Yippee – more acronyms!

Last week I discovered that something that exercised me a great deal – the “once a PEP, always a PEP” stance of Guernsey, Jersey and the Isle of Man – did not seem to concern the MLROs in those jurisdictions (or at least the ones who read and comment on this blog – in person, many tell me that it is a pain in the due diligence backside).  And as Guernsey puts out its draft updated regulations and Handbook for consultation, I find myself in a similar position.  They have proposed two innovations which I think will cause workability difficulties for MLROs – but I may well be wrong.

The first is the introduction of a new layer of due diligence.  We have the familiar CDD, and its variants SDD and EDD (although these have been renamed SCDD and ECDD), but then, to quote from the draft Handbook: “In addition to customers assessed by the firm as posing a high risk… and for which ECDD is to be applied…, there may be circumstances where the firm enters into or continues a business relationship, or undertakes an occasional transaction, with a customer which exhibits one or more of [these] characteristics: (a) the customer is not resident in the Bailiwick; (b) the firm provides private banking services to the customer; (c) the customer is a legal person or legal arrangement used for personal asset holding purposes; (d) the customer is a company with nominee shareholders or that issues shares in bearer form…  [In these circumstances] the firm shall undertake ACDD [additional customer due diligence] in order to mitigate the particular risks arising.”  And then a description of what ACDD is appropriate for each of the four circumstances cited is given – such as “understand the reason(s) behind the customer seeking to establish a business relationship or carry out an occasional transaction in the Bailiwick”, and “take reasonable measures to establish the source of funds and source of wealth of the customer”.

Personally I find this confusing.  Isn’t this meant to be part of EDD (sorry, ECDD)?  Is it taking away some of the latitude granted by the risk-based approach, and specifying situations in which ECDD-ish measures must be taken?  As I say, I may well be being over-sensitive about this: what do you MLROs – who (if you were in Guernsey) could have to apply this new regime – think of it?

And this brings me to my second point of concern: the MLRO.  For the Guernsey MLRO will soon, if the draft gets it way, be a distant memory.  Instead, we will have the Financial Crime Reporting Officer (FCRO) and the Financial Crime Compliance Officer (FCCO).  Quite apart from the implication that the poor old MLRO will now have to become expert in assessing suspicions of every type of financial crime (fraud, cyber-fraud, identity theft, corruption, tax evasion, etc.), I do wonder about the wisdom of creating a job title that will be instantly unrecognisable to other jurisdictions.  Neighbouring Jersey already has enough trouble explaining its MLRO/MLCO split to the rest of the world.  And although I can see the benefit in trying to emphasise that it’s not all about money laundering (there’s terrorist financing too), I do worry that it’s going to end up like my one-woman campaign against the term “road tax”.  (It’s not road tax, it’s vehicle excise duty, calculated on the engine size and emissions of the vehicle, which is why I don’t have to pay it for my bicycle – but that doesn’t cut much ice with van drivers who yell at me that I should pay road tax or get off the road.)  I can tell the GFSC from long experience that being technically right but out on a limb is energy-sapping and ultimately a waste of time.  But again, I may be making an MLRO mountain out of an FCRO molehill – what do you think?

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16 Responses to Yippee – more acronyms!

  1. Gsy says:

    The ACDD requirements baffle me too. I don’t see the point, surely they’re all basic requirements not even EDD?

    “And then a description of what ACDD is appropriate for each of the four circumstances cited is given – such as “understand the reason(s) behind the customer seeking to establish a business relationship or carry out an occasional transaction in the Bailiwick”, and “take reasonable measures to establish the source of funds and source of wealth of the customer”.”

    Fairly sure those are standard requirements for every client!

    • Welcome to the blog, Gsy, and thank you for your comment. Yes, I’m mystified: as you say – and particularly in Guernsey, which prides itself on high standards of CDD and (let’s be honest) does attract higher risk clients – these ACDD requirements sound fairly basic to me. I’d certainly be worried if people weren’t always trying to understand an applicant’s desire to use Guernsey.

  2. James Barclay says:

    Mind you have its as you know a similar issue in the UK of regulated firms having to appoint an MLRO and also under the ML Regs a Nominated Officer, both of whom can be the same person.

    • Absolutely, James. I’m not concerned about the splitting of the role (which, as you say, is often then reunited anyway) so much as about the completely new – and unrecognisable – terms being used. Who is going to know what an FCRO is? And does it really encompass all financial crime…?

  3. CDWOS says:

    Susan,
    I think that you have a very valid or several very valid points. As I am in “the other island” I of course have to adopt a contrary stance to the ‘other island’ but that said I approached the JFSC some time ago and suggested that, as we were contrary to the AML Handbook and MLO express statements unpaid ‘policemen’ supposedly covering all aspects of crime, we should be re-christened “Financial Crime Reporting Officers”. I was advised by the JFSC that they did not think that this was appropriate at the time………conveniently ignoring my point about being given a job interpretation and regulatory expectation that was actually contrary to the written word in the AML Handbook. Seems that we who are not permitted to any mistakes whatsoever (MLROs) are potentially to have our roles further criminalised by the extension of the breadth and scope of what we are expected to d and as you say be expert in………and they wonder why people are no longer that keen on taking up registered roles particularly AML roles!!.
    Whilst I still am comfortable with the “once a PEP always a PEP” approach the CDD gathering can be painful and your explanation of the “additional” Guernsey requirements are jaw dropping as the suggestions for additional CDD are the types information and questions that you would have asked at the outset of the relationship not as a later addition. Had you not asked them then you would have failed your client risk assessment and subsequent CDD gathering requirements! Obviously I, being in Jersey, must have missed something……………………

    • Always useful to get your perspective from the other, other island, CDWOS! I am glad to hear that my concerns are shared, particularly about what agreeing to be an FCRO (for all financial crimes) might expose a person to in terms of legal and regulatory accountability.

  4. Mike Veillard says:

    Hi Sue

    It seems like Guernsey is trying to replicate some of Jersey’s stance (see Handbook sections 7.4 to 7.10) of requiring specific EDD for specific circumstances which has been in place since Jan 2015.

    As these are specific requirements, at RIMIL we require these to be specifically answered in our AML control sheets (extract below):

    Enhanced Due Diligence requirements for specific situations

    #

    Question

    Answer

    If “Yes” following action required:

    How have EDD requirements been satisfied?

    4.1

    Was the verification subject not physically present for ID purposes?

    Yes/No

    i) Obtain additional form of evidence of identity; or
    ii) Obtain confirmation from regulated entity that they have met the individual; or
    iii) Obtain confirmation from regulated entity that the individual is known to them and is relevant to the account.

    i)

    ii)

    iii)

    4.2

    Does the customer have a relevant connection to an enhanced risk state?
    (Iran or North Korea)

    Yes/No

    i) Approval required by senior management (sign below);
    ii) Take reasonable measures to find out the Source of Wealth;
    iii) Review relationship information and conclude it is reliable;
    iv) Update expired VoI docs;
    v) Certification of ID docs – photo bears a true likeness or similar wording; and
    vi) The relationship is reviewed on at least an annual basis.

    i)

    ii)

    iii)

    iv)
    v)

    vi)

    4.3

    Is the client, or a relevant connection, PEP-linked?

    Yes/No

    i) Approval required by senior management (sign below);
    ii) take reasonable measures to evidence the Source of Wealth;
    iii) Use external data sources to gather info on client; and
    iv) Review annually to ensure data for ID measures is up to date and relevant.

    i)

    ii)

    iii)

    iv)

    4.4

    Is the customer non-resident in Jersey? *note: Jsy trustees of a Jsy trust with a non-resident settlor is a non-resident customer

    Yes/No

    i) Determine why the customer is coming to Jersey rather than their home country.
    ii) Use external data sources to gather info on client and their jurisdiction to help build a customer risk profile

    i)

    ii)

    4.5

    Is the client being provided with private banking services?

    Yes/No

    i) Take reasonable measures to find out the source of funds and wealth;
    ii) Review annually to ensure data for ID measures is up to date and relevant.

    i) n/a

    ii) n/a

    4.6

    Is the customer a personal asset holding vehicle for the UBO?

    Yes/No

    i) Determine the purpose and rationale for using the vehicle; and
    be satisfied that its use has a genuine and legitimate purpose.
    ii) Take reasonable measures to find out the source of funds and wealth.

    i)

    ii)

    4.7

    Is the customer a company with either nominee shareholders or that issues bearer shares?

    Yes/No

    i) Determine and be satisfied with the reason for use of nominees; and
    Use external data sources to collect info on the status/probity of the nominee
    and/or
    ii) Determine and be satisfied with the reason for the use of bearer shares; and
    Review annually to ensure data for ID measures is up to date and relevant.

    i)

    ii)

    As an international business the answer to 4.4 is almost always “yes” so this helps record the information that is a crucial part of the whole AML effort.

    I agree that changing to name of the MLRO role away from the universally accepted terms is a bit bonkers!

    Cheers
    Mike

  5. Alex Erskine says:

    I think it may be efficient to get financial institutions (especially banks) to be the “gatekeeper” regarding tax evasion by clients. Not clear who else could do it. Roll on the FCRO!

  6. Samantha says:

    I think you’ve hit the nail on the head, Susan. Many of our MLROs are concerned of the new FCRO/FCCO acronyms, as many of us deal with Group offices elsewhere and we would be the only person with the new name! All our legal docs, agreements, AML/CFT policies and procedures would have to be reworded to include the new names, which seems unnecessary. I understand the GFSC want to emphasise that we do not report on just money laundering, but we know that already! And the draft Handbook doesn’t actually reference financial crime… it’s all still ML and TF risks.

    As for ACDD, the GFSC defended its position at a recent presentation. They see it as a way to “formalise” what they consider is already happening in industry. If it is something that is already happening, then why not just ensure it is collected as standard CDD, without adding another layer? We now have SCDD, CDD, ACDD, and ECDD. I thought we were trying to simplify things to avoid confusion?

  7. Jane says:

    Such good points as usual. But i am concerned Fo you Sue – will you have to change your brand to fit in with Guernsey? Ihatefinancialcrime.com here we come!

    • Welcome to the blog, Jane, and thank you for your comment. Yes: it’s a real concern! I am far too long in the tooth to change now. I managed the switch from STRs to SARs, partly because I was younger and partly because the latter is much easier to say, but MLRO to FCRO – not so much. And the truth is that I reserve my hatred – my true bile – for money laundering. I don’t think I have the energy to hate all financial crimes quite that much!

  8. Pingback: Standing my AML ground | I hate money laundering

  9. I’ve just read an article which reveals that in Bangladesh they have CAMLCOs – chief anti-money laundering compliance officers. I’m quite taken with the desert-y images that conjures up.

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