Compliance – the Trusted Partner

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As we all know, the Compliance function is now one of the most important tools in a firm’s fight to minimise risk.   It has been a bit of a battle to get Boards to realise that the Compliance Department should be treated as a trusted partner but, if its objectives are successfully integrated into all processes, it can be a partner which helps do business.  This is not least because of the possible reputational damage that can arise if there is non-compliance but also because there are, for example, benefits of having a smooth, efficient and speedy CDD collection service as it can enhance customer relationships.

However, as there are more and more areas a Compliance Department should be looking at, what is the role of Compliance now?

Compliance is defined as “the conformity in fulfilling official requirements” but considering the vast array of official requirements this could be so many things.  When I started my career in law in the late 1980’s, we did not think of compliance as a distinct department but just a general responsibility.  We had to comply with all necessary legislation no matter what law we were advising on and that included compliance in respect of, amongst other things, confidentiality and data protection, insurance, health and safety and employment.  It wasn’t until April 1994 when it started to be a question of whether we needed to see a client’s passport or not and that’s when to me the Compliance Department became a reality.

More than 20 years later, the Compliance Department has evolved from just looking at the AML requirements to looking at the many new threats and concerns which need to be addressed daily.  To mention a few issues, we have the EU General Data Protection Regulations, the OECD Common Reporting Standard for the exchange of tax information, and all the changes that may come along after the 23rd June with a possible BREXIT.

The EU General Data Protection Regulations come into force in 2018 and bring in the new concepts of the right to be forgotten, data portability and data breach notification.  As to the CRS, so far 55 countries have committed for the first exchange of information by 2017 and, of course, this includes the Crown Dependencies; Guernsey’s regulations came into force on the 1st December 2015.  If the UK decides to leave the EU, then Protocol 3 will need to be renegotiated and this may not be on such favourable terms.

But should it be the Compliance Department that is responsible or should other departments be dealing with the issues?  I think that depends on the model in your firm and the resources you have but, whatever they be, clear lines should be drawn to ensure each person and each department knows their responsibilities so nothing falls between the cracks.

To me, the most pressing and important area which must not fall foul of blurry lines of responsibility is the EU General Data Protection Regulations.  Whilst 2018 seems a long time away, due to the extent of its coverage, work must begin now.  Firms need to review their operations, risks and controls to be ready not only to protect themselves from threats but to stand out from the crowd.  The role of Compliance as a trusted partner, in my mind, is to get together as many other Departments as possible to discuss your firm’s response.   That’s, of course, if it hasn’t happened already.

There are opportunities and work has already begun in earnest to put Guernsey in a great position.  As PWC said in its 2015 report – let’s establish the Island as a ‘Trusted Location’ for international data.  Why not?  By having the right components in place it will enable the finance industry and Guernsey to embrace these opportunities.  And if successful, we will all see the benefits.

 

The Finance Industry – Confidence in Money?

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As you know, I have been out canvassing and talking to people about the future of Guernsey. During these chats I have been hit by one particular message – a lack of confidence.  This is not just in the finance sector but in most aspects of life.  Whilst this is disappointing, it is not that surprising and something clearly needs to be done.

An upturn in the world economy will, of course, increase confidence as perhaps will a new set of Deputies but what can be done about confidence in the finance industry?

James Madison, Jr., the fourth President of the United States and political theorist, once said “the circulation of confidence is better than the circulation of money” – however in our industry we need both.

Diversification is at the top of most people’s agenda – we’ve seen the introduction of an aircraft registry and image rights legislation.  Also, the Digital Greenhouse, in my view, is a beacon of light for innovation having hosted some fascinating discussions on how we can promote Guernsey.

William Mason, Director General of the Guernsey Financial Services Commission, in his speech to the Industry in November 2015, having analysed other financial centres, concluded “that we match the most competitive countries in a large number of areas and that we still possess many key success factors.”  I agree.

Having worked in the Fiduciary sector, I was also pleased to see KPMG’s Strategic Review of the Guernsey fiduciary industry which confirms that “[t]he fiduciary industry is a material contributor to the local economy and island.” However, as my interest is in the AML/CFT perspective, the report discusses the need to investigate centralising and streamlining the CDD and KYC processes for on-boarding of clients across Guernsey.  KPMG concluded that “any opportunity to make this easier from a client perspective would be welcomed.”  I think this is really important although, in my view, if we can get clients and certifiers to follow the certification instructions first time it would be a massive bonus.

The Report goes on to say “[m]eeting these challenges will require clear direction and monitoring”.  Direction can come from a variety of sources: the Board, the management, the customers and the politicians and our regulator.

If elected, I hope to be one of those politicians providing clear direction and monitoring to increase the circulation of both confidence and money.

MoneyVal – The Road Ahead

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GUERNSEY’S MONEYVAL REPORT … AGAIN

 

 

After a very informative seminar last week, I thought I would set out the timetable identified by the FIU, the GFSC and the Policy Council of the work they need to do to implement some of the recommendations of the MoneyVal Evaluation.  It also gives an idea when we can expect our workloads to be affected.

  • Spring 2016 – Publication of the FIS Annual Report for 2015 (and possibly from previous years as it was last published in 2009)
  • May 2016 – Consultation on amendments to the Wire Transfer legislation
  • September 2016 – Policy Letter to the Guernsey States of Deliberation to obtain approval for the changes to the primary AML/CFT legislation
  • Autumn 2016 – Upon receipt of the IMF model for a National Risk Assessment, Guernsey’s version will be compiled with help from industry in order to comply with the FATF 2012 Recommendations.  Recommendation 1 requires Guernsey to identify, assess and understand the money laundering and terrorist financing risks it faces, such an assessment informing a firm’s business risk assessment.
  • End of 2016 – Consultation with industry on the changes to the Handbooks for Financial Services Businesses and Prescribed Businesses
  • End of 2016 – Completion of the review of Guernsey Terrorist Financing legislation
  • 2016 or 2017 – Approval of the amendments to the Sanctions legislation to close the gap between UN designations and the EU designations
  • January or Easter 2017 – Approval of Sark Chief Pleas of amendments to primary legislation
  • September 2017 – Progress Report to MoneyVal

Richard Walker, the Director of Financial Crime and Regulatory Policy of the Policy Council, continued the list with the following work streams:

  • consideration of the inclusion of manumitted organisations on the Register of Non Profit Organisations but taking into account the treatment of trusts with long stop charitable beneficiaries
  • discussions with GAT to follow up on the recommendation of both the IMF and MoneyVal to include the requirement for non-professional trustees to maintain information on beneficial ownership
  • review of corruption and confiscation legislation.

A long list – good luck!

MoneyVal – Something For Everyone

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GUERNSEY’S MONEYVAL REPORT IS OUT!

MoneyVal have finally issued the 4th Round Evaluation of Guernsey and, whilst everyone pats themselves on the back (and why not – Guernsey has done very well) there is still some aspects of concern for all licensees, the regulator and the FIU.
The headlines below could be the future…..

If you’re bad, you’ll pay more … if your suspicious and don’t report, you will be punished … no more simplified or reduced CDD for many low risk relationships … EDD compulsory for many more FSB relationships … lawyers and accountants no longer Appendix C businesses … independent audit functions needed to test compliance ….

But then the good news for FSBs …..

  • Will trusts need to have a Guernsey registered agent or TCSP trustee?
  • Will TCSPs be needed for all Guernsey companies?
  • The AGCC should provide additional guidance particularly CDD measures.
  • The FIU should provide more information in public reports.

This is just my view of the Summary and, as we know, the devil is in the detail. But I am sure we have the time to read the 322 page report whilst we wait with interest to see what the GFSC will do – looking forward to the 11th February and their Industry Presentation on the Moneyval Report Feedback.