GFSC DEAR CEO & Enhanced Measures & GOOD and BAD practices
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:
- 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
- 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
- Evaluate internal policies, procedures and controls and make the necessary amendments where gaps are identified.
- Review Customer Risk Assessments to consider if these allow for a proper evaluation of individual customers and trigger suitable enhanced measures.
- 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.
- Thank you to a Comsure Guernsey client for providing this information – it’s a shame the GFSC does not publish the CEO letters!!!
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