Having woken up on Saturday morning to the news that we were back in lockdown, Guernsey is coming to terms with an unexpected change to our freedoms. The loss is a sharp reality check not least because it was immediate but also because we’ve been privileged to have had a near-normal life for months whilst watching the raging worldwide storm from the safety of our Bailiwick.
However, we can feel reassured that the bubble bursting was expected and planned for when we first dealt with the pandemic last March. As the politicians and hard-working civil servants battle with this latest emergency, this time I watch from the sidelines. I have to admit it does feel strange not being involved in the incessant Teams meetings or reading to prepare for them but, knowing the team, I have every confidence in those making the decisions.
So whilst we wait for the storm clouds to lift, I thought I’d take a look at the 2012 FATF Recommendations. Their importance is clear to those of us who live and breathe AML/CFT compliance but to remind us once more, in December 2020, FATF released their Update-COVID-19-Related-Money-Laundering-and-Terrorist-Financing-Risks which said:
“It continues to be critical for jurisdictions, financial institutions, and designated non-financial business and professions to identify, assess, and understand the particular ML and TF risks they face, and take corresponding mitigating action in line with the FATF Recommendations.”
As I won’t have time to publish a blog on each of the 40 Recommendations before lockdown is lifted, I’m not reviewing them in any particular order. My first choice is Recommendation 28 as I thought this was a good place to start given the reference to it in the latest GFSC consultation on amendments to the AML/CFT Handbook.
As mentioned in my last blog, the consultation amongst other things considers the introduction of reduced customer due diligence for corporate trustees. In its preamble regarding a firm’s decision on whether to apply the new Rule, the GFSC says “In making such determination, the firm should take note of reports and assessments by the FATF and/or FATF-style regional bodies, in particular of findings, recommendations and ratings of compliance with FATF Recommendation 28 and document the conclusions of its assessment.”
Whilst it is essential when considering how to comply with any particular aspect of the AML/CFT regime to go to the source document, on this occasion reference in the consultation to Recommendation 28 may at first be a little confusing. Entitled “Regulation and supervision of DNFBPs”, the Recommendation covers the measures that apply to designated non-financial services businesses and professions (DNFBPs). Despite Guernsey having regulated trust and company service providers for 20 years and the GFSC call them financial services businesses, FATF considers them separately from financial institutions. They put them in the pot with lawyers, accountants and estate agents (aka our Prescribed Businesses) hence the reference to Recommendation 28 when considering the CDD for a corporate trustee.
The Informative Note to Recommendation 28 sets out the need for the supervisory authority to have “a clear understanding of the money laundering and terrorist financing risks .. present in the country” of the DNFBP, “adequate powers to perform their functions (including powers to monitor and sanction), and adequate financial, human and technical resources” and “processes to ensure that the staff of those authorities maintain high professional standards, including standards concerning confidentiality, and should be of high integrity and be appropriately skilled.” It is the assessment of the jurisdiction where the corporate trustee (or its parent) is based or supervised against these requirements which is relevant when deciding whether to apply reduced CDD on corporate trustees.
There are many tools that a compliance team has to identify the risk of countries: the new Appendices H and I and Appendix C to name a few. But there is no complete publicly available list which brings together the rating of jurisdictions which takes note of the reports and assessments by the FATF and/or FATF-style regional bodies. Not that I can find anyway.
There is the FATF’s fourth-round evaluation ratings (this is the excel version – a link to the pdf version is on the GFSC’s Instructions, Notices & Warnings page.) As the title implies, it helpfully lists by Recommendation the latest compliance ratings of evaluated countries as at the 21st January 2021 but, of course, that is not a complete list. The Isle of Man’s rating of Largely Compliant is in the list, but neither Guernsey nor Jersey are mentioned simply because we have not yet had the Mutual Evaluation under the 2012 FATF Recommendations. And there are, of course, others yet to be evaluated.
The FATF-style regional bodies referred to in the GFSC’s amendment to the Handbook includes MoneyVal and our report and that of our sister isle is on their website. But until the evaluations of all the jurisdictions who aspire to have financial centres of eminence have been done, there will not be a ready means of capturing the compliance with the 2012 Recommendations in one place. However, whilst the Covid-19 pandemic has put Guernsey back into lockdown last Saturday, evaluations do continue elsewhere. With ours not taking place to a least 2023, whether there’ll ever be a complete list, we will have to wait and see.
Sooner than that though, we should know if a Largely Compliant – or even a Partially Compliant – rating will suffice for a particular corporate trustee being a part of a “standard risk scenario” or whether even the whiff of untoward influence of a beneficial owner trumps the evaluations.
If anyone has any questions on a particular Recommendation or is looking for compliance support – please do get in touch.
In the meantime, keep well – keep safe.