On December 12, 2018, the States of Guernsey voted to approve legislation which represents the culmination of a substantial effort to revise Guernsey's proceeds of crime framework in order to meet the 2012 Financial Action Task Force (FATF) standards and address the recommendations made by MONEYVAL in its 2016 assessment report of the Island.
The updates have also included a revised Guernsey Financial Services Commission (GFSC) Handbook on Countering Financial Crime and Terrorist Financing (the "Handbook") which was issued on November 12, 2018, a year on from the original consultation issued in June 2017.
The November 2018 Handbook version has not changed significantly from the original 2017 consultation, but proposed terminologies have been amended to align them with Jersey standards and minor revisions have also been made to requirements and guidance. For example, the Financial Crime Compliance Officer (FCCO) will now be referred to as the Money Laundering Compliance Officer (MLCO), the term employed by the Jersey Financial Services Commission (JFSC) Handbook.
Whilst the Handbook is close to final form, the GFSC will formally issue the rules in the Handbook in Q1 2019 to address any technical issues that may potentially hinder or prevent compliance with the revised regulatory framework. The revised legislation is due to come into force on March 31, 2019.
In order to meet the FATF 2012 standards, the legislative framework hierarchy has been re-configured and the Criminal Justice (Proceeds of Crime) Regulations for Financial Services and Prescribed Businesses will be repealed and replaced by Schedules 3, 4 and 5 which will form part of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 ("Proceeds of Crime Law"). This allows retention of the existing three tier approach of one layer of legislation (the Proceeds of Crime Law), the Schedules and the accompanying rules and guidance (the Handbook), as opposed to having two layers of primary and secondary legislation and rules and guidance.
The revised Proceeds of Crime Law and Handbook are now much more focused on risk and Schedule 3 imposes the general requirement for firms to identify, assess and understand and mitigate Money Laundering and Financing of Terrorism (MF and FT) risks. The Handbook expands on Schedule 3 to the Proceeds of Crime Law and due to the changes to the underlying framework, updates are likely to require significant time and resources to implement.
Most regulated firms in Guernsey will already be working towards implementing the proposed updates. To assist firms with their implementation efforts, we have developed a high-level guide reflecting key changes likely to impact business' AML/CFT arrangements proposed in the November 2018 version of the Handbook, including transitional timeframes. We also provide a summary below.
- The Handbook structure has been overhauled to improve the ease with which the reader can navigate the document and is now combined for Financial Services Businesses and Prescribed Businesses, such as accountancy and legal firms ("Specified Businesses");
- Firms must appoint a Money Laundering Compliance Officer (MLCO);
- Business Risk Assessments (BRAs) must consider ML and FT risks separately. Risks must be tailored to the firm and take into account the findings identified by the National Risk Assessment (once published);
- The definition of Beneficial Ownership has been extended beyond technical legal ownership and control to focus on the ultimate or actual ownership and control. A three-step process has been introduced, which is similar to the three-tier test adopted in Jersey.
- Revised rules and guidance have been introduced in relation to Collective Investment Schemes (CISs). Requirements include the need to nominate a licensed business to take responsibility for ensuring investors are subject to the Guernsey AML/CFT regulations (including the Handbook).
- New mandatory requirements have been introduced to apply enhanced measures (as distinct from enhanced customer due diligence) to specific customer categories or services, such as private banking services, regardless of risk rating.
- The definition of politically exposed persons (PEPs) has been broadened and now includes three categories including domestic PEPs, international organisation PEPs and foreign PEPs. The GFSC has also revised the "once a PEP always a PEP" requirement to provide flexibility in specific circumstances.
- Further guidance has been provided in relation to intermediaries, for example when dealing with nominee investors. Chapter 6 on intermediaries was removed and incorporated into other sections in the initial consultation paper and has since been re-introduced in section 9.8 of the 2018 Handbook.
What firms need to consider
Firms need to ensure they understand how the changes will affect them as there is no "one size fits all" solution. High-priority actions include the introduction of revised Business Risk Assessments, updated AML/CFT policies and procedures, the appointment of an MLCO and a review of all client files to ensure they are appropriately risk rated and suitable CDD is held (prioritized in order of risk rating).
Firms will also need to give consideration to updating Board reporting and relevant compliance monitoring program testing. In addition, staff will need to be trained on the Handbook updates and on an ongoing basis.
The GFSC set out timeframes for the implementation of the above in Chapter 17 of the Handbook (see our guide for further details).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.