financial crime anti-money laundering - bovill briefing

26
Anti-Money Laundering (AML) Taking a company-wide approach February 2014

Upload: bovill

Post on 23-Jan-2015

235 views

Category:

Economy & Finance


3 download

DESCRIPTION

Bovill - the UK financial services regulatory consultancy - runs regular briefings. These are the slides from the February briefing on anti-money laundering. For more information visit http://www.bovill.com/FinancialCrime.aspx. Information on the event is below: Taking a company-wide approach to money laundering “The FCA has made it very clear that responsibility for the overall culture of firms sits at the top. We need leaders and senior managers within the industry to set the tone for how their staff behave.” Tracey McDermott, Director of Enforcement and Financial Crime, FCA The regulator has recently reiterated their intention to carry out further thematic and enforcement work in financial crime. However, many firms still have a fragmented approach to managing the risks of money laundering. The responsibility for preventing financial crime is shared across the firm from the back office to the boardroom. Firms need to take a company-wide approach to tackling money laundering to ensure they are complying with regulation and managing risks effectively. Bovill’s briefing looked at Anti-Money Laundering (AML), covering: • Governance arrangements: as the foundation for effective communication and issue resolution • Risk management: the difficulties of negotiating the right level of due diligence for higher risk customers and what tools can be used to help with this process • Systems and controls: ensuring that these are fit for regulatory purpose and are appropriately maintained within your firm.

TRANSCRIPT

Page 1: Financial crime   anti-money laundering - bovill briefing

Anti-Money Laundering (AML) Taking a company-wide approach

February 2014

Page 2: Financial crime   anti-money laundering - bovill briefing

• Themes

• Moving beyond tick the box

• Bringing regulatory compliance to the heart of the

business

OR

• Keeping the CEO out of trouble

• Content

• Governance

• Risk Management

• Monitoring

• Updates

Introduction

2

Page 3: Financial crime   anti-money laundering - bovill briefing

A comprehensive framework for AML compliance

3

Governance

Operations

Risk Management

Awareness

Monitoring

Page 4: Financial crime   anti-money laundering - bovill briefing

Good governance relates to:

• Leadership

• Strategic

• Risk appetite

• Culture

• Management

• Policies

• Guidance

• Processes

• Clarity of scope

• FCA’s Handbook

• Senior Management Arrangements, Systems & Controls (SYSC)

Governance is the process of decision-making and control

4

Governance

Page 5: Financial crime   anti-money laundering - bovill briefing

Governance models

5

A - Divisional Framework

B - Federal Framework

C - Enterprising

Governance

Page 6: Financial crime   anti-money laundering - bovill briefing

• Board executive responsibility

• Global minimum policy

• Risk appetite articulated to Divisions, Business Units

• Oversight resource allocation proportionate to extent of

delegated risk appetite

• Delegated risk managed at regional level

• Mechanisms for assurance on adequacy of controls

• Good management information

• Eliminate duplication / leverage synergies to reduce costs

The best model takes a number of these features

6

Governance

Page 7: Financial crime   anti-money laundering - bovill briefing

1. Adopt formal Financial Crime / AML Policies

2. A defined governance and oversight structure

3. Defined AML roles and responsibilities

• Designated MLRO

• Designated Nominated Officer

4. Defined clear approval/ escalation process (CDD / SARs)

• Defined internal path

• Established governing body roles and responsibilities

5. Defined AML training & awareness strategy

For AML, your best governance model must include…

7

Governance

Page 8: Financial crime   anti-money laundering - bovill briefing

Overlay the Three Lines of Defence Model

8

First line of defence

Second line of defence

Third line of defence

Increasing regularity of

review

Governance

Page 9: Financial crime   anti-money laundering - bovill briefing

The Financial Crime governance model in practice

9

Financial Crime Committee

AML Sanctions Bribery Fraud Market Abuse

Data Security

Shared Services

Intelligence

• Larger organisations are more likely to have more complex organisational structures

• Amalgamation of Financial Crime areas may provide efficiencies • Centralised / holistic organisation recommended

Audit Committee Group / Board

Executive Committee

Risk Committee Compliance Committee

Governance

How are outputs shared?

Page 10: Financial crime   anti-money laundering - bovill briefing

Committee meetings should include the following topics

10

Agenda items will be driven by:

• Business type • Activity • Key risks • Issues

• Regulatory horizon • FCA thematic reviews • Emerging risks • Hot topics • MI • Strategic activities which may

impact Financial Crime • Oversight / Assurance / Audit

plans • Projects (e.g. remediation) • Intelligence

Governance

Attendance Active Engagement

Challenge

Page 11: Financial crime   anti-money laundering - bovill briefing

Getting the policy and procedures right

11

Group Policy

& Risk Appetite Statement

Guidance

Procedures

Desktop Manuals

Governance

Page 12: Financial crime   anti-money laundering - bovill briefing

• Due diligence is determined via a Risk Based Approach

• This allows for focused time and effort on the highest risk

customers

Due diligence effort is determined by risk rating

12

Risk

Management

Low risk ‘Simplified’ or lesser amount of due diligence

Medium risk ‘Standard’ due diligence (i.e. more than ‘Low’)

High risk ‘Enhanced due diligence’ (EDD)

Page 13: Financial crime   anti-money laundering - bovill briefing

Customer due diligence should drive risk management

13

Ind

ivid

ual

s Le

gal E

nti

ties

• Verify identity • Identify sources of

income / wealth • Identify proposed

use of the account

• Identify legal structure • Identify type of business • Identify beneficial owners • Identify source of funds /

client’s own customer base

• Identify intended use of the account

• Where is the money coming from?

• Is the activity consistent with what is known about the client (KYC)?

• Is the activity consistent with the product/ account type?

• Where is the money going?

• Who owns / controls the money?

Information Intelligence

Risk

Management

Page 14: Financial crime   anti-money laundering - bovill briefing

Intelligence informs your customer’s risk profile

14

• High risk customer? • Business type • Connection to PEPs • Anticipated activity • Sanctions targets

• High risk country? • Country of residence • Country of prime business • Connections to sanctions • Source of funds

• High risk product? • Service offered • Product facilities • Restrictions on the product • Speed on transaction size • Delivery channels

• Suspicious activity? • Meets with Risk Appetite?

Information Intelligence

Risk

Management

Page 15: Financial crime   anti-money laundering - bovill briefing

• Enhanced due diligence is required…

• No face-to-face meeting with the client

• The client is a PEP

• The client is a correspondent

• Any other situation with elevated ML/TF risk

• Enhanced Due Diligence is a more robust level of due

diligence including:

• Enhanced monitoring

• Periodic review

• Negative news searches

• Politically Exposed Person (PEP) searches

• Due diligence on controlling persons and related parties

• Additional documentation gathering

EDD must be applied for higher risk customers/accounts

15

Risk

Management

Page 16: Financial crime   anti-money laundering - bovill briefing

• Legal risk

• Reputational risk

• Regulatory risk

• FCA’s “Thematic Review for High Risk Money Laundering Risk

Situations” and in its “Guide for Firms”

• 4th EU Money Laundering Directive – Domestic PEPs inclusion

• Financial risk

• Recent enforcement action

• Political corruption risk

• Standard Customer Due Diligence (CDD) is not sufficient

• PEPs are becoming more effective in hiding their identity

PEPs are a higher risk category of customer

16

Risk

Management

Page 17: Financial crime   anti-money laundering - bovill briefing

• New client approval

• Identification of existing clients

• Enhanced Due Diligence (EDD)

• Enhanced monitoring

• Reviews – existing PEP clients

• Training and education

Controls are required for PEP risk management

17

Risk

Management

Page 18: Financial crime   anti-money laundering - bovill briefing

An approach to PEP risk management is recommended

18

Screening Decision EDD Approval Ongoing Review

Decision based on: • Discounting • Judgement • Profile • Control • Public sources • Adverse media • Country risk • Sanctions risk • Reputation

Management Information (MI)

Risk

Management

Page 19: Financial crime   anti-money laundering - bovill briefing

• PEP profile

• Actual vs. Connected, Current vs. former etc.

• e.g. Actual current PEP = High

• Adverse media

• Money Laundering

• Terrorist Financing

• Fraud, Bribery & Corruption

• Sanctions and Regulatory fine/censure

• Current, recent, historic news

• e.g. Current conviction or charge of money laundering = High

• Country risk association

• Use of Country Risk Ratings

• Based on individual's Country or Residence etc.

• e.g. Individual is a UK ambassador in Syria and has been a

resident of Syria for > 3 years = High

An example of a PEP risk assessment methodology

19

Risk

Management

Page 20: Financial crime   anti-money laundering - bovill briefing

Country risk is relevant to PEP risk management

20

Risk

Management

Country impacts

• Residency (& nationality) • Client’s place of prime

business

• Business factors

• Source of funds

• Funds destinations

Country risk indicators For example: • Membership of FATF • Membership of regional

FATF • FATF Strategic deficiencies • Transparency International

CPI Score • US INSCR reports • IMF review status / reports • OFAC status

Country risk scoring High risk

Medium risk Low risk

Page 21: Financial crime   anti-money laundering - bovill briefing

• Methodology output can be used to drive:

• Due diligence requirements

• Frequency and level of ongoing monitoring

• Overall view of PEP risk distribution

• Accurate MI and board reports

• Improved ability to drive business decisions

• Deeper understanding of risks posed

• Ensure customer base aligned to firm’s risk appetite

Benefits of PEP risk assessment include…

21

Risk

Management

Page 22: Financial crime   anti-money laundering - bovill briefing

• Global policy must have clarity on minimum standards

• Documented procedures should reflect business operations

• Golden source of data is used across business and

jurisdictions effectively

• Intelligence (e.g. from SARs) is used effectively in-house

• Processes are owned and over sighted

• Transaction monitoring systems are efficient and effective

• Synergies between relevant processes optimised

• Record keeping is comprehensive

Monitoring of systems and controls is vital

22

Monitoring

Page 23: Financial crime   anti-money laundering - bovill briefing

• 4th EU Money Laundering Directive

• Bribery & Corruption –fining on JLT Speciality Limited

• Market Abuse Directive

• Future FCA thematic reviews

Regulatory update

23

Page 24: Financial crime   anti-money laundering - bovill briefing

Wrap Up

24

Page 25: Financial crime   anti-money laundering - bovill briefing

Questions

25

Page 26: Financial crime   anti-money laundering - bovill briefing

Wrap up

26

Governance

Operations

Risk Management

Awareness

Monitoring