Transcript Document

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Securities & Investment
Institute – Compliance
Forum.
“Towards complying with the
Risk-based Approach – a new
role for MLROs?”.
17th May, 2006.
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Presentation Structure
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A bit of History.
Key Changes.
New FSA Rules (SYSC).
JMLSG Guidance 2006.
Action needed & Key Dates.
Is / should the MLRO be “the focal point”?
Is there a Bi-focal point now?
The positive view of the MLRO role.
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The Species “MLRO”
• Hitherto known as “Praefectus Adligo
Vinculum” (“Officer Responsible For Going To
Prison” !)
• CHARACTERISTICS :
• An almost unquenchable desire to do good in the face of great
adversity.
• A willingness to explain – over & over again- the concept of “tipping
off”.
• A touching belief that “knowing the customer” really , honestly,
genuinely, is a good idea !
• An un-natural familiarity with jurisdictions where all things / names
are negotiable !
• A stoic ability to cope with solitude, cynicism, apathy, indifference &
venal hostility
(With thanks to “Regulus”)
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What Has Changed?
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The law ? Not a word.
FSA rules ? Yes !
JMLSG Guidance ? Yes !
Net effect ? Time & FSA/FATF will tell!
• NOTE!
* RBA is a step change for many firms!
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Important changes of emphasis
Some key relationship challenges
JMLSG Guidance 2006 & FSA SYSC
rules – Key Changes.
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2.
3.
4.
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Increased SM Involvement
Increased focus on Systems and Controls
Increased focus on risk assessment
Flexibility introduced re ID&V relative to risk
Increased KYC and monitoring but effort
relative to risk
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JMLSG Guidance 2006 & FSA SYSC
rules – Key Changes.
6. Increased focused training with effort relative
to risk
7. Keeping records more important than ever.
8. Demonstrate a proportionate & reasonable
approach.
9. Holistic view / approach to “Financial Crime”.
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Key changes
• Increased risk assessment
(Part 1 Chapter 4)
• Discrete steps to be taken (JMLSG 4.2 SYSC 3.2.6F G)
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Identify potential risks for sector
Assess actual risks from customers and products
Design and implement controls to manage actual risks
Monitor and improve effective operation of controls
Keep appropriate records of what done and why
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Key changes
• Increased risk assessment
(Guidance, Part 1 Chapter 4)
• No fixed approach (JMLSG 4.6- 4.12 SYSC 3.2.6F G)
• Simple or complex to reflect business
• May be product or customer lead
• Often results in formal categorisation
• High/Medium/Low
• Products, Customers etc allocated
• Controls designed to match risk
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Key changes
• Increased risk assessment
(Guidance, Part 1 Chapter 4)
• Considerations/recommended questions to consider
(JMLSG 4.13 – 4.18):
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Nature of products
Nature of customers
Interaction between customers and products
Geography
Delivery
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Key changes
• Increased risk assessment
(Guidance, Part 1 Chapter 4)
• Implement controls to manage risks(JMLSG 4.19 –
4.26):
• Vary ID &V procedures and documentary requirements to
reflect risk
• Vary amount of additional KYC info to reflect risk
• Vary monitoring effort to reflect risk
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Key changes
• Increased risk assessment
(Guidance, Part 1 Chapter 4)
• Simple or complex the approach and result must be:
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Documented
Endorsed by the Board/Senior Management
Kept under review (annually)
(JMLSG 4.29 –4.33 Chapter 1 and 3)
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Key changes
• Increased risk assessment
(Guidance, Part 1 Chapter 4)
• Document and defend
• FSA Supervisors attitude?
• Not to challenge assessment providing a responsible and
reasonable approach taken?
• Read FSA letter to JMLSG, 10TH April, 2006.
• Assessment down to SM
• No level playing field
• Probably AML will become a competitive issue.
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Action Required:
* Assess & document risk profiles for S.M.signoff.
* Review/Amend policies, procedures, systems &
controls.
* Determine revised staff training needs & training
strategy going forward.
* Monitor & report back to S.M. via project
management discipline.
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Key Dates:
+ Guidance published 1st February, 2006
+ Treasury approval 13th February, 2006
+ FSA SYSC Rules in full effect from 1st
September, 2006.
+ FATF evaluation due Oct/Nov, 2006.
The MLRO – Interaction of law,rules
& Guidance (1)
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Remains controlled function ) {SYSC 3.2.6I R
Must still be approved person ) APER 4.7.9 R}
Can also be “ nominated officer “ under
POCA( JMLSG PT.1ch.3.4)
“Nominated Officer “ / “MLRO” for relevant
business” ( ch.3.1 – 3.2)
Ultimate Senior Management responsibility can be all 3 roles
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The MLRO – Interaction of law,rules
&Guidance (2)
• AML / financial crime responsibility of Senior
Management (sysc 2.1.1./ 2.1.3 / 3.1.3 / 3.2.6H R)
• Director or Senior Management allocated
responsibility (ch.1.23)
• Can also be MLRO (ch.1.24 & SYSC 3.2.6 H R)
• Senior Management to take ownership (ch.2)
• “Held Accountable” (ch.2)
• BUT!!!
• POCA obligations of MLRO
• Interface of S.M./ Director with MLRO is key (ch.1.24)
• MLRO / FSA interface (ch.3.6)
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Standing of MLRO
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Threshold competence required
Able to act on own authority
Adequately resourced
Continuing training to remain competent
Linkage with A.P.E.R. Code principle 7 (ch 3.6,
SYSC 3.2.6I R)
• Continuing focal point “ for all aspects….”
(ch.3.9).
MLRO - Senior Management
Relationship
• Support / coordinate Senior Management focus on
managing money laundering risk in individual
business areas --- new ! (ch.3.10)
• Responsible for offering training + standards +
scope --- new ! (ch. 3.26)
• Remember ! -- ultimate responsibility is Senior
Management (sysc 2.1.3.R./ 3.2.6.R/ ch.2.5).
• MLRO annual report (ch. 3.29 – 3.37).
• MLRO to monitor effectiveness of SYSC in
firm (ch.3.28)
• “caesar ad praefectus adligomant vinculum” !!
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Position of the MLRO – The
NEGATIVE View
• The meat in the sandwich
Government Legislation
Law Enforcement
FSA
MLRO
Firm + Senior Management
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Position of the MLRO – The POSITIVE
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VIEW - at the centre of everything!
SOCA
HMG / FSA / FATF
Internal
Reports
Staff
Requirements
MLRO
Awareness
& training
External
reports
KYC/KYCB
Customers
Consent
Annual
reports
Senior
Mngmnt
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A Final Thought…THE FSA VIEW
• The REAL FSA Requirement?
• To see that SENIOR MANAGEMENT are
involved in MANAGEMENT of the RISKS of
money laundering in a thoughtful consistent
and responsible manner
• The MLRO is the key player in making this
happen
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SII Compliance Forum.
Presentation, 17th May, 2006.
[email protected]
Tel/Fax 02476 466492.