May 29 2007 Chris Hamblin
Rob Moulton, a partner at the London law firm of Nabarros, recently expressed doubt that the European Union's Markets in Financial Instruments Directive and its Money Laundering Directive had strong links. Moulton was speaking to Complinet in an interview.
Moulton mused: "It is important to understand that MiFID is primarily concerned with 'know your customer' activity from the point of view of giving appropriate advice rather than from the client identification AML standpoint. I would also say that there is an overlap between MiFID and money laundering, but it is very slight and has nothing to do with the reasons for MiFID's emergence. The overlap is there because a lot of firms believe that they need to integrate the heightened KYC requirements of MiFID with existing money laundering KYC.
"Let's say I'm your adviser and I want you to invest in a fund of hedge funds. If you don't have a pension, or own a house, perhaps it's not such a good idea for you to do that. The KYC question is: do I know enough to know if what I'm advising you to do is suitable? The AML question, in the meantime, is: do I know who you are?
"There's no mistrust written into MiFID. I ask you about your assets. If a course of action you wish to take is inappropriate, MiFID says that I have to warn you about it. If you pretend you're a Cayman special purpose vehicle when you are actually a drug cartel, that's a problem for the money laundering department. In MiFID terms, if I give you the wrong advice because of your cover up, that's a problem for you and you alone."
The Venn diagram
Moulton was certain that if a compliance officer were to draw a Venn diagram showing money laundering interlocking with MiFID, the two circles would barely overlap. He went on: "The only overlap is when a salesman or relationship manager or establisher of suitability or adviser finds that Matey is obdurately insisting on an inappropriate way of doing things. If that happens, it's a good idea to notify the money laundering department. That is the main interface between MiFID and money laundering.
Press on regardless ...
Moulton continued with an example: "Imagine you are a private client stockbroker and you use one of those integrated systems that tries to get the customer to identify who he is and identify what he wants all in one. Imagine further that you're not satisfied with the information you get back. Your response will differ quite markedly according to whether you're after money laundering data or MiFID KYC data. If it's a money laundering concern, you don't deal with him and you report him. If it's a MiFID concern, you warn him — or rather let him know — that if you don't have the full information you won't be able to give him very good advice. But with MiFID you press on regardless."
... while the software vendors press on regardless
Despite the opinions of lawyers, some software vendors — although not Complinet itself — are drawing parallels between the two areas in the hope of doing some cross-selling. Complinet contacted Actimize, a typical American software vendor in both the money laundering and MiFID areas, to ask whether it was going down this route. When asked whether its "MiFID compliance solution" was of use to money laundering officers as well as mainstream compliance people, the firm's spokesman expressed no doubts.
"In our case, the answer is yes. We have one platform that can be accessed by AML, compliance and anti-fraud employees within financial institutions. Each sees a role-based case manager interface that can be further customised. I should also note that we have specific solutions for each area as well," he said.
