In the lead up to Christmas the Guernsey Financial Services Commission (“the Commission”) published a short consultation on proposed changes to Chapters 3 and 7 of the Handbook on Countering Financial Crime and Terrorist Financing (“the Handbook”). Among the three main changes proposed is the addition of further guidance to Chapter 7 of the Handbook, specifically Section 7.10.3., on the requirement to identify the beneficial owners of corporate trustees, and to verify the identity of those individuals.
By way of background, following their 2014 assessment of the Bailiwick, MONEYVAL made a recommendation that ‘financial institutions should be required to identify the beneficial owners of a corporate trustee, even if they establish that the corporate trustee…is an Appendix C business’. As a consequence of this recommendation, the provisions allowing for limited due diligence to be undertaken where a trust and corporate service provider is an Appendix C business were not carried over to the revised Handbook. Instead, Schedule 3 and the Handbook now includes trustees within the definition of beneficial owner and require that beneficial owners be identified, and that reasonable measures are taken to verify their identity.
With the introduction of the proposed paragraphs 7.115. – 7.117., the Commission has sought to elaborate upon its expectations of the steps taken by businesses to meet the spirit of the Handbook where non-Bailiwick trustees are involved in a structure to which services are being provided, including further detail on the extent to which documentation must be gathered to verify ownership and identity.
Within this guidance the Commission notes that ‘consideration should be given to the money laundering and terrorist financing risk associated with the ownership of the corporate trustee and the influence a particular beneficial owner of the corporate trustee has over the business and affairs of that corporate trustee’. One important distinction to make here is the reference to risk in this paragraph is not to the risk of the relationship as a whole, but rather to the specific risk associated with the ownership of the trustee, for example, whether this ownership is known to the regulator and whether appropriate checks have been conducted by that regulator to determine the overall fitness and propriety of the owners.
The guidance then goes on to provide examples of the differences between low/standard risk scenarios and the steps required by businesses, and conversely the expectations for high risk scenarios. Within this the Commission provides further information on what it would consider to be a lower risk situation, making reference to jurisdictions with ‘the same or equivalent provisions to those in the Handbook’. As with risk above, the consideration of equivalence is specific to this scenario and in particular to a jurisdiction’s compliance with Recommendation 28 of the Financial Action Task Force’s (“FATF’s”) Recommendations (or Recommendation 24 for those jurisdictions not yet subject to an assessment against the FATF’s 2012 Recommendations). It should be noted that the Appendix C business provisions are not applicable in these circumstances, as they focus principally on Recommendations 10-12 and do not extend to cover an assessment of compliance with Recommendation 28.
In determining a jurisdiction’s compliance with Recommendation 28, a useful reference in the first instance is the FATF’s Consolidated Table of Assessment Ratings, which gives a high-level indication of a jurisdiction’s position. Further information can then be found within the Mutual Evaluation report for the jurisdiction. It is very unlikely that the Commission would consider a ‘partially compliant’ or ‘non-compliant’ rating to indicate equivalence.
In summary, the Commission’s proposed changes, whilst not amending the underlying requirements, help to provide further clarity around the steps expected of businesses in complying with the AML/CFT framework. The guidance does provide some flexibility where the money laundering and terrorist financing risk associated with a corporate trustee’s ownership is lower, for example, where a corporate trustee is based in a jurisdiction with equivalent oversight provisions to those locally (which currently includes the United Kingdom, Switzerland and Jersey), and this may be applied to client relationships which present a higher risk overall due to risk factors that are unrelated to the corporate trustee’s ownership.