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GFSC DEAR CEO & Enhanced Measures & GOOD and BAD practices

18/05/2022

On the 4th of May 2022, the Guernsey Financial Services Commission (“GFSC”) circulated a letter to Guernsey Licensees describing GOOD and BAD practices observed during onsite inspections on customer due diligence processes and the application of Enhanced Measures.

GFSC Observations – GOOD-BAD - Practices observed from onsite GFSC inspections include:

Good Practice

  1. Policies and Procedures which:
    • Demonstrate that a firm applies a risk-based approach by differentiating between Enhanced Measures and Enhanced Customer Due Diligence.
    • Define the categories of customers to which enhanced measures apply.
    • Explain the types of enhanced measures which could be applied.
    • Acknowledge that a customer may exhibit one or more risk categories.
    • Explain that decision-making on the enhanced measures to be applied is aligned with the higher-risk factor(s) being mitigated.
    • Mandate that the choice and type of measure(s) applied and the risk factor(s) presented are documented and explained within customer assessments/review forms.
    • Customer risk assessment forms capture the higher risk factor(s) the customer presents and detail the corresponding enhanced measure(s) applied.
    • Where a non-resident customer is using Guernsey for tax mitigation, that the reason is supported with a copy of the relevant tax advice.
BAD –Poor- Practice
  1. Policies and Procedures which:
    • Do not distinguish what/when/to whom, enhanced measures must be applied within due diligence processes.
    • Confuse enhanced measures with enhanced customer due diligence for high-risk customers.
    • Do not reference the application of enhanced measures.
    • Make assumptions that controls will cover specific risks without ensuring that this is actually the case.
    • Applies an enhanced measure irrespective of the customer and relevance of higher risk factors represented.
    • Insufficiently examine instances where a customer chooses to use Guernsey as a jurisdiction and utilise a trust or company vehicle and/ or nominee arrangements.
    • A tick-box approach to customer risk assessments [CRA].
    • No or insufficient compliance monitoring.
What to do next
  1. Evaluate internal policies, procedures and controls and make the necessary amendments where gaps are identified.
  2. Review Customer Risk Assessments to consider if these allow for a proper evaluation of individual customers and trigger suitable enhanced measures.
  3. Perform a review of the current compliance monitoring programme to ensure this supports testing of enhanced measures and evaluates the effectiveness of the design and application of relevant policies, procedures & controls.
SOURCE
GUERNSEY