SECURITIES INSTITUTE Risk Forum Anti-Money Laundering Compliance Some Current Issues 25 th February 2005

1. SECURITIES INSTITUTE Risk Forum Anti-Money Laundering Compliance Some Current Issues 25th February 2005

2. Session Objectives On a Chatham House Rules basis: • To consider the supervision of elephants. • To cherry pick. • To provide an opportunity for questions and debate.

3. Session structure • Some current themes • Appendix D • Financial crime • FSA Working Party • The next JMLSG Guidance Notes • Monitoring • Looking ahead • The third EU Directive • The commercial • Brains trust

4. Appendix D • Equivalence • New EU members • Russia • Assessment evidence • Lists of approved exchanges

5. Financial Crime – the Market’s Perception • The FSA has ended its period of reviews of AML compliance and is now focussing on financial crime instead. • Financial crime = fraud. • The MLRO can take a breather!

6. Financial Crime – the Reality • The FSA has broadened its monitoring scope to cover all types of financial crime. • There is no offence of fraud. • Any knowledge or suspicion of a successful crime – i.e.one yielding a benefit to the criminal – is reportable under the Proceeds of Crime Act. • Crimes blessed with fraudulent features are no different from any others in terms of AML compliance and reporting. • The FSA is not letting up at all on AML compliance monitoring.

7. FSA Working Party • When • Who • Authority • Scope • End result • Reminders • Foreigners • “Financially disadvantaged”

8. FSA Working Party • James Hart, Commissioner of the City of London Police: • ID checking is all too often a waste of time and money – a tick box mentality achieves next to nothing but thinking and understanding could. • “Am I being unreasonable?”

9. FSA Monitoring Visits What will be the next focus of the FSA, now that the British banking sector has been thoroughly looked at and several large fines levied?

10. The next JMLSG Guidance Notes • Changes in the JMLSG • Changes in the Guidance Notes • When will they appear? • When will they take effect?

11. Monitoring • ALBERT EINSTEIN “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”

12. Monitoring • Richard Kusnierz, Investigative Data Mining “Fraud is committed by people manipulating the same systems and controls designed to prevent, detect and safeguard company assets. Consequently you cannot rely on those systems to detect fraud; you have to apply a different approach.”

13. Monitoring • For those thoughts, in the context of fraud, think anti-money laundering compliance as well. • Monitoring for anti-money laundering requirements also means having to be willing to: • THINK OUTSIDE OF THE BOX! • BUILD IN SANITY CHECKS!

14. Looking Ahead • The 3rd European Directive • Still at the draft stage • Limited change for the UK • Formalising obligation to go right back to ultimate beneficial ownership • Much squealing by the professionals on the Continent.

15. The Increasing Compliance Challenge Concluding Summary The need to….. • Be up-to-date • Avoid the tick-box mentality and think instead • Train suitable staff effectively • Avoid complacency – learn by the mistakes of others • Above all, know what you are doing and why! QUITE A CHALLENGE………

16. The Commercial The new Fraud Managers Handbook, published jointly by MHA Consulting and the British Bankers Association is expected to be available from next week.

17. Conclusion QUESTIONS

18. SECURITIES INSTITUTE Risk Forum Anti-Money Laundering Compliance Some Current Issues 25th February 2005