When the new Guernsey AML/CFT Handbook was released by the Guernsey Financial Services Commission everyone started focussing on what they feared – changes requiring more work. However, what they failed to appreciate was that there were also areas that could reduce the work and documentation required to successfully identify and verify the identity of a customer and/or beneficial owner. Here we look at five of those points to make life easier.
- Change of Address
In the past, many firms have re-verified the address of a natural person where they have moved from one residence to another. This can be time-consuming and also result in a temporary block being placed on the customer’s account.
Section 5.4 of the Handbook allows that where there is ongoing written correspondence at the new address this can be considered verification. As this must involve sending correspondence and receiving response to that correspondence consider sending the customer a letter with a tear-off slip to be signed and returned in a reply-paid envelope.
- Declassifying PEPs
Less Politically Exposed Persons should mean less high-risk relationships and less work to do on an ongoing basis. Consider reviewing your PEP register, highlighting those former PEPs who have left office and determine what their time period is for declassification.
Even where some have not passed the time period you will be able to note when they can be declassified in the future. Once declassified perform a new relationship risk assessment, which may result in a reduction to their relationship risk rating. For further information see section 8.5.6 of the Handbook.
- Governments, Supranational Organisations, State-Owned Enterprises & Sovereign Wealth Funds
Sections 7.11.2 and 7.11.3 of the Handbook looks at these structures. Historically many of these structures have been automatically classified as high-risk because one or more directors, trustees or equivalent have been PEPs. This would include structures such as:
- Government Pension Schemes
- Development Finance Institutions
- Sovereign Wealth Funds
Guidance given now indicates that where the PEP has no economic interest in the structure but is merely in the position due to their political role. Also, in many cases, payments will be received from the structure and paid back to the structure with no payments being made to individuals (including the PEPs) and therefore there is minimal risk in abuse of the structure. The Handbook clearly indicates that this should other than high risk, and furthermore many of these government-related structures will end up being low risk.
- Simplified Customer Due Diligence
Chapter 9 of the Handbook contains the measures on Simplified Customer Due Diligence. These can be important tools in reducing the amount of due diligence required when the relationship risk assessment is low-risk and the customer meets certain other requirements. Important categories (some of which are particularly applicable for clearing banks) include:
- Bailiwick Residents
- Bailiwick Public Authorities
- Guernsey authorised or registered collective investment schemes
- Financial Services Businesses and Prescribed Businesses in low-risk (Appendix C) countries including natural persons authorised to act in respect of the Business
We would recommend specific document checklists for these categories of relationship.
- Using Receipt of Funds as Verification of Identity
Here, a firm will still need to obtain identification information (e.g. on an application form), however verification of identity can be satisfactorily covered by ensuring:
- All initial and future funds are received from an Appendix C business
- All initial and future funds are come from an account in the name of the customer or beneficial owner
- Payments are only made to an account in the customer’s name or other limited recipients
- No product changes are made that result in receipts from or payments to third parties
- Cash withdrawals (if allowed) can only be made where the customer or beneficial owner is face-to-face, identifiable and the reason for cash withdrawal is verified
Whilst not particularly useful in banking relationships, this may prove adequate in cases such as collective investment schemes which typically only receive money from or pay to the named customer. For further information see section 9.7 of the Handbook.
Whilst not applicable in every business, there are sufficient “breaks” in the Handbook to make identifying and verifying the identity of certain customers and (where applicable) their beneficial owners far more streamlined. We would recommend looking carefully at the Handbook for these simplification measures and applying them where possible.