On 15 June 2017, the International Securities Services Association (ISSA) published an updated version (dated May 2017) of its financial crime compliance principles for securities custody and settlement.

The principles, which were first published in August 2015, are addressed to custodians and their institutional account holders (which are defined as the regulated financial institutions that act as the custodians’ customers).

The principles provide practical guidance to custodians on the appropriate due diligence measures to fulfil one of the recommendations set out in the principles of client identification and beneficial ownership for the securities industry that were published by the International Organization of Securities Commissions (IOSCO) in 2004

The relevant recommendation provides that correspondent banks may undertake enhanced due diligence on their equivalently regulated financial institution customers, to rely on the customers’ programmes to identify clients and ultimate beneficial owners.

In particular, the guidance under the principles is focused on the question of transparency of ownership and control in intermediated securities custody arrangements. There are 17 principles, which cover certain conduct risks, including measures to counter money laundering, terrorist financing, market abuse, corruption fraud and the evasion of sanctions.

ISSA has updated the principles to make minor technical amendments for consistency. The amendments were recommended by the ISSA board’s financial crime compliance working group. The update does not represent a substantial review of the principles.

In a related newsletter (dated June 2017), ISSA indicates that a full revision of the principles is planned for 2018.

ISSA has also developed the following materials relating to the principles:

• Examples of draft contractual terms to support the implementation of the principles.
  1. This document (which is only available in the “closed user group” section of the ISSA website) provides initial guidance on the drafting of contractual terms between custodians and their regulated account holders. ISSA has made available a short introduction to the document.
• Financial crime compliance sample questionnaire.
  1. This questionnaire aims to provide custodians that require it with the guidance and information necessary to perform due diligence on their account holders.
  2. ISSA will make the questionnaire freely available on its website in due course.

ISSA anticipates that cross-market adoption of the principles is achievable by the end of 2019. To support its members in reaching this goal, ISSA is establishing a new working group to develop best practice guidance on deploying a securities-specific crime compliance due diligence programme. It will provide updates on progress in this area on its website.