Emma Bailey, Advisory Director, and Alexandra Reip (far right), Associate Director, at KPMG in the Crown Dependencies, discuss the importance of data integrity and board oversight in light of the current focus of the Channel Islands’ AML/CFT regimes
In both of the Channel Islands, preparation for the Moneyval evaluations is increasing at a great pace, with no chance of the Jersey or Guernsey Financial Services Commissions taking their foot off the gas until the evaluations have taken place in 2023 and 2024.
What does this mean for entities operating in the fund sectors in both islands?
For many compliance officers and money-laundering reporting officers (MLROs), it must feel like they have wandered onto a Formula One track but are driving an affordable hatchback with their L plates still on.
So let’s take a look at the recent accelerators that are supercharging the pace of the change:
Civil financial penalties
There is a price to pay for non-compliance. Both regulators continue to flex their powers in fining entities for regulatory breaches. In a recent example, the JFSC imposed a heavy penalty (circa £803,000 reduced from circa £1.6m for early settlement) on a licensee.
The findings, which were outlined in a public statement, will interest many firms across the islands, especially those that have undergone a period of rapid acquisitions.
Of the 11 key findings, two are of particular note to all entities. The Commission found that the entity failed to:
• Keep adequate and orderly customer due diligence (CDD) records (10.4.2.28 of the AML/CFT Code)
• Have its business affairs adequately monitored and controlled at senior management and board level (Section 3.1.1.5 of the TCB Code)1.
These two points are evidence of the importance placed on data integrity and board oversight.
Look after your data
The maintenance of data is crucial in all aspects, not just CDD. Data that is ordered and easily accessible will:
• Meet regulatory requirements
• Deliver better customer service
• Provide relevant and targeted management information
• Ultimately drive revenue.
Management information is one of the ways for entities to avoid the failings of poor senior management and board oversight.
It’s important that this information is based on a single version of the truth. Inconsistencies in data submitted to regulators are sure to be a red flag.
Boards are reminded that simply receiving the information is never enough; they need to question it and act on it to ensure their entity does not hit the buffers.
Just as in F1, the drivers and the mechanics will only ever be as good as those leading them.
In Guernsey, fines have also been high and the GFSC is equally focusing on data. The approach of the GFSC towards inaccurate data was clearly outlined in its 2021 Annual Report and Accounts: “We have been disappointed at the accuracy of data received by the Commission from licensees. Errors are found in regular reporting and in responses to thematic reviews.
“Some errors appear to be as a consequence of ‘fat fingers’ (for example, extra zeros or miscalculation of currency exchange), while other errors persist annually, making validation checks at the Commission difficult.
“Accuracy of data is going to be an ongoing area of focus for the Commission; put simply, if we need to question if the data provided to us is incorrect, what else is?”2
Data integrity and board oversight
Fund service provider boards will be more than aware of the time and money invested in complying with AML/CFT regulations.
When significant resources have been spent on reviewing and updating CDD data in both islands, it is galling for all involved for that tremendous effort to be wasted.
Now is the time for entities to ensure that the clean data is maintained through a robust framework leveraging technology to implement measurable controls.
It is key that boards recognise the importance of the task. New approaches around data management can have the added benefit of releasing pressure on resources, which in an increasingly competitive market for compliance staff can only be a good thing.
importance of taking a pit-stop
With the speed of requirements being introduced and the deluge of sanctions following the Russian invasion of Ukraine, it is not hard to see why compliance staff must feel a pit-stop is a luxury.
However, if entities do not take the time to evaluate the effectiveness of their processes and procedures, significant deficiencies may go unnoticed. In other words, if you don’t take the time to service the engine and check the suspension, then the wheels can fall off or you may be taken off the road.
Take advantage of feedback
In the run-up to Moneyval, both Commissions are increasing their feedback to industry. While the pit-stops may be time consuming, these opportunities should be given attention.
In addition to public statements, over recent months the JFSC has published its report on its 2021 financial crime examinations.
A total of 146 findings were identified, including, again, the themes of corporate governance (board oversight) and customer due diligence measures (data integrity).
This led the JFSC to comment: “A number of key themes and detailed findings in this feedback paper are similar in nature to those contained within previous feedback papers issued by us. We expect the board and senior management of all supervised persons to:
• Monitor for feedback papers and similar guidance notes published by us from time to time
• Consider their own arrangements against the matters set out in feedback papers
• Take prompt action where appropriate to remedy any deficiencies identified.”3
The GFSC held a series of workshops to provide feedback on the findings from its thematic on sanctions screening.
Data integrity and board oversight featured heavily here, too, with boards urged to ask questions such as: “Are we confident that all relevant data is screened?”4
The authorities in both islands continue their engagement with industry. For example, the GFSC’s industry seminar scheduled for the autumn is titled Working together to combat financial crime.
On top of that, the JFSC jointly with the Government of Jersey recently held an event, Combatting Financial Crime Together – the road to Moneyval and beyond, followed by an event titled Regtech: A missed opportunity.
Spotting the signs of change
Horizon-scanning offers the protection of the ‘telemetry’ in F1 cars. Knowing what’s coming, while potentially scary, is far better than being caught unawares.
Any consultation is worth a review, even if it does not look relevant to your firm or sector at first glance.
Horizon-scanning is a vital part of regulatory compliance and it should stretch beyond country-specific regulation and also consider near-shore and supranational trends.
Stay on track with KPMG
Through data integrity and board oversight, fund services businesses should aim for a place on the podium or at least keep on track and not steer off the course.
Our KPMG professionals can provide you with a concise step forward in guiding you to safeguard your business.
If you simply need a more precise understanding of data governance or you would like to optimise your CDD processes and existing technology, we are here to help you.
Notes:
1 2022-07-01-enf-1410-iq-eq-public-statement-final.pdf (jerseyfsc.org)
2 1962 GFSC Annual Report & Accounts 2021 (web).pdf
3 Financial Crime Examinations Feedback from 2021 examinations — Jersey Financial Services Commission (jerseyfsc.org)
4 GFSC Sanctions Thematic presentation_1.pdf
Find out more
If you wish to seek advice or would more like more information, please visit our website: home.kpmg/cds or contact Emma Bailey (Emmabailey1@kpmg.com) or Alexandra Reip (alexandrareip@Kpmg.com).
• This advertising feature was first published in Businesslife's Funds Edition in August 2022