Securities

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Securities Investment Institute Risk
ForumThe New JMLSG 2006 Guidance

• April 2006

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What are the key changes?

• Greater recognition of senior management
  responsibilities they must manage!
• The requirement for a risk based approach is
  clear
• The changed role for the MLRO
• A revised approach to customer due diligence
• Less due diligence v more monitoring
• Training implications
• Differentiation between different business sectors

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Senior Management

• Not actually changed but likely to be very
  different!
• Involvement
• Responsibility, particularly for the risk based
  process
• Ultimate responsibility for all except the MLROs
  statutory responsibilities
• Obligation to designate one member of senior
  management to represent all in AML compliance
  matters but overall responsibility not delegated

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The Risk Based Approach

• Key change but only broad guidance
• Identify and assess the actual AML/CTF risks
• Design and put in place processes and controls to
  mitigate the identified risks, on a proportionate
  and cost-effective basis
• Some residual risk can still be acceptable
• Determine management information requirements for
  senior management to enable their monitoring of
  the effectiveness of the regime for which they
  are responsible
• Keep records

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The MLRO

• Responsible for oversight of compliance with the
  FSA regime of rules on systems and controls to
  prevent money laundering
• Not the same responsibilities as the Nominated
  Officer in statute
• Old FSA hallmarks of seniority, capability and
  resources all still important
• Still reports to management

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Customer Due Diligence

• Information collected v information verified
• A start point standard level of verification to
  then be varied to reflect risk
• Allow for those customers/clients who cannot be
  expected to meet standard requirements
• Flexibility and judgement in reaching
  satisfaction
• Potentially much greater use of electronic
  verification
• Potentially much greater reliance on other
  regulated firms

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Initial Due Diligence v Ongoing Monitoring

• Establish the basic standard not necessarilly a
  minimum standard!
• Flex the standard to reflect the risk
• Reduced workloads for some customers due
  diligence may be offset by greater ongoing
  monitoring needs
• Determine and establish monitoring needs,
  monitoring levels being geared to reflect risks

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Training

• Nominally not much different from old regime
  met the statutory requirements and guard against
  the reasonable grounds test
• Training required to enable staff to take a risk
  based approach to their work.Remember Firms
  should encourage their staff to think risk as
  they carry out their duties.. (Preface 18)

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Electronic Verification

• Who to use?
• What to do and how to do it?
• Existing providers and others

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Reliance on Other Regulated Firms

• Efficiency?
• Several different firms involved on same
  business
• Acceptable confirmations
• Assessment of source and acceptability
• Exceptions
• The confirmation and the supporting documentation

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Impact of the New Guidance

• How has the FSAs position changed
• Rulebook
• Monitoring
• Philip Robinsons letter
• Staff Training
• Management of levels of discretion allowed to
  staff.
• Implementation challenges
• Time
• Cost

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Action Required Now

• Assessing and documenting risk profiles for
  sign-off by senior management
• Determining additions and revisions to existing
  systems, processes and controls
• Determining revised staff training needs and a
  strategy to meet the needs on a timely basis
• Monitoring and reporting back to senior
  management through project management

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Ongoing Requirements

• Monitoring compliance with all aspects of the new
  AML/CTF regime
• Monitoring changes to risk assessments and the
  consequences thereof
• Routine reporting to senior management, both in
  accordance with the requirements they have
  determined and the formalised annual MLRO report.

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Significant Dates

• Final Guidance published 1st February 2006
• Treasury approval given 13th February 2006
  Guidance now has approved status in law.
• Abandonment of FSA ML Sourcebook and full effect
  of new regime from 1st September 2006

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The New JMLSG 2006 GuidanceSession End

• MARCH 2006