Transcript Document

FINANCIAL CRIME POLICIES OF
REGULATED FIRMS.
COMPLIANCE FORUM OF THE
SECURITIES and INVESTMENT
INSTITUTE, SEPTEMBER, 2006.
PRESENTATION AGENDA
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THE HOLISTIC VIEW OF FINANCIAL CRIME
THE REGULATOR’S PERSPECTIVE
ESTABLISHING A FRAUD ADVERSE CULTURE
DESIGNING THE PREVENTION & DETECTION
STRATEGY
THE FIRM’S POLICY & IMPLEMENTATION
MANAGING A COORDINATED APPROACH
ASSESSING RESULTS & MAKING A
DIFFERENCE / BENEFITS & LINKAGES
USEFUL REFERENCES
THE HOLISTIC VIEW
• FSA STATUTORY OBJECTIVE 4
“The reduction of financial crime; reducing the
extent to which it is possible for a business to
be used for a purpose connected with financial
crime”.
( FSMA, 2000)
THE HOLISTIC VIEW
SYSC 3.2.6R
“A firm must take reasonable care to establish
and maintain effective systems and controls
for compliance with applicable requirements
under the regulatory system and for
countering the risk it might be used to further
financial crime”
REGULATORS’ PERSPECTIVE
Philip Robinson speech – October 2004
“Fighting crime is therefore what we do. We have always
required:
a) Senior Management to take responsibility for
managing fraud risks; and
b) Firms to have effective systems & controls that are
proportionate to the risks they face. This will
continue to be our focus. But over the coming
months we will be steadily paying more attention to
firms’ arrangements for managing their fraud risks as
part of our general supervising and other regulatory
activities……….”
REGULATORS’ PERSPECTIVE
Regarding fraud the FSA will look particularly at:
 Does a firm have a strong anti-fraud culture?
 Is the lead being given from the top?
 Is there a clear allocation of responsibility for
the day to day management of the risk?
 Employee training?
 A firm’s KYC procedures.
 What M.I. on fraud is captured?
 How is it used?
ESTABLISHING A FRAUD AVERSE
CULTURE.
Your firm should :
 Have an insight into fraudsters’ motives
 Identify your key stakeholders.
 Recognise the “Fraud Manager cannot
succeed alone.
 Agree on your key policy issues.
A fraud averse culture recognises & addresses
such issues through business ethics & HR
policies in addition to more commonlyaccepted fraud prevention initiatives.
ESTABLISHING A FRAUD ADVERSE
CULTURE.
KEY POLICY ISSUES:
 The firm’s code of business ethics
 The HR security of employment & disciplinary
processes
 What constitutes “fraud” within the firm
 Roles & responsibilities
 Prosecution or disciplinary response
 M.I. requirements & Board / SMT involvement
DESIGNING THE PREVENTION &
DETECTION STRATEGY
GOLDEN OPPORTUNITY TO TAKE AN HOLISTIC
APPROACH BY:
 DOING A FRAUD RISK ASSESSMENT ALONGSIDE
THAT REQUIRED FOR AML-CFT UNDER JMLSG 2006
& FSA SYSC RULES.
 KNOW YOUR VULNERABILITIES BY “THINKING
CRIMINAL”!!
 FRAUD & AML-CFT RISKS MAY NOT BE THE SAME!
 GAP ANALYSIS TO REVEAL PRIORITIES
 TRANSLATE TO A POLICY + MANUALS / HANDBOOKS
DESIGNING THE POLICY
FORMAT:
 WRITTEN + EXPLAIN RELATIONSHIP TP
OTHER POLICIES, e.g. Operational Risk, T & C.
 RISK ASSESSMENT + GAP ANALYSIS.
ROLES:
 SENIOR MANAGEMENT
 OTHER CONTROL FUNCTIONS, e.g. INTERNAL
AUDIT, RISK, COMPLIANCE, etc.
SENIOR MANAGEMENT INFORMATION:
 WHAT, WHEN, HOW?
DESIGNING THE POLICY - CONTENT
EXTERNAL FRAUD:
• Account Opening Checks
• Robust firm/client instruction authentication
• Illegal transactions under law of counterparty
• Exceptions procedure to identify/flag
suspicious activity
DESIGNING THE POLICY - CONTENT
EXTERNAL FRAUD:
• Management sign-off on Third-Party payments
• Physical security of documents of title
• Fraudulent use of firm’s products/services by
customers
• Key Risk Indicators for customer accounts
DESIGNING THE POLICY - CONTENT
INTERNAL FRAUD:
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Clearly define what constitutes “internal”
Separation of functions, e.g. front/back office
Access to & use of IT/Systems
Treasury Controls
Purchasing – sourcing/procurement
Recruitment of permanent & temporary staff
The Outsourcing issue.
IMPLEMENTING THE STRATEGY &
POLICY
IMPLEMENT BY:
LINKING KYC COLLECTION WITH
MONITORING
ENSURING YOUR CONTROL FUNCTIONS
TALK TO EACH OTHER!
REVIEW RELATIONSHIP MANAGEMENT
REGULARLY
EMBED CONTROL FUNCTIONS IN NEW
PRODUCT / SERVICE PROCESSES
ENHANCE YOUR TRAINING TO REFLECT
ROLES & RISKS
IMPLEMENTING THE STRATEGY &
POLICY
INTERNALLY BY:
COMMUNICATION, EDUCATION & TRAINING
 ADVISING ALL OF REQUIRED STANDARDS &
CONSEQUENCES OF FAILURE.
 INCLUDE ON AGENDAS OF STAFF MEETINGS
• reports back / reward staff / info. sharing
 OVERT & COVERT PREVENTION
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checks & balances advised to staff
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inevitability of discovery a deterrent
 WHISTLE-BLOWING
MANAGING A COORDINATED
APPROACH
In line with JMLSG 2006 & FSA SYSC RULES:
 Document what is done & why.
 Top-level endorsement, support & commitment
 May need to forge / force a new relationship
with H.R.? Use D.P.A. 1998, S.29 Gateway to
sharing actively!
 Enlist I.T. to allow AML & Fraud activity
monitoring
 Install a review process – alongside MLRO
Annual Report?
MANAGING A COORDINATED
APPROACH
The Risk-based Approach demands:
 COORDINATION – see JMLSG 2006,ch.1.35.
 INTEGRATION, NOT SILOS!
 GUIDANCE 2006 & SYSC RULES POSE
SIGNIFICANT MANAGEMENT CHALLENGE
THE MANAGEMENT CHALLENGE
 ALLOCATE CLEAR RESPONSIBILITIES
 DEMONSTRATE CONTROLS APPROPRIATE TO
FINANCIAL CRIME RISKS
 ENSURE VISIBLE SMT / BOARD COMMITMENT
 ENSURE FIRM’S SOCA REPORTING & REPORTING &
FEEDBACK IS SHARED
 MAKE PARTNERSHIP WITH LAW ENFORCEMENT &
FSA A REALITY.
BENEFITS & LINKAGES
 PILLAR 1, BASEL / CRD – OPERATIONAL
RISK FACTORS
 PILLAR 2, BASEL / CRD – ICAAP & SREP
 ARROW 2 RISK MODEL – BUSINESS
CONTROLS SECTION.
ASSESSING RESULTS & MAKING A
DIFFERENCE
 Extend content & frequency of MLRO / Fraud
Manager / Internal Audit / Risk Manager
reporting?
 Is the MLRO Report a model for others?
 Review training & competency regime
 Use M.I. to collate fraud/financial crime
statistics to pinpoint weaknesses
 Note revised FSA fraud-reporting rules!
 Use feedback from ARROW 2 reviews, law
enforcement & Govt. departments
CONCLUSION – FSA EXPECTATIONS
1.
“ Senior managers are the key to AML, and it is they who
must take responsibility for their firm’s systems and
controls……….A firm that assesses, manages and
monitors its risks systematically, with suitable
documentation, thereby puts itself in a position to
comply with the legal and regulatory requirements
over AML and to fight crime effectively (see for
example, SYSC 3.2.6A R and SYSC 3.2.6G(3)G).”
Source: Philip Robinson, FSA Financial Crime Sector
Leader, letter to the JMLSG Chairman, 10th April, 2006.
CONCLUSION – FSA EXPECTATIONS
2..
“ The partnership between us will be more
important than ever as we seek to make a real
difference in the fight against crime”.
Source: Philip Robinson, FSA Financial Crime
Sector Leader, letter to the JMLSG Chairman,
10th April, 2006.
FINANCIAL CRIME POLICIES OF
REGULATED FIRMS
USEFUL REFERENCES:
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“Firms’ High Level Management of Fraud Risks” ( FSA Paper, February
2006).
“The FSA’s risk- assessment framework”, Paper, August 2006.
FSA SYSC Handbook.
FSA letter to firms, March 2006 “Changes to our Supervisory
Approach”.
BBA/MHA “Fraud Manager’s Reference Guide”, 2005/6.
The Fraud Act, 2006.
The Fraud Review – Office of The Attorney General, July 2006.
JMLSG Guidance, 2006.
FINANCIAL CRIME POLICIES OF
REGULATED FIRMS
COMPLIANCE FORUM, S.I.I. -- 20th
SEPTEMBER, 2006.