Your Firm Intends to Launch a Newly Regulated Product. Your Head of Compliance Asks: Regulatory Compliance Cohort 4 Assignment, ICA, Singapore

University International Compliance Association (ICA)
Subject Regulatory Compliance Cohort 4

Core Module 1 – Regulatory Compliance

Question 1.

Your firm intends to launch a newly regulated product. Your head of compliance asks you to identify the MAS requirements for the assessment of money laundering and terrorist financing risks when dealing with new products, practices and technologies. Identify the specific MAS requirements for a firm in a regulated financial services sector with which you are familiar, e.g. banking, capital markets, insurance. Discuss the objectives and comment on the measures that need to be taken to fulfil the requirements.

Question 2.

Aware of the many abbreviations and specialist phrases in the regulated sector, your firm is producing a new ‘Glossary of common terms and phrases’ to be used as a reference book. You have been asked to write the definition under the heading ‘The three lines of defence’. Prepare a short summary for entry into the glossary, explaining which roles fall under each line of defence, and their responsibilities.

Question 3.

Your firm has recently been visited by the Regulator. As part of the debrief, the firm was advised that the regulator does not believe that the firm’s current practice in identifying ultimate beneficial owners (UBOs) is robust. Specifically, the current process takes no account of persons who may own less than the required threshold percentage of the company but still exercise significant influence, and therefore control, over the company. Your tasks are:

  1. to outline the key regulatory requirement(s) that is (are) not being met
  2. in light of your answer to a) above, prepare a short paragraph for the head of compliance that suggests what corrective action/additional controls should be put in place to address the issues.

Question 4.

The MAS Notice on Prevention of Money Laundering and Countering the Financing of Terrorism (the ‘Notice’) outlines controls that need to be implemented to counter the risks associated with money laundering/terrorism financing.

Draft a paragraph explaining each of the following measures mentioned in the Notice:

  • AML/CFT training
  • simplified customer due diligence.

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Core Module 2 – Identifying and Reporting Compliance Risk

Question 1.

Your firm has decided that it will launch a new (to the firm) and complex product. Your CEO is concerned about the risks involved but he has decided that the firm will not choose to avoid the risk by not launching the product. Having already undertaken part of the risk management cycle (identifying and quantifying the risk), he decides to proceed.

He asks you to identify options for managing the risks. He specifically states that this is not a discussion about whether to launch the product or not, but rather a consideration of any other options available for managing the associated risks when the firm goes ahead with the launch. Identify three risk-management options available and how they would apply in this case.

Question 2.

Your firm is enjoying a period of growth but this is putting a strain on the onboarding teams. One key area of delay in identifying whether new applicants are politically exposed persons (PEPs). The delay is now causing these potential clients to complain, and this is stretching the resources of the onboarding team even further. A member of the front-line staff has suggested that, since PEPs can be onboarded, the firm should onboard all customers immediately upon application and then undertake the necessary PEP classification review later. The senior management has asked for your advice.

Identify the risks associated with the suggestion by the front-line staff and support your position with the key regulatory requirements and examples of the consequences of failing to meet these requirements.

Question 3.

Instead of following the advice of the staff member outlined in Question 2, your head of compliance wants to carry out an immediate review of every applicant’s status to decide whether they are PEPs or not. Those who are defined as PEPs will follow a further onboarding process, those who are not will be onboarded immediately. She has asked you to come up with a simple checklist that is to be given to the onboarding team. Using a mixture of ‘tick-box’ and ‘free text’ create a checklist that will guide the staff through a PEP assessment and also record the results (i.e. whether the client was identified as a PEP or not).

Core Module 3 – Developing a Compliance Culture

Question 1.

    • Your firm has recently undertaken a review of sales to identify those made to ‘vulnerable persons’. You have been tasked with reviewing some of the findings and making recommendations. You note the sale of a long-term savings product to an elderly couple who are in a nursing home. Further investigation shows that the same relationship manager (RM) has made multiple sales to individuals in a series of nursing homes.

Being a recurring premium contract, it pays far more commission than a series of single premium contracts.

You believe that, if anything, the single premium option is clearly better suited to the requirements of these clients. You raise this issue with your manager, who agrees with your findings.

What action do you propose to be taken? After hearing your proposals, the RM gets extremely angry. You are called to a meeting with your manager, the RM and the regional sales manager (RSM).

    • The RSM explains to you and your boss that he has built up good relationships with these customers and none of them has ever made a complaint. He defends his advice by saying that he has told the clients that these plans effectively create an inheritance since as long as whoever inherits the policy keeps paying the premiums, they will be entitled to a full payout at maturity.

When asked why he did not ask the applicants’ families to be present during the sales he said it was because they all wanted it to be a nice surprise for them. The RM says that he has cornered a niche market and there are significant opportunities for further businesses in these and other care homes.

Any suggestion at this stage that the policies have been mis-sold will put all that future revenue in jeopardy. The RSM asks that you be pragmatic and business-focused and allow these sales to continue.

What action do you propose to be taken?

Question 2.

You have recently reviewed the firm’s ‘Gifts and Entertainment’ records. As part of the firm’s anti-bribery and corruption policies and procedures, all staff are supposed to record any such gifts. You note that there were quite a few entries when the policy was initially implemented but the reports have dwindled away and there have been no reports for over 12 months. A quick survey clearly suggests that the staff need more, and better, training.

Document the various stages that you will consider when reviewing, re-designing and delivering the training. Additionally, identify how you will measure the success of the revised programme.

Question 3.

You read in an article a statement that says, ‘Ethical behaviour should be practised at all times, not just when you think you are being watched’. Write a short note for inclusion in the firm’s Glossary that defines ethical behaviour and supports this view.

Question 4.

You have recently joined a new firm. You meet with many of the business heads as part of your induction. A common theme is that they are not happy with the way in which compliance updates them on regulatory changes that affect their areas. You are advised that they simply receive instructions from the compliance department that dictate the changes they must make to comply with new requirements. They believe that there are often better, more efficient, ways of achieving compliance but they are not given the opportunity to put them forward for consideration.

Explain your new communication strategy for different groups of stakeholders that ensures that their concerns and interests are addressed, that they are kept informed, and identify how any conflict will be managed or escalated.

Core Module 4 – Leveraging Data for Business Advantage

Question 1.

  1. You have noticed that the number of complaints received in your office has increased, year on year. You are unsure whether this reflects a worsening trend or just an increase in business. Before working on this you decide to create a ‘baseline’ or ‘average’, since the regional offices all sell the same types of product. Outline:
    • the techniques and tools you will use to investigate the issue, and
    • how you will ensure that sufficient data exists and is used.
  2. Upon investigation, you receive the following data.
    • Your office processes around 140,000 pieces of business per quarter and the number of complaints in the last year was 567.
    • The Thailand office processes around 18,000 pieces of business per quarter and received 30 complaints last year.
    • The Hong Kong office processes around 120,000 pieces of business per quarter and received 486 complaints last year.
    • The Malaysia office processes around 80,000 pieces of business per quarter and received 186 complaints last year.
    • The Indonesia office processes around 50,000 pieces of business per quarter and received 397 complaints last year.
      1. Identify how you will organise the data for analysis.
      2. Analyse the figures and produce the results to show whether there is cause for the concern as suggested in part (a) above.

Question 2.

You have noticed that the number of clients who cancel policies from the outset has been increasing. When you report this, internal audit department staff carry out a small review of the cancelled policies and their conclusions suggest that RMs are not properly considering the clients’ ability to afford the products they are recommending. The audit finding was made after reviewing only a small sample of cancellation requests and noting that some clients had cited an inability to continue to afford to make payments as the reason for cancellation.

You feel that this conclusion is misleading.

  1. How would you test the internal audit findings?
  2. What other data would you consider should be reviewed to reach an accurate understanding?

Question 3.

  1. You have been asked to present the findings of your review of complaints, as detailed in Question 1 (Core Module 4), to the rest of the compliance team.
    • What audience needs will you cater for and what is the objective of the presentation?
    • How will you organise the data to be presented?
    • What visualisation technique(s) will you use, and why?
    • Explain and comment on:
      1. the context of the visualised data patterns, and
      2. the limitations of the data set and the interpretation of the findings.
  2. Bearing in mind that the staff attending the session understand the complaints-reporting mechanisms but are not statisticians or analysts, provide a short summary (suited to the level of understanding of your audience) which indicates:
    • the data trends and patterns
    • the key meanings and insights.

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