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Sector UpDate | Regulation & Compliance the perfect In the world of compliance and regulation Brian G Horsepool, managing director of Active Compliance Services Limited, believes it’s a challenge balancing the requirements of all involved. in a perfect world there would be no need to measure compliance with regulations and no requirement for compliance officers. Financial services companies would operate fully in line with all laws and regulations, and company directors would manage their businesses without any oversight from regulators. thankfully for the compliance officers amongst us, there is no such thing as the perfect world, certainly not in the variety of firms licensed to conduct financial business here in Guernsey (and 40 | CONTACT | OCTOBER/NOVEMBER 2010 | www.guernseychamber.com indeed elsewhere). Where would we all be without the local regulator the Guernsey Financial Services commission to keep us all in order? the GFSc has a tough job. as the financial world has become increasingly complicated, with the resulting severe problems which have surfaced, the regulations have evolved significantly and the expectations have grown on the regulators to police the financial services providers more robustly. the days of the light touch internationally are sadly long gone, and Guernsey is no different. the island is under severe pressure and scrutiny from a wide variety of governmental and international bodies, including the iMF, oecD, FatF, eU etc, and adherence to recognised international standards are essential. this brings a commensurate emphasis on cooperation, disclosure and commonality of regulations, including rules to prevent money laundering and financing of terrorism which have become one of the highest priorities at the present time. all of this would be easy if licensed entities had proper procedures and controls in place, followed them correctly, amended them when
world regulations change, and ensured staff are adequately trained to understand the reasons why the rules and controls are in place. Sadly this is not always the case (thankfully for those of us who are compliance and regulatory consultants!). Most licensed businesses fully understand the need for regulations and have introduced suitable procedures and training to ensure their business is operating to acceptable standards. these businesses may slip up occasionally, but generally any failings are minor and can be rectified quickly without undue problems. these firms do not require undue scrutiny or heavy oversight from the regulators, with the original light regulatory touch being more than adequate. Unfortunately there are still several local businesses which continue to ignore many of the basic requirements and cannot demonstrate consistent adherence to the required standards. these are the businesses which risk falling foul of the regulators. this is where the compliance officer comes in, but where in many businesses further problems can arise. ideally the compliance officer is employed by the business to assist the directors and management in introducing adequate procedures, then ensuring staff follow the procedures at all times. this will involve the compliance officer running occasional spot checks on key aspects of the operation and controls in place, ensuring suitable training is in place, but otherwise the compliance officer will not get involved in carrying out operations, processing of transactions etc. Some compliance officers do however tend to get sucked into the depths of the operation, which can and does often cause problems for the business, creating duplication of work, bottlenecks and delays. this is not an ideal practice where the effective result can be the compliance officer is effectively overseeing his own adherence to the rules. Sometimes compliance needs to trust the other areas of the business. any change in the firm’s business model, introduction of new services etc. will prompt the compliance officer to propose amended procedures and controls, thus ensuring the business continues to operate within the applicable rules and regulations. this is particularly relevant in the constant fight against money laundering in all of its guises. Guernsey has been operating under money laundering control regulations for some 10 years now, but it is surprising how many firms still appear to be confused in the basic requirements expected under the original 1999 law and subsequent regulations, rules and guidance from the commission, in particular the major overhaul which took place in December 2007 and has been a significant focus ever since. the basics are very simple: identify who you are dealing with, verify they are who they say there, and run some checks and continue to monitor transactions to make sure as far as is possible that your firm is not being exploited by criminals for the cleaning up of their dirty money/proceeds of crime, or being used by terrorists in the financing of their terrorist activities. oh, and by the way tax evasion is a crime, and is also caught under the general money laundering regulations. You would have thought that by now everyone involved would fully understand the requirements, the need for adequate due diligence on their clients and associates, and would be keeping adequate documents to demonstrate that everything is in order. this is not always the case, and all too often we see significant deficiencies in this area, which not surprisingly is a high priority for the regulators, who appear to have run out of patience if recent events are anything to go by. it is hard to criticise the regulators in their diligence in trying to ensure Guernsey continues to adhere to, and can demonstrate adherence to, acceptable international standards. after all, that is their job. Where they can be criticised perhaps is in their sometime excessive approach to the matter, and seeming determination to make Guernsey the best of the best, when other comparable jurisdictions, including Jersey and the UK, do not go quite so far. Back to the perfect world. a financial world where laws and regulations are fair and fully understandable, the regulators ‘Where would we all be without the local regulator the Guernsey Financial Services Commission to keep us all in order?’ oversee the industry with a reasonably light touch in general but a heavier hand where deserved, and the compliance officer’s life is a simple one of occasional monitoring and fine tuning of procedures as required. a world where company directors fully understand their obligations, and can demonstrate their understanding at all times (the planned new codes of corporate Governance may help in this regard). all of this can be achieved without an excess of regulations provided all parties agree, and then adhere to proper standards. We are not there yet, and unlikely to ever be there, but then, when has the financial world ever been perfect? www.guernseychamber.com | OCTOBER/NOVEMBER 2010 | CONTACT | 41
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