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Introduction
Background and Scope
The Channel Islands government is committed to ensuring that lawbreakers, such as money launderers and terrorists, cannot legalise the profits of crime via the Channel Islands or use its fund and business industries.
The Handbook is a report on the criteria of mitigating terrorist funding and financial fraud. The guideline covers business organisations and financial institutions for all specified investments.
If a firm or institution is complacent in laundering the profits of crime or funding terrorist organisations, it might face regulatory analysis, the reduction of its standing and criminal investigations. The participation of a specified firm with illegal profits or terrorist capital would also harm the integrity and status of the Channel Islands within the global finance environment.
Under the Channel Islands law, crimes are prosecutable, with the exclusion of a few small offences that concern public purchase. The scope of violations is broad and includes, but not restricted to, the following:
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Involvement in a criminal group and racket
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Terrorist acts and vices
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Funding branded nuclear warheads
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Human trading, smuggling and trafficking
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Sexual abuse and child exploitation
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Illegal sale of narcotic compounds and substances
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Unlawful arms marketing
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Marketing stolen products
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Fraud, inducement and tax invasion
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Piracy
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Ecological offence;
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Vandalism, homicide, robbery, trafficking, forgery, coercion and hijacking.
While the provisions within this guide cover all business investments that apply a risk-based strategy and client due diligence, some obligations in this Handbook are irrelevant to specific industries.
Handbook Purpose
The Channel Islands Handbook will assist companies to operate under the requirements of applicable laws on funding terrorism and money laundering to protect the system from abuse.
Money laundering is an act of concealing criminal proceeds to make them appear legit. ML is also the process of evading arrest, conviction and prosecution by disguising the origin of illegal proceeds of criminal activities.
Financing terrorism seeks to strengthen a groups financial base or advance the cause of a minority movement. FT could be done with legitimate and illegal proceeds of business transactions.
The Channel Islands Handbook sets modalities to detect and counter money laundering and FT using compliance strategies approved by the Commission.
The Commission recognises the various tactics adopted by industries that are specified to prevent money laundering and terrorist funding. This guide attempts to embrace a technology-neutral position, allowing the company to choose any technological alternative (s) appropriate to satisfy its duties.
The Channel Islands Handbook introduced the concept of Money Laundering Compliance Officer (MLCO), who enforces compliance of all entities to the AML/CFT requirements.
The MLCO officer must monitor and test systems, investigate non-compliance, create effective control mechanisms, and report its findings to the Board of the Channel Islands.
With this directive, the MLCO is authorised to act as an MLRO as required in specific duties.
The FATF 2012 approvals say that companies need to possess an autonomous audit function to check AML/CFT compliance.
Under the risk-based approach, the Channel Islands created improvements to the principles and advice across the Handbook to allow companies to embrace a risk-based strategy.
The guidelines were expanded to include obligations on risk evaluations and introduce concepts like the weighting of risk variables.
Firms should consider all risk factors regarding business associations or transactions to ascertain whether their aggregate impact may increase or reduce the corporations risk exposure. Risk factors must be weighted based on their significance.
Under business risk assessment, the Handbook was expanded to include additional details about the appraisal and certification of evaluations.
The board has to take possession of and responsibility to the BRA and create the companys risk appetite.
Failure to Meet the Required Standards
For any company, whether controlled or listed with the Commission, the consequences of any substantial failure to satisfy the criteria demanded, the Commission will invoke legal solutions.
The Commission will impose a variety of disciplinary and monetary sanctions, including the capability to remove, restrict or revoke the license of the business where applicable.
If the organisation is listed and controlled by the Commission, it must evaluate the failure of compliance by the company its supervisors, directors and employees. In defining whether the company aligns its business with honesty and aptitude and if a natural person is appropriate, the Commission must refer to the compliance rules of Schedule 3.
Where the Commission does not govern the company, the authorities must refer to the compliance rules of Schedule 3 to consider the listing of the firm.
Data Protection
The law requires the company to organise and preserve records and certification. Where such documents and certification include private information, the company must comply with the Privacy and Protection Act for individuals within the EU.
The Financial Action Task Force (FATA)
As the name implies, The FATF is an intergovernmental organisation created by the ministers of its member authorities. The requirement for the FATF would be to establish criteria and to encourage the successful execution of legal, functioning, and supervisory steps for combating money laundering, funding terrorism and other associated risks to the integrity of the global financial system.
The FATF approvals and endorsements are recognised as the global AML and CFT regulations and standards. The FATF references establish a global standard that states should implement through steps adapted to their conditions. The FATF approvals and endorsements provide procedures and measures nations must
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change to identify threats and create policies and national co-ordination
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Mitigate money laundering, funding terrorism and proliferation of biological weapons
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Apply precautionary steps for the financial industry and other monetary institutions
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Set roles and responsibilities of its competent agencies
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Improve the transparency and accessibility of beneficial ownership data of authorised individuals, and legal agreements
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Facilitate global co-operation.
Corporate Governance
Effective corporate governance must all the board of directors to pursue goals in the interests of the company and its shareholders and should facilitate operational tracking to evaluate its compliance with anti-money laundering and counter-terrorism funding.
A corporate governance structure is the categorisation of mandate and duties among members, like the directors, administrators and other stakeholders and its requirements.
The establishment of an effective corporate governance system facilitates confidence and accountability for long-term expenditure, financial stability and company ethics.
Effective corporate governance creates a structure on guidelines, controls and processes of the company to mitigate money laundering and terrorism financing.
The Channel Islands Code of Corporate Governance
The company shall maintain superior standards of corporate governance to provide a controlled financial service business and respective managers using an efficient framework to discharge their responsibilities effectively and economically, the Commission.
Board Responsibility for Compliance
The board of directors shall handle the company effectively to observe, comprehend and assess the possible threat or risks, such as money laundering and terrorism financing. The management shall take possession of, and liability for the company risk assessments and evaluation.
The board must evaluate its risk appetite, the exposure to ML and FT activities based on its hierarchical structure, clients, nations, boundaries, and how it implements its services.
The evaluation shall consider the impact of threats recognised, which may surpass the aggregate of each risk component.
Based on its business hazard evaluation, the firm must adopt an effective strategy to counter tax evasion and financing of psychological oppression.
The management shall establish and sustain appropriate and effective strategies, controls, and procedures using the size, character and the complexity of its organisation.
These strategies, controls, and processes must allow the company to conform to the standards of the Commission. The requirements include:
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Organise, record and preserve business risk evaluations to categorise the underlying ML and FT threats and to specify its risk appetite.
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Facilitate threat evaluations of business associations and intermittent transactions to classify those that require ECDD and SCDD measurement.
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Employ adequate CDD obligations to sort and confirm the identity of clients, beneficial owners and other relevant stakeholders, whether natural people, legal officers and legal agreements and to ascertain the purpose and character of the company connection or intermittent trade.
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Employ ECDD guidelines to business associations and intermittent trades that score higher threat assessment of money laundering and financing terrorism.
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Apply SCDD guidelines in situations where the firms transactions on ML and FT have been measured as low.
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Facilitate trade and action monitoring.
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Monitor company associations on a scale appropriate to guarantee that unusual and questionable activities are emphasised and prioritised.
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Monitor clients, payees, beneficial owners and other stakeholders based on the EU recommendations.
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Report immediately to the financial intelligence service where the compliance officer suspects that the firm or individual is an accomplice in ML or FT activities.
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Investigate money transfers and payment transactions where the employee acknowledges incomplete or missing transfer data of the payer and payee.
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Evaluate prospective workers to ensure the integrity and competence of staff and directors.
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Approve and organise appropriate and adequate AML and CFT workshops and training to workers and managers.
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Manage, store, and maintain databases for timely retrieval and accessibility.
Board Oversight of Compliance
Under this obligation, the organisation shall maintain adequate coverage of all compliance requirements and policy provisions.
The board of management should consider the relevance and efficacy of its compliance agreement and its coverage for the inspection of operational transactions using the demands of Schedule 3.
Based on this obligation, the firm shall appoint the MLCO who will enforce and implement the companys compliance policies to avert and detect ML and FT transactions.
The board must evaluate its risk assessment strategy and recommend whether to maintain an independent financial evaluation.
The board should guarantee that the compliance inspection coverage considers the size, character, and benefits of the company, which includes the threats identified in the company risk evaluation. The coverage includes a need for sample testing of their efficacy and adequacy of its policies, processes and operational controls.
The board shall deploy a risk-based strategy after specifying its compliance inspection coverage. Therefore, the policy must examine the suitability, efficacy and adequacy of the firms control systems based on its obligations.
This includes the following but not limited to:
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The implementation of CDD approaches.
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The firms management information.
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The testing and organisation of third party transactions.
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The proficiency of the money laundering reporting officer.
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The control of confidential disclosures under the financial intelligence service.
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The control and management of sanction threat and notices.
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The provision of AML and CFT workshops to guarantee quality training, knowledge and improved performance.
The board shall assign its duties but must review its compliance with the AML and CFT regulations and standards.
Where the company classifies any deficiencies based on compliance, the management must fix those deficiencies and provide recommendations for adoption.
Where a different entity manages the company, the obligation for its compliance must be evaluated by the board of the new entity.
Outsourcing Responsibilities
Where the company outsources its services to another institution, its board must manage the compliance process to prevent illegal transactions and operations.
If the company agrees to delegate or outsource its functions to another party, it ought to:
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Review the guidelines of the Commission.
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Apply a term of reference explaining the provisions of this agreement
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Define the roles and duties of the company and the third party agent.
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Separate the functions of the reporting officer, the compliance officer and other outsourced agents.
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Guarantee proper supervision of the task undertaken with the third party agency or institution.
Before its approval to outsource its services, the company must conduct a threat assessment of possible exposures to ML and TF operations and must document its findings as a business risk analysis.
The company must investigate the threats identified with its assessment of an outsourcing agreement and conduct a continuous risk assessment process.
Where the firm approves the recommendation to outsource its services, the organisation must ensure that:
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The third-party provider:
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It has adequate knowledge, competence, and expertise.
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The firm understands the Commissions AML and CFT requirements.
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Is adequately resourced to conduct its responsibilities.
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Has effective policies, methods, and techniques that reflect the changing trends in ML and FT transactions.
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Is evaluated and subjected to specific due diligence to guarantee the integrity of the outsourced agent.
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The assignment of the third party is observed and measured to guarantee it conforms to the recommendations of the Channel Islands handbook.
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The findings and documents of transactions submitted by the outsourced party are genuine, accurate, precise, clear and contains detailed information on the working modalities of the organisation.
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The accounts obtained by the outsourced party explain the strategy of its services and assessment procedure.
The board management must verify the veracity of reports provided by a third party to avoid intentional misrepresentation.
Where the company accepts to outsource its function to an unknown entity, the board must verify if the entity has the capacity and policy to detect and counter ML and FT operations. The company should consider whether outsourcing plans create challenges and aid money laundering activities.
Foreign Divisions and Subsidiaries
Under the Commissions mandate, a company must guarantee that its subsidiaries or divisions comply with:
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The regulations of the Channel Islands Handbook.
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Conditions or regulations applicable in that territory or state that is compliant with the Financial Action Task Force.
The AML and CFT strategies must be aligned to suit the geographical trends of the substation.
The company must ensure that its foreign divisions execute policies, processes and controls that counter and detect money-laundering activities.
The strategies and controls must ensure that safeguards about the confidentiality and use of data exchanged between the company and its subsidiaries are secured.
Along with notifying the Commission of its findings, the company should ensure that proper controls are enforced in areas where compliance is ineffective.
The company must evaluate the AML and CFT process in areas of least resistance to prevent ML or FT transactions.
Where the company is a currency service supplier registered with the Commission, they must employ brokers to conduct its responsibilities.
Liaison with the Commission
The board of this company shall notify the Commission of any security breach or failure to implement its control and policies. This list is not definitive but could be used as a guide for the undersigned information. The company must notify the Commission when:
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The company clarifies its compliance monitoring agreements and categorises the regions of non-compliance
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The company receives red flags by a third party identifying regions where remediation work is advocated.
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The company receives a report by an informer.
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The company acknowledges that non-compliance exists across its subsidiaries or divisions and may have affected its policies and controls against AML and CFT requirements.
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The company discovers the outsourced party neglected its compliance policies and controls.
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The firm identifies any material of non-conformity between the parties involved and mutual trade with a related link to a state listed in the Commissions business group.
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Any violation of the requirements attracts the Commissions sanctions.
The Commission must be notified when the firm breaches its administrative protocols.
The firm shall exclude the following scenarios from the notification process when:
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The event or activity is isolated
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The action can be resolved without hesitation.
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The operation does not constitute a regulatory risk to the organisation.
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It cannot undermine the accuracy of:
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The CDD data of the client or stakeholder.
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The companys knowledge of the beneficial ownership of the client.
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The companys understanding of the function and planned action of the business transaction.
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The company must record all transactions irrespective of its priority risk measurement. The Commission reserves the authority to request for all transactions without receiving any formal notification of compliance.
Where the company has decided that an issue deserves notification to the Commission, the Commission shall receive prior information even when the matter is under investigation.
While not a comprehensive list, these are instances where the Commission acknowledges the poor reporting process. It is a matter of poor reporting when:
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The company lacks the funds to undertake the necessary remediation work before informing the Commission
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The company has discovered no proof that a real financial fraud occurred due to non-compliance policies and controls.
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The board decides to postpone the notification process while it conducts a risk assessment analysis.
Key Persons
Money Laundering Compliant Officer
The firm must appoint a compliant officer (MLCO) to conduct its operations.
The appointment must be thorough under standard procedures. Therefore, the MLCO must
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Be a natural individual
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Be of supervisor level
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Possess skilled knowledge, ability and expertise to match a compliance function within the company
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Be utilised by the company within the same category as the firm (where it is suitable for the employee of their supervisor to be recommended)
The company shall ensure that the appointed officer:
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Has authorised access to the documents of the company
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Has adequate funds and assets to do their responsibilities
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Gets the collaboration of their companys staff
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Is conscious of their duties
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Reports to the board regularly
The officer must observe and report compliance with policies, controls and procedures to mitigate, prevent and discover ML and FT.
The board is accountable for the companys compliance operations such as setting appropriate and effective policies, regulations and guidelines to prevent and tack money laundering activities and terrorist financing.
Functions of the MLCO comprise:
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Assessing the observation and analysing of AML and CFT guidelines, processes standards and systems to evaluate their appropriateness and efficacy
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Exploring issues of non-compliance
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Setting standards to mitigate threats arising from the companys compliance review to fix problems where necessary
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Acting as a contact person to address compliance challenges
The money laundering and complaint officer MLCO shall supervise oversight functions.
A natural person can act as the MLRO and MLCO simultaneously.
Money laundering Reporting Officer
Similar to the MLCO, the firm must appoint a natural person to discharge its mandate.
The appointment must be thorough under standard procedures. Therefore, the MLRO must.
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Be a natural individual.
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Be of supervisor level.
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Possess skilled knowledge, ability and expertise to match a compliance function within the company.
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Be utilised by the company within the same category as the firm (where it is suitable for the employee of their supervisor to be recommended).
The company shall ensure that the MLRO:
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Has authorised access to the documents of the company.
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Has adequate funds and assets to do their responsibilities.
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Gets the collaboration of their companys staff.
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Is conscious of their duties.
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Reports to the board regularly.
The mandate of the MLRO empowers them to work without hindrance and act independently.
The MLRO has to be liberated to get immediate access to the financial intelligence service to report questionable activity.
Nominated Officer
A nominated officer acts on behalf of a reporting manager. The nominated officer shall receive the firms disclosures and other compliance operations.
The nominated officer must be a natural individual and should attain the manager level. The officer shall possess the right knowledge, ability and expertise.
All employees within the company should be mindful of the natural individual (s) to whom disclosures should be produced in the absence of the MLRO.
The obligations in this section do not apply where the company comprises one investor a license holder and a normal person enrolled as a prescribed business.
Risk-Based Strategy
Introduction
This section will help the company in carrying a risk-based strategy to mitigate the use of goods and services for money laundering and financing terrorism. The standard guidelines, following the Channel Islands Handbook, can be categorised into three main structures.
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Risk-Based Strategy: The guideline on this structure summarises risk-based strategy
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Investment Risk Assessment: The guidelines on this structure summarise business risk assessment associated with money laundering and financing terrorism. The regulation empowers the firm to conduct risk appetite.
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Link Risk assessments: the guideline under this section describes the applicable responsibilities for the running of risk assessments of existing and new business associations and intermittent trades.
Definition, Context and Importance
A risk-based strategy encourages the development of diagnostic measures that are linked with the ML and FT vulnerabilities identified with the company and to cope with these threats from the cost-effective and impartial way.
The firm must:
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Know its ML and FT threats,
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Create effective strategies and designs to:
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Classify
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Evaluate
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Prevent
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Handle and observe threats based on the demands of the Handbook
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A risk-based strategy recommends actions to handle the ML and FT vulnerabilities confronted by the company:
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Classifying threats posed to this business from ML and FT and regions with higher risk score
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Analysing the likelihood of these threats occurring and its effect on the firms business operations
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Mitigating the incidence of identified risks and its consequence using proper and effective strategies, controls and techniques
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Handling the residual threats arising from vulnerabilities the company cannot re-evaluate
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Assessing and monitoring business risks identifying if there are trends in the vulnerabilities, which demand adjustments to the firms strategy, processes and regulation.
Under the risk-based strategy, it is vital that documentation is retained to ensure the board and senior administration will demonstrate their compliance.
A risk-based strategy begins with the classification and evaluations of threats that require managerial processes. The firm shall evaluate the risk of its involvement in ML and FT activities based on clients, countries, products and geographical locations.
In defining the risk-based strategy, the company must analyse and comprehend how the recognised ML and FT threats affect its enterprise. The analysis should consider a firms risk appetite and impact on its strategic goals.
With the deployment of risk evaluations and conclusions, the company can establish the foundation for a risk-sensitive method to manage and mitigate money-laundering activities. A risk-based strategy does not exempt the company from applying enhanced steps where it identifies prioritise risk variables as detailed this Handbook.
The regulations described in this Handbook do not prohibit the supply of any services or the endorsement of any client unless there are reasonable grounds to assume that the client or the owner is connected with ML or FT activities and operations. The risk-based strategy as described in this manuscript expects that the dangers posed by clients, nations, services, trades and delivery stations are recognised, evaluated and mitigated, and that proof of these assessments and controls are is recorded and reviewed periodically.
By embracing a risk-based strategy, the company must ensure that steps to avert or lessen money laundering activities or to finance terrorism are proportionate with the identified threat. Risk evaluations permit the company to make decisions about effective ways to allocate its assets and ascertain its tolerance for risk.
Systems cannot detect or prevent ML and FT operations. A risk-based strategy will balance the cost weight on the firm and its clients using an effective appraisal of the threat. The firm shall focus its controls where it is required and has many effects.
The Advantages of a risk-based strategy include:
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Knowing the ML and FT risks change across its clients, nations, locations and services
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Enabling the board to use its approach on specific, allowing managers to prioritise customers and investors
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Facilitating a cost-effective method of risk control
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Reproducing expertise and proportionality by modifying strategies and actions to risk assessment
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Allowing the use of these requirements for all relevant risk variables
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Permitting risk accumulation, evaluation, assessment, prevention and control measures
Businesses differ in size and operations materially. A strategy that prevents ML and FT actives in one transaction could be unsuitable in another. The section offers knowledge on risk variables that supports threat management framework.
Diagnosis and Mitigation of Hazards
Risk can be measured under three variables, and its assessment must apply control based on these factors:
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Threat: the firm shall classify threat as an individual, investor, stakeholder, product or service that has the capacity to trigger harm
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Vulnerability: The firm shall classify vulnerability as the likelihood of gaps, Channe
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