Anti-Money Laundering and Data Protection 2009

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Money laundering
Definition from the SOCA web site:
Money Laundering is any action taken to conceal, arrange, use or possess the proceeds of any criminal conduct. Criminals try to launder 'dirty money' in an attempt to make it look 'clean' in order to be able to use the proceeds without detection and to put them beyond the reach of law enforcement and taxation agencies.
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What the FSA want in 2009

You must have risk management systems and controls in place to address the risk of financial crime. Financial crimes include; fraud, laundering the proceeds of crime, the finance of terrorism and the abuse of financial markets.

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What the FSA want in 2009

As well as meeting FSA requirements, there are a number of wider legal obligations. For example, the Proceeds of Crime Act 2002 & the Terrorism Act 2000. This legislation applies widely to everybody in the UK and covers offences related to money laundering and terrorist financing.

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What the FSA want in 2009

You also have obligations under the UK financial sanctions regime. HM Treasury maintains a list of individuals and entities subject to financial sanctions. You should not make funds or economic resources available to them.

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What the FSA want in 2009

If you know about or suspect money laundering or terrorist financing, it should be reported to the Serious Organised Crime Agency (SOCA). More information is available on the SOCA website.

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What the FSA want in 2009

Fraud offences can affect both firms and individuals and rely on: (a) the intent to make a gain or cause someone else to make a loss and (b) the existence of certain behaviours, such as making a misrepresentation, failing to disclose information or misusing one's position.
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What the FSA want in 2009

Examples of fraud offences Misreporting a customer's income to secure a mortgage, with or without the customer's consent; Advising a customer to take out an insurance policy which you know is unsuitable following a fact find; and Using information supplied by a customer in your own interest rather than that of the customer.
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What the FSA want in 2009

What you need to do Carry out an assessment of the financial crime risks your firm faces. Be able to demonstrate the risk assessment was systematic and not a one-off exercise. Senior managers should understand the identified risks and take appropriate and proportionate action to mitigate them.
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Avoid Fines!
Enforcement action Aon ltd On Thursday 8 January 2009 The FSA fined Aon Ltd 5.25m for failing to take reasonable care to establish and maintain effective systems and controls to counter the risks of bribery and corruption!

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Avoid Fines!
On 29 October 2008, the FSA fined Sindicatum Holdings Ltd (SHL) The corporate advisory firm was fined 49,000 for failures relating to its anti-money laundering systems and controls and for not adequately verifying and recording its clients identities.

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Avoid Fines!
The FSA also fined Michael Wheelhouse, SHL s money laundering reporting officer, 17,500 in relation to his failures in overseeing and implementing the anti-money laundering systems and controls. DON T LET THAT BE YOU!

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Avoid Fines!
This is the first time the FSA has fined an MLRO for weak anti-money laundering controls and it is a warning to firms and individuals about the importance of complying with requirements in this area.

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Tackling mortgage fraud

In July 1998 The FSA set out a programme of work to tackle mortgage fraud which emphasised the need for a coordinated response from the mortgage community.

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Tackling mortgage fraud

key elements : targeted supervisory visits to assess firms financial crime systems and controls; strengthened engagement and enhanced information sharing with partners including : law enforcement, regulators, the National Fraud Strategic Authority (NFSA), and regulated firms.
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Tackling mortgage fraud

key elements : a review of the role of the Approved Persons regime [as it relates to mortgage intermediaries.]

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Tackling mortgage fraud

Information From Lenders (IFL) scheme and an increase in the amount of intelligence the FSA have received

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Tackling mortgage fraud

2008 the FSA: prohibited 26 individuals issued fines of over 500,000. sent cases to the police for criminal prosecution.

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Tackling mortgage fraud

The FSA announced a new system to encourage mortgage brokers to report information to them.

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Tackling mortgage fraud

The link to the reporting forms are on web pages for smaller firms
http://www.fsa.gov.uk/smallfirms/good_practice/protecting_your_bus iness/financial_crimes.shtml

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Fraud
National Fraud Strategic Authority (NFSA) regulators trade associations law enforcement agencies.

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Fraud
1. Designing-out the fraud risks inherent in different mortgage products and processes. 2. Instigating preventative safeguards and controls within firms at the right level to make mortgage fraud easier to spot and stop. 3. Ensuring professional integrity amongst key professional sectors.

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Fraud
4. Driving-up the risk to perpetrators through more effective detection and prosecution. Intelligence sharing is a key part of this strategy. Reviewing whether mandatory participation from lenders in the IFL project is appropriate.

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Anti-Money Laundering (AML) and Combating Terrorist Financing (CTF)

DO NOT FORGET THE ANTI BIT!!!!

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Money laundering stages Placement Layering Integration

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Who is responsible & who gets fined?

The ultimate responsibility for a firms systems and controls lies with the senior management. Use compliance consultants (e.g. IFAC) to help review and formulate your AML policy BUT senior managers must ensure that these are tailored to the firm. Senior managers must also ensure they understand how procedures are helping to manage their AML and CTF risk.

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Cost to UK plc
The cost of identity fraud to the UK economy is 1.2 billion that s 25 for every adult in the UK.

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New Initiatives
Death records are to be released to vetted organisations, such as credit-checking agencies. This should make it much easier to detect fraudulent activity, such as the takeover of a recently deceased person s identity to open bank or credit card accounts. New identity cards for foreign nationals are to be rolled out as part of the National Identity Scheme.
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Who is responsible?
Whether firms use consultants or not, it remains the responsibility of the firm to ensure they have AML procedures which are relevant to the business of the firm and are understood and followed by all staff.

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Money Laundering Reporting Officer (MLRO)

The role of the MLRO report is to bring to the attention of the senior management how effective AML/CTF systems and controls are, and where improvements are needed. You can use a template report provided by consultants. BUT firms need to be able to demonstrate that the MLRO report is being properly considered.
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Money Laundering Reporting Officer (MLRO)

Cases should be referred to National Criminal Intelligence Service BY THE MLRO and Individuals should ONLY refer cases to their own MLRO....NO ONE ELSE! The ONLY exception is the police WHEN REQUESTED BY THEM if they are investigating a case. Otherwise it s potentially tipping off Once referred that is all. Possibly record the fact [in T&C file or make sure its recorded in the MLRO file] Not the client file!! CARRY ON WITH THE BUSINESS
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Checks to record
Evidence of a client s identity verification. CHECK WHO PAYS THE MONEY... Trustees Employers For group schemes SHOULD BE DONE AT THE BEGINNING OF THE FIRST MEETING
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Consumer Due Diligence

In an FSA sample less than 50% of firms had procedures for checking the Bank of England Sanctions list. Firms need to be aware of the sanctions list and, therefore, should have in place systems and controls for complying with legal obligations.

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Consumer Due Diligence

In an FSA sample, less than 50% of firms had procedures for checking the Bank of England Sanctions list.

[Any one spot the error?] It s now the Treasury!

See link at the end of the slides.
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Training
Firms not only have an obligation to give specific AML training, but also to test its effectiveness. Training should also be tailored to the specific roles of the staff in the firm. In addition, consideration should be given to adapting training to make it relevant to the risks posed by the firm and the roles that staff undertake.
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Tipping Off
If law enforcement has been informed, the firm must not: 1. Inform the consumer that an investigation is ongoing 2. Reveal to a consumer that the reason a transaction is being delayed is due to an investigation 3. Subsequently reveal to the consumer that they were the subject of an investigation, unless permission has been granted by law enforcement/courts/NCIS. (This is not affected by the outcome of the investigation)

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Tipping Off
PENALTIES FOR TIPPING OFF 5 YEARS IN JAIL

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What to look out for

Look out for overseas sourcesUNUSUAL Why are they coming to you? Particular countries higher risk NIGERIA ANGOLA ETC

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Specific situations to watch for (as per JMLSG)

Transactions which have no apparent purpose, or which make no economic sense. Dealing with customers not normally expected as part of the business. Transfers to/from high risk jurisdictions, without reasonable explanation. When a series of transactions are just below regulatory threshold. Unnecessary routing of funds through third party accounts. Unusual investment transactions with no apparent discernable profit. FINANCIAL

Specific situations to watch for (as per JMLSG)

Regular series of address changes, with no reasonable explanation. Sudden increases in cash deposits or levels of investment without adequate explanation. Significant payments/deposits by third parties. Reactivation of dormant accounts. Where a product/service requested by a client is well out of the range of products/services normally provided by the firm.
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Data Protection

Spring 2009

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Data security: customer communications

Promotional offers Annual statements You must take appropriate steps to reduce the risk of your customers becoming victims of identity fraud and other crimes?

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Data security: customer communications

Take care think through -have a plan Is it Unnecessary? Greater frequency than really needed? Contains more personal data than is needed?

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Individual clients rights access information

Clients are entitled to find out what information is held about them This can be on computer or manual records, These could include medical records or financial information such as credit searches Firms must comply with a client request but are able to make a charge

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Individual Client Rights Correcting Information

Clients are entitled to apply to a court to order a data controller Correct Block Remove or Destroy personal details This is if the client feels they are inaccurate or contain expressions of opinion based on inaccurate information.
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Individual Client Rights Prevent Information Processing

Client can ask a data controller not to process information This is if the client feels it may cause substantial unwarranted damage or distress. The data controller is not always bound to act on the client s request.

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Individual Client Rights Block Unsolicited Marketing

Clients can block unsolicited marketing They can ask for information not to be processed for direct marketing purposes The client has to ask for this not to happen. So, for example, clients have the right to stop unsolicited mail or phone calls.

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Firms obligations
Good Practice
Control of personal information Fair use of information Marketing

Self Monitoring

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Firm Obligation - Control of Personal Information

Staff to be clear to whom information can and cannot be disclosed. Firms can include clauses in employment contracts to clarify who controls the personal information. It should also be very clear what will happen when an adviser or employee goes to work for another firm.
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Firm Obligations Fair use of Information

Advisers often have to disclose client details to other organisations It is important that clients understand what will happened to their personal information. Firms will need to tell clients
Who is responsible for handling their personal information What their information will be used for Anything relevant to make the use of their personal information fair.
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Firm Obligations Self Monitoring

Delete or destroy personal information as soon as there is no more need for it. Beware of delete it s still there!!! And can be retrieved Disposal of old computers AND loss or re use of memory sticks!!!! Have I trained my staff in their duties and responsibilities under the Data Protection Act, and are they putting them into practice? Do I need to notify the Information Commissioner and if so is my notification up to date?
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Stop Scams
1. Deterrence to share scams deter boiler rooms and those contemplating helping them. 2. Disruption to disrupt the activities of the criminals who operate the share scams. 3. Discouragement to discourage consumers from dealing with unauthorised firms.

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Data Protection
What is customer data? Customer data is any personal information held in any format. Examples include national insurance records, address, date of birth, family circumstances, bank details and medical records. Information must be kept secure because fraudsters can use it to commit crimes such as identity theft.
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Data Protection What are the main risks?

This is not just an IT issue!!

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Data Protection
for instance, consider the physical safety of your business premises? Do you have a sign-in book for visitors and supervise them while they are on the premises?

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Data Protection
Another risk concerns the vetting of new staff. In the past we have found that when hiring administrative staff especially junior administrative staff many firms carry out only basic reference checks. However, administrators often have access to the most customer data.
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Data Protection
Your firm should take a risk-based approach to reducing financial crime and should enhance recruitment checks where appropriate. You may wish to consider credit checks and criminal record checks on individuals with access to large amounts of customer data.
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Data Protection
Risks posed by third-party suppliers Many firms employ third-party suppliers to carry out IT support or office cleaning and security. This can lead to a situation where people from outside your firm can have access to customer data, especially if your staff leave confidential information on their desks.
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Data Protection
Risks posed by third-party suppliers You should carry out due diligence on third-party suppliers before hiring them. You should try to establish what their vetting procedures are and ensure they have a good understanding of your firm's security arrangements.
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Data Protection
Risks posed by third-party suppliers Remember: Outsourcing to a third party does not mean you have outsourced your obligations to look after customer data.

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Data Protection
But I have good data security policies in place in my firm. Having good data security policies and appropriate systems and controls in place will go a long way to ensuring customer data is kept safe. However, you need to ensure that staff understand the policies and procedures and your firm keeps up-to-date with staff moves.
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Data Protection
When someone moves to a role where they will not require access to customer data, do their IT permissions take account of this? Are staff trained to ensure they understand why they should follow policies and procedures? Is there an individual at your organisation with responsibility for data security?
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Data security: customer communications

Have a plan for when you send out communications!

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Small firms thematic review

FSA is over halfway through the visit programme in the review of financial crime systems and controls in small firms. Around 200 small firms were selected for review as a representative sample from the regulated population. Financial Crime Operations team & The Small Firms and Contact Division All visits anticipated to be completed by the middle of 2009.
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Financial Sanctions: Transfer of Function

The consolidated list of financial sanctions targets and other information on financial sanctions previously held on the Bank s pages can be found on the financial sanctions page of the Treasury s public website at the following URL address: http://www.hm-treasury.gov.uk/financialsanctions All enquiries regarding financial sanctions should be made to the Treasury rather than the Bank of England at the following address: Asset Freezing Unit HM Treasury 1 Horse Guards Road London SW1A 2HQ Telephone: 020 7270 5454 Email: assetfreezingunit@hm-treasury.gov.uk

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Web Links
http://www.jmlsg.org.uk http://www.hmtreasury.gov.uk/financialsanctions http://www.soca.gov.uk/faqs/index.html http://www.bankofengland.co.uk/
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Keep up to date!
To be added to the FSA financial crime newsletter distribution list e-mail financial.crime@fsa.gov.uk

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Complaints
Pension transfers ISA transfers

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Mortgage, pension & investment complaints the coming storm!

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The FOS are taking on 300 more staff

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Pensions & investment complaints are expected to jump 41% with Mortgage complaints up 78%
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Complaints Pension Transfers

Lots.. Retirement age Inappropriate funds You the IFA did not tell me; - The cash fund was not in cash - The managed fund was not managed - The Growth Fund did not grow - The Real Return Fund did not give a real return.
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Complaints Pension Transfers

Inappropriate funds Wrong fund to start with Did not switch me when you should have dome Did not switch me quick enough Reviews not done

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Complaints Offshore
Compensation scheme Advice is regulated even if product isn t

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Complaints pension switches

Stakeholder RIY - from other IFAs and ambulance chasers

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Complaints
If I lost money I must be badly advised.

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Complaints
10 a month Was 100 per month at height of Endowment complaints

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Complaints
Ministry of Justice An IFA can Help a client complain if they have arranged it If they are not regulated by MoJ Should not chase new work Or help with an external complaint.
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Complaints
Ministry of Justice An IFA can Refer up to 25 cases a quarter on to a MoJ regulated firm Applies whether or not you charge.

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