2 June 2023 – 3 minute read
In the fight against money laundering, terrorist financing, and proliferation financing, accountable institutions play a crucial role. To mitigate the risk of these illicit activities, it is now a Financial Intelligence Centre Act (FICA) Regulatory Compliance requirement for such institutions to screen their employees for competence and integrity. Directive 8, issued by the FIC, outlines the necessary steps for accountable institutions to implement effective employee screening measures. This article will discuss the key elements from both Directive 8 and the accompanying Public Compliance Communication (PCC) 55, shedding light on the actions that accountable institutions must take to screen their employees effectively.
1. Purpose of the Directive: Directive 8 serves the purpose of safeguarding accountable institutions from being exploited by individuals involved in illicit activities. By screening prospective and current employees for competence and integrity, as well as scrutinising employee information against targeted financial sanctions lists, accountable institutions can identify, assess, monitor, mitigate, and manage the risks associated with money laundering, terrorist financing, and proliferation financing.
2. Screening of Employees for Competence and Integrity:
2.1 Risk-based Approach (RBA): Not all employees pose the same level of risk in terms of money laundering, terrorist financing, and proliferation financing. Accountable institutions need to assess the ML/TF/PF risk associated with each employee role and tailor their screening processes accordingly. Higher-risk roles should undergo more stringent screening measures and on a more frequent basis, to ensure adequate risk mitigation.
2.2 Competence Screening: Screening for competence involves assessing whether employees possess the necessary skills, knowledge, and expertise to perform their duties effectively. Accountable institutions have the flexibility to determine the specific methods and criteria for evaluating competence based on their risk-based approach. This may include reviewing employment history, references, qualifications, and relevant accreditations.
2.3 Integrity Screening: Integrity screening focuses on evaluating an employee's honesty and moral principles. This may involve checking for criminal records related to dishonesty, money laundering, or other financial crimes. Accountable institutions should be implementing enhanced integrity screening measures for high-risk employee roles, such as assessing compliance with conduct requirements or previous involvement in contraventions of relevant legislation.
2.4 Employee Role Considerations: Certain employee roles pose a heightened ML/TF/PF risk. These roles include senior management, decision-makers involved in high-risk client relationships, or those who have the authority to alter an institution's anti-money laundering, counter-terrorist financing, and counter-proliferation regime. Accountable institutions should prioritise the screening of employees in these roles.
2.5 Timing of Screening: Employee screening should be an ongoing process, with periodic reviews based on the level of ML/TF/PF risk associated with each role. All prospective employees must undergo screening for competence and integrity before their appointment. Current employees should be screened periodically, with higher-risk roles requiring more frequent assessments. It is recommended that accountable institutions perform annual screenings for employees in high-risk roles.
3. Scrutinising Employee Information against Targeted Financial Sanctions Lists: To ensure compliance with targeted financial sanctions screening, accountable institutions must scrutinise both prospective and current employees against the targeted financial sanctions (TFS) lists. This includes regularly updating the scrutiny process, whenever changes occur in the TFS lists. Accountable institutions should refrain from providing economic support, financial services, or other assistance to individuals listed on the TFS lists.
4. Commencement and Enforcement: Directive 8 becomes effective upon publication in the Government Gazette. Accountable institutions should begin implementing screening measures for higher-risk employee roles immediately, focusing subsequently on lower-risk roles.
Lastly, screening employees for competence and integrity is a vital step in managing the risks of money laundering, terrorist financing, and proliferation financing within accountable institutions. By adhering to the Regulatory Compliance guidelines outlined in Directive 8 and the accompanying PCC 55, institutions can establish robust screening procedures. These measures, including risk-based approaches, competence and integrity evaluations, and scrutiny against targeted financial sanctions lists, contribute to building a resilient defense against Financial Crime (FinCrime) activities. The collaboration between accountable institutions and regulatory bodies plays a crucial role in maintaining the integrity of the financial system and safeguarding against FinCrime.
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