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Securities & Investment Institute – Compliance Forum.

Securities & Investment Institute – Compliance Forum. “Towards complying with the Risk-based Approach – a new role for MLROs?”. 17 th May, 2006. Presentation Structure. A bit of History. Key Changes. New FSA Rules (SYSC). JMLSG Guidance 2006. Action needed & Key Dates.

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Securities & Investment Institute – Compliance Forum.

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  1. Securities & Investment Institute – Compliance Forum. “Towards complying with the Risk-based Approach – a new role for MLROs?”. 17th May, 2006.

  2. Presentation 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.

  3. 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”)

  4. What 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

  5. JMLSG Guidance 2006 & FSA SYSC rules – Key Changes. • 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

  6. 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”.

  7. Key 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

  8. 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

  9. Key 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

  11. Key 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)

  12. 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.

  13. Action Required:Action 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.

  14. 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.

  15. The 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

  16. 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)

  17. Standing 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).

  18. 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” !!

  19. Government Legislation Law Enforcement FSA MLRO Firm + Senior Management Position of the MLRO – The NEGATIVE View • The meat in the sandwich

  20. SOCA HMG / FSA / FATF External reports Requirements Internal Reports Consent Staff MLRO Annual reports Senior Mngmnt Awareness & training KYC/KYCB Customers Position of the MLRO – The POSITIVE VIEW - at the centre of everything!

  21. 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

  22. SII Compliance Forum. Presentation, 17th May, 2006. david.blackmore@mhagroup.co.uk Tel/Fax 02476 466492.

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