As a result of the inspections conducted on a number of regulated financial entities since 2017, Panama's Securities Market Authority (SMV) has noted some recurring deficiencies among some of them, relating to their anti-money laundering measures.

To this end, the SMV has published Circular SMV-09/2018 "Notes on recurring deficiencies and guidelines for the market on anti-money laundering", which contains a series of recommendations that should be taken into account by regulated entities and, where necessary, corrected.

The recommendations are as follows:

Self-assessment template

An internal control classification process by which each regulated entity measures its performance and defines the possible risks inherent to its processes; it must cover the following areas:

• Corporate Governance
  • Board of Directors and how the committees work
  • Information received and handled by the Board of Directors and Committees from different operating areas
  • Resolutions adopted
  • Frequency of meetings by the Board of Directors and Board Committees
  • Composition of the committees and how operating areas are represented
  • The autonomy of the Board of Directors, of its independent members, of the Compliance Officer and Board Committees.
  • Continuous training of coworkers in areas such as due diligence, compliance, risk and such fields as may be required to perform their roles correctly.
• Internal control
  • Systems: adoption and implementation of risk mitigation manuals;  system implementation and automation of processes; triggering of alerts and frequency with which these are reviewed;  exceptions.
  • Internal Communication: information flow and procedures in the event of suspicious transactions; reporting between departments and Committees; processing of information received from the Board of Directors through the Committees; scoring of process execution (eg. time taken to conduct processes and deal with alerts).
• Due Diligence
  • Onboarding and segmentation of clients:  controls carried out to identify clients, beneficial owners, source of funds;  identification of client by risk profile; use of systems for the custody and analysis of static and dynamic client information;  procedures for reinforced identification.
  • Internal Due Diligence: for employees, suppliers and bank agents.
• Internal Audit
  • Internal Audit Plan during the year and scope of the review of the same
  • Communication of results of audits to the Board of Directors and relevant departments and committees
  • Implementation time of measures recommended for compliance

Sub-accounts

The Circular recommends that measures necessary to prevent this type of account from being used as a vehicle for money laundering crimes should be adopted. One of the measures recommended is that a limit be put on the use that the client can give to each account, adapting it to their transactional profile.

Payment to third parties

The Circular reminds readers that this activity is restricted to banks.

Substantiating the source of funds

Due Diligence must go beyond merely asking the client to provide their financial statements; the source of their wealth and of the funds in their accounts must be justified. To that end, regulated entities are required to solicit such information as may be necessary to corroborate the legitimate provenance of these funds, such as the proof of ownership or the holding of shares in a company or a copy of the purchase deeds of a piece of real estate.

Classification of Trust Funds

Private-interest trust funds should be classified as high-risk institutions, under FATF recommendations, as embodied in the National Risk Assessment and under article 28 of Act 23/2015*.

Identification of beneficial owners

The identification of  beneficial owners must be enhanced in line with the provisions of articles 7, 8 and 9 of Agreement 6-2015**. Where the client is a legal person, the file entry of their ownership of nominative shares onto the Share Register must be verified. Where the client is a natural person, it is important to check that the owner of the account is not acting on behalf of a third party and that the identity provided is not false. The Circular reiterates that the documents proving a client's affiliation must include a declaration from the beneficial owner.

Panama's Securities Market Authority (SMV) strongly encourages regulated entities to implement these recommendations in their institutions, to improve the country's financial system, strengthening its mechanisms to combat money laundering and the financing of terrorism.