JMLSG Guidance and Its Importance in the UK AML Regime

JMLSG stands for the Joint Money Laundering Steering Group. It’s a multi-disciplinary committee which was created to provide assistance in interpreting UK Money Laundering Regulations. The private-sector body regularly publishes guidance notes, known as JMLSG guidance, on the UK money laundering regulations.

The JMLSG guidance plays an important role in helping financial institutions and other key industries to ensure that they comply with the UK’s anti-money laundering and counter terrorist financing (AML/CTF) regulations. In this article, we will discuss JMLSG, the JMLSG guidance and its role in the UK AML regime.

Who Are the Members of JMLSG?

JMLSG consists of members from leading UK trade associations who are part of the financial service industry. It also includes representatives from the Building Societies Association, the British Bankers’ Association, and the Association of British Insurers. The following are the current members of JMLSG, according to their official website.

• Association for Financial Markets in Europe (AFME)
• The Association of British Credit Unions Limited (ABCUL)
• Association of British Insurers (ABI)
• Association of Foreign Banks (AFB)
• British Venture Capital Association (BVCA)
• Building Societies Association (BSA)
• Electronic Money Association (EMA)
• European Venues and Intermediaries Association (EVIA)
• Finance & Leasing Association (FLA)
• The Investment Association (IA)
• Loan Market Association (LMA)
• The Personal Investment Management and Financial Advice Association (PIMFA)
• The Investing and Savings Alliance (TISA)
• UK Finance (UKF)

What Is the Aim of JMLSG?

The JMLSG aims to assist financial institutions in the UK to adopt better practices in the prevention of money laundering and terrorist financing. Its guidance notes are to clarify the country’s AML regulations and to guide financial institutions on the implementation of proper AML processes and procedures.

What is the JMLSG Guidance?

The JMLSG has set forth AML guidelines to help assist the financial sector. These guidelines are neither legally binding nor punishable at an offence. However, they have HM Treasury’s approval. The JMLSG guidance helps financial institutions (FIs) to develop a compliance programme with policies and procedures that are fit to the organisation’s needs.

The guidance by JMLSG determines the necessary requirements that the financial entities need in order to detect, investigate, and prevent money laundering and terrorist financing. It allows the FIs to apply the required regulations based on their personal experience, products and services, clients and transactions.

Although it’s not compulsory for FIs to follow the JMLSG guidance, the adoption, however, is a sign of having good AML compliance measures. The guidance is not over-prescriptive but provides a base from which an FI’s management can develop tailored policies and procedures that are appropriate for their business. It remains the responsibility of an FI to make its own judgement on individual cases, on a risk-based approach.

The purpose of the JMLSG guidance is to:

• Outline the legal and regulatory framework for anti-money laundering/countering terrorist financing (AML/CTF) requirements and systems across the financial services sector
• Interpret the requirements of the relevant law and regulations, and how they may be implemented in practice
• Indicate good industry practice in AML/CTF procedures through a proportionate, risk-based approach
• Assist firms to design and implement the systems and controls necessary to mitigate the risks of the firm being used in connection with money laundering and the financing of terrorism.

The Current JMLSG Guidance

The current JMLSG guidance is available in three parts:

1. Generic guidance for the UK financial sector,
2. Sectoral guidance
3. Specialist guidance.

We give a quick rundown of the general guidance's content here.

 The Responsibility of Senior Management

According to the JMLSG, senior management in an FI has a responsibility to ensure that its policies, controls and procedures are appropriately designed, implemented and effectively operated.

The senior management needs to ensure that the Financial Conduct Authority makes written policies and procedures available to the FI’s employees. It is also the responsibility of management to consider any risk factors relating to clients, jurisdictions, the geographic location of the institute, transactions, products, and services, and so on.

The senior management should be engaged at every step of the decision-making processes while taking ownership of the risk-based approach. The management will be responsible in case the risk-based approach is inadequate.

Internal Controls

The JMLSG provides guidance on the internal controls that will help FIs meet their obligations in respect to the prevention of money laundering and terrorist financing.

It is recommended that FIs appoint a member of their board (or comparable management body) or senior management as the officer in charge of the firm's money laundering compliance.They also need to carry out screening of relevant employees and agents appointed by the firm, both before they are recruited, and at regular intervals during the course of their employment and establish an independent internal audit function.

The Nominated Officers/MLROs

FIs must appoint a Nominated Officer or Money Laundering Reporting Officer (MLRO) to ensure that the firm maintains compliance with the Financial Conduct Authority’s (FCA) regulatory systems.

The firm’s nominated officer will monitor the routine functions and money laundering policies. They will also give more information on any questioning related to the FCA or help in understanding the UK’s legislation better.

A Risk-based Approach

The risk-based approach is endorsed by the FATF recommendations 1 and 10 and the Basel Paper among others.

The JMLSG suggests the following actions to ensure a risk-based approach.

• • Carry out a formal, and regular, money laundering/terrorist financing risk assessment, including market changes, and changes in products, customers and the wider environment
  • Ensure internal policies, controls and procedures, including staff awareness, adequately reflect the risk assessment
  • Ensure customer identification and acceptance procedures reflect the risk characteristics of customers
  • Ensure arrangements for monitoring systems and controls are robust, and reflect the risk characteristics of customers

Customer Due Diligence

The group lists out the following Customer Due Diligence (CDD) measures for FIs in its guidance.

• • Must carry out prescribed CDD measures for all customers not covered by exemptions
  • Must have systems to deal with identification issues in relation to those who cannot produce the standard evidence
  • Must take a risk based approach when applying enhanced due diligence to take account of the greater potential for money laundering in higher risk cases, specifically in respect of PEPs and correspondent relationships
  • Some persons/entities must not be dealt with
  • Must have specific policies in relation to the financially (and socially) excluded
  • If satisfactory evidence of identity is not obtained, the business relationship must not proceed further
  • Must have some system for keeping customer information up to date

Suspicious Activities, Reporting and Data Protection

The JMLSG suggests the following actions:

• • Enquiries made in respect to disclosures must be documented
  • The reasons why a Suspicious Activity Report (SAR) was, or was not, submitted should be recorded
  • Any communications made with or received from the authorities, including the NCA, in relation to a SAR should be maintained on file
  • In cases where advance notice of a transaction or of arrangements is given, the need for prior consent before it is allowed to proceed should be considered

Staff Awareness, Training and Alertness

The JMLSG suggests the following actions:

• • Provide appropriate training to make relevant employees aware of money laundering and terrorist financing issues, including how these crimes operate and how they might take place through the firm
  • Ensure that relevant employees are provided with information on, and understand, the legal position of the firm and of individual members of staff, and of changes to these legal positions
  • Consider providing relevant employees with case studies and examples related to the firm’s business
  • Train relevant employees in how to operate a risk-based approach to AML/CTF

Record Keeping

According to the JMLSG, FIs have the following core obligations:

• • Firms must retain copies of, or references to, the evidence they obtained of a customer’s identity and details of customer transactions for five years after the end of the customer relationship or five years after the completion of an occasional transaction
  • Firms should retain details of actions taken in respect of internal and external suspicion reports and details of information considered by the nominated officer in respect of an internal report where no external report is made
  • Firms must delete any personal data relating to CDD and client transactions in accordance with Regulation 40

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