The Regulator’s Regulator?

tindalldawn-1-e1454075780950Next week, the States of Guernsey will be asked to note the annual report and accounts of the Guernsey Financial Services Commission for the year ended 31st December, 2015.  Under Rule 3(24) of the Rules of Procedure this means I will not be asked to agree or disagree with the contents of the Report as “to note” is construed as a neutral motion neither approving or disapproving.  So, having read the Report and wanting to make a few comments on its contents, I thought I’d put some thoughts down in my blog as the role of Regulator is such an important function for our industry.

What struck me initially was not their stated objectives; it was what was not  – the Commission does not seek to run a zero-failure regime. To quote the Director General, William Mason,

“Were we to set ourselves up to run a zero failure regime we would unduly constrain innovation, limit growth and seek to act in a risk averse fashion which would ultimately ensure little other than the impoverishment of the people of the Bailiwick as the financial services sector became a shadow of its former self.”

From an AML perspective, this means that, with the Commission using PRISM’s risk based approach to supervision, there will still be attempts by criminals to misuse the financial system.  Naturally, therefore, it is for businesses to follow the requirements of the legislation and the Handbooks to ensure those attempts fail.

It is good to hear that innovation is very much being encouraged by the GFSC and their open-door policy is often complimented especially when talking FinTech.  However, there is still the grumble in the AML world that there is insufficient consistency in the application of CDD requirements.  So, whilst there is a focus on providing data management to collate a customer’s identification information for KYC and CRS purposes, there is still a lack of clarity of how to get the documents which verify the customer’s identity such that they satisfy not only the different country regimes but the requirements of different institutions within each country.

Some companies seek to comply with the standard which satisfies the most respected country regimes which is a good starting point.  However, I found that, when submitting the documents, the approaches of institutions varied so much that the easiest way was to deal with each institution and get agreement on what they will accept.  Quite often they asked for more than their own country’s requirements resulting in me firmly pointing out that they were not complying with their own country’s legislation, that their policies were not based on that legislation and that they should vary their requirements to accept a consistent standard in line with FATF requirements.  I am pleased to say that this proved successful on all but one occasion and that failure was with a London branch of a Swiss bank with whom I had already had success.  The branch was not for seeing the light!

You might well say – and I would agree with you – that this was a time consuming method of getting a customer’s verification documents accepted.  However, the main theme with the client facing teams I dealt with was they wanted to ask their customers to provide only one set of documents and not to have to keep going back to the client for more information just because each different institution wanted something else.  So whilst you can collate in accordance with the main countries’ requirements, there will always be differences in interpretation until we have common standards for AML.

To compliment my approach, I always thought it best to advise our clients on the expense of certain relationships before willingly embarking on a painful account opening process.  Instead, client relationship managers should recommend going with those institutions which take a pragmatic approach with whom the firm has had a good relationship and saving their client’s money (and your time!).  I also believe a comprehensive checklist covering all the information and verification required which is fully complied with, checked for accuracy and, most importantly, not signed-off until it is complete in all respects should do the trick.

Some also say that the GFSC does not adhere to such common standards quoting other countries’ different rules as being more lenient.  My response is always that, in my experience, other countries apply the FATF common standards (almost) but do not enforce those standards to the same extent the GFSC does.  So results this misunderstanding. People believe the GFSC requires higher standards than others, higher than required by FATF but actually I believe it just has the right standards (well almost) but the difference is that they are fully enforced.  As such enforcement means we received a superb MoneyVal evaluation which brings in business, the argument that we should be more lax with those requirements is, in my mind, counter-productive.

The review of the Handbooks should iron out some of those annoying differences and should bring clarity to ambiguities that exist but leniency in respect of the requirements I do not agree with as, after all, getting it right is not that difficult if you are conversant with all the legislation and guidance and take advice as appropriate.

 

Link to the annual report and accounts of the Guernsey Financial Services Commission for the year ended 31st December, 2015 is   https://www.gov.gg/CHttpHandler.ashx?id=102816&p=0

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.