Guernsey AML (Anti-Money Laundering)

What is Anti Money Laundering (AML)?

Anti-Money Laundering is quite simply the prevention of Money Laundering, a process of making illegally gained goods appear legal. The subject of AML is quite broad and regulations differ from one jurisdiction to another.

Financial institutions have an important role to play in the identification of potential money laundering activity and reporting obligations to respective financial intelligence units within their country.

 

Guernsey AML Regime

The Guernsey AML Regime applies not only to both regulated and registered financial services businesses, but also to Legal Professionals, Accountants and Estate Agents (collectively referred to as Prescribed Businesses). The latest proposed version of the Guernsey AML Handbook, published by the Guernsey Financial Services Commission (GFSC), has published a single handbook (previously there was one dealing with Financial Services Business and another dealing with Prescribed Businesses) – The Handbook on Countering Financial Crime and Terrorist Financing (see below).

This contains details of the relevant laws and regulations as well as the rules and guidance set out by the GFSC. It is important to note that guidance is just that, the GFSC has clearly stated that these are ways of complying with the rules and regulations and not proscriptive. Businesses may adopt alternative methods of compliance, so long as they can demonstrate that they do comply. Often, because the guidance is issued by the regulator, Money Laundering Reporting Officers (MLROs) see this as “best practice” rather than just one of many alternate routes.

 

Risk-Based Approach

A Guernsey business falling under the AML regime must comply with a number of requirements, one of which is the Business Risk Assessment (BRA). This should set out the risk appetite for the company and when accepting new business the executive staff of the company should use the BRA to determine whether that business falls within the boundaries set by the board in adopting the BRA.

Another important aspect of the risk-based approach is the risk categorisation of a piece of business – in this case normally done at the client level. The risk-level associated with a client should drive the amount of customer due diligence (CDD) required. Some low-risk clients may fall under the simplified customer due diligence (SCDD) regime, and any clients identified as high-risk should have enhanced customer due diligence (ECDD) performed on them; there is also a new concept of additional customer due diligence (ACDD), which will apply in cases where businesses require an additional “level of comfort” without having to go to the extreme of ECDD.

Some businesses appear to fail when applying the risk-level of the client to the level of due diligence performed, the theory being that if ECDD is applied in all cases then the business will never fall short. So long as the business has detailed procedures used to determine the risk a client presents the correct level of due diligence should be applied, otherwise by performing ECDD on all clients the business runs the risk of not devoting sufficient time in monitoring the high-risk relationships beyond that applied to medium- or low-risk clients. ACDD will assist businesses in obtaining an additional level of content whilst applying ECDD to appropriately high-risk cases.

To assist in risk assessment of clients the GFSC has included Appendix C in the handbook. Appendix C details a list of countries that the GFSC considers have an equivalent AML regime to Guernsey’s and financial services businesses in that jurisdiction could be considered low-risk (the board should consider whether all or some countries will be considered low-risk).

 

Politically Exposed Persons (PEPs)

One important categorisation is that of the PEP. A PEP as an investor, account holder, or principal in a business relationship should automatically be seen to increase the risk-level of that client relationship. By being politically exposed a PEP is both more susceptible to corruption as well as more accessible for the purposes of identity theft. However, the involvement of a PEP in a legal entity or other arrangement should not necessarily make that entity or arrangement a high-risk relationship. Consider the following:
 

  • A state-run pension scheme from a European Union country is going to invest in a closed-ended fund
  • The pension scheme is regulated by a government-affiliated pensions regulator
  • The minister of finance in the country is on the board of the pension scheme
  • The minister of finance in the country is on the board of the pension scheme
  • The rules applied by the fund manager and the fund administrator mean that monies investing into the fund must come from the account of the investor (the pension scheme) and similarly as monies are paid back to the investor from the fund they must go to the account of the investor – no third party payments are allowed
  • Many MLROs will look at the structure and determine that the client relationship should be high-risk due to the involvement of a PEP, however given that there is no opportunity for the PEP to illicitly remove funds from the pension scheme using the investment structure being provided this relationship could actually be low risk given that it is a regulated government pension scheme in a low-risk jurisdiction

In the new handbook there are new categories of PEP, which will need to be applied to new and existing clients.

 

Pragmatic compliance

As with all areas of compliance the rules need to be implemented, but not interpreted in such a draconian way that new business does not flow. Compliance and the various business units need to work closely, and in a non-confrontational way, to deal with any areas of non-compliance is as practical a way as possible. Where one document is not available or cannot be provided will another suffice? Is guidance being given the same status as rule or regulation rather than seeking an alternative practical route to complying with rules/regulations? Is business suffering because the MLRO treats all business as high-risk and performs EDD on all clients without applying a proper risk-based approach?

Implementation of the new Handbook

The new Handbook is currently in a consultation period (closing 31 July), however changes would largely be limited to clarifications where these have been requested by industry. The finalised version of the Handbook can be expected in Autumn 2017 and will contain a transitional period of at least three months to allow changes to the policies, procedures and controls within relevant businesses. Existing business relationships will need to be reviewed in line with the new requirements within a period of two years

Need assistance?

Midshore can assist you in a number of ways with your AML/CFT commitments. We can provide CDD checks, compliance checks or act in the role of compliance officer to your business whilst providing one of our team to act as MLRO.

 

On a consultancy level, we are able to completely overhaul your current policies, processes and controls as well as project managing any changes you may require. We are fully conversant in both the new and existing requirements, and can provide any level of assistance required. Further to this, Midshore can offer training both in-house or at our training facility to ensure that you meet your ongoing staff training requirements in this area. We will shortly have online training/testing available in respect of the updated requirements.