Under inspection: What's it like when the Moneyval examiner knocks?

Wednesday 24 July 2024

Over a period of months, teams of assessors have been poring over documents and grilling individuals in Jersey and Guernsey's finance sectors to find out if they have strong enough tools for fighting financial crime... But what's it like when your business is selected for interrogation?

As Chief Executive of the Redwood Group, James Wood supports businesses with their compliance, regulation and risk management in Guernsey and Jersey – and, during Guernsey's Moneyval evaluation, he represented a business selected for interview.

Ahead of the publication of the results of Jersey's Moneyval assessment this morning, Express spoke to him to learn more about what the evaluation process is like from the inside...

Firstly, tell us about your background...

We set Redwood up about eight years ago. I set the business up and we were a compliance business solely. Anything that a compliance function would do in-house, we can do on an outsourced basis, which in Guernsey includes providing a money-laundering compliance officer and all those sorts of things. We can't do that in Jersey, but we can support the people that are in those roles. That's just a distinction between what the regulation allows, but we hope that that might change in the future.

Two years later, we set up the company secretary business as well – so it's a governance-slash-company secretary business. I think we're probably the biggest pan-island compliance and governance business now.

What kind of businesses do Moneyval speak to? Were there any unexpected selections?

We knew that when they came to the island, they would have a certain amount of businesses that they would review in the time that they've got. In Guernsey, for example, it was about 30 businesses that they asked the Commission to provide a selection of, and that was across all of the industry: investment businesses, banks, trust businesses, some fiduciaries.

Most businesses are risk-assessed by the regulator, so they might have given a 'high-risk', 'medium-risk' sort of profile. I think Moneyval ask them to select a sample across these risk types.

In terms of surprises, two weeks before they visited, they said, actually, 'We've looked at all of the businesses that you have, we would also like to see a certain sample of other businesses as well.' That was relevant to the business that I was involved in, because it was an international lender. Most of the lenders lend to the local market. This business lends further afield, so there's movements of money around the world, so they consider that to be slightly more risk there. So Moneyval asked if they can be included in the sample as well.

There must be a lot of pressure during those two weeks.

Yes, most definitely. You're nervous because you're going to be under the spotlight. And nobody likes that. However much you know in business, however confident you are, and however well it's run, it's human nature to feel a level of anxiety about that.

You're not just representing your business. In many respects, when I was doing it, I was representing two businesses: Redwood as the outsourced provider, my own client, and the jurisdiction, Guernsey as a whole. So if you were to say something silly, you're affecting multiple people.

What do you do in the time leading up to the interview?

Lots and lots of reading, preparation, so the Commission had lots of training sessions and also distributed lots of information via their website and emails leading up to the money visit. There was lots of information about determining the proliferation risks and controls that we put into policies and procedures – so, reading that thoroughly and then reading your own business's policies, procedures, controls and business risk assessment, all of those things, because that's what you're going to get asked about. Luckily, because we've worked on all of those from scratch, it's easier than if it was something that had been there 20 years that you didn't necessarily design it. So that makes the interview process easier.

You had mock interviews, too...

The Commission employed a professional who I believe has been on Moneyval panels himself. He now acts as a consultant and goes out and helps people go through the process. I think he was somewhere in the Caribbean in a Teams call doing a mock interview.

Were there any surprises?

In many respects, I was surprised by how cordial it was – not that I anticipated them being draconian or awful, but it was a two-way conversation.

They did seem interested to learn a little bit about Guernsey, to learn a little bit about the business they were talking about. It didn't feel like they were just there to catch us out. And we had every opportunity to explain ourselves and answer their questions. For me, it felt like a very positive experience.

Did they ask more questions about the business specifically or the system in general?

I'd say it was 50/50. It started off learning about the business but then moved on to what the jurisdiction framework is, how you interact with the regulator, the government, how it filters down into your business.

I think they took the approach of learning a little bit about the business and understanding the people that are ahead of them, and then asking about jurisdiction.

What kind of topics did you cover?

We started off the conversation speaking about the business. We explained what the business did, and then, following on from that was, how do you assess a client? Whether it's movement of monies, whether it be lending, you control where that money is going, how you ensure that it doesn't fall into the hands of criminals and terrorists? Things like that. They then went on to talk about the Guernsey AML handbook, and SAR (Suspicious Activity Report) reporting. 

If you work in the finance industry, if you see or do a transaction or something that just doesn't look right – it could be involved in criminal activity, people-trafficking, all those sorts of horrible things – what you have to do is you report it to the money laundering reporting officer within the business. That then gets reported on to the Financial Intelligence Unit, which is basically the police for the finance industry. That's really key as a measure of anti-money laundering, identifying people that are moving illicit money around in jurisdictions.

What Moneyval were really keen to know was, how does that process work within your business? They were asking us about activity reporting, our policies and procedures, whether we've had any of these incidents, and if we have identified them, how did we report them? Then they asked me about the jurisdiction and actually, do we think the frameworks are fit for purpose? Do we think the island does as much as it can? All those sorts of things.

Could you tell what their response was during that conversation?

Not massively. They didn't really play their cards in terms of what they were thinking.

But I've helped people in the past in regulatory situations where there's clearly something going on. The regulator, for example wants to dig deep on something and find something in those sorts of situations. You could get questions where they leave gaps for you to fill. They'll just ask a very open question, and let you talk or they'll keep repeating the same question if you don't give the answer they want – so, interview techniques of that nature, which are more like the police. But actually, these interviews were more conversational and it didn't feel like they were trying to catch you out or find something particularly bad. So I felt like it went well.

You had quite an international interview panel – how did they respond to Guernsey?

It started really well, I asked them if they had enjoyed their time, if they've managed to see any of Guernsey. They'd managed to get the boat over to Sark and see a little bit of Sark, which is nice. I think, other than that, they were staying in St Pierre Park just doing interviews and eating in the local area. So at least they'd gotten out and seen a little bit of the island, which is nice. They seemed to understand Guernsey, and, where they didn't, they asked questions. There was a little bit of language difference – for example, in one instance, we were talking about 'moving house', the process of moving house, etc. One of them took that in the literal sense of actually 'moving a house' rather than selling one property and buying it! That was quite amusing.

Is the report more of a peer review or an evaluation?

I think it's almost a hybrid of both. It is an evaluation, but it's undertaken by people that work within the same industry in a different jurisdiction. For example, Guernsey and Jersey are providing evaluators for Moneyval reviews of other jurisdictions. It's quite circular in how it works. There's always going to be an element of peer review there, and you just hope that there's no politics at play or geopolitical issues between jurisdictions and all those sorts of things. From what I saw, it seemed very fair, no bias or anything that I felt in terms of the questioning, so I was really pleased to see that.

Are you aware of any differences between Jersey and Guernsey?

Being pan-island, we've spoken to a few people in both islands that have been interviewed in the same way that we in Guernsey were and it's been a fairly consistent message. We will never know until the review is published. We've got until January or February for Guernsey for the plenary to be held at the European Council. But I think we'll take a lot of clues from how Jersey gets on, because we're not massively dissimilar as jurisdictions and I think there'll be a fairly consistent outcome. There'll be the odd variant but I think it'll be fairly close.

It's important for me that we can reflect on the amount of effort that I could see had gone into preparing for these visits... It's fairly intense to prepare for one of these visits and the government agencies, the FIU and the States in both islands. It's an incredible amount of work that maybe goes unseen. You know, whilst I was interviewed and it was a week's worth of preparation and an hour's worth of interview, it was fairly small fry in terms of the efforts that went on behind the scenes by all these people.

READ MORE...

Results day: How did Jersey do in key financial crime inspection?