INDUSTRY FEEDBACK

27.07.2020

Maintaining the Islands’ reputations to attract legitimate business, devoid of the proceeds of crime is a responsibility for all businesses that in some way handle client funds. Furthermore, a significant part of maintaining a business’ reputation is intertwined with that. Both Guernsey and Jersey have excellent and comprehensive legislation addressing Anti-Money Laundering (“AML”) and Countering the Financing of Terrorism (“CFT”) through Laws, Orders and AML/CFT Handbooks that set out the requirements that all such business must follow.

All businesses run risks. Risk is a good thing. But it should be understood, appetite set, accepted, managed and, importantly, reviewed regularly. However, as Alexander Pope once said “To err is human…”. Mistakes happen, areas can be overlooked, in some cases complacency can creep in and result in significant damage to a business be that reputational, financial or, in the extreme, business termination and criminal proceedings against the business and individuals.

So how should a business look to mitigate these risk?....A direct part of a Money Laundering Compliance Officer’s (“MLCO”) responsibility on behalf of the Board of Directors or Senior Management in a branch is conducting an assessment of the AML/CFT risks as they apply to the business the MLCO supports. Then, from that, there should be an action plan to address those risks. The experience, skill, and, importantly the independence of the MLCO is critical to addressing this. Notwithstanding this, a MLCO is still human and even with the best will, may overlook regulatory expectations. This is why, in addition to their own assessments of the risks that they consider exist within their business, it is important that the MLCO consumes industry information voraciously to expand their own experience and also to provide input into risk assessments.

To that end, recently, both the Jersey Financial Services Commission (“JFSC”) and the Guernsey Financial Services Commission (“GFSC”) issued papers that provide the industry with significant feedback following on-site examinations. It is recommended that each finding, observation, guidance on good practice etc. is considered by MLCOs against the activities of their business with objective assessments and recommendations reported to the Board.

Both papers are available on the JFSC and GFSCs websites and some of the key take-aways are as follows: -

JFSC - Financial Crime Examinations: industry feedback
The JFSC completed the first series of industry examinations in relation to Financial Crime across different industry sectors including: Deposit-taking Business, Investment Business, Fund Services Business and Trust Company Business. Areas of the handbook where findings were seen were: -

  • Section 2 - Corporate Governance

  • Sections 3, 4, 5 & 7– Customer Due Diligence

  • Section 6 – Ongoing Monitoring

  • Section 8 – Reporting money laundering and terrorist financing activity and Suspicious Activity Reports (SAR)

  • Section 9 – Screening, awareness and training of employees

GFSC - Thematic Review on Source of Funds / Source of Wealth in the Private Wealth Management sector
The GFSC issued its report focussing on Guernsey’s private wealth management sector as sectors identified in the recent National Risk Assessment that has prompted all business to review their Business Risk Assessments.

47 firms took part in this thematic review, including private banks, trust and corporate service providers, investment managers and lawyers. Source of Wealth (“SoW”) and Source of Funds (“SoF”) and beneficial ownership records of over 100 high-risk relationships were reviewed, 30% of which were with foreign politically exposed persons.

The Thematic Review makes it clear that a really good high risk review pulls all the strands together to reach a clear conclusion. It isn’t just a random collection of screenprints, including the client’s LinkedIn profile which they have written themselves. Key aspects of the Source of Wealth need to be corroborated with reference to credible sources, some of which can be open source such as public corporate information. Ultimately as full as possible a picture should be built that shows how the client generated their wealth over time and where possible it should be corroborated.

The GFSC stated that it anticipates that the report will be useful to all regulated firms when looking to assure themselves that their own controls are, and remain, effective, applicable and relevant to their business.

Headlines from the reports
Thought-provoking headlines from both the JFSC and GFSC for Boards, Senior Management and MLCOs: -

  • In Jersey, out of a total of 6 financial services businesses (14 Relevant Persons) involved in the examinations, all examinations resulted in findings.

  • In Guernsey, Remediation programmes were set for six of the firms where deficiencies were identified. One firm was referred to the Enforcement Division for further investigation because the deficiencies were particularly severe.

We highly recommend that MLCOs, Boards and Senior Management accept this “Gift-horse” as a mine of excellent and detailed information on regulatory expectations. We further recommend that detailed analysis of the business’ procedures, activities, etc. is done through an objective assessment, with a report, including, if required, recommendations given to the Board and Senior Management.

We, here at Redwood, have extensive experience in both Islands in supporting such reviews from templates and guidance on how to undertake such a review, or supporting MLCOs in undertaking the review, reporting and recommendations to independently conducting the review itself and drafting and issuing the report thereafter. Should you wish to discuss these reports or require support in assessing the risks against your business please do not hesitate to contact James Wood.

Email: james.wood@redwoodgrouplimited.com

Direct Line: 01481 743694

Links to the two reports can be found here:

Jersey - https://www.jerseyfsc.org/industry/on-site-visits/financial-crime-examination-feedback/

Guernsey - https://www.gfsc.gg/sites/default/files/Source%20of%20Funds%20Source%20of%20Wealth%20in%20the%20Private%20Wealth%20Management%20sector%20-%20Thematic%20Review.pdf