During 2015, the Guernsey Financial Services Commission (“GFSC”) conducted a thematic review of anti-financial crime (“AFC”) training across the Bailiwick’s regulation financial sector. On 8 June 2016, the GFSC published its analysis of the results of that review (“the Review”).
The GFSC concluded that, broadly speaking, as a result of the training they had provided, financial institutions had a good awareness of the anti-money laundering (“AML”) and countering financing of terrorism (“CTF”) regulatory requirements. Nonetheless, the GFSC also identified two areas where improvements could still be made.
Target Training Population
In the Review a “relevant professional qualification” was defined as either an AFC-specific qualification or a professional qualification which covers one or more aspect or module related to AML/CFT and AFC.
The Review reports that more than half of the individuals that fell within the review’s scope1 held a relevant professional qualification. The Review found that 58% of all board members and 54% of financial institution staff members (collectively, “Staff Members”) held professional qualifications.
89% of those surveyed confirmed that their money laundering reporting officer (“MLRO”) holds or is in the process of completing a professional qualification. 58% of Board and/or members of senior management team members also hold a professional qualification.
The Review notes that the approach taken by financial institutions towards training depends upon their size, nature and complexity. However, the GFSC acknowledges that classroom training, videos and technology-based training programmes can all be used to good effect, depending on the environment and the number of people to be trained. The manner in which enhanced training is provided to MLROs was also found to vary greatly, from in-house computer based training modules through to attendance at external conferences or seminars.
Reliance on Past Training
In certain circumstances, Guernsey financial institutions have “exempted” individuals from their internal training requirements. This may occur where an individual: has received training on Guernsey’s AFC regulatory framework; understands their regulatory obligations and consequences of non-compliance; and “is well versed” in the institution’s AFC compliance arrangements. In other words, financial institutions may exempt individuals who have received training at their former place of employment, the nature and contents of which is assed to be equivalent that of the institution. They will also need to demonstrate that they have informed themselves about the current institutions AFC policies and processes.
In the review, the GFSC has stressed the need to ensure that all Staff Members, including any non-executive directors, are cognizant of the institution’s AFC compliance arrangements and the AFC risks to be mitigated by them.
Ongoing Training & Awareness
The GFSC found that various methods are utilized to provide ongoing (periodic) training. Financial institutions were observed to make far greater use of external consultants to deliver ongoing training in comparison to induction training. The ways in which MLROs maintain on-going awareness of AFC issues and changes in relevant legislation include:
- Review of the regulator’s website and the local FIU Themis system,
- Membership of, and attendance at, seminars or other events hosted by professional associations or local industry bodies,
- Subscriptions to various e-mail alerts, website updates or relevant electronic or published newsletters or magazines; and
- Participation in regulatory or other working groups focusing on AFC-related matters.
Branches and Subsidiaries vs Local Businesses
The GFSC found that there was a significant difference in approach between institutions which were part of an international business group compared to those owned by local residents.
Businesses who were a part of an international business group spent on average almost 2.5 times more money than locally owned firms on AFC training. This resulted in more frequent training for all staff employed by businesses which were part of international groups. The GFSC also noted greater information sharing between MLROs or other group level committees or forums.
Opportunities for Improvement – Content of Training & Outsourcing
The Review notes that training should highlight to Staff Members the importance of the contribution that they can individually make to the prevention and detection of financial crime. To empower Staff Members, the GFSC states that AFC training should be relevant to both the activities of the business and “the wider [AFC] environment in which the firm operates”.
The first opportunity for improvement identified by the GFSC is the actual content of AFC training. The GFSC found that that there was a “disconnect” between the AFC risks that financial institutions had identified as posing the highest risk and the content of the AFC training they actually provided. In other words, while the training provided complied with the letter of the local AFC regulatory requirements, it did not comply with the spirit or objective of those regulations. The content of the training did not appear to identify the AFC risks specific to the business in question, or the controls that were used to mitigate those risks.
Guernsey is likely not to be the only jurisdiction to whom this observation would apply. While “off the shelf” or generic intranet AFC training once was sufficient to satisfy regulators, the increasing emphasis upon both the appropriateness and effectiveness of controls is causing this to change.
Staff Members outside of the compliance function play a crucial role in mitigating AFC risks, both by understanding how those risks might arise and the controls used by the business to mitigate them. This requires a degree of detail specific to the business in question in order for the training to be “appropriate”. Training should have a level of detail such that Staff Members understand the AFC controls of the department or team in which they work. The content of training for board members, for example, should differ from the training provided to front line staff involved in the collection and verification of customer due diligence (“CDD”). The GFSC notes in the Review, “[w]hen a firm utilizes the services of a third party to provide training to [its] employees, the firm should consider the content of the training and its suitability to the business of the firm”.
Another opportunity for improvement identified in the Review relates to outsourcing. In Guernsey, the role of the MLRO can be outsourced to a third party, provided that party is an individual. Although the number of businesses in Guernsey who have outsourced this role is small, none of them had formally assessed or verified the extent of the AFC training undertaken by that individual. Instead, reliance was placed on the perception that the individual must have received appropriate training because they were employed by a company offering compliance services.
The GFSC recommends that institutions who engage in outsourcing ensure they are comfortable that the individual has undertaken sufficient training as to their role and responsibilities and the AFC risks to which the business may be exposed. In other words, institutions will need to evidence that they relied on more than an assumption about training history and suitability.
The Review’s findings provide an interesting insight into how Guernsey regulated financial institutions use training as part of their AFC compliance programmes. The improvements recommended regarding the content of training is one which is likely to resonate with AFC professionals in other jurisdictions.
The ability to outsource the MLRO function poses additional issues around the design of training which covers the challenges likely to be faced in fulfilling this role at a distance from(and with limited visibility of) the daily activities of the business.
Having clearly indicated in its review what will be expected in terms of AFC training content, it will be interesting to see how the GFSC will assess whether AFC training provided by a business is truly “appropriate and effective”.
To access a copy of the Review please see:
- Those falling within the scope of the review were members of the Boards of Directors and/ members of the senior management team, ‘relevant employees’ (as defined under the local Guernsey AML requirements) including MLROs and nominated officers (as defined under the local Guernsey AML requirements).