Title: Securities
1Securities Investment Institute Compliance
Forum.
- Towards complying with the Risk-based Approach
a new role for MLROs?. - 17th May, 2006.
2Presentation Structure
- 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.
3The 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)
4What Has Changed?
- 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!
- Important changes of emphasis
- Some key relationship challenges
5JMLSG Guidance 2006 FSA SYSC rules Key
Changes.
- Increased SM Involvement
- Increased focus on Systems and Controls
- Increased focus on risk assessment
- Flexibility introduced re IDV relative to risk
- Increased KYC and monitoring but effort relative
to risk
6JMLSG 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.
7Key changes
- Increased risk assessment
- (Part 1 Chapter 4)
- Discrete steps to be taken (JMLSG 4.2 SYSC 3.2.6F
G) - 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
8Key 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
9Key changes
- Increased risk assessment
- (Guidance, Part 1 Chapter 4)
- Considerations/recommended questions to consider
- (JMLSG 4.13 4.18)
- Nature of products
- Nature of customers
- Interaction between customers and products
- Geography
- Delivery
10 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
11Key changes
- Increased risk assessment
- (Guidance, Part 1 Chapter 4)
- Simple or complex the approach and result must
be - Documented
- Endorsed by the Board/Senior Management
- Kept under review (annually)
- (JMLSG 4.29 4.33 Chapter 1 and 3)
12Key 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.
13Action RequiredAction Required
Assess document risk profiles for
S.M.sign-off. 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.
14Key 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.
15The MLRO Interaction of law,rules Guidance (1)
- 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
16The 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)
17Standing of MLRO
- 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).
18MLRO - 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 !!
19Position of the MLRO The NEGATIVE View
20Position of the MLRO The POSITIVE VIEW - at the
centre of everything!
21A Final ThoughtTHE 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
22SII Compliance Forum.
- Presentation, 17th May, 2006.
- david.blackmore_at_mhagroup.co.uk
- Tel/Fax 02476 466492.