The findings of the JFSC’s recent Thematic Examination Programme of the Role of the MLCO give a useful insight into what the position entails, the challenges organisations face in respect to fulfilling its requirements today and best practice recommendations.
These recommendations can be applied not only in Jersey, but across other funds jurisdictions with comparable positions forming part of their regulatory framework. Below, Louis Dodd MLRO at IDR, shares his summary of JFSC’s thematic examination.
What does the role entail?
The MLCO position monitors whether regulations in relation to AML and CFT are being complied with effectively. Appointing an MLCO, or similar, is a regulatory requirement across other principal funds jurisdictions including Guernsey, UK, Cayman Islands and Luxembourg.
What are the challenges for the MLCO role today?
It’s a role with a fast-expanding mandate that is coming under increased scrutiny as regulators around the globe look to increase the effectiveness of compliance measures in place.
As noted in the thematic review:
“To be effective in their role, the MLCO must have a sufficient level of seniority and authority within the supervised person. They must also have sufficient experience, skills, independence, and resources. The responsibilities of the MLCO are expected to be clearly defined, understood, and include undertaking a compliance monitoring programme covering relevant areas of the AML/CFT/CPF regulatory framework.
Where any of these things are not in place, then the monitoring activities carried out may not be fully effective, leading to an increased risk of the supervised person being unable to effectively manage its risk.”
What does best practice look like?
The review shared best practice for the role which can be extrapolated and usefully applied across other jurisdictions, the highlights of which include:
| Seniority, independence and access to the board: | The MLCO has a comprehensive role profile which is periodically refreshed.MLCO personally attends board meetings to deliver their reports.The MLCO makes periodic use of independent parties to validate the design and effectiveness of compliance monitoring activities. |
| Governance and testing of compliance procedures: | The Compliance function makes best use of resources by applying a risk-based approach to monitoring.CMP (Compliance monitoring plan) is clearly mapped to legal & regulatory requirements.Board instigates remedial action where results of CMP testing are not satisfactory. |
| Internal systems and control around – policies and procedures: | The MLCO periodically benchmarks policies and procedures against legal & regulatory requirements.Where CMP testing finds that employees have breached policies and procedures relating to AML/CFT disciplinary processes are followed. |
| Effectiveness of board reporting and record keeping: | Matters within MLCO reports requiring decisions by the board are clearly highlighted.The MLCO’s report is featured as a standing agenda item of the Board meeting.Board minutes accurately capture discussions held on matters raised by the MLCO, and comprehensively record the reasons why a decision was taken. |
| Training: | The MLCO meets their CPD requirements and receives training specific to their role, supplemented by regular updates, for example by:attending third-party training events; orreviewing publications by third parties such as the Regulator & Government.Training provided to employees covers specific jurisdictional requirements.Training is periodically reviewed and updated, to take account of the evolving regulatory environment and the changing nature of risk. |
Compliance meets Investor Relations
Outside the scope of the JFSC thematic, but something we see adding to the challenge in a private markets context, is guiding a growing pool of investors into the asset class through what can be a complex compliance process. Doing this in such a way as meets compliance obligations whilst also delivering an acceptable investor experience brings further complexity to the MLCO role.
IDR’s MLCO Support Solution
We offer comprehensive compliance support both at the onboarding stage and beyond to ensure you’re able to meet your MLCO obligations and achieve best practice over the life of your fund.
Our expert team will:
- Approve your investor KYC to the highest international standards once;
- Take responsibility as MLRO-MLCO on an ongoing basis;
- Or support you existing MLCO with our comprehensive program.
- Review existing policies and procedures and implement best practice as needed;
- Provide clear board reporting; and
- Support your team with training and relevant regulatory updates.
With your KYC data in our central hub, it’s simple for us to provide comprehensive MLRO / MLCO support for all your funds, reducing your risk and minimising hassle for your investors.
