Guarding against financial crime: Risk of personal fines heightens pressure on executives to shore up controls

Recent civil penalties for financial crime governance failures should focus the minds of executives in charge by not only highlighting the heightened financial and reputational risks they now face, but also the costs of remediation. So, if you’re one of the executives whose reputation is on the line, how can you ensure that safeguards are up to scratch?

Judging by the number of calls and emails we’ve been receiving from clients, sustaining effective customer due diligence (CDD) is proving to be one of the biggest challenges of working from home.

Most of the enquiries centre on what would qualify for exemptions on physical verification. There are plenty of grey areas here and we’re happy to help. But this is far from the only issue. Our concern is that by solely focusing on the small print of CDD exemptions, companies may be losing sight of the big picture on financial crime – why safeguards are so vital and all that this involves.

What’s at stake

Effective controls against money laundering, terrorist financing and other financial crimes are crucial to the reputation of both your business and the financial services industry in the Channel Islands as a whole. Any lapses could seriously deter investment, while negating some of the important progress the Channel Islands has made in addressing the risks.

It's all too easy to think of financial crime controls as getting a passport and utility bill (basic CDD, at best). But the requirements go further and deeper including robust risk assessment processes, the supporting infrastructure of training, ongoing monitoring and reporting of suspicious activity. Crucially, there is also a strong focus on executive oversight and governance. To strengthen accountability, principal persons must remember they could face a personal fine for any control failures on their watch.

Moreover, fines aren’t the only risk. Regulator-imposed remediation can multiply the costs many times over, making it even more important to ensure the control environment is suitably robust.

A step-up in checks and enforcement action is likely as the JFSC and GFSC prepare for the upcoming FATF mutual evaluation by MONEYVAL, the Council of Europe’s financial crime monitoring body. While no firm date has been set, this is due at some point in 2021 or 2022.

On top of the risks

As a principal person, how then can you gain comfort that financial crime safeguards are set up properly and working as intended?

In our experience, the key is ensuring that frontline teams understand why scrutiny and control are so critical and what they need to do to meet the requirements. It’s also important to identify the additional risks created by remote working and how these can be addressed. If the first line fails, the damage has already been done and it can be hard to put right.

Steps you can take to strengthen the control environment include ensuring technology and processes are effective, which could more easily allow for enhancements such as moving to virtual verification. This can not only help to alleviate some of the challenges created by home working, but also strengthen client engagement in the long-term – we’ll be looking at this in a future post.

To enhance comfort, you could also consider independent evaluation or more regular internal audit review.

So, while you have countless pressing calls on your time right now, it’s still important to keep a firm eye on the unceasing risk of financial crime. And the more you can do to shore up safeguards, the less the risk of unwelcome surprises if things go wrong.