The British
Virgin Islands Financial Services Commission (BVI FSC) has issued guidance
advising financial institutions and designated non-financial businesses and
professions (DNFBPs) on how they should conduct ongoing monitoring of
customers, including companies, trusts or other entities.
Continuous
monitoring of customers is regarded by the Financial Action Task Force (FATF)
as an essential part of financial institutions' duties to identify elevated
risks, unusual or suspicious transactions and breaches of financial sanctions.
It requires effective and ongoing monitoring of transactions and business
relationships. Companies must watch for activities that may indicate changes in
customer circumstances that: are inconsistent with their known customer
profile; are complex or unusually large; form an unusual pattern; or represent
higher risk for money laundering, terrorist financing or proliferation
financing.
A recent compliance report by the BVI FSC identified ongoing monitoring as an area in need of improvement in the BVI's financial sector. It especially noted 'piece-meal' approaches to risk-sensitive or periodic reviews, with some licensees not fully reviewing all aspects of key due-diligence information such as sources of funds and nature of business activities. There was also some evidence of failure to spot trigger events. These included changes to the control or ownership structure, changes in the pattern of services requested, or occurrences where deposits or transactions originate from a high-risk jurisdiction. The FSC also found room for improvement in the level of ongoing screening, specifically for targeted financial sanctions, especially within the trust and company service provider sector.
The new guidance,
issued jointly with the BVI Financial Investigation Agency (FIA), advises firms
to start by creating a base customer profile through proper initial
due-diligence. It suggests taking steps to achieve a clear understanding of the
customer's business activities and identifying connections that increase risks:
for example, if a customer becomes a politically exposed person in a position
to misappropriate public funds. This establishes an initial profile with which
to compare later transactions.
It also
emphasises that customers can present in different forms, including legal
persons and legal arrangements. The monitoring requirements should therefore be
tailored for each customer grouping. It also identifies trigger events and red
flags, such as payment methods and transaction volumes, that may indicate a
need for more in-depth monitoring and that these suspicions may require further
assessment or filing of a suspicious activity report.
'The issuing of
this guidance signals the importance that the FSC and FIA place on the need for
our supervised entities to engage in effective and ongoing monitoring of their
customers and their business activities', noted the FSC. 'FSC licensed entities
must properly position themselves to identify and collect quality and reliable
data, which can help to identify changes that would allow them to adjust their
clients’ risk profiles to mitigate against money laundering, terrorist
financing, and proliferation financing risks.' Effective monitoring
can be achieved through the employing of adequate systems, proper staff
training and supervision, and maintaining data integrity, it said.
The FIA added that comprehensive monitoring processes and procedures are mandatory requirements that should be viewed as integral features of proper business conduct. Defining what constitutes unusual behaviour or transaction patterns is the ultimate responsibility of each DNFBP and must be determined based on their understanding of their customer's profile and ensuing risks, it said. 'Obligations transcend reporting suspicious activities and require introspection on whether the business relationship should be retained based on the risk presented by the customer.