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The MoneyVAL inspectors have arrived and the latest assessment stage of Guernsey’s compliance with international financial regulations has begun.
Whenever a big political debate raises its head, the public is always reminded by at least one deputy that none of it’ll matter if the island fails its MoneyVAL inspection.
That if the island fails and drops below international standards Guernsey will immediately become less attractive as a premier financial jurisdiction.
And since we’re speaking about an industry that makes up nearly half of the island’s GDP, it’s serious stuff.
If a jurisdiction fails a MoneyVAL inspection they can expect to move onto the Financial Action Task Force’s (FATF) grey list. A negative report can lead to banks in the region losing access to some levels of global financial architecture and the jurisdiction as a whole can seem less enticing to investors.
The inspectors don’t just cast an eye over the governance of the island, it also draws in 60 businesses that operate within our jurisdiction for interviews. It’ll assess how well Money Laundering risks are understood, the application of certain regulatory requirements and the implementation of mitigating measures.
Industry bodies such as the Guernsey Financial Services Commission will be involved. Questions will be asked, ledgers will be opened.
It’s worth then, taking a look at what exactly will be involved:
In explaining MoneyVAL, the President of Home Affairs, Deputy Rob Prow told Express that “MoneyVAL is a body of the Council of Europe based in France, and Guernsey is one of 34 European and other countries and jurisdictions that are part of the MoneyVAL process”.
“MoneyVAL reports examine both technical measures and, importantly, the effectiveness of measures taken in the financial, regulatory and criminal justice sectors to combat money laundering and terrorist financing, and make recommendations to improve the AML/CFT system.”
MoneyVAL is a FATF body and reviews a jurisdiction in line with a series of FATF recommendations.
The assessment is a two-step approach, first assessing technical compliance with international standards and then reviewing the effectiveness of implementation of measures to meet those standards.
Legal, financial and law enforcement sectors are assessed and relevant stakeholders are questioned.
Governments enrolled in MoneyVAL must have proven knowledge of relevant Anti-Money Laundering (AML) and Combatting the Finance of Terrorism (CFT) regimes and – as noted on the States of Guernsey website – have expertise in the following areas:
regulation and supervision of financial institutions
law enforcement and financial intelligence units
representatives of ministries of justice and/or judicial and prosecutorial
There are 40 FATF recommendations in the first ‘technical compliance’ stage of the assessment and a jurisdiction such as Guernsey can be judged to be four levels of compliant: compliant, largely compliant, partially complaint, and non-compliant.
During the ‘effectiveness assessment’ Guernsey will be assessed in line with eleven ‘immediate outcomes’, including areas such as the use of Financial Intelligence and the prosecution of terrorist financing.
The assessment team will then produce a Mutual Evaluation Repot (MER) which will lay out its findings. This report goes through a substantial evolution, that involves the initial assessment, responses to the findings, additional drafts, meetings, responses and a final adoption which helps establish any future measures that may need to be taken up by the jurisdiction being assessed.
Guernsey established the Economic and Financial Crime Bureau (EFCB) in the run up to the assessment.
“[This] centralises resources, expertise and capabilities dedicated to tackling the financial risks set out in Guernsey’s National Risk Assessment for money laundering and recovering the proceeds of crime – particularly in respect of cross jurisdictional wrongdoing,” said Deputy Prow.
“New legislation put before the States by the Committee for Home Affairs sets out the Bureau’s purpose, powers and the legal tools to discharge its functions and gives its Director strategic responsibility for the Financial Intelligence Unit.
“Other significant legislative proposals will bolster our armoury to tackle money laundering (and other financial crimes) and recovering the proceeds of unlawful conduct using enhanced civil remedies.”
The Committee installed Kevin Davis as the Director of the EFCB when it was first created. Mr Davis subsequently left the position in January.
Following Mr Davis’ departure, Phil Hunkin stood in as Interim Director and an open recruitment process continues to be carried out to find a permanent replacement.
The States of Guernsey also undertook active engagement with the financial industry prior to the assessment, including hosting events and running awareness campaigns around financial crime and risk.
The Policy & Resources President, Deputy Lyndon Trott told Express early in his tenure that while MoneyVAL remains the top external challenge for the island he is “very confident – not complacent – but very confident about the future”.
Since Guernsey has a domestic economy based largely on financial services, with two thirds of exported services linked to the industry, he said: “We’ve got to get this right, and from what I’ve seen so far we’re heading on the right track."
Adding to the positivity, the global credit rating agent Standard & Poors also said it expects the States’ refreshed leadership will ensure a positive assessment is forthcoming.
Pictured: Deputy Trott.
The firm noted it’s “crucial for maintaining the jurisdiction’s clean reputation”, adding that it doesn’t expect a grey listing which would “undermine Guernsey’s economic model”.
“An accreditation would signal Guernsey's compliance with international standards for anti-money-laundering (AML) and countering the financing of terrorism (CFT) in the legal, financial, and law enforcement sectors."
As stated on a MoneyVAL FAQ sheet ONLINE, there are four potential outcomes for Guernsey after the completion of the assessment and subsequent MER.
Regular Follow-up - This is the default monitoring system where no material issues or deficiencies are identified
Enhanced Follow-up - This is a much more intensive reporting process to the [MoneyVAL] Plenary on progress to resolve significant deficiencies identified by the assessment team
Grey-listing - Countries can be placed directly onto the Grey-list if the deficiencies identified are serious enough to warrant this
Non-Equivalent jurisdiction - Deficiencies identified in a jurisdiction's regime can result in other jurisdictions no longer being able to rely on its regulatory framework and enhanced due diligence measures being required in respect of individuals and companies connected to that jurisdiction.
The States of Guernsey said: “Recommended actions are inevitable for all jurisdictions, regardless of how well prepared they are, and how well they perform in the assessment. Guernsey will be no different.
“The evaluation is in effect part of a continuing assessment, and the recommended actions are critical for ensuring that the Bailiwick continues to fight financial crime effectively with its international partners.”
The best outcome is for the island to be placed in ‘Regular-Follow Up’ according to the States.
The ongoing ‘on-island’ assessment will last until the 26 April, but the development of the MER could take several months after that.
The report itself won't be published until early 2025.
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