Securities & Investment Institute Risk Forum The New JMLSG 2006 Guidance

1. Securities & Investment Institute Risk ForumThe New JMLSG 2006 Guidance April 2006

2. 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

3. 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 MLRO’s statutory responsibilities • Obligation to designate one member of senior management to represent all in AML compliance matters – but overall responsibility not delegated

4. 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

5. 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

6. 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

7. 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

8. 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)

9. Electronic Verification • Who to use? • What to do and how to do it? • Existing providers and others

10. 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

11. Impact of the New Guidance • How has the FSA’s position changed: • Rulebook • Monitoring • Philip Robinson’s letter • Staff Training • Management of levels of discretion allowed to staff. • Implementation challenges • Time • Cost

12. 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

13. 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.

14. 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

15. The New JMLSG 2006 GuidanceSession End MARCH 2006