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MLRO Common Mistakes Identified – The JFSC 2020 Themed Report

The 2020 JFSC themed examination report “The Role of the Money Laundering Reporting Officer” has now been published. The Report highlights continued failings by Relevant Persons.

37 Relevant Persons took part in the examination. Findings in relation to 3 Relevant Persons were considered so serious that a formal referral was made to the JFSC Enforcement Division.

With the Civil Penalties Regime encompassing Registered and Principal Persons and negligence, it is vital that Registered Persons and their boards of directors have close regard to the Report and respond to the lessons arising.

Key Themes Identified:-

1. Timeliness

An Internal SAR (iSAR) shall be filed as soon as practicable after the information comes to an employee’s attention. The MLRO must then consider the iSAR as soon as practicable and, if the criteria are met, as soon as practicable, an external SAR is to be filed with the Joint Financial Crimes Unit of the States of Jersey Police.

The lack of ‘timeliness’ was a recurring theme:-

  • The dating of documents not being evident. As a result, it was not always possible to confirm whether the timely filing of an iSAR had been made to the MLRO.
  • MLROs failed to make enquiries in a timely manner, with the result that the decision on whether to file an external SAR was not made as soon as practicable.
  • The board of directors failed to oversee adequately the MLRO’s timely consideration of iSARs.

It is relatively straightforward for the MLRO and board of directors actively to measure, manage and consider timeliness. It should be part of the Compliance Monitoring Programme. Inevitably delays can occur, but always document the cause of the delay so that there is a clear explanation/defence should questions later arise.

2. Documentation, Procedures and Process

Robust and detailed documentation is expected to be maintained to make clear the decision-making process. The MLRO’s records are expected to contain documented confirmation of the enquiries in fact made, and the MLRO’s evaluation and rationale as to whether an external SAR is required. It is vital for the documentation to be thorough in order to confirm and demonstrate that no suspicious circumstances have been left unconsidered.

In a small number of cases the JFSC examination team disagreed with MLRO decisions not to file an external SAR: clearly documented consideration at the time is evidently important in case the records come under scrutiny later on, bearing in mind this is often years later.

SAR registers are compulsory and should be maintained by the MLRO in good order. Some were found not to contain all the required information or accurate information.

AML/CFT Procedures must be clear, address all requirements under the relevant Handbooks, be version controlled and with a clear audit trail of all major changes.

MLROs must always formally acknowledge with the employee the receipt of an iSAR and also remind the employee of the ‘tipping off’ provisions under the Proceeds of Crime Law. All necessary support and guidance is to be given to the employee by the MLRO.

3. Training

AML/CFT training is being routinely provided. Criticism is made that this is not always tailored to the business, the level of employee or even the Jersey legal and regulatory regimes. The provision of effective training was found to be generally weak.

4. Responsibilities and Culture

The separate responsibilities of the MLRO and MLCO were not always clearly defined or understood. Individual Statements of Responsibility were found to lack sufficient content of the legal and regulatory responsibilities. It is vital that Statements of Responsibility are clearly drafted and regularly reviewed to ensure in good order.

There must be adequate oversight at all times of the MLRO function by the board and management and this was found to be seriously lacking, with the MLRO providing meaningful reports to the board.

Fundamental to maintaining in good order AML/CFT policies and procedures is:-

  • Employees’ ability to file iSARs; and
  • The independence of the MLRO and MLCO.

Occasions were identified of employees being encouraged to share concerns with multiple layers of superiors in order to validate suspicions prior to raising a iSAR. iSARs are being regarded as the ‘last resort’ in case an iSAR might reflect an employee’s lack of understanding of the customer or of a particular type of transaction.

With ‘integrity’ a fundamental principle under the Codes, in relation to AML/CFT policies and procedures any barriers against encouraging reporting or a culture whereby staff perceive barriers exist is unacceptable. The JFSC recognises that not everything ‘unusual’ is ‘suspicious’.

However, when suspicions arise, an iSAR is to be made directly to the MLRO.

About Lacey Advocates

We are trust, litigation and regulatory experts. With decades of legal and regulatory experience and having held Principal Person positions, we advise Registered, Principal and Key Persons on the successful running of their businesses. This includes advising on the effectiveness of policies and procedures, including AML/CFT.

We design and provide bespoke policies, procedures and training to TCB and FSB boards of directors, MLROs and MLCOs. This ensures all legal and regulatory duties are fully understood and any difficulties encountered are successfully resolved.

Please do not hesitate to in contacting us if we can be of assistance. If you would like to discuss anything arising from this article further, please get in touch with:-
Beverley Lacey: T (00 44 1534) 888460 (beverley.lacey@laceyadvocates.com) or
Michelle Cabot: T (00 44 1534) 888463 (michelle.cabot@laceyadvocates.com).