AML/CTF

Enhancing Compliance: Navigating the GFSC Handbook and High Risk Requirements

Sara Barclay AML/CTF, Compliance, Corporate Governance, Due diligence, Guernsey , , , , , , , ,

In today’s fast-paced regulatory environment, Guernsey financial institutions must ensure they are not only compliant but also adaptive to ever-evolving domestic and international standards. The Guernsey Financial Services Commission (GFSC)Handbook provides a critical framework for ensuring Guernsey financial institutions uphold the highest standards of governance when countering financial crime, countering the financing of terrorism, and countering the Financing of Proliferation (CFC,CTF,CPF or Financial Crime) when undertaking their business activities. One of the most crucial sections, Chapter 8, delves into enhanced customer due diligence (ECDD) measures required for high-risk business relationships and situations. This blog will explore these ECDD measures and how organisations can align their operations and compliance frameworks with the Guernsey regulatory expectations set out in Chapter 8 of the GFSC Handbook.

Understanding the GFSC Handbook: A Regulatory Pillar

The GFSC Handbook is a guiding document that helps regulated entities in Guernsey comply with legislative and regulatory requirements, specifically around CFC, CTF, CPF and operational soundness to prevent and detect financial crime. By addressing both international and local standards, the Handbook covers areas such as:

  • Corporate governance
  • Risk management
  • Due diligence
  • Customer relationships
  • Transaction monitoring

However, when dealing with high-risk scenarios, standard measures are often insufficient. Chapter 8 is designed to mitigate risk in such situations through ECDD, enhanced monitoring, and enhanced reporting requirements to provide for effective corporate governance.

The Importance of Chapter 8: Enhanced Measures for High-Risk Situations

Chapter 8 of the GFSC Handbook specifically addresses scenarios where standard due diligence may not suffice to adequately mitigate risks of high risk business relationships. In such situations, Guernsey financial institutions and their directors and controllers are expected to employ ECDD measures to ensure robust risk management. These high-risk situations may arise from the following:

  • High-risk customers: Individuals or entities from jurisdictions with weaker CFC, CTF, CPF frameworks or with susceptibility to financing of terrorism or proliferation activities, politically exposed persons (PEPs), or clients involved in industries with higher susceptibility to financial crime.
  • Complex or unusual transactions: Large transactions that are inconsistent with the customer’s known profile or operations, or where the source of funds or rationale for the transaction is unclear.
  • Higher-risk products and services: Financial services that pose higher risks, such as correspondent banking, nominee services, and some services involving virtual assets.

Enhanced Customer Due Diligence (ECDD)

One of the critical components of Chapter 8 is ECDD, which goes beyond standard customer identification and verification processes. ECDD measures may include:

  • Additional documentation: Guernsey Financial institutions must collect more extensive documentation to verify the customer’s identity, business activities and rationale, and the source of their funds and wealth of their beneficial owners .
  • More in-depth investigations: Guernsey Financial institutions are required to dig deeper into a client’s background, including reviewing ownership structures, past transactions, and financial history (source of wealth and source of funds).
  • Regular updates: Ongoing due diligence must be performed more frequently, ensuring that any changes to the customer’s profile are promptly captured, investigated, and where required that documentation is obtained to confirm the continued legitimacy of the business relationship.

Key Requirements under Chapter 8 of the GFSC Handbook

To successfully implement Chapter 8, Guernsey Financial institutions need to address several critical areas:

  • Customer Due Diligence (CDD) and understanding and documenting the rationale of the business relationship and its components. 

Under Chapter 8, financial institutions must enhance their CDD and while documenting and clearing demonstration the rationale and purpose of the business relationship. This includes verifying the identity of beneficial owners, understanding the nature and purpose of business relationships, and ensuring continuous monitoring. For high-risk customers, ECDD measures require more rigorous background checks, additional verification, a deeper understanding of the client’s source of wealth and funds, and ensuring that it the take on and continuation of the business relationship is signed off by a higher level of authority and oversight.

  • Transaction Monitoring and Risk Profiling

Guernsey Financial institutions must implement more extensive and frequent transaction monitoring for high-risk clients. Chapter 8 mandates continuous monitoring of business relationships to detect suspicious activities promptly. This includes having lower thresholds for transaction monitoring, greater scrutiny and documentation of transactions, activity undertaken,  and their rationale, to flag unusual patterns or irregular transactions that might indicate money laundering, terrorist financing or proliferation activity.

  • Source of Funds and Wealth Verification, Documentation and Monitoring

Enhanced measures under Chapter 8 place significant emphasis on identifying and verifying the source of funds and wealth and holding up to date documentation on this area. This goes beyond just knowing where the money comes from; Guernsey Financial institutions need to understand how the funds were acquired, the activities that generated them, and ensure they are legitimate. For example, funds coming from high-risk jurisdictions for terrorism or industries require additional scrutiny to prevent bribery and corruption, or activities that may be linked to proliferation activities.

  • Enhanced Monitoring and Reporting

Monitoring business relationships is a continuous process of both day-to-day review of the transactions and verification subjects and more frequent periodic reviews of the business relationship, especially for high-risk clients. Chapter 8 requires Guernsey financial institutions to apply more scrutiny to transactions for high risk business relationships and escalate suspicious activities to the Money Laundering Reporting Officer and where necessary to the authorities, such as the Financial Intelligence Unit, or for sanctions to the Guernsey Policy Council . Guernsey Financial Institutions must ensure they have robust internal mechanisms to report suspicious transactions regardless of monetary value, or sanctions while maintaining comprehensive documentation to support their findings.

  • Risk-Based Approach

Chapter 8 promotes a risk-based approach, where enhanced measures are applied based on the level of risk posed by the customer, transaction, service or product provider and any higher risk area identified. Institutions must create internal policies and procedures that reflect this principle, ensuring flexibility in responding to varying levels and types of risk.

Implementing ECDD Measures: Best Practices

To successfully align with Chapter 8 and the broader GFSC Handbook requirements, organizations should consider the following best practices:

  • Comprehensive Risk Assessment: Conduct regular risk assessments to identify customers, products, and services that pose higher risks. This will help prioritize where ECDD measures are necessary.
  • Training and Awareness: Ensure that staff at all levels are trained to recognize high-risk scenarios and know when to apply ECDD measures and what ECDD measures are required.
  • Technological Integration: Utilize advanced technology such as automated sanction screening and transaction monitoring, to flag suspicious activity, and conduct more thorough and continuaous due diligence.
  • Documentation and Record-Keeping: Hold and maintain detailed records of all due diligence processes, transactions, and enhanced measures taken. This is crucial for regulatory reporting and audits.
  • Regular Reviews and Updates: Chapter 8 requires ongoing monitoring and re-assessment of business relationships inclusive of the verification subjects, so Guernsey financial institutions should regularly review their procedures, especially when regulatory changes occur or there are changes to the business plan and sphere of operation.

Conclusion: Staying Ahead of Compliance Obligations

Complying with Chapter 8 of the GFSC Handbook requires a proactive and well-structured approach by the Directors and relevant senior employees in managing high-risk scenarios. Guernsey financial institutions must be vigilant in applying enhanced customer due diligence, monitoring, and reporting, ensuring that all procedures meet the stringent regulatory requirements of the GFSC. By adopting best practices, leveraging technology, and promoting a culture of compliance, Guernsey financial institutions can better manage higher risks and maintain a strong relationship with regulators and stake holders in the Guernsey regualtory framework.

Staying compliant isn’t just about ticking boxes—it’s about detailing the approach to risk, applying the measures and documenting their effectiveness in protecting the local and international financial system from abuse in order to safeguard the reputation of your business and third-parties that provide services to you and your clients.

By carefully and proactively integrating the ECDD measures detailed in Chapter 8 of the Handbook, Guernsey financial institutions can navigate the financial crime risks posed successfully, maintain compliance with GFSC rules and regulations, reporting requirements, and better protect themselves from investigations, enforcement actions and financial crime while providing products and services to those business relationships and persons who are high risk.

Stay ahead of the curve—ensure your compliance regarding Enhanced Due Diligence and high risk business relationships are up to date!

Join us at Technical Specialist Partners in fostering a culture of integrity and accountability by contacting us at hello@technicalspecialistpartners.com to discuss your requirements and the services that we can provide. Together we can build a compliant and ethical work place.

The Application of Enhanced Measures for Specific Business Relationships and Occasional Transactions (GFSC Handbook, Chapter 8, Paragraphs 102-125)

Sara Barclay AML/CTF, Compliance, Corporate Governance, Due diligence, Guernsey , , , , , , ,

For Guernsey financial services, enhanced measures are critical for mitigating risks related to money laundering, terrorist financing, and proliferation financing (Financial Crime). The Guernsey Financial Services Commission (GFSC) outlines when and how enhanced measures should be applied, particularly in certain high-risk and higher risk business relationships and occasional transactions. Chapter 8 of the GFSC Handbook, specifically paragraphs 102–125, provides detailed guidance for Guernsey financial institutions on applying these enhanced measures to manage higher-risk and high-risk scenarios.

This post focuses on the application of enhanced measures as they relate to:

  • Non-resident customers
  • Private banking services
  • Personal asset holding vehicles
  • Customers with nominee shareholders

Non-Resident Customers (Paragraphs 106–110)

A Guernsey Financial institution when dealing with a non-resident customer must look at the reasons for that customer using the Bailiwick, especially where the same services are offered in their own country or territory, as these customers, who wish to establish a business relationship or conduct occasional transactions, may present a heightened risk of Financial Crime. For non-resident customers, Guernsey financial institutions must adopt enhanced measures to mitigate these risks.

Enhanced Measures for Non-Resident Customers:

  • Understand the Customer’s Rationale: Firms should investigate why the customer, who is not resident in the Bailiwick, is seeking to establish a business relationship or carry out a transaction. Simply stating “tax planning” or “asset protection” is insufficient; firms must delve into the legitimate underlying reasons for the business relationship. This must also be verified by obtaining such documents or precise of such documents, explantions, from appropriate practicioners or external sources.
  • Leverage External Data: Firms should use external data sources to gather information about the customer’s country of residence and potential risks. This helps build a comprehensive risk profile, similar to what would be available for a resident customer. This can be from the Appendix I & H of the handbook and those identified risks must be mitigated.
  • Verify Source of Funds: Establishing the source of funds (SoF) that will be used or generated in the business relationship is critical. The firm must consider whether the origin of the funds aligns with its understanding of the customer’s risk profile and the rationale for the business relationship. This is especially important when funds come from countries with capital controls, high bribery and corruption risks or financial instability.

Private Banking Services (Paragraphs 111–115)

Private banking services, which involve high-value, non-standardized, and tailored services to high-net-worth individuals.  This is not just in respect of banking activities but could also involve the provision of services by an Investment licensee or a fiduciary Licensee except where the service is part of its duties as a trustee. The significant risks due to the complexity and cross-border nature of the transactions involved. Enhanced measures must be applied to mitigate these risks.

Enhanced Measures for Private Banking Services:

  • More frequent Review of Business Relationship: The firm should conduct more frequent reviews of the business relationship, ensuring that customer due diligence (CDD) measures are still appropriate. Transaction monitoring and thresholds should be adjusted as necessary to provide greater oversight.
  • Understand Source of Wealth and Source of Funds: Special attention must be given to understanding the source of the customer’s SoF and Source of Wealth (SoW) in line with the requirements of the GFSC Handbook and the GFSC Thematic. This is particularly important in private banking relationships where the risk of illicit activities is higher due to the large sums of money involved.
  • Tailored Monitoring: Given the bespoke nature of private banking services, enhanced monitoring and controls should be tailored to each customer’s specific circumstances and the nature of the use of the product and service. The firm should carefully scrutinize large or unusual transactions to ensure they meet the known and evidenced rationale.

Personal Asset Holding Vehicles (Paragraphs 116–121)

Personal asset holding vehicles (legal persons and legal arrangements), often used for holding investments, can obscure the true identity of the beneficial owner or the source of wealth and funds. Therefore, the use of such vehicles presents a higher risk of Financial Crime.

Enhanced Measures for Personal Asset Holding Vehicles:

  • Assess Rationale for the Vehicle: Firms must determine why the customer is using a personal asset holding vehicle rather than holding assets in their own name. The firm must ensure that the use of such a vehicle has a legitimate and genuine purpose. This must also be verified by obtaining such documents or precise of such documents, explantions, from appropriate practicioners or external sources.
  • Understand Source of Wealth and Source of Funds: Special attention must be given to understanding the source of the customer’s SoF and SoW in line with the requirements of the GFSC Handbook and the GFSC Thematic. This includes investigating the activities that generated the SoF and SoW, and any potential risks associated with transferring those funds to and from the Bailiwick.

Customers with Nominee Shareholders (Paragraphs 122–125)

The use of nominee shareholders can complicate the process of determining the true beneficial ownership of a legal person or arrangement, making it easier for customers to obscure their identity. Enhanced measures are necessary to mitigate the risks associated with such structures.

Enhanced Measures for Nominee Shareholders:

  • Determine the Purpose of Nominee Shareholders: Firms must investigate why a customer or a legal person that owns the customer is using nominee shareholders. The rationale should be legitimate and not solely for obscuring beneficial ownership and must be verified and documented.
  • Leverage External Data: To assess the risk posed by nominee shareholders, firms should utilize external data sources to check the fitness and propriety of the nominee shareholder, as well as the particular risks associated with the nominee’s jurisdiction.
  • CDD for Intermediaries: Where nominee shareholders are used in intermediary relationships, firms must follow the specific CDD measures laid out in the GFSC Handbook at Chapter 9, ensuring that appropriate controls are in place to mitigate the risk.

Conclusion

The application of enhanced measures is essential when dealing with higher-risk and  high-risk customers or transactions. Whether the customer is non-resident, utilizing private banking services, operating through a personal asset holding vehicle, or involving nominee shareholders, firms must conduct thorough due diligence to mitigate the potential higher risk of financial crime. By following the guidance outlined in Chapter 8 of the GFSC Handbook, having appropriate policies, procedures and controls,  firms can ensure they remain compliant, demonstrate good corporate governance, while protecting the integrity of their operations.

By carefully applying these enhanced measures, Guernsey financial institutions can better protect themselves from the risks associated with Financial Crime, while meeting the rigorous standards set by the GFSC.

Stay ahead of the curve—ensure your compliance is up to date! Join us at Technical Specialist Partners in fostering a culture of integrity and accountability by contacting us at hello@technicalspecialistpartners.com to discuss your requirements and the services that we can provide. Together we can build a compliant and ethical work place. https://technicalspecialistpartners.com/home/

GFSC Handbook Requirements for Source of Wealth and Source of Funds

Sara Barclay AML/CTF, Compliance, Compliance Monitoring, Corporate Governance, Due diligence, Guernsey , , , , , , , , ,

The Guernsey Financial Services Handbook for Countering Financial Crime, Countering Terrorist Financing and Countering Proliferation Financing (GFSC Handbook or Handbook)  sets forth comprehensive guidelines on how Guernsey financial institutions should address Source of wealth (SoW) and (SoF) as part of their customer due diligence (CDD) and enhanced due diligence (EDD) processes. These requirements are particularly stringent when dealing with high or higher-risk customers or complex transactions. Some of the key aspects include:

Collection of Information

Guernsey financial institutions must collect sufficient information about the client’s SoW and SoF  to properly assess the legitimacy of their customers financial activities and rationale for the use of the Bailiwick. As detailed in the GFSC Handbook this may involve:

  • Verifying employment income through pay slips, tax returns, or employer references confirming salary.
  • Confirming inheritance via probate or legal documentation.
  • Assessing investment income by reviewing dividend statements, property sales records, or portfolio valuations.

The Handbook stresses that for high-risk customers, Guernsey financial institutions must obtain more granular detail to fully understand the journey to and/or origin of wealth and funds of the person and/or business relationship.

Verification of Information

It is not enough to simply collect SoW and SoF information—institutions must also verify and document it! Verification can include independent checks through public databases, third-party documentation, and government records and the generation of a SoW and SoF memo or document comprising these information sources. 

The GFSC Handbook and the Thematic Review provide a clear roadmap for Guernsey Financial institutions to manage risks related to SoW and SoF effectively. By following these guidelines, institutions can enhance their Countering Financial Crime, Countering Terrorist Financing and Countering Proliferation Financing (CFC,CTF,CPF) frameworks, protect their reputations, their third party suppliers and ensure good corporate governance while meeting domestic and internal regulatory obligations and requirements.

For higher and high-risk business relationships and scenarios, additional layers of verification are required, often involving more detailed documentation, such as bank statements, legal contracts, or public filings.

Ongoing Monitoring

SoW and SoF checks are not a one-off exercise. Institutions are required to monitor the source of wealth and funds on an ongoing basis, particularly when dealing with politically exposed persons (PEPs), high-net-worth individuals, or clients from jurisdictions with weaker CFC,CTF,CPF frameworks. If any red flags arise, institutions must investigate further and escalate the matter internally to their Money Laundering Reporting Officer (MLRO) who may externalise a report to the relevant authorities if necessary.

Record Keeping

Maintaining thorough records of all SoW and SoF inquiries, documentation, and verification processes is mandatory. These records are essential for audit trails and for satisfying GFSC’s requirements during compliance reviews or in the event of an on-site regulatory visit, thematic reviews, request for information from a regulatory or law enforcement authority and when making disclosures to the Guernsey FIU.

Insights from the Thematic Review: A Focus on Private Wealth Management

The Thematic Review conducted by the GFSC on Source of Funds and Source of Wealth in the private wealth management sector highlights several critical findings and areas for improvement within the Guernsey financial industry. This review provides deeper insight into how Guernsey financial institutions can bolster their compliance with SoW and SoF requirements.

Key Findings:

  • Insufficient Depth in SoW/SoF Information: The Thematic Review found that many institutions were not gathering enough detailed information on SoW and SoF, particularly for high-risk clients. A common issue was reliance on customer declarations without independent verification. The GFSC expects institutions to dig deeper, especially when there are signs of complexity or higher risk within a business relationship or transaction.
  • Lack of Independent Verification: While most institutions collected some form of SoW and SoF data, verification was often lacking. The GFSC stresses that for high-net-worth individuals, high-risk clients or clients with complex wealth structures, institutions must take extra steps to verify the authenticity of their SoW and SoF.
  • Inconsistent Risk-Based Approach: Many institutions had policies in place but did not apply them appropriately or consistently, particularly in identifying and managing higher and high-risk scenarios. The GFSC noted that this inconsistency poses a significant risk to effective of a Guernsey financial institutions CFC, CTF, CPF controls and the wider compliance with the Handbook’s corporate governance requirements.

Best Practices for Strengthening SoW and SoF Compliance

To better align with the GFSC’s expectations and the findings of the Thematic Review, Guernsey financial institutions should adopt the following best practices:

  •  Implement a Robust Risk-Based Approach

A risk-based approach to SoW and SoF inquiries ensures that the level of investigation and verification matches the customer’s risk profile. High-risk clients, such as PEPs, those in or conducting transactions with high risk jurisdictions,  or those involved in complex financial arrangements, should undergo enhanced due diligence (EDD), which includes more thorough SoW and SoF checks.

  •  Increase Depth of Information Collection

Institutions must ensure that they gather comprehensive information about the client’s SoW and SoF. This includes not only basic facts but also deeper context, such as the history of wealth accumulation and the specific details behind large transactions. 

  •  Utilize Independent Sources for Verification

To avoid over-reliance on customer-provided information, institutions should use independent and reliable sources to verify SoW and SoF. This may involve using public records, financial databases, or independent experts.

  •  Enhance Staff Training and Awareness

Staff at all levels should be trained to understand the importance of SoW and SoF checks, and how to conduct these inquiries effectively. Training should also cover the red flags to watch for potentially risky transactions or clients that may trigger a suspicion to the MLRO.

  •  Ongoing Monitoring and Review

Regular reviews and continuous monitoring of client profiles and their transactions are vital. Institutions must be prepared to escalate any concerns about SoW or SoF to their MLRO , ensuring that these concerns are investigated and, if necessary, reported to the Guernsey FIU.

Conclusion: Ensuring Compliance and Mitigating Risk

Ensuring compliance with SoW and SoF requirements not only helps in meeting regulatory expectations but also plays a key role in maintaining the integrity of the Bailiwick and the global financial system.

For Guernsey financial institutions and those international firms wishing to set up in the Bailiwick, the message is clear: robust, well-documented, and verified SoW and SoF processes are critical for reducing exposure to financial crime risks and ensuring long-term success in the Guernsey Financial Sector for your business.

You can access the GFSC’s full Thematic Review on Source of Funds and Source of Wealth in the Private Wealth Management sector here .

Stay ahead of the curve—ensure your compliance is up to date! Join us at Technical Specialist Partners in fostering a culture of integrity and accountability by contacting us at hello@technicalspecialistpartners.com  to discuss your requirements and the services that we can provide. Together we can build a compliant and ethical work place. website link

Maximizing Safety and Minimizing Risk | Impact of Board Risk Assessment (BRA) on Financial Crime Prevention

Sara Barclay AML/CTF, Business Risk Assessment, Compliance, Corporate Governance, Guernsey , ,

I am still wild at heart, surfing, kayaking, and diving sometimes to extremes here on the Island. Every time I go into the water there is risk but also reward. The risks I face will vary on the day and the activity. While the rewards I will gain range from deep relaxation to extreme adrenaline rushes and highs. Each journey into the great blue needs differing skills, preparation and an appreciation of circumstances within myself and outside in the environment to ensure that the risks are managed and mitigated. It is more than just turning up to the coast with cool gear, superficially ticking the box of safety, but ensuring that I have the right flow of information, the tools, and skills to stay within my risk appetite and avoid injury or more. In a fluid environment to extract the maximum I must ensure that the information provided from external and internal sources is processed, considered and acted on to ensure safety. 

The Guernsey Framework has brought in the requirement that firms must assess their business of risks related to money laundering, terrorist financing. Alongside the recent focus on assessing the proliferation financing risks posed by the products and services that they provide to their customers.  This allows the level of risk that a business may face to be ascertained and for the board to then ensure that their policies, procedures, controls and the resources required are suitable and sufficient and remain within their risk appetite. A firm’s BRA must also look at the intrinsic risks of the firm as well as the external risks of the environment, which must be reviewed regularly or at least annually. Allowing the board to  take due consideration of these changes, the level of risk that may have changed to their own risk appetite, and to ensure that risks continue to be managed and mitigated. Preventing the business from being subjected to financial crime. 

The Guernsey regulatory framework sets out the areas that the board should be considering regularly, with suggested and meaningful questions to be considered, alongside a requirement that the board should consider other factors that are present in the business but not necessarily suggested in the framework. These questions or factors will change at different rates to the socio-political environment, the risk of the customers engaged by the business, and resources at hand to manage and mitigate the risks. The board needs to have up-to-date management information on the levels of risk of customers, the resources present, and the current and immediate future requirements. Allowing them to assess the risks and consider the suitability of its policies, procedures, and controls to protect the business and Guernsey.  

The issue becomes where the BRA is treated as a document used to meet the regulatory requirements. Shown through the demonstration of ticking the box of what is believed to be expected in the regulations, an ornament to be brought out, dusted off annually before being put back into its box. The failure to ensure that the BRA remains suitable and sufficient, with up-to-date management information being presented to the board regularly on the risks posed internally and externally inclusive of resources and financial crime issues faced by the firm. Which leads to mis-informed decisions and the higher potential of the failure of policies procedures and controls to prevent financial crime and regulatory intervention.

 It has always appeared odd to me that businesses require monthly management accounts to assess and control their business to its aims and objectives, but that financial crime risk is not considered in the same way. By ensuring that the financial risks are monitored with the resources required to manage and mitigate them a board is the best place to control the businesses exposure to risk, allow resources to be placed to risk, and allow early intervention to protect and preserve their business.  

The BRA is much more than a superficial document that shows compliance with the requirements, being instead a tool to allow board consideration of risks faced and posed on a regular on-going basis to ensure appropriate management and mitigation.  Allowing the board to ensure that resources are put to risks where required and that the direction of the business can be helmed effectively, they are able to handle the financial crime and regulatory squalls, overfalls, and rip currents that undoubtedly will be faced by the business. The BRA won’t stop financial crime but with up-to-date internal and external management information will assist the Business in reacting to risks, real or posed, take effective action by having the necessary resources, experience and skills to survive a storm and ensure the safety of the business by the minimisation of those risks. 

Therefore, much like constant reviewing of conditions and potential risks and rewards when partaking in surf kayaking, firms must continually review and follow the due processes to manage and mitigate  financial crime risks, protect the business endeavours and key stakeholders. 

Act in Haste!

Sara Barclay AML/CTF, Compliance, Corporate Governance, Fraud, Guernsey, Self Help

Both regulators in Guernsey and Jersey have issued warnings regarding Fraudsters

Compliance monkey

targeting financial firms and their Customers. Coming back from a long weekend and back log of emails, the stresses that you are under in this unprecedented time, business objectives and customer expectations, this is the perfect storm for the Fraudster to exploit. In our isolation the use of malicious and fraudulent emails (Phishing) appears to be the current tool of choice and here are some tips, key indicators and red flags that and email may be malicious or fraudulent to keep your Firm, Customers and Yourself safe.

  • Is the email out of the blue or unsolicited with a time pressure to undertake some action?
  • Is the email address of the sender the same as your Customers in your records?
  • Is the spelling correct or have letters been substituted, do you even know the sender?
  • If there are links to respond to do not click them, hover your cursor over them and check the URL. Always go to the official site rather than click a link in an email especial if it requesting that you need to do so to undertake some action.
  • If the email is requesting that you need to download a file or attached document do not do this or click on it.
  • Are there grammatical or spelling errors in the email?
  • Does the email sound like client?
  • Does the email request some personal data or business data or security details?
  • Does the sender address you by name, is this usual? If the sender is unknown to you this could be an attempt to gain confidence, remember we all have personal details on the web that are easy to find.

If you see any red flags it is time to contact your IT department or provider and get them to check the email out and validate it.

When receiving requests to make transfers to accounts or pay invoices you need to be cautious, consider the following as red flags that either the email is a phishing attempt or that your customers email account has been compromised.

  • Is the request expected, in line with the known activity and business operation of the Customer?

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  • If the email asks to call them on a phone number to confirm the transaction, use the contact details that your firm has on file and not the ones in the email.
  • Check the transfer details, are they the same as the ones you have on the file for the customer or is this a new transaction? .
  • Is the transaction inline with the normal activity and known behaviour of the client?
  • Is the invoice for services that appear odd or from an unknown party?
  • Does the email request use any links or downloads such as an invoice or software? Always go to the main website and make payment from there as the link could be malicious. Any download may contain malicious software that will endanger your firm such as ransomware or can even spy on you.

Always confirm actions with the customer, using the details your firm has of the actions that are required to be undertaken. If you have any red flags then your IT department or provider needs to be informed and the email checked out.

Also beware that you may also be subject to telephone (Vishing) or SMS (Smishing) fraud attempts that will also seek to make you undertake an action or provide personal or business details in the same manner as with Phishing.Always call the customer back on the details that your firm has and confirm with them any requested action. Rather than seeing this as a hassle customers will be impressed that you are so diligent and have good security, it will reassure them that you are the firm to be with and that you are proactive in protecting them and their data and assets. It may also alert them to the fact that they have already been hacked and can take appropriate action to minimise any loss.

Reporting of these attacks.

These attacks must be reported to the Compliance and MLRO team and onwards after assessment to the Board.The Board is accountable for the safety of the firms clients and client data and must be seen to be ensuring that it has considered the risks posed, put in place effective mitigation, appropriate systems and controls. This assessment must be reassessed after an attempted fraud and consideration of appropriate actions undertaken. Does this change the risk profile of the firm in anyway? Is there any further mitigation that can be done to protect the firm and its customers? Remember the Regulator will be looking for documentary evidence of consideration whether there has been an attack or not and certainly on their onsite visits.

Compliance and MLRO teams with the IT department or service provider need to collate the data, assess the threat and any further systems or controls that may be required to be considered by the Board and implemented. They need to consider if this is just a random attack, or whether it is targeted, is there a specific group of customers this affects? This information with any recommendation needs to be provided to the Board. Consideration must be given to the threat and may also require the of warning, training or refreshing of the firms employees to the risks and the policies, procedures and the controls that must be followed.

Fraudsters can be identified from the details that they provide to you, be it a phone number, email address or website URL. This being the case they must be reported to the Fraud or Financial Intelligence Unit as you would with a normal Suspicious Activity Report, if you are unsure give the Police or the Financial Intelligence Unit a call, they are there to assist you and help you. This also allows them to collect the data and establish if the jurisdiction, specific firms or a set of clients is being targeted, allowing them to warn industry and protect clients of the jurisdiction. Financial Intelligence Units have a wealth of good advice on there websites for the prevention and detection as well as the dealing with fraud.

In conclusion;

  • Don’t open email from unknown senders and take time to assess an email for red flags that it may contain malicious software or attachments or a fraud attempt.
  • Undertake callbacks using the customer details the firm has collated to confirm any actions.
  • Don’t undertake actions or give out personal data or business data to anyone who is unknown no matter how much they pressure you.
  • Contact your IT department, service provider and/or compliance department if you have any concerns, links or requests to download documents or software.
  • If it is found to be fraudulent or malicious report it to your compliance and MLRO departments.

Don’t be pressured by emails, phone calls, SMS’s and time pressures in to undertaking an action in haste only to repent at leisure.

De-Mystifying the High-Risk Territory

Sara Barclay AML/CTF, Compliance, Guernsey

Compliance monkeyThere is much talk these days regarding the difficulty of providing products and services to those persons who are in high risk territories.  The main gripe is that the Guernsey Regulatory Framework is stifling and strangulating licensees when it comes to high risk territories. This seems to be at odds with the presentations and assertions of the Commission about Guernsey being open for business and empowering its licensees to engage in risk to develop and grow.  What is the truth, are we being misinformed and if so by who?

When it comes to high risk territories licensees must be aware of the obligations in the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2007 as amended (“the Regulations”) and the Handbook for Financial Services Businesses on countering Financial Crime and Terrorist Financing (“the Handbook”).  Regulation 5 (1) (c) states the following;

“(c) a business relationship or an occasional transaction – (i) where the customer is established or situated in a country or territory that does not apply or insufficiently applies the Financial Action Task Force Recommendations on Money Laundering, or (ii) which the financial services business considers to be a high risk relationship, taking into account any notices,”

The Handbook goes further at rule 58 where it states the following;

“is connected to any of the countries or territories listed in Part A or Part C of Instructions on Business from Sensitive Sources issued by the Commission; is designated as high risk.”

At first glance the minimum requirements are that by applying the full instructions on Business from Sensitive Sources you would have a lists of high risk jurisdictions that the Commission would be happy with in meeting the requirements of the Regulation and the Handbook. The Commission have empowered Financial Services Businesses in Guernsey to actively engage and establish their own risk appetite and as such the Instructions on Business from Sensitive resources only represents the minimum requirements.  The Handbook at section 70 goes further to recommend that a high risk factor regarding territory would also include the following;

“customers based in, or conducting business in or through, a country or territory with known higher levels of bribery and corruption, or organised crime, or involved in illegal drug production/processing/distribution, or associated with terrorism; involvement of an introducer from a country or territory which does not have an adequate AML/CFT infrastructure;”

Just by looking at Transparency International perception index this allows the potential for a greater number of territories that could be designated as high risk. There are also those territories that Guernsey has Sanction regimes on which pose an association with terrorism and as such could be deemed high risk. The question is must these territories be high risk?

The Commission have through rule 57 empowered Directors and Boards to take a proactive view of risk where a business relationship has a high risk element (that is not a high risk element specified in Regulation 5(1)(a-c) or listed at part A or Part C of the Instruction on Business from Sensitive Sources) but this element does not mean that the actual risk of the relationship is high.  A Financial Service Business where it has compelling mitigating factors that it documents, can choose a lower and more realistic risk rating. Therefore, a territory that the Financial Services Business may class as high due to internal policy or procedure or that an international body classifies as high does not necessarily make the whole relationship high risk.

Some examples of where and how rule 57 can be applied;

  • An entity that is administer and controlled in Guernsey is conducting business in a territory that is not on the Business from Sensitive Sources Instruction but has a high bribery and corruption rating, there are controls in place to mitigate associated risk of bribery and corruption risk do we have to have this as high risk? If the licensee can demonstrate compelling mitigating factors to meet rule 57 of the Handbook, it could choose to down grade the risk if its policy procedures and controls allow.

 

  • An entity that we administer and control is conducting business in a territory that is on the Business from Sensitive Sources, there are controls in place to mitigate associated risk do we have to have this as high risk? This must be rated as high risk as it falls under the Regulations and the Handbook as having to be rated as high risk.

 

  • A Beneficiary resides in a Sanctioned country which the Financial Services Business deems as high risk, do they need to be classified as such? If the licensee can demonstrate that the beneficiary and the entity that will be receiving any transaction is not subject to a Sanction notice and demonstrates the compelling mitigating factors to meet rule 57 of the Handbook, it could choose to down grade the risk if its policy procedures and controls allows.

 

  • A customer born in a higher risk country due to bribery and corruption but residing and employed in Guernsey and all funds for the business relationship have been earnt in Guernsey do they have to be high risk? Though a Licensee must obtain information on Place of Birth and Nationality under the rule 86 of the Handbook there is no requirement to risk rate on this basis and it could be discriminatory.

 

  • There are also occasions where part of a structure or an entity is registered in a higher risk jurisdiction, such as a Panamanian foundation that is controlled and administered in Guernsey. The question that must be asked is does a brass plaque in a higher risk country create a higher risk? Regarding the Regulation and the Handbook the Panamanian Foundation could be said to be based in Guernsey due to the management and control element and as such would not fall under a higher risk country element as the due diligence requirements would be undertaken by the Guernsey Fiduciary to the requirements of the Handbook and the Regulation.

 

  • The use of corporate entities registered in other higher risk jurisdictions by a Guernsey licensee for its customers, the Corporate Service Provider in the higher risk territory is only the Registered Agent for corporate entities and only undertakes the required statutory functions of the Territory are these structures require to be high risk? Though higher risk jurisdictions can be used to provide a corporate entity they may not apply the same anti-money laundering measures and countering terrorist financing measures as we are required to do in Guernsey. In these cases, it could be said that the business relationship is based and established in Guernsey as the corporate entity is controlled and administered by a Guernsey Licensee who must comply the Guernsey Regulatory Framework requirements.  Does a brass plaque really carry a risk or money laundering and terrorist financing or should we be more worried about the risk of the beneficial owners and controllers?

From this brief review of the pertinent sections of the Regulations and the Handbook, the Commission have in fact created a framework when it comes to territory that does allow for consideration of risk and not everything is or should be classified as high though some must be.  Unfortunately, it is possible that licensees themselves, through either lack of knowledge, understanding or misinterpretation of the Regulation and Handbook are creating their own frameworks that are inflexible to allow compelling mitigation to be taken in to account when it comes to risking Territory risk where permissible.  This inflexable framework would contribute to the strangulation of a Financial Services Business and the potential offering of products and services to new markets and developing countries.

Remember the Commission are there to use enforcement action on those who fall below minimum requirements and/or do not apply their own policies and procedures. There are countless other examples where rule 57 of the Handbook can be utilised so please contact me if you are interested in further clarification.Compliance monkey

Reflections of 2016

Sara Barclay AML/CTF, Compliance, Compliance Monitoring, Corporate Governance, Due diligence, Guernsey , , ,

Compliance monkeyAs the sun gets lower, the evenings longer and we get closer to the end of a year I cannot help but think what a year it has been and begin to reflect.  For me personally it has been a year that has been full of hard work, assistance and resolution of problems and all this led me to the beautiful Island of Bermuda to undertake a contract for a client.  Not only a fantastic opportunity to show case my skills and knowledge but a joy to work for some fantastic people and meet old and new friends as well as to experience another regulatory culture. While I would rather be pondering the last year and this post from a pool in Bermuda instead of next to a fire on a brisk cold day, Guernsey still very much holds my heart, though Bermuda is a close second.

In looking to the challenges of the future and what the next year may hold for us is it time to reflect on the past year, the regulatory framework and what is needed to ensure that our business moves forward, prospers and continues to uphold the regulatory standards and meet future challenges, and there is no better way to do this than look back over the last year.

There have unfortunately been instances where the Guernsey Financial Services Commission (GFSC) has had to take enforcement action in 2016, never an easy decision but essential in today’s world to assist in the safeguarding and continual success of our international reputation and prosperity.  I do not think it is right to dissect these cases as these are disclosed on the GFSC website but rather look at what lessons can be learnt to avoid a repeat to our businesses and to protect the Directors and Stakeholders.

Risk, Identification and Verification

Most of these incidents reported by the Commission are in respect of Anti-Money Laundering and Counter Terrorist Financing (AML/CTF) within businesses.  That is not to say that all these incidents related to actual financial crime but rather that businesses were not meeting the standards and expectation imposed by our regulatory framework to ensure that verification documentation mitigated the risk of the Island being utilised by criminals.

The identification and verification of customers and controllers to a business relationship is a continuing matter that is reported by the GFSC.  In many cases business’s application of a “risk based approach” had failed to ensure that the due diligence and enhanced due diligence for customers and required parties to a business relationship or occasional transaction, had been obtained and met the standards required by the regulatory framework, inclusive of rules and guidance issued by the GFSC for certification and the suitability of certifiers. It must be remembered that wherever you are licensed you must meet that jurisdictions regulatory requirements as a minimum!

Monitoring and Sanctions

Periodic monitoring of customers was another area where businesses struggled.  It was found in some cases that this monitoring was not undertaken or if undertaken did not meet the regulatory requirements. It was found that risk assessments were inadequate and not reviewed as required by a business’s policy and procedures to meet the obligations of the GFSC, especially where customers had been assessed as high risk.  The review of the rationale for the business relationship and transactions undertaken was found to missing or inadequate, leading to the GFSC questioning whether appropriate and effective policies and procedures were in place inclusive of suspicious activity reporting.

The review of customers to Sanction lists was also noted as an area of concern. While this may be undertaken at the start of a relationship and periodically is it suitable just to wait for these trigger events?  Is the review of transactions subject to sanction screening to ensure that sanctioned legal persons or those entities that they control are not financed? It may be that the GFSC believe terrorist financing to be a low risk to the Bailiwick but this will do nothing to deter terrorist financiers if they find a gap in our defences.  A definite area I think the GFSC will look to assess when conducting on-site examinations and through thematic reviews in 2017, so be warned!

Corporate Governance

Corporate Governance has also come to the forefront not only in the AML/CTF area but also in more prudential assessments of a business.  In all cases enforced by the GFSC the findings go back to the corporate governance requirements of the regulatory framework with the accusation that directors failed to ensure that they acted to ensure that the business could meet the Guernsey regulatory requirements.  THE GFSC also in some cases questioned the independence and integrity of directors due to the regulatory failings identified.  Not only will this area come more to forefront with shareholder activist and the spotlight of international bodies but also from the GFSC to ensure that Directors are suitable and safeguarding Stakeholders and the business.

With the Guernsey regulatory framework changing to meet the international requirements which are evolving it is difficult for any Director to ensure that their Business remains compliant.  Businesses in this ever-changing environment are at risk of falling behind the times.  While only minor infringements of the regulatory framework may be the result, if these infringements are many, systemic and material they may require to be reported to the GFSC.  By the Board bringing these issues to the GFSC, in some cases, remediation without the threat of enforcement can be undertaken, it is after all in the GFSC interest that businesses remediate and enhance themselves to meet the regulatory framework.  It is best to be able to show and have evidence that the Board have discussed the issues affecting the business and the action to be undertaken rather than hearsay in any regulatory inquiry!

Reflections

So, reflect on this year, look at the enforcement cases to ensure that you do not fall foul of history, review your business plans and business assessments to make sure you have the policies and procedures in place to meet the regulatory framework and the requirements of the Business.  Review the Compliance function is it suitable and sufficient? Consider its independence or whether there needs to be independent oversight or outside assistance?  Does the compliance monitoring facilitate management information that is required for Directors to undertake their duties and safeguard the business and stakeholders?  Look outside of your own regulatory regime to other sectors as if something is happening in one there is a good chance that those developments will feed in to your own sector’s regulatory requirements.  Look outside to other jurisdictions as developments there may impact on the regulatory framework where you are.

If you have a last Board meeting of 2016 or even an early 2017 Board meeting set the agenda to reflect on 2016 ensuring that history does not repeat itself. If you do find that you are not in compliance, please ensure that you have the issues and remediation documented whether you consider it material or not to report to the GFSC.

The Sum of All the Parts

Sara Barclay AML/CTF, Compliance, Due diligence, Guernsey , , , , , ,

Compliance monkeyThe Guernsey Anti-Money Laundering and Countering Terrorist Financing (“AML/CTF”) framework has continually developed to take in to account good practice, external pressures, requests and recommendations of onshore governments, quangos and international organisations  to ensure that financial crime in all its guises is effectively tackled. The Commission have sought to and I would say that they have largely achieved a cohesive framework that effectively mitigates against the use by criminals of Guernsey as an international finance centre while not over burdening the Financial Service Business operating here.

This cohesive framework has been achieved over the course of the years by open dialogue with local industry bodies, licensees and working effectively and productively with those outside of Guernsey to achieve a proportionate approach for  the products and services that are provided to clients wishing to utilise the jurisdiction. Most notably in 2013 the AML/CTF framework in Guernsey changed extensively and this resulted in general insurance products being removed, but did it remove all the products and services that can classified as General Insurance?

With regard to the Insurance sector in Guernsey, a legal entity can be licensed for general business or for long-term business. Long term business is defined in the Insurance Business (Bailiwick of Guernsey) Law, 2002 as contracts on human life, human longevity, marriage and birth, linked long-term, permanent health, capital redemption, pension fund management and credit life assurance. Due to the nature and the requirements of some clients, an insurance licensee with a general business categorisation may want to offer some of these products to their clients to supplement the range of products and services they currently or can offer their clients, but without the need to be licensed for long-term business.  Section 2(4) of the Insurance Business (Bailiwick of Guernsey) Law, 2002 does allow for an Insurance licensee to elect that a contract for a term of not more than 18 months that may be regarded as a long-term business contract and can be deemed to be general business.

This would appear to allow a general insurer to fit such products into their licence requirements e.g. general insurance, without the requirements to adhere to the Guernsey AML/CTF framework as per the changes that were made to the Commission’s AML/CTF Handbook (” Commission’s Handbook”), in 2013.  It should be noted that the treatment of these products, though allowed to be done in certain circumstances by an Insurance licensee does not change the definition of those products in the Insurance Business (Bailiwick of Guernsey) Law, 2002.

In the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2007 at schedule 1 it states that a Financial Services Businesses for the purposes of the Regulations are detailed in part 1 of the schedule, except where they are incidental or are other activities as listed at Part 2 of the Schedule. Part 1 of the schedule includes the carrying on of “Long Term Business as defined by the Insurance Business (Bailiwick of Guernsey) Law, 2002 as being a Financial Services Business for the purposes of the Regulation and the Commission’s Handbook, it does not include any change in the treatment of an Insurance product by an Insurance Licensee. The Commission’s Handbook at section 4.8 specifically deals with the treatment of life or other investment linked insurance policies and as such these appear to directly fall in to the Guernsey AML/CTF regime. Effectively this is saying that if a product falls under the long-term definition stated in the Insurance Business (Bailiwick of Guernsey) Law, 2002 though a Licensee it may regard it as being General business they remain subject to the AML/CTF Regulations. Thus a licensee must adhere to the requirements of the Commission’s Handbook and AML/CTF framework when dealing with such products.

The sum of all these parts would indicate that an Insurance licensee effecting or carrying out life or other long-term products regardless of how a Licensee may be able to classify these products as general business under the Insurance Business (Bailiwick of Guernsey) Law, 2002, they would still fall under the AML/CTF regulations and Commission’s Handbook by way of the requirements of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2007 held at schedule 1. An Insurance Licensee regardless of how it treats such products under its licence would be required to have in place an effective AML/CTF framework.  A licensee must be able to evidence the suitability of its AML/CTF framework and compliance with the AML/CTF requirements pertaining to its business to the Commission.

An Insurance licensee must ensure that at all times they meet the requirements for the minimum criteria for licensing, schedule 4 of the Insurance Business (Bailiwick of Guernsey) Law, 2002. This includes a requirement to meet and adhere to any rules, codes, guidance, principles and instructions issued from time to time under any other enactment as may be applicable to the business, and this would also be inclusive of the Guernsey AML/CTF framework.

Missing the Elephant in the room.

Sara Barclay AML/CTF, Due diligence , ,

These last few weeks I have been thinking back to myCompliance monkey time in Law Enforcement. Those of you who can remember back that far probably have an image of a young surfer dude who turned up in the most scruffiest uniform, collar half in half out, requiring either a haircut or beard trim, usually both and never mind the lack of tie!

Those who worked with me will probably remember a person who worked manically yet methodically, questioning everything, discussing and testing theories before providing a list of potential targets for Officers to stop and check out. I am very proud to have been one of the highest seizing drugs Officers during my time, but all this could not have been done without the above, the support of my senior officers (and at times I pushed them to the limits) and the Law Enforcement Officers and teams I worked with, who looked at the whole.

In recent weeks there has been a lot of international interest in the offshore world regarding tax avoidance and tax evasion as well as financial crime, which has included revelations of HSBC in Switzerland. This post is not about HSBC, what is or isn’t tax evasion or even the ethics behind tax avoidance or financial crime, but I hope to try to provide some advice where the due diligence process fails. I have previously written about how due diligence is only part of the solution. As a past Customs and Immigration Officer and now as a compliance manager and consultant these documents are essential in identifying and verifying the target/ client but this is by no means the be all or end all.

It is all about the analysis of information in front of us, checking these details and asking the questions not our pre-conceived ideas or prejudices. Do we ask the question of why our clients invest offshore or set up dynastic structures or entrepreneurial structures offshore, do we understand and test and document, this rationale and reason and do the transactions make sense and fit the profile?

As a Law Enforcement Officer I would start by building a picture of travellers, and ask myself if the analysis I had in front of me made sense. Were there any comparisons to known smuggling and people trafficking profiles? Then I would seek out the experience of my peers, asking questions and gaining in-sights, understanding and clarifying what I had in front of me. This is no different from a Financial Services Business, where you are obtaining identification details, verifying these with documentation, researching through the various open-source intelligence databases for known facts, asking questions regarding the rationale. Seeking supporting evidence e.g. tax/ legal rationale and advice for the creation of a structure, its suitability and comparing the client and business relationship to known criminal profiles.

Having assisted licensees when they have been subjected to on-site visits by the Commission the main observation is, to a greater or lesser extent, that the requirements of the Regulations and the Handbook have been met. Some licensees have gone for just meeting the required standards others are far in excess of what is required by the regulations, but all generally pass with only the criticism of lack of former names or certification not meeting the expectations of the Commission. The real bug bear for the Commission is the lack of or insufficient periodic review. Yes we screen for sanctions, yes we check the appropriateness of our due diligence and we risk assess to what we see in our verification documents and from our refreshed our database checks but is this enough? Well unfortunately no it’s not and we are missing the Elephant in the room.

We spend alot of time getting the tax/ legal advice, the rationale of the relationship and the expected transactions at the start of the on-boarding process but we seldom question these areas again in the course of the business relationship. Tax advice is valid when it is given and after that it is outdated and what was legal tax mitigation can become tax evasion, transactions vary due to life circumstances including financial crime, entrepreneurial relationships change due to economic reasons and taking advantage of situations, some which can be financial crime. The information is in front of our eyes yet we fail to look at it, react to it, analysis it and document these changes or question the rationale.

Being miles above and beyond regulation may serve little purpose apart from to annoy clients and make the offshore world difficult to invest in and access for those with legitimate reasons and rationales. You may think it looks good to a Regulator to be gold platted but that is not the case as they are only looking at compliance with the regulatory requirements. The information to detect financial crime in all its guises is in front of us, the transactions, the file notes of meetings and the tax advice or legal advice. All this allows us to analyse the client to ensure that what we have fits in to our knowledge and understanding of the them and that what we have is legal and remains legal. This though is the Elephant in the room we seldom look at and where Regulators will not look kindly on when they find it lacking, regardless of how high above the required due diligence standards you are!

In all these Financial crime and Tax evasion cases if the advice had been looked at, the transactions and rationale been reviewed in detail would things have been different? It is not OK to say things were different back in the day, it does not absolve you or anyone from financial crime or being complicit in it.

If the only thing you take from this is to look at the whole picture, analyse all the information and rationale of a client, ask any questions you can’t fathom out, and obtain answers and document your full review, this post will have been worth it.

Don’t change for the sake of change!

Sara Barclay AML/CTF, Compliance Monitoring, Corporate Governance , ,

It has been an interesting few weeks with lots of nervous Directors concerned with their compliance functions and wondering what to do in light of the recent Commission’s findings and fines that have been publically issued. What must be remembered is that the Directors are responsible for the compliance function and framework (Chapter 2 of the Commission’s Handbook’s) of their business and not the consultants they may employ.  So what needs to be done?

Don’t Panic! There really is little point in panicking and it will only tend to make things worse. Panicking only creates more fears, which may not be justified in some cases, fear then leads to aggression and that only leads to breakdown in communication. The key in gaining an understanding of what has happened and where your business may sit in the regulatory framework will be down to communication with your compliance provider.

Review your compliance framework. Are you satisfied that you have all the evidence to support the previous findings of your compliance function provided by your consultants? Does their review go far enough and look at all the areas of the regulation that pertains to your business? Are they evidencing their findings suitably to back up their conclusions? At the end of the day your compliance framework is your responsibility and you need to evidence that you are satisfied with it, those that undertake the review role and that you have oversight to control it.

I have previously had licensees who would sit down with me during the year and go through my monitoring programme and how they correlated to the reports I was providing them. The positive was that it gave them comfort and evidenced to the Commission that they had true oversight and control of their compliance framework.

Communicate clearly and calmly. This is important, the oversight review you have done will provide you with questions that you need to have satisfied.  In light of the recent Commission actions and public statement released, you will also need to know the facts of what happened and why it happened as you need to assess if you could find yourself in the same situation of being incorrectly reported to on the regulatory requirements.

Even if your provider was not concerned in the recent Commission’s action you need to ensure that they would not put your business in jeopardy. It is important that from your review you can put any queries or concerns across in a calm manner. Your consultants may be defensive but the discussion needs to be open and honest so you can establish the facts. It is vital that your consultants and/or their management have the ability to constructively deal and satisfy any questions or concerns you may have.

Potential areas to discuss and obtain evidence on. Are you satisfied with the work that has been and continues being undertaken? Do you need to increase the time that the consultants provide to your business? Is the compliance monitoring utilised to assess your business suitable? Do the reports provided to you evidence the review that has been undertaken and do they cover the requirements of the regulatory framework? Are you getting the service that you require and want, remember you are the customer here!

Are the consultants suitably qualified or knowledgeable in the areas pertaining to your business, and have you got the evidence? It is always best to assume that you need enough information to satisfy yourself as you would for any of your employees. Your compliance consultants will be able to provide you with evidence of the consultant’s qualifications and suitability.  I was always more than happy to provide my certificates to licensees as I am very proud of what I have achieved!

Review, assess, conclude and evidence. Once you have the responses to your queries and concerns, you will be in a situation where you can review and assess where your current framework is and where it is going. You may be satisfied that everything is suitable or your compliance consultants are making changes to bring their game up for you and are able to service your requirements appropriately going forward. You may find that it’s time to bring your compliance function in-house wholly or partially, or if you remain unsatisfied you have the option to move to another provider, but do your due diligence.

What is vitally important in your conclusion is that you evidence all of the findings. The Commission will be asking you the questions about your compliance framework, how you monitor and mitigate the risks and are able to ensure oversight. You will be held accountable by the Commission so you need to have the answers and evidence. It’s just good Corporate Governance at the end of the day.

I was approached earlier this week by a Licensee who had just been visited by the Commission. The Commission was impressed that AML/CTF was discussed and documented at their meetings and how this evidenced the oversight and responsibility the Licensee took. One happy Licensee always means one happy Compliance monkey. This shows the power of good minutes and how the Commission view the importance of them in the evidencing of the oversight of the compliance function taken by Licensees.

At the end of the day you do not want to be jumping from the frying pan into the fire. People make mistakes it is whether they can learn from them.  Whatever conclusion you come to will allow you to make the best decision for your business, just make sure that it is clearly evidenced. Don’t change just for change sake!