Know your Client, Know your Business

This week the Jersey Financial Services Commission (‘The Commission’) published a report on its findings from their Trust Company Business on-site examination programme for 2009. The report although specific to the regulatory environment of Jersey does highlight trends that are common in other jurisdictions.

In many cases the Commission felt that customer profiles were inadequate as they didn’t contain enough detail to facilitate transaction monitoring. Principally the rationale for the structure should always be clear and in Jersey’s case over 30% of businesses did not ‘demonstrate an adequate understanding of the structure.’ There were some cases where there were no profiles at all and in others information was kept in different locations making an overview impossible.

Other issues included confusion on the distinction between an introducer and an intermediary and failures to carry out proper risk assessments on the other entities.

Firms also seemed to have fallen down when considering (or not, in some cases) geographic risk. A truly effective risk rating must take into account the geographic location of the customers and their businesses. Companies cannot effectively mitigate risks if they are not aware of all of the issues.  ‘An effective evaluation of geographical risk would typically include the consideration of FATF blacklists, international sanctions, and countries considered at high risk of corruption, drug trafficking or terrorist financing.' 

This week also saw the release of the US International Narcotics Control Strategy Report which provides an excellent overview of the legislation and regulation in numerous countries with money laundering concerns.

The rules are in place to protect companies and their jurisdictions and although initially burdensome, preparing good foundations with solid procedures ensure that you attain your goals and that of your regulator satisfactorily.

Further information:

Jersey Trust Company Business Report http://www.jerseyfsc.org/pdf/TCB_2009_Examination_feedback_March_2010.pdf

International Narcotics Control Strategy Report 2010 http://www.state.gov/p/inl/rls/nrcrpt/2010/index.htm

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