Digiterre Communica Compliance Engine

© Digiterre Communica 2016© Digiterre Communica 2016

Communica Compliance Engine

Presentation for Dechert LLP

Confidential

© Digiterre Communica 2016

Agenda

• Tell you why we built the Compliance Engine and the challenges it is solving for investment managers and banks.

• Show you the Compliance Engine.

• Potentially share the existing process templates we’ve built for Client Due Diligence, KYC and AML which cover different jurisdictions including the US, Switzerland and Hong Kong.

• If appropriate talk about next steps.


High Level Challenges Investment Managers

• More and more regulations (eg. UCITS V, AIFMD, FATCA, MIFID II) to understand and implement.

• Large fines from regulators for non-compliance- eg. up to EUR 2 million per breach of AIFMD.

• Risk of reputational damage.


What is Digiterre Tackling?


Challenge 1: Marketing Compliance

• Putting into practice a “marketing matrix” so sales teams know where they can and can’t market funds.

• Controls to prevent marketing activities in jurisdictions where the fund manager does not have the required authorisation or is considered to be too risky.


Challenge 2: Investor Compliance

• Putting into practice and automating compliance processes to make sure investors are suitable to be sent marketing information on funds.

• Making sure that any jurisdictional requirements are met.

• Controls to prevent non-approved investors from receiving marketing materials.

• Making sure all the completed processes and supporting documentation are stored in one place so investment managers can evidence to a regulator that they have done proper due diligence.


CRM Portal

Marketer/Sales

Investor/Client/Manager

Compliance Officer


The Marketer/Sales/IR ProcessExample Process: High Level Suitability


The Compliance Officer ProcessExample Process: High Level Suitability


Compliance Engine Key Features

• Automated processes depending on information input into a Client/Investor record in CRM (eg. jurisdiction a client/investor is based in) saving users time.

• Processes can be run from within the CRM meaning users can continue to work within one UI.

• Web portal provides directors and compliance officers with access to information submitted for review and approval. Once reviewed the information can be approved, hard rejected or soft rejected.

• The client/investor record in the CRM system is updated automatically to approved or rejected depending on the compliance officer’s decision. Before the workflow is completed the client/investor record is marked as pending.

• Triggers allow organisations to set expiry dates on the information held in the compliance engine and re-run processes. This means that information can be refreshed and kept up to date. As an example AML/Risk processes typically need to be refreshed on an annual basis within financial services organisations.

• Process designer allows organisations to create new workflows or update existing ones.

• Automated email alerts indicating for example that worklflows are ready to run, have been submitted for review or have been approved.


Why a Partnership with Dechert LLP?


Templates and Service Wrapper

• We have already built suitability and AML process templates for the UK, US, Switzerland and Hong Kong.

• We want to build more standardised templates which clients can download from a templates library. Having these templates designed/pre-approved by a law firm will give them more comfort (eg. fund compliance templates).

• As regulations change or new ones take hold clients will invariably seek advice from Dechert on what additional information needs to be captured or what new processes need to be adopted within their organisations. These updates could be built directly into the Compliance Engine as new templates/automated notifications.


What’s in it for Dechert?

• Good PR for the law firm.

• Commercial incentive in the form of either fees for legal advice provided or a share of revenue off the back of Compliance Engine deals we do where the client takes Dechert compliance process templates built with Digiterre.


Thank you for your time.Please contact [email protected] for further information or visit our website www.communica.net

mailto:[email protected]

http://www.communica.net/


AML in Hong Kong (Simmons & Simmons)

• AML has always been in the forefront of the regulators’ minds (both the SFC and the HKMA). On 31 July 2015, the HKMA reprimanded and fined the State Bank of India’s Hong Kong Branch (SBIHK) HK$7.5 million for AML failures under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO). The HKMA said: “While SBIHK has taken positive and intensive remediation work to address its contraventions and did not have any previous disciplinary record, the HKMA’s disciplinary action took into account the need to send a clear deterrent message to the market about the importance of effective internal AML/CFT controls and procedures” (our paraphrase and emphasis).

• On 25 September 2015, the SFC launched a Money Laundering Risk Assessment Survey to selected licensed corporations and associated firms to collect information on the money laundering risk of Hong Kong’s securities sector in accordance with the Financial Action Task Force Recommendations. From July to December 2015, the SFC issued 19 advisory circulars to enhance industry participants’ awareness about the latest developments in AML and counter-terrorist financing. The SFC continues to use onsite inspections and offsite monitoring as a means to ensure its licensed corporations are in compliance with the law and regulatory requirements, and in particular, it is interesting to note from the below statistics the increase (YoY 154%) relating to non-compliance with AML guidelines.

• Nonetheless, new AML changes and requirements should be carefully implemented, with sufficient training provided to the relevant client facing staff. The HKMA’s fifth issue of Complaints Watch, issued on 08 October 2015, reveals that from May to August 2015, banks’ account opening processes and closure of customer accounts continue to be one of the major areas of customer complaints. Complaints were related mainly to improper execution of banks’ customer due diligence (DD) measures (required when opening an account or if the bank is required to update DD information or documents) in the banks’ compliance with the requirement in the AMLO whereby banks need to ensure customer data is up to date and relevant.


Recurring CDD failings1. Failure in identifying customers adequately especially non-resident individuals, non face to face customers and

those incorporated in high-risk and/or less transparent jurisdictions.

2. Failure to question high profile clients.

3. Failure in obtaining sufficient 'know your customer' (KYC) documentation.

4. Failure in recording CDD documentation. This also meant: 1.Firm could not demonstrate that it had all relevant facts about its customers and so could not show that it had taken all reasonable steps to ensure that customers' accounts remained suitable.

5. Insufficient evidence to show that the clients were who they had claimed to be.

6. Lack of understanding of Source of Wealth and Source of Funds.

7. Failure to review and fully understand documents in foreign languages.

8. CDD checklists not completed and/or reviewed.

9. Failure in screening customers against Sanctions and/or PEPs lists.

10.Failure in controls for high risk customers e.g., PEPs.

11.Inadequate guidance given to staff on how they should assess the classification of a customer resulting in customer classified as lower risk.

12.Request to waive identification process approved because of the high-profile nature of the customer.

13.Gaps in ongoing review of Customer relationships.

14.Failure to understand nature of transaction.

15.Transactions not in line with the customer profile (e.g., huge unexpected amounts did not trigger a review of the transaction or the relationship).

16.High non-compliance rates found in non-personal accounts where there was an increased risk of actual money laundering taking place.

Source: https://www.linkedin.com/pulse/uk-fca-fines-related-anti-money-laundering-from-2002-ica-dip-aml-

https://www.linkedin.com/pulse/uk-fca-fines-related-anti-money-laundering-from-2002-ica-dip-aml-


Associated Fines for AML Failings• 2002 - Royal Bank of Scotland Plc - £750000

• 2003 – Abbey National Plc – £2,320000

• 2003 - Northern Bank - £1,250,000

• 2004 - Bank of Ireland - £375000

• 2004 - Bank of Scotland - £1,250,000

• 2004 - Carr Sheppards Crosthwaite - £500,000

• 2005 - Investment Services UK Limited – £175,000

• 2005 - Investment Services UK Limited - Managing Director - Ram Melwani - £30,000

• 2008 - Sindicatum Holdings Limited (SHL) £49,000

• 2008 - Sindicatum Holdings Limited (SHL) MLRO Michael Wheelhouse - £17,500

• 2010 - Alpari (UK) Limited - £140000

• 2010 - Alpari (UK) Limited Sudipto Chattopadhyay (MLRO) - £14,000

• 2012 - Habib Bank AG Zurich (Habib) – £525,000

• 2012 - Habib Bank AG Zurich (Habib) former MLRO Syed Itrat Hussain - £17,500

• 2012 – Coutts - £8.75 million

• 2013 - EFG Private Bank Ltd - £4,200,000

• 2013 - Guaranty Trust Bank (UK) Limited - £525,000

• 2014 - Standard Bank PLC - £7,640,400

• 2015 – Barclays - £72 million

Source: http://www.fca.org.uk/firms/being-regulated/enforcement/fines

http://www.fca.org.uk/firms/being-regulated/enforcement/fines


So what do AIMs and Banks need to do?

• Compliance related processes and the technology used needs to be overhauled in order to comply with these new regulations.

• New systems implemented will need to be able to be modified quickly and at a low cost in order to accommodate new regulations or changes to existing compliance processes.


The solution- Compliance Engine

• Saves organisations time and money by standardising and streamlining compliance processes which can easily be changed or new processes created to accommodate new regulations.

• Reduces the risk of improper processes being followed by employees within an organisation due to lack of standard workflows or training.

• Mitigates the risk of fines and reputational damage as organisations can easily evidence to a regulator that proper processes are being followed as well as demonstrate how decisions are being reached.

• Reduces the time and cost associated with training employees, especially new ones, on compliance processes as these are all systemised and easy to follow.


Unique Selling Points

• On premise or hosted/cloud.

• Can integrate with any Microsoft Dynamics CRM environment and potentially also Salesforce via an API.

• Pre-built process templates for organisations to use

• Flexible and user friendly designer allowing organisations to quickly create new processes or amend existing ones (future as currently being built) as regulations change.

Digiterre Communica Compliance Engine

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