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Wednesday 5 September 2018
Sarah Sandiford, the Associate Director leading Deloitte’s Risk and Regulatory services in Jersey, recently spoke at a Jersey Funds Association Risk and Regulatory Masterclass.
The session focused on the risk and regulatory challenges facing Jersey’s funds sector and was aimed at funds professionals, including compliance and risk teams as well as non-executive directors. When completing compliance monitoring within fund service businesses (FSBs), it’s helpful to consider the following ‘Five Rs’:
Why do you need a CMP for all Relevant Entities?
Wherever there is a key person appointed to an entity, for example, a compliance officer (CO), money laundering compliance officer (MLCO) or money laundering reporting officer (MLRO), there will be a requirement for compliance monitoring.
The activity required will either be general, specific to anti-money laundering and financing of terrorism (AML/CFT) or, more commonly, both. Consider the following three questions:
Understanding the Importance of Risk
As we have established, the compliance teams of FSBs are often dealing with multiple CMPs, so ensuring that an appropriate risk-based approach is taken, becomes even more important. You cannot test each entity’s compliance with all its legislative and regulatory requirements, and how you determine which areas should be subject to testing during the period will differ between organisations and, indeed FSBs, managed entities and funds.
Some firms may choose to adopt a more complex assessment of risk and others will be simple, both, however, should be effective and proportionate. Top Tip: Don’t forget to use the information that you already collate as a business. For example, breach, error and complaint registers can help identify areas which may present a higher chance of non-compliance.
Going forward this will also include the information submitted to the Jersey Financial Services Commission (JFSC) as part of the National Risk Assessment process and Risk-Based Supervision Data exercise.
You could also use the JFSC’s on-site examination feedback papers that identify common weaknesses across the industry and consider past regulatory action.
Implementing a Robust Approach
The board is looking for the compliance monitoring to provide them with the assurance that the business is operating in accordance with legislative and regulatory requirements, or that where it’s not, these areas are proactively identified, escalated and appropriately remediated. The testing, therefore, needs to be robust and independent and may require some creative thinking to design and construct testing that achieves this.
Below are a few examples of poor practice when it comes to compliance monitoring. Although the tasks in this list are important and often completed by the compliance team, they do not provide robust and independent testing of an entities ‘compliance with policies and procedures, or regulatory and legislative requirements:
The CMP should be reviewed and approved by the board. Generally, this happens on an annual basis and extends to the client boards where relevant. It should then be under continuous consideration by the compliance team. The world is not static and things change, so you may need to adjust the CMP as the risks change and seek re-approval, as necessary, from the board.
Here are three examples of when amendments may be necessary:
As noted above, the findings of the testing need to be shared with the board. This doesn’t mean all the working papers but maybe a summary in the quarterly compliance report, including comment on where assurance can be given and specific focus on weaknesses and the remedial action planned. Subsequently, progress with remedial action should also be reported to the board through to closure. In some instances, discussions will need to be held with the directors in a more timely manner, for example, if an issue requires reporting to the JFSC.
The board should show an interest in the compliance monitoring, both championing the work and challenging where necessary.
In conclusion, compliance monitoring needs to be tailored to the risks of each entity, but by implementing the ‘5 Rs’ approach, it is possible to streamline the process to maximise efficiency and provide appropriate assurance to each board.
For further guidance, the JFSC has previously published a Dear CEO Letter and Guidance Note on compliance monitoring. It is a helpful read; however, you have to remember that it is guidance and so you need to consider it in light of what is effective and proportionate for your business.
For further assistance on risk and regulatory best practice, please contact Sarah Sandiford on +44 1534 82 4252 or firstname.lastname@example.org.
Director, Black Vanilla at Deloitte LLP
Email the author: email@example.com
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Published: Wednesday 5 September 2018
Author: Nichole Culverwell
Director, Black Vanilla Deloitte LLP
Original Article: https://www.jerseyfinance.je/member-news/compliance-monitoring-update-for-jersey-s-fund-sector-
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