On the 30th June the GFSC issued it’s revised versions of the Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing (‘the FSB Handbook’) and the Handbook for Prescribed Businesses on Countering Financial Crime and Terrorist Financing (‘the PB Handbook’) to take account of recent changes to the Bailiwick’s legislation in relation to wire transfers, which came into force on 26 June 2017. The relevant legislation can be found here: http://bit.ly/2sFJs7H

As a consequence:

1. the current chapter 7 of the FSB Handbook has been repealed and replaced by an amended chapter which has been appended as an annex to the FSB Handbook (‘Annex II’).
2. At the same time RULES 56 AND 69 of the FSB and PB Handbooks respectively have been amended – as described below.

RULES 56 AND 69 AMENDS

This change has been made to ensure that the Bailiwick meets European standards and that in turn transfers of funds between the Bailiwick and the United Kingdom can continue to be treated as domestic.

Based upon responses received following a short consultation with industry, the Commission has issued an FAQ to assist firms with the changes to rule 56/69, specifically around the consideration of ‘duration’ as part of a customer risk assessment.

This FAQ has been issued under the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 as amended and should therefore be considered guidance in line with that contained in the Handbooks. Going forward this wording, together with Annex II, will be incorporated into the body of the new edition of the Handbook upon which we are currently consulting. A copy of the FAQ can be found via the below link: http://bit.ly/2tQg8vu and the FAQ is also shown below

On 30 June 2017 the following rules were updated to include consideration of the expected duration of a business relationship.

• RULE 56 of the Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing and
• RULE 69 of the Handbook for Lawyers, Accountants and Estate Agents on Countering Financial Crime and Terrorist Financing

With regard to the latter, for a large number of the products and services offered by firms the expected duration of a business relationship should be self-explanatory and likely understood at the commencement of a relationship due to the intrinsic nature of those products and services.  Some products and services may have a shorter or more defined expected duration such as investments in a closed-ended fund, fixed term contracts for investments, loans and deposits, or the establishment of a pension.

Conversely there may be some products and services such as current accounts, wealth management or fiduciary arrangements which may have no set duration and which could continue indefinitely, e.g. until the customer decides to close them or the customer ceases to be.

The duration of a business relationship should therefore not be considered as a variable in isolation when determining the overall risk rating of a customer.

In this respect, a product or service with a long or indefinite lifespan, e.g. a current account with a bank or an investment in an open-ended collective investment scheme, would not be considered high risk because it has indefinite life; in the same way a short term product, e.g. a three month fixed deposit, would not be considered low risk because it has a limited “shelf life”.

However, consideration should be given, both at the commencement of a business relationship and during subsequent periodic risk reviews, to the anticipated duration of the business relationship based on the nature of the product or service and whether this aligns with the reality of the relationship.  In this respect a firm should ask itself if the rationale for continuing the relationship remains appropriate given the type of product or service provided and the use or otherwise made of it by the customer during the period under review.

Examples of potential higher risk factors in this regard could include:

1. An investment in an open-ended collective investment scheme which is redeemed after an unexpectedly short space of time;
2. A short-term fixed deposit account which has remained untouched for a much longer length of time than expected;
3. The repayment of a loan in an unexpectedly short period of time following it being taken out;
4. The cancelation of an insurance policy in an unexpectedly short period of time following it being taken out; or
5. The unusual early cancellation of any other financial product or service that results in an economic cost to the customer.
6. For some products and services where there is no intrinsic duration, firms may consider utilising standardised assessments of duration, with specific consideration of this variable only where a customer deals outside of the expected norms for that product.  An example would be
   1. an open-ended collective investment scheme where there is no defined duration for an investment.
7. In this example the firm may have an understanding of the anticipated or standard duration of an investment in the scheme based upon the type of assets the scheme holds and the scheme’s investment horizon/objective.
8. For existing customers, firms should give consideration to this additional risk factor when undertaking periodic risk reviews in line with firms’ existing review cycles.

Copies of the revised Handbooks can be found via the below links:

1. The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing
2. The Handbook for Prescribed Businesses on Countering Financial Crime and Terrorist Financing