1 Securities & Investment Institute Risk Forum The New JMLSG 2006 Guidance April 2006

2 What are the key changes? Greater recognition of senior management responsibilities – they must manage! The requirement for a risk based approach is clear The “changed” role for the MLRO A revised approach to customer due diligence Less due diligence v more monitoring Training implications Differentiation between different business sectors

3 Senior Management Not actually changed but likely to be very different! Involvement Responsibility, particularly for the risk based process Ultimate responsibility for all except the MLRO’s statutory responsibilities Obligation to designate one member of senior management to represent all in AML compliance matters – but overall responsibility not delegated

4 The Risk Based Approach Key change but only broad guidance Identify and assess the actual AML/CTF risks Design and put in place processes and controls to mitigate the identified risks, on a proportionate and cost-effective basis Some residual risk can still be acceptable Determine management information requirements for senior management to enable their monitoring of the effectiveness of the regime for which they are responsible Keep records

5 The MLRO Responsible for oversight of compliance with the FSA regime of rules on systems and controls to prevent money laundering Not the same responsibilities as the ‘Nominated Officer’ in statute Old FSA hallmarks of seniority, capability and resources all still important Still reports to management

6 Customer Due Diligence Information collected v information verified A start point standard level of verification to then be varied to reflect risk Allow for those customers/clients who cannot be expected to meet standard requirements Flexibility and judgement in reaching satisfaction Potentially much greater use of electronic verification Potentially much greater reliance on other regulated firms

7 Initial Due Diligence v Ongoing Monitoring Establish the basic standard – not necessarilly a minimum standard! Flex the standard to reflect the risk Reduced workloads for some customers’ due diligence may be offset by greater ongoing monitoring needs Determine and establish monitoring needs, monitoring levels being geared to reflect risks

8 Training Nominally not much different from old regime – met the statutory requirements and guard against the ‘reasonable grounds’ test Training required to enable staff to take a risk based approach to their work. Remember “Firms should encourage their staff to ‘think risk’ as they carry out their duties…..” (Preface 18)

9 Electronic Verification Who to use? What to do and how to do it? Existing providers and others

10 Reliance on Other Regulated Firms Efficiency? Several different firms involved on same business Acceptable confirmations: Assessment of source and acceptability Exceptions The confirmation and the supporting documentation

11 Impact of the New Guidance How has the FSA’s position changed: Rulebook Monitoring Philip Robinson’s letter Staff Training Management of levels of discretion allowed to staff. Implementation challenges Time Cost

12 Action Required Now Assessing and documenting risk profiles for sign-off by senior management Determining additions and revisions to existing systems, processes and controls Determining revised staff training needs and a strategy to meet the needs on a timely basis Monitoring and reporting back to senior management through project management

13 Ongoing Requirements Monitoring compliance with all aspects of the new AML/CTF regime Monitoring changes to risk assessments and the consequences thereof Routine reporting to senior management, both in accordance with the requirements they have determined and the formalised annual MLRO report.

14 Significant Dates Final Guidance published 1 st February 2006 Treasury approval given 13 th February 2006; Guidance now has ‘approved status’ in law. Abandonment of FSA ML Sourcebook and full effect of new regime from 1 st September 2006

15 The New JMLSG 2006 Guidance Session End MARCH 2006