By Philip Baker, Cyan Regulatory Services Ltd
IN a competitive and highly regulated world, we must adhere to, and are measured against, ever-higher standards.
Those who work in healthcare, construction, food production or hospitality, for example, will be aware of the ever-evolving rules to protect our health and wellbeing and maintain high standards.
In financial services, we are also well acquainted with this trend. Firms must continually raise their game and comply with new requirements to protect their clients, control their operations, prevent and detect criminality and safeguard Jersey’s reputation as an international finance centre.
This drive towards higher standards has seen financial services regulators focus their attention not only on whether a firm has appropriate systems and controls in place but, just as significantly, whether these are effective.
What is effectiveness?
The dictionary defines effectiveness as ‘the degree to which something is successful in producing a desired result’.
Let’s consider an example.
A firm wishes to mitigate its exposure to money laundering and so puts in place a manual that contains all the policies and procedures the regulator would expect to see. It therefore meets the basic requirements. However, if the firm fails to make its employees aware of the manual and its contents, has not embedded the requirements into its day-to-day operations or checked that the manual is being followed, its systems and controls are not effective.
What do the regulators say?
The importance of effectiveness is recognised both internationally and locally. MONEYVAL is the European body entrusted with assessing country-level compliance with international standards to counter money laundering and terrorist financing.
Its role encompasses assessing how effective a country’s anti-money laundering measures are by seeking evidence that robust measures have been enacted by government agencies and adopted by industry and that sanctions are effective in encouraging compliance. Jersey will be judged against the latest standards when it is next evaluated.
In Jersey, AML legislation requires financial services businesses to test the effectiveness of their policies and procedures and employee training and awareness measures. Furthermore, the handbook issued by the regulator is clear that systems and controls must be adequate and effective.
The importance of effectiveness is also emphasised in the codes of practice. Firms must organise and control their affairs effectively, to include:
• An effective corporate governance system.
• Establishment of a permanent and effective compliance function.
• An effective complaints handling system.
There are also requirements for the firm to:
• Assess the effectiveness of the board of directors.
• Monitor that policies and procedures are consistently and effectively adhered to.
• Assess that compliance risk is managed effectively.
• Review the effectiveness of customer money controls.
How can businesses evidence they are effective?
The challenge for boards and compliance officers is satisfying themselves and demonstrating to others that their firm’s systems and controls are effective. Verbal assurances are unlikely to be sufficient; regulators and auditors will expect to see documentary evidence of robust testing, possibly by an independent party such as Cyan. On an ongoing basis, the board should also obtain comprehensive reporting from its compliance officer on the results of compliance-monitoring activities.
In another example, which has broad applicability, a company wishing to ensure that its handling of complaints is effective can evidence this by:
• Having a complaints-handling policy that is regularly reviewed and approved by the board.
• Maintaining a comprehensive and up-to-date complaints register and associated records to show that complaints are handled promptly and professionally.
• Making improvements where deficiencies are identified.
• Regularly testing compliance with relevant policies and procedures.
To conclude, it is no longer enough for a firm to have systems and controls. Firms must be able to demonstrate that they are effective and evidencing this with reliable records and management information is essential. To misquote the jazz musicians Sy Oliver and Trummy Young: It ain’t just what you do, it’s the way that you do it.