The Jersey Financial Services Commission (JFSC) [Issued: March 2010] published a report on findings into its Anti-Money Laundering examination of Trust Company Business in Jersey.

• TRUST COMPANY BUSINESS ON-SITE EXAMINATION PROGRAMME 2009 – SUMMARY FINDINGS
• http://www.jerseyfsc.org/pdf/TCB_2009_Examination_feedback_March_2010.pdf

In the report the JFSC reported on some the following matters

1.Business Risk Assessment and Strategy

2.Customer Profiling and Transaction Monitoring

3.General Corporate Governance

4.Policies and Procedures

5.Compliance Monitoring

6.Geographical Risk

The Visit

The JFSC uses its visit programmes to test compliance with its rules and regulations.

Specifically (AML) under its regulations the JFSC requires Trust Companies to

• prepare business risk and assessment strategies for all customers by capturing “sufficient information about a customer that will allow it to develop a profile of expected activity sufficient to provide a basis for recognising unusual activity and transactions, and identify higher risk activity or transactions which may indicate money laundering or financing of terrorism.”

Against these requirements some of the findings of the report were interesting:

• Situations were encountered where information used to produce a customer profile was held by the business, but held in disparate places and not summarised in one central area;
• Information not stored in a way that “facilitates periodic updating of the information”; and
• In cases there was a failure to put in place a mechanism to monitor transactions and compare payments and receipts to customer profiles on a regular basis.

A further point was an acknowledgement that changes constantly take place within an organisation’s customer base and Directors should have the ability to

• “Step back and take an objective view of the business which may be lost sight of during day to day ‘business as usual’”.

The report states that whilst there is no specific requirement to periodically review an organisations risk assessment, customer bases do change and having sight of this change and how it affects your risk assessment is valuable in the Anti-Money Laundering (AML) arena.

Business Intelligence (BI)

All of the above is at the heart of Business Intelligence (BI).

Business Intelligence tools and solutions specialise in collecting data from many disparate sources.

BI tools enable Directors or anyone within an organisation to take a step back and take a view of the business from multiple perspectives. With BI tools people are empowered to make informed decisions.

Data Warehouses

Data Warehouses collect and preserve changes in source systems. In this regard all of the information required for an accurate risk assessment just falls out of a data warehouse.

You may have all of the information about your customers in many disparate sources but a warehouse is the ideal place to gather it all together to provide you with a profile of each of your customers that is:-

• Consistent,
• Cleansed,
• Conformed,
• Single view

A well designed, regularly updated, warehouse, will track changes and report on what was as well as what is. It will provide directors and employees with the ability to see how a customer base has changed over time. Be it

• geography,
• volumes or
• complex calculations

Such as risk assessments. If the warehouse contains transactions then they can also be monitored in an easy and efficient manner.

Risk calculations

Many industries conduct risk assessments – financial services must now undertake one on their AML risk.

Depending on the circumstances, a risk assessment can be

• retrospective or prospective,
• quantitative or qualitative, or
• Some combination.

A quantitative risk assessment,

• Using valid data, can be more objective and more useful over time than a qualitative risk assessment developed from assumptions and random case studies.

Retrospective risk assessments

• Have the benefit of drawing on data from past events to help anticipate future problems. Although the past is not always a reliable indicator of the future, consistent patterns can emerge in data and crime data is no exception.

Prospective risk assessments

• Attempt to see into the future without the benefit of historical data.

Qualitative risk assessments

• The risk assessment process when little or no data is available involves using whatever information is known to anticipate real or potential outcomes. This approach relies primarily on qualitative rather than quantitative indicators.

The best risk assessment methodology uses a combination of approaches in order to capture all that is known and as much as possible about what is not known.

There are likely to be illicit financing methods being used that have not been detected by financial institutions or law enforcement, and so will not show up in the data gathered from criminal investigations or financial institution currency or transaction reporting. And there may be other illicit financing options that even the criminals have not yet discovered. In the absence of data or case studies identifying these methods, financial institutions and competent authorities must rely on creative intuition and a careful analysis of potential systemic weaknesses.

In creating a RA data can be used in algorithms and be built to periodically profile, measure and assess each customer’s risks.

Creating a risk assessment is not an easy task but is made a lot easier where a data warehouse is used.

Summary

A data warehouse solution answers all of the points made by the JFSC and through the ability to combine risk assessments with other customer information such as wealth and demographics can provide valuable insights into the risks a firm INS exposed.