AML Review Readiness. Agenda. AML Overview and Key concepts. Introduction. AML Overview and Key concepts. AML Independent Review Readiness.

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1 Agenda Introduction AML Overview and Key concepts AML Independent Review Readiness Take Away 2015 Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 0 AML Review Readiness AML Overview and Key concepts

2 What an Independent Review? "It s a review of your compliance policies and procedures to test their effectiveness. The review has to be done every two years... The review is to be conducted by an internal or external auditor, if you have one.. If you do not have an internal or external auditor, you can do a "self-review." Source: Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 2 What are the main components? The review consider to review of the following of your compliance program according to IIROC Guidance: the appointment of a compliance officer (ref., sec.4); the development and application of compliance policies and procedures..(ref., sec.5); an assessment and documentation of risks related to money laundering and terrorist financing, as well as the documentation and implementation of mitigation measures to deal with those risks (ref., sec.6); if you have employees or agents or any other individuals authorized to act on your behalf, an ongoing compliance training program for them. The training program has to be in writing and maintained (ref., sec.7); and a review of your compliance policies and procedures to test their effectiveness. The review also has to be done every two years (ref., sec.8) Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 3

3 Customer Due Diligence : How it works? Due Diligence is performed on all customers? Risk Factors=Extensive Diligence Intensify Monitoring for Higher Risk Accounts Due Diligence Enhanced Due Diligence Monitoring : Real Time and Batch Collecte/document customer information Identify customer/perform appropriate verifications Analyse/update information if necessary Collecte/document additional information Analyse any risk factos/suspicions Report unusual situations Analyze unusual transactions Evaluate PCMLTF risk/determine risk mitigation measures Report to regulatory autorities 2015 Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 4 Risk-based Approach A risk-based approach allows the reporting entity to identify and measure potentially higher risks and develop strategies to mitigate them so they can focus resources where they are most needed to manage risks within its own acceptable tolerance levels. Existing client identification, record keeping and reporting requirements still apply. The risk-based approach serves as an enhancement to those requirements. The risk-based approach will vary depending on the size and complexity of the reporting entity s operations Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 5

4 Customer Acceptance Policy You should write a comprehensible and comprehensive Acceptance policies and procedures, where describing types of customers that are likely presenting a higher risk to your organization: Risk Appetite In developing such policy, following key risk factors should be considered: Customers background : history Country of origin : based on UN List Pubic or high profile position : PEP, Actors, CEOs, VIPs Connected accounts : Linkage Professional/Business activities Transaction pattern Determine Discrimination criteria 2015 Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 6 Customer Identification Set up the requirements for a Customer Identification Program (CIP) Customer Identification require to perform a Due Diligence: Collecting the identification information Screening the customer (credit check, existing customer, profile, known patterns, etc ) Assessing the customer s risk profile : Risk Map (L, M, H) Perform Enhanced Due Diligence : Obtain additional information to confirm customer identity 2015 Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 7

5 Suspicious Indicators Remember the definitions of suspicion!! Is the person's behavior unusual for the circumstances? Is the activity unusual in itself? Is the activity unusual for the customer? Do you have other knowledge which leads you to believe the customer or activity is criminal? Do you have unresolved and persistent feelings of doubt? 2015 Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 8 Monitoring: Transaction screening Automated monitoring: profiling, risk assessment planning, escalation process, investigation, reporting Manual monitoring: run reports, adhoc verification, risk assessment, escalation process, investigation, reporting Third party monitoring ----->communication protocol, liability determination 2015 Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 9

6 Reporting Internal Reporting External Reporting to authorities and regulators 2015 Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 10 AML Review Readiness How you can get Ready?

7 Our Integrated Approach Governance 2015 Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 12 An Integrated Approach but Customized Audit End-to-End Best practices and market trends Structured methodology and IT tools Deliver specific phases of your compliance program that match your needs Compliance review of your AML program Provide action plan remédiation/recommandation Issue independent Audit reports Structured methodology and tools Assess, design and implement AML Program Manage AML program implementation 2015 Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 13

8 Our Integrated Approach (cont.) Governance Review of the relevant policies and procedures in place, whether they are complete, accurate, known, applied and supported Review of roles and responsibilities Process Assessment, reengineering and implementation of processes affected by the AML compliance program, as supported by technologies Design and implement Risk and control Matrix People Identify the required change management processes and measures needed Awareness, training and modifications to processes are key to a successful implementation Technology Monitoring Capabilities Reports relevance Reporting via systems Linked systems Data residency and system mapping Systems modification and availability of resources 2015 Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 14 Checklist Exercice Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 15

9 AML Assessment Results Map Assessed Component Non Existent Ad hoc In Development Compliant & Documented Governance Technology People Process 2015 Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 16 AML Review Readiness Take Away

10 What is Money Laundering? Money Laundering: Money laundering is largely defined as the attempt to conceal the origin and ownership of the proceeds of illegal activity and to disguise assets to make them appear legitimate. Source: The Financial Action Task Force (FATF) AML Laws (Proceeds of Crime (Money Laundering) and Terrorist Financing)(PCMLTF) Apply to: Financial Institutions include, but are not limited to, the following: Banks, Savings Associations, and Credit Unions, Broker-Dealers, Mutual Funds, Insurance Companies, and Futures Commission Merchants and Introducing Broker-Dealers. Non-Financial Institutions include, but are not limited to, the following: Investment Advisers, Accountants, Lawyers, and Hedge Funds Hammer Smith Consulting Group, a Canadian Inc.. All rights reserved. 18 Why we need to address it? Failure to understand and deal with Money Laundering can lead to: Significant regulatory risk; Significant reputational risk; Significant litigation risk; Significant operational risk Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 19

11 Stages to Money Laundering Stages Placement Layering Integration Definitions and exemples -Breaking up large amounts of cash into smaller sums and depositing them directly into a bank account. -Shipping cash across borders to deposit in foreign financial institutions, or to buy high value goods such as artwork and precious metals and stones that can then be resold for payment by check or bank transfer. This stage involves converting the proceeds of crime into another form and creating complex layers of financial dealings to disguise the audit trail, source and ownership of funds: -Wire transfers of deposited cash from one account to another -Converting deposited cash into monetary instruments (e.g. traveler s checks) -Reselling high-value goods and monetary instruments -Investing in real estate and legitimate businesses. Supplying apparent legitimacy to illicit wealth by the re-entry into the economy of what appear to be normal business funds Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 20 PCMLTF Risk Factors Customer Risk Factors associated with the customer himself : behavior Factors associated with the customer s activities :business, profession, transaction Factors associated with information provided by the customer : origin of funds, intent of Use, etc.. Geographic Risk Factors associated with the customer s place of residence Factors associated with the customer s activities Factors associated with the geographic location Product/Service Risk Factors associated with the product and service characteristics Types of products and services exposing you to a greater PCMLTF risk Delivery Method/ Distribution Channel Risk Risk associated with the delivery method and distribution channels (Delivery risk) 2015 Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 21

12 Customer Due Diligence Triggers Triggers New Account=New Customer Opening a subsequent account Renewal Change in the customer information Typical Steps Perform Due Diligence and Enhanced Due Diligence in accordance with your organization policies and procedures Document the customer information and due diligence as required in appropriate systems and working papers Certify having performed the due diligence (depending on the form used) Report the unusual situation to Compliance Team using usual forms and tools 2015 Hammer Smith Consulting Group a Canadian Inc.. All rights reserved. 22 Congratulations on your contribution today! We must together continue to make every effort to: Protect your clients Safeguard your reputation Develop sustainable business relationships

13 Contact information The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Mariama Zhouri Senior Manager, Risk Consulting Compliance&Regulatory (514) mzhouri@kpmg.ca 2015 Hammer Smith Consulting Group a Canadian Inc.. All rights reserved