financial literacy. A case in point is Kitui County, east of capital Nairobi, where youth like David Rutere have now started saving for their financial goals after such training.

Paying it forward

David advises youth on the need to gain entrepreneurship skills: “There was a time when all you needed to succeed was the ability to read and write English, and thereafter, a university degree, followed by a masters and Ph.D. That has now changed, however, as we are now in the era of skills and what matters is the skill set especially needed in the digital era.”

On savings, David views saving at personal level as an obligation, not a privilege, of every responsible citizen with a clearly articulated vision and desire to invest.

“Set realistic goals and maximize the opportunities presented. Soon enough, you’ll have a successful story to tell. Let’s realign our priorities and discipline ourselves to savings that will help us realise our dreams.” ​

Scale2Save, partners celebrate International Youth Day
International Youth Day on 12 August presents an opportunity for Scale2Save partners like PostBank in Kenya to showcase their stories. That includes how partners serve and empower youth and young people through their projects. Project partner share stories from real people who benefit from their efforts to raise awareness around the need to mobilise savings among – and strengthen the resilience of – low-income populations, which includes financially excluded youth and young people.

The campaign matters because interest exists within governments, NGOs and international bodies to learn more about how financial institutions address the needs of youth, young people and young adults. For example, financial inclusion features in eight of the 17 UN Sustainable Development Goals. This year’s International Youth Day theme, “Youth Engagement for Global Action”, seeks to highlight ways in which engagement of young people at local, national and global levels enriches national and multilateral institutions and processes, the UN says. It also draws lessons on how their representation and engagement in formal institutional politics can be boosted.

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State Aid rules for banks in difficulty

The European Savings and Retail Banking Group (ESBG) welcomes the initiative of the European Commission to launch a targeted consultation aiming at reviewing the State Aid rules for banks in difficulty.

The potential revision will assess the fitness of the current rules regarding burden-sharing, market discipline, financial stability, and the protection of taxpayers among other things. The modernized framework should ensure that the State Aid rules are applied proportionally, are adapted to the crisis management and deposit insurance (CMDI) legislation and are specifically targeted at different kinds of bank crises.

ESBG argues that all DGS measures available under the CMDI framework applied in accordance with the rules established by the DGSD and the BRRD/SRMR, regardless of national specificities in the design, the governance, and the functioning of DGSs, should be exempted from the application of the regular State Aid control rules. It should be made clear that when DGS funds are used for support measures, State Aid rules should not be applicable and no notification to the Commission be required. Exempting the application of the State Aid rules on actions under the CMDI framework will allow the effective and undisturbed use of measures foreseen under DGSD/BRRD/SRMR.
Furthermore, and until such improvements are effectively achieved, ESBG finds it important to avoid any increase in contributions to the national DGS and to the Single Resolution Fund (SRF).

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International Sustainability Standards Board consultation on Sustainability Disclosures

The International Sustainability Standards Board (ISSB) has been established at COP26 with the purpose of developing a comprehensive global baseline of sustainability disclosures for the capital markets. The purpose of the consultation is to develop a comprehensive global baseline of sustainability disclosures designed to meet the information needs of investors in assessing enterprise value.

To this end, the consultation includes proposed standards on general sustainability-related disclosure requirements as well as on climate-related disclosure requirements |Position – Executive summary | August 2022 |

CONSISTENCY BETWEEN ISSB STANDARDS AND EFRAG ESRSs
WSBI-ESBG believe that it is crucial to achieve consistency of sustainability reporting at global level and especially a full alignment of reporting requirements between ISSB standards and EFRAG European Sustainability Reporting Standards (ESRSs) to ensure a global playing field in terms of sustainability reporting. This convergence between both standards will address the risk of additional disclosures.

DOUBLE MATERIALITY
WSBI-ESBG highlight that the IFRS sustainability standards are based on an ‘enterprise value creation’ or financial materiality approach, in which sustainability impacts are measured in terms of impacts on the financial position and prospects of the company itself. On the other hand, the EFRAG ESRSs are being developed based on the ‘double materiality’ principle, where disclosure is required both from the point of view of financial impact on the company and on the impact of the company on society and the environment.

TRANSITION PLANS
WSBI-ESBG notes that the EFRAG ESRSs make a clearer reference to alignment with limiting global warming to 1.5°C in line with the Paris Agreement. On the other hand, IFRS sustainability standards allow the entity to choose its own target. By way of consequence, WSBI – ESBG requests that the ISSB takes into consideration including a clear reference to the 1.5°C target of the Paris Agreement in order to ensure comparability between the two standards.

BOUNDARIES AND VALUE CHAIN
Although, WSBI – ESBG considers it essential that sustainability reporting should capture the entire value chain, we ask for clearer and more defined boundaries as it is considered difficult and complicated to obtain information from companies that are not under the control of a financial institution, especially regarding scope 3 GHG emissions.

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