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?