DCP Study Pack PDF

 1 | Page DCP Study Pack  2 | Page DCP Study Pack  Table of Contents CONTRIBUTORS …………………………………………………………………………………...……….…… ……………………………………………………... 03 DCP MODULES & STRUCTURE...

 1 | Page DCP Study Pack  2 | Page DCP Study Pack  Table of Contents CONTRIBUTORS …………………………………………………………………………………...……….…… ……………………………………………………... 03 DCP MODULES & STRUCTURE …………………..................................................................STRU.CTURE….………… …................................................04 ODULES SUMMARY...........................................................................................................04 MODULES SUMMARY.......................................................................................04 MODULE 1: INTRODUCTION TO COMPLIANCE.............................................................................................................05 LEARNING OBJECTIVES.........................................................................................................................................................................................05 MODULE STRUCTURE............................................................................................................................................................................................. 07 MODULE 1 PAPER 1 ……………………………………………………......................................………………… ………………………………….................07 MODULE 1 PAPER 2 ……………………………………………………......................................………………… ………………………………….................20 3 | Page DCP Study Pack MODULE 1 PAPER 3 ………………………………………………………………………….....….……………… ……………………………………………….28 MODULE 1 PAPER 4 ………………………………………………………………………….....….……………… ……………………………………………......34 MODULE 2: KNOWLEDGE OF COMPLIANCE REGULATION....................................................44 LEARNING OBJECTIVE …..................................................................................................... ….................................................................................44 MODULE 2 PAPER 1……………………………………………………………………………... ………………………………………………………………… 47 MODULE 2 PAPER 2 …………………………………………………………………………......………………… ………………………………………………… 69 MODULE 2 PAPER 3 ……………………………………………………………………………..... …………………………………………………………………75 Module 3: ANTI-MONEY LAUNDERING & COMBATING THE FINANCING OF TERRORIST (AML/CFT) MEASURES...................................................................................................................................... 195 4 | Page DCP Study Pack LEARNING OBJECTIVES …...................................................................................................195 …..............................................................................195 MODULE STRUCTURE...............................................................................................................................................................................................195 MODULE 3 PAPER 1 ………………………………………………………………………………..………………… ………………………………………………198 MODULE 3 PAPER 2 ………………………………………………………………………………………………… ……….…………………………………………………………………203 MODULE 3 PAPER 3 ………………………………………………………………………………………………… ……….…………………………………………………………………244 MODULE 3 PAPER 4 ………………………………………………………………………………………………… ……….…………………………………………………………………246 MODULE 3 PAPER 5 ………………………………………………………………………………………………… ……….…………………………………………………………………263 5 | Page DCP Study Pack  CONTRIBUTORS of. Abdullahi Y. Shehu - GIABA attison Boleigha - Access Bank oma Gogo-Anazodo - Diamond Bank bimbola Adeseyoju - DataPro adele Adeoye - DataPro aheem Owodeyi - Sterling Bank uyemisi Olukoya - Legal Bay deyemi Ogunmoyela - First Bank yce Obi - Keystone Bank umi Adeniyi - Heritage Bank u Ogunbunka - CIBN morogbe Philip - CIN unle Adedeji - Access Bank binna Okafor - VCL Consult peyemi Adojutelegan - Stanbic IBTC Bank m Melaye - GIABA neka Nwaka - MoneyGram aleb Izedonmi - Eco Bank 6 | Page DCP Study Pack usegun Afolabi - Sterling Bank exis Ndudi - Heritage Bank Prof. Abdullahi Y. Shehu - GIABA Pattison Boleigha - Pattison Consulting Isioma Gogo-Anazodo - Parallex Bank Abimbola Adeseyoju - DataPro Oladele Adeoye - DataPro Raheem Owodeyi - Sterling Bank Oluyemisi Olukoya - Legal Bay Adeyemi Ogunmoyela - First Bank Joyce Obi - Keystone Bank Wumi Adeniyi - Private Consultant Uju Ogunbunka - CIBN Omorogbe Philip - CIN Kunle Adedeji - Access Bank Obinna Okafor - Vicosbin Consult Ltd Tagbo Nwajagu - CBN Opeyemi Adojutelegan - Stanbic IBTC Bank 7 | Page DCP Study Pack  Tim Melaye - GIABA Nneka Nwaka - Moment Holdings Limited Caleb Izedonmi - Visa Olusegun Afolabi - Sterling Bank Alexis Ndudi - BlueBulb Financial Ltd 2024 Version Reviewed and Updated by: Obinna Okafor- Vicosbin Consult Ltd Caleb Izedonmi- Visa Nneka Nwaka- Moment Holdings Limited DCP MODULES & STRUCTURE Contains a total of three (3) modules designed to provide foundation -level qualification for persons desiring professional certification in compliance. Modules are grouped into sub-sections or sub-topics that describes and analyses the main subject matter. MODULES SUMMARY Contains a total of three (3) Modules  Module 1 INTRODUCTION TO COMPLIANCE  Module 2 KNOWLEDGE OF COMPLIANCE REGULATION  Module 3 ANTI-MONEY LAUNDERING & COMBATING THE FINANCING OF TERRORIST (AML/CFT) MEASURES 8 | Page DCP Study Pack  MODULE 1: INTRODUCTION TO COMPLIANCE LEARNING OBJECTIVES On completion of the Introduction to compliance Module, the candidate is expected to gain a strong conceptual understanding and working knowledge of the following 1. The regulatory environment: why regulation is needed, the history of financial services regulation and regulatory architecture. 2. The sources of regulation, the interplay of international regulation and best practice as well as the powers of regulators. 3. The role of the compliance department and Compliance Officer in the organization as well as the key compliance activities, processes and relationships that define the organization’s compliance program. 4. Prevention of money laundering, terrorist financing, market abuse, managing the risks of these and enforcement actions. MODULE STRUCTURE 1.0 Introduction to Compliance 1.1 UNDERSTANDING THE REGULATORY ENVIRONMENT 1.1.1. What is Regulation? 1.1.2. Objectives of Regulation 1.1.3. The history of Financial Services Regulation 1.1.4. Factors influencing regulation 1.1.5. The Regulatory Architecture 9 | Page DCP Study Pack 1.2 REGULATION IN PRACTICE 1.2.1 Approaches to and models of regulation 1.2.2 Sources of regulation 1.2.3 International legislation and best practice developments 1.2.4 Regulators and their powers 1.3 COMPLIANCE IN PRACTICE 1.3.1 The role of the compliance department. 1.3.2 The role of the Compliance Officer. 1.3.3 Key compliance activities and processes 1.3.4 Key compliance relationships 1.4 OTHER KEY COMPLIANCE AREAS 1.4.1 Anti-money laundering 1.4.2 Financial crimes prevention 1.4.3 Market abuse 1.4.4 Managing risk 1.4.5 Enforcement 10 | Page DCP Study Pack  MODULE 1: PAPER1 1.1 UNDERSTANDING THE REGULATORY ENVIRONMENT 1.1.1 What is Regulation? Regulation is a set of specific standard control system put in place by a supervisory body to promote compliance with laid down process, provisions of the law and recommended best practices;, for the ultimate benefit of all stakeholders. Regulation can take many forms and has been variously described in the following perspectives: A tool used to achieve social political environment and economic outcomes that would not be achieved through market forces. Mandatory requirements that can apply to individuals, businesses, state or local governments and all other legal entities and legal arrangements. A legislation, rule, directive, act, circular, statute, edict, ordinance, pronouncement, mandate, injunction, procedure, requirement, guidelines or prescriptions made and maintained by an authority. 11 | Page DCP Study Pack  Any control system (formal or informal) that sets standards and typically also monitors those standards and enforces them with the broad aim of shaping behavior positively. All forms of control originating from an authority. The authority could be a state, an industry or a particular organization and covers rule making, monitoring and enforcement. A legal restriction promulgated by a government authority. 1.1.2 Types of Regulation There are two (2) major types of regulation: Primary Regulation Secondary Regulation Primary Regulation Primary Regulations are standards of behavioursbehaviors put in place by the arm of the state charged with law making. These include all laws, decrees, statute or any other norm that requires the approval of parliament or the Head of state. Secondary Regulation Secondary Regulations are standards of behavioursbehaviors, or the controls put in place by institutions empowered by the law to do so by the enactment of a primary regulation which also established them. These Institutions are known as Regulators. Secondary regulations include circulars, directives, rules, guidelines and norms enacted directly by agencies of government or self-regulated organizations (SROs) 1.1.3 Objectives of Regulation Regulation is put in place to achieve an overriding objective, designed in such a way that the benefits outweighsoutweigh the costs to the industry, the public and the government. The following are the objectives of regulation: 1. The ultimate goal of regulation is to ensure a smooth, fair and honest operation within the sector it seeks to regulate. 2. Regulation is put in place for the protection of stakeholders, which include: The consumers The investors 12 | Page DCP Study Pack  The Government The Businesses The communities The protection of stakeholder is seen as the crux and the most generally accepted basic objective of regulation in the financial system. 3. Regulation is adopted to instill discipline and confidence in the system it seeks to regulate. Regulation is necessary in order to promote transparency and utmost disclosure of risks associated with a business, entity or activity. This will ensure discipline and increase the safety, stability, security and soundness of the system. 4. Regulation is put in place to make each financial institutioninstitutions limit itstheir activities within the boundaries defined by the laws and set of regulations that guide itstheir line of business. 5. Regulation is put in place to avoid the ripple effect of failures and recklessness due to non-regulation. It is needed to prevent operators from taking excess risks that could jeopardize the financial system and the economy. It helps to protect the entire economy from the vagaries of the banking and financial operators. 6. Regulation is put in place to safeguard the public against Negative Externalities resulting from unregulated actions or inactions of Operators. A negative externality is a cost that is suffered by a third party as a result of an economic transaction. In a transaction, the producer and consumer are the first and second parties, and third parties include any individual, organisation, property owner, or resource that is indirectly affected. Externalities are also referred to as spillover effects, and a negative externality is also referred to as an external cost. The classic social externality is pollution from a factory. Regulation is needed to protect the environment and society from the negative consequence of the workings of the Operators. 13 | Page DCP Study Pack 1.1.4 History of Financial Services Regulation Regulation of business existed in the ancient early developments in Egyptian, Indian, and Roman civilization. In America, throughout the 18th and 19th century, the government engaged in substantial regulation of the economy. Historically, the post -free banking era evolution of Financial Services Regulation has been marked by two major seasons. After the Free Banking Era*, the first season witnessed total government control on entry requirements and organizational structure of the industry. The second era is a period of moderating conduct and establishing quantitative indices of performances. 1.1.4.1 Structural Control Era For centuries, financial regulations have been managed by government. In the first era of structural organization, central rules were directed at determining who can participate and under what characteristics. It ranges from a minimum to a maximum degree of state restriction and resultant effect on the level of competition. 1.1.4.2 Risk Management Era The second period deals with government restrictions on Operators’ tendencies to engage in risky behavior. The major objective is to reduce the asymmetric information challenge between operators and customers as well as between government and operators, upon which a safe and sound banking system is built. As government deregulated the structure of the financial industry, allowing for higher levels of competition, the more pressing it became for government to enact legislations geared towards risk-management behavior. *Free Banking Era: This refers to the period devoid of government control and regulation within the financial industry. 1.1.5 Origin of Bank Regulation/Supervision in Nigeria In Nigeria, the story was not particularly different. The industry first witnessed the era of Free Banking devoid of any government control. The Central Bank of Nigeria Act 1958 signaled the commencement of a true regime of indigenous regulation of banking in Nigeria. The origin of regulation in the banking industry in Nigeria dates back to the early 1950s following the tragic failures suffered by the largely unregulated indigenous 14 | Page DCP Study Pack banks – a phenomenon which caused untold hardship for many banks. This incidence led to the enactment of the 1952 Banking ordinance (amended in 1958 and 1962) repealed in 1969 following the birth of the 1969 Banking decree. The 1969 decree (amended several times) is now repealed following the promulgation of central Bank of Nigeria Decree No 24 and Banks and other financial institutions (BOFID) decree No 25 both of 1991. These decrees update the innovations in the financial system consequent upon the deregulation of the system. They now cover both banks and non-bank financial institutions. According to Iyade (2006), Banking regulation was first introduced in Nigeria in the early 1950s in response to the failure of local banks. The 1952 Banking Ordinance imposed minimum requirements for paid up capital and the establishment of reserve funds. This was followed by the enactment of the 1958 Central Bank Act and the Banking Ordinance of 1959. The banking legislation was further strengthened with the enactment of the Banking Decree of 1969. This consolidated previous banking legislation; raised minimum paid up capital requirements and empowered the CBN to specify a minimum capital/deposit ratio (Nwankwo 1980: 20; Ekundayo 1994: 346). It also empowered the CBN to impose liquidity ratios and placed restrictions on loan exposure and insider lending (Oloyede 1994: 283). The early 50’s therefore ushered in the first financial regulation in Nigeria with the Banking Ordinance of 1952. This specified among others a minimum paid-up capital for operations. 1.1.5.1 Financial Services Regulation Coordinating Committee (FSRCC) To address the issue of multiple regulations in Nigeria banking Sector, The CBN in April 1994 undertook to facilitate a formal framework for the co-ordination of regulatory and supervisory activities in the Nigerian financial sector by establishing the Financial Services Coordinating Committee (FSCC) to address more effectively, through consultations and regular inter-agency meetings, issues of common concern to regulatory and supervisory bodies. On 27th May, 1994, the name of the Committee was changed to Financial Services Regulation Coordinating Committee (FSRCC). The Committee was accorded legal status by the 1998 amendment to Section 38 of the CBN Act 1991 and formally inaugurated by the Governor of the CBN in May 1999. 1.1.6 The Global Standards for Financial Regulation Banking has in recent years transcended national barriers. A lot of Nigerian banks have international branches and business offices, and are now participants in the global banking and financial operation and system. Nigeria and the Nigerian financial 15 | Page DCP Study Pack  sector hashave been a beneficiary of international financial relations following globalisation of financial practices and the developmental contribution of such international financial organisations as The World Bank and the International Monetary Fund who have often played very active roles in the economic policy formulation of most emerging economies of which Nigeria is a prominent member. In this Global Standard Era, attempts have been made to unify and standardize financial regulations all over the world with the creation of Global Standard Setters. Some of these standard setting bodies are products of the efforts of some leading financial Institutions in the world. Others are products of governments of the leading countries in the world who had come together to put these institutions in place for the global interest. Below are some of such global bodies: 1.1.6.1 Basel Committee. From the onset, the aim of the Basel committee established by the Central Bank Governors of the G10 in 1974 was to close gaps in international regulatory coverage, so that (i) No financial establishment (i.e. banks) would escape regulation, and (ii) regulation would be adequate and consistent across the globe. In 1988, the first global financial regulation was introduced which is popularly called Basel I. Basel I sought to halt the erosion of capital within the banking system and work towards a greater convergence in the measurement of capital adequacy ensuring financial stability, safety and soundness worldwide. In 1997, the Basel II which is a more sophisticated model than the Basel 1 was introduced in banking regulation. The revised framework comprised of 3 Pillars, viz: 1. Minimum Capital Requirements. 2. Supervisory Review 3. Market Discipline Basel II has today become the face of modern banking sector regulation worldwide. 1.1.6.2 The International Association of Insurance Supervisors (IAIS) The International Association of Insurance Supervisors (IAIS) sets the rules for the insurance industry worldwide. Established in 1994, the IAIS represents insurance regulators and supervisors in more than 200 jurisdictions in nearly 140 countries, constituting 97% of the world’s insurance premiums. 16 | Page DCP Study Pack 1.1.6.3 The International Organization of Securities Commission (IOSCO) The International Organization of Securities Commission (IOSCO) is the global standard setter for the securities market. IOSCO was born in 1983. In 2002, IOSCO adopted a multilateral memorandum of understanding designed to facilitate cross border enforcement and exchange of information among the international community of securities regulators. 1.1.7 Factors Influencing Regulation Change is a constant in all human endeavors and activities. Businesses are products of innovation, necessity, evolution and globalization. To keep track of changing patterns and events we need regulation. Regulation is dynamic and a derivative of the following: Power and Politics Market Dynamics Environmental Factors Technology and Innovation Globalization Socio-cultural Factors Public Opinion The Media Consumer Rights Labor and Employment Crime and Illegal Activities Power and Politics Regulation has become a central aspect of contemporary governance. Constitutional relevance of government is the welfare and protection of the people. Laws are therefore made in pursuit of these objectives. Depending on what side of the spectrum it belongs to, to the left or to the right, every government will rise and fall depending on what reforms, regulations and laws are made. The understanding of power and polities by any government will determine the direction of its regulations. 17 | Page DCP Study Pack Market Dynamics Markets are usually associated with evolving periods of boom and burst. What makes sense during economic prosperity might be suicidal at the time of recession. To which side the economic pendulum swings has always affected the type of regulation and laws made to cope with the times. Environmental Factors One of the hottest debates today in regulatory affairs is about the environment. What do we do about climate change? The arguments for environmental protection have deep impact on nearly every sector of the economy. New rules are emerging worldwide setting limits to carbon emissions that have far reaching implications for the Automobile Industry and the Energy sector. It is this factor that influences the sustainable Banking guideline of the Central Bank of Nigeria which it has directed all Banks to comply with. Technology and Innovation Technology and Innovation are said to be ahead of regulation. Even though regulation tends to play catch-up with technology, rules are eventually made to avoid misuse. As technology and innovation change our lives so we also expect regulation to protect us from possible abuse and other side effects. Globalization Globalization brings about a whole set of international and cross-border regulatory issues and the necessity for domestication. A piece of legislation in one part of the world could have significant consequences in another, if proper steps are not taken. For example, the fact that more than 150 countries of the world have adopted the Financial Action Task Force (FATF) 40 Recommendations is a powerful testimony to the globalization of the AML/CFT/CPF Standards. The activities of FATF hashave greatly shaped the regulatory environment relating to Money Laundering and financial crime in many countries of the world. Socio-cultural Factors Africa is a developing continent with peculiar characteristics distinct and different from the Western world. There are differences in culture, customs, beliefs, language, values, ethics and lifestyle. In some parts of the continent birth control is still resisted, Gay Marriage are 18 | Page DCP Study Pack still frowned at. Revealing mother’s maiden name during Know-Your-Customer (KYC) procedure is some parts of Nigeria is a taboo. Socio-cultural factors therefore play very significant roles is the type of regulation and action taken in different parts of the world. Public Opinion The desire, wants and thinking of the majority of the people or the collective opinion of the people in a society on an issue is a great influence on regulation. It is only through the approval of the public that a government gains the authority to pass laws and regulations. One example of how public opinion has shaped regulation is in the censorship of movies. These regulations were heralded as a triumph for morality but not everyone is pleased. In the US, there was the prohibition of alcohol in the 1920s. Public opinion towards drinking was severely against it and due to that, the 18th Amendment was created. In the 1930s however, this amendment was repeated by the 21st Amendment which was in response to a change in public opinion. The Media The media have long had a voice and role in politics and regulations. In addition to acting as a watchdog, media provide readers and viewers with news coverage of issues and events and also offer public forums for debate. Thus, media support, or lack of it, can have a significant influence on government action. Throughout their respective institutions, newspapers, radio, television and the internet have played important roles in shaping regulations. Consumer Rights The need to ensure the rights of consumers, as well as fair trade, competition and accurate information in the market placemarketplace has led to the passing of protectionism laws all over the world. Labor and Employment Most countries in the world have labor laws. They are used to regulate individual employment relationship and establish the framework within which workers and employers can determine their relationship in a collective basis. Labor laws are directed at employer’s rights at work and the enforcement of minimum standards of employment. As the labor and employment market become more sophisticated so are changes needed in the rules and regulations. Crime and Illegal Activities 19 | Page DCP Study Pack In as much as crime and other illegal activities cannot be completely eliminated, the best alternative is to continue to put measures in place to prevent, detect, correct and direct their impacts. Today it is cybercrime, hacking, ransom ware and all other frightening dimensions of the digital world. Nobody can predict with certainty what lies in future. But what is sure is that we will always need laws, rules, guidelines and regulation to mitigate the harmful and debilitating effects of crime and other illegal activities as they emerge. 1.1.8 The Regulatory Architecture The Regulatory architecture in Nigerian financial system describes the form and structure of regulation and regulatory arrangements, commonly called its architecture and it is of multiple parties and levels. Below is the structure of the regulatory arrangement in Nigeria: Figure I: Regulatory Levels PRSOE The Parliaments/Government The Government is at the apex of the regulatory architecture, playing the key role that determines the existence and roles of the other members of the structure 20 | Page DCP Study Pack  through the Legislative arm (the parliament). The role of the government in the Regulatory architecture includes: a) Enacting laws governing the operations of the various players in the finance sector, both regulators and the regulated. b) Creating the Regulatory bodies, through Legislations passed by the Parliament. c) Empowering the Regulators, upon creation d) Providing the environment considered appropriate for the regulated businesses. The Regulators The Regulators are the afore-mentioned creation of the Government. They are the products of Legislations, and are empowered by the law establishing them. Some of them are designed to be self-regulated. The roles of the Regulators include: a) Interpretation of the intent of the Law guiding their line of activities, business and area of regulation. b) Enforcement of the Law through guidelines, circulars and other Regulatory Releases. c) Providing leadership and direction for the regulated. d) Serving as interface between the Government and the Regulated. e) Enforcing Regulatory provisions affecting their area of jurisdiction. 1.1.8.1 Types of Regulators, by areas of specialization Regulators in the Financial Sector are empowered for the regulation of specific subsectors of the financial sector, these are I. Banking Business Regulators II. Capital market Regulators III. Insurance Regulators IV. Consolidated Regulators’ body (such as the Financial Services Regulation Coordinating Committee - FSRCC) The Supervisors and Examiners The Supervisors and Examiners are quasi-regulators or part or Department of the Regulatory body. Like their name implies, they supervise and carry out examination to determine the compliance or otherwise of the Regulated businesses. Their roles in the regulatory structure include: 21 | Page DCP Study Pack a) Seeking to enforce and prevent operators, employees and directors from non- compliance with the provisions of the Regulations. They are the instrument for driving and monitoring compliance in the regulatory architecture. b) They provide feedback regarding compliance of the regulated to the Regulator. c) Their activity serves as deterrence for non-compliance, as the consciousness of their examination on the Supervised makes the regulated guard against non-compliance. The Operators and Reporting entities The operators and Reporting entities, also known as the Regulated are the institutions at the receiving end of regulations, their activities are the reasons for the existence of the other members of the regulatory architecture. Their roles in the structure include: a) Ensuring that their operations are carried out in line with regulatory provisions. b) Providing reports, data and feedback to the regulators. c) Domestication of the regulatory provisions as part of the organization’s processes and policies. The Employees and Directors (of the Regulated entities) The Employees and Directors of the Regulated entities are the last to hold the baton in the regulatory race, their activities have much impact on the success of the regulations, hence, are included as part of the regulatory architecture. Their roles include: a) Educating stakeholder on the provisions of the regulations. b) Representing the reporting entities in complying with the provisions of the regulations. c) Information and Data gathering and collection for feedback to regulators by their respective employers/institutions. d) They are front liners in the regulatory enforcement and compliance chain. Conclusion The arrangement of the constituents of the regulatory architecture results to a pyramid of numbers, with the regulators at the apex of this pyramid and the operators and their employees at the base. For a regulation to achieve its objective, it is important that those at the apex of the pyramid anticipate the likely response of operators and steer them towards common good. 22 | Page DCP Study Pack  References Financial Services Regulation Coordinating Committee (FSRCC) www.cbn.gov.ng/Supervision/fsrcc.asp The Impact of Regulation and Supervision on The Activities of Banks in Nigeria (An Assessment of The Role of The CBN and NDIC) By Austin Igwe Iyade; St. Clements University September 2006 MODULE 1: PAPER 2 1.2 REGULATION IN PRACTICE 23 | Page DCP Study Pack 1.2.1 Approaches to and Models of Regulations There are five (5) key components of a good regulation. i. Transparency: It should be simple, open and user friendly ii. Accountability: To the state, consumers, operators and the public iii. Target Specific: It should focus on the problem and minimise the side effects. iv. Consistency: It should be predictable. People should know what to expect. v. Proportionality: The remedy should fit the risk. Only regulate when there is need. Regulations take many forms. Notable among the various approaches and models are: Self-Regulation Quasi Regulation Co-Regulation Explicit Government Regulation (Black letter Law) Alternative Instruments Self-Regulation Self-regulation is generally characterized by industry formulating rules and codes of conduct, with the industry solely responsible for enforcement. In most instances, self- regulation should be the first option to be considered. Self-regulation should be considered where: There is no strong public interest concern, in particular, no major public health and concern. The problem is a low-risk event, of low impact or significance The problem can be fixed by the market itself. For example, there may be an incentive for individuals and groups to develop and comply with self-regulatory arrangements. The likelihood of self-regulatory industry schemes being successful is increased if there is: Adequate achievable coverage of the industry concerned 24 | Page DCP Study Pack  A viable industry association A cohesive industry with likeminded or motivated participants committed to achieving the goals Evidence that voluntary participants can work, effective sanctions and incentives can be applied, with low scope for the benefits being shared by non-participants and A cost advantage from tailor-made solution and less formal mechanism, such as access to quick complaints handling and a dress mechanism, or the need to make regulatory adjustments quickly to meet developing market circumstances. However, care must be taken to ensure any proposed self-regulatory approaches are not anti-competitive, for example, by restricting any new entry of market participants or discouraging the adoption of new technology. Quasi Regulation Quasi-Regulation includes a wide range of rules or arrangements where governments influence business to comply, but which do not form part of explicit government regulation. Some examples of quasi-regulation include industry codes of practice developed with government involvement, guidance notes, industry-government agreement and accreditation schemes. Quasi-Regulation should be considered where: There is a public interest in some government involvement in addressing a community concern and the issue is unlikely to be address by self-regulation. There is a need for an urgent, interim response to a problem in the short term, while the long-term regulatory solution is being developed. Government is not convinced of the need to develop or mandate a code for the whole industry. There are cost advantages, from flexible, tailor-made solution and less formal mechanism. There are advantages in the government engaging in a collaborative approach with the industry, with the industry having substantial ownership of the scheme For this to be successful there needs to be: 25 | Page DCP Study Pack  A specific industry solution rather than regulation of general application A cohesive industry with likeminded participants, motivated to achieve the goals A viable industry associates with the resources necessary to develop and/or enforce the scheme Effective sanctions or incentives to achieve the required level of compliance, with low scope for benefits being shared by non-participants Effective external pressure from the industry itself (survival factors/or threat of consumer or government action) As in the case of self-regulation, proposed approaches should not restrict competition. Co-Regulation Co-Regulation typically refers to the solution where the industry develops and administers its own arrangements, but government provides legislative backing to enable the arrangements to be enforced. This is known as “underpinning” of codes, standards and so on. Sometimes, legislation sets out mandatory government standard but provides that compliance with the industry code can be deemed to comply with these standards. Legislation may also provide for government -imposed arrangements in the event that industry does not meet its own arrangements. Explicit Government Regulation (Black letter Law) Explicit Government Regulation, sometimes referred to as Black letter law comprises both primary and subordinate legislation. It is the most commonly used form of regulation. While it can have a number of advantages when compared with the other forms of regulation, there can also be several important disadvantages associated with its use. The main advantages relate to its certainty and effectiveness because of the availability of legal sanctions. The possible draw-backsdrawbacks include that it may be standardisedstandardized and inflexible, take significant time to make or amend, not be suitable for influencing the quality of complex service, be perceived to be 26 | Page DCP Study Pack  difficult to understand and go with, have higher government budgetary costs and provide poor access for these without means to pursue their legal rights. Explicit government regulation should be considered where: The problem is high risk, of high impact or significance. For example, a major public health and safety issue. The community requires the certainty provided by legal sanctions Universal application is required or at least where the coverage of an entire industry sector or more than one industry sector is judged as necessary. There is a systemic compliance problem with a history of intractable disputes and repeated or flagrant breaches of fair -trading principles, and no possibility of effective sanction being applied. Existing industry bodies lack adequate coverage of industry participation, are inadequately resourced or do not have a strong regulatory commitment. Alternative Instruments Within each form of regulation, a number of alternative instruments can often be used. Alternative instruments may include. No specific action (that is rely on the market in conjunction with existing general liability law) Information and Education campaigns (including product labelling or media campaign) Market-based instruments (including taxes, subsidies, tradable permits, performance bonds, tradable property rights) Pre-market assessment schemes (such as listing, certification and licensing) Post-market exclusion measures (Such as Bans, recalls, license revocation) Service charters Standards (including voluntary and regulatory, performance-based or prescription) Other mechanisms, such as public information registers, mandatory audits and quality assurance schemes. 27 | Page DCP Study Pack 1.2.2 The Scopes of Regulation The sources of regulation include both domestic/national laws (laws that apply to activities within the jurisdiction of a sovereign nation) and international laws (agreements between sovereign nations). In general, law falls into 2 basic categories: Public law and Private law. Public Law addresses the relationship between the government and individuals/entities. Example, Law that gives the government the power to imprison an individual for money laundering or terrorist financing. Private Law addresses the relationship between private individuals/firms and other individuals/firms. Example, Law that allows customers to sue a bank for unauthorisedunauthorized charges. With regard to the regulation of banks, the primary, although not exclusive, focus is on public law. The law that gives the government the power to regulate banks and their activities. There are also some other standards of law that are more discretionary in nature. These are often referred to as soft laws. They are often derived from efforts of specialisedspecialized groups to coordinate or improve the law either domestically or internationally. While such standards are not binding in a formal sense unless enacted into law by a sovereign nation, they can serve as a powerful tool in the development of formal regulation. A good example of this is the FATF 40 Recommendations on AML/CFT Compliance. 1.2.3 International Legislation and Best Practices Development Some of the common international legislation and best practices development within the Financial Industry are: ⇒ Basel Committee on Bank Supervision (BCBS). Often called the Basel Committee, the BCBS, has a profound impact on the regulation of bank’s capital. It also plays an important role in developing standards and best practices on other technical issues in bank regulation as well as laying down the principles that govern international cooperation between bank supervisors. 28 | Page DCP Study Pack ⇒ International Organisation of Securities Commission (IOSCO). IOSCO was created to promote high standards of regulation, to facilitate exchange of information, to establish standards for international securities transactions and to promote enforcement of standards. ⇒ International Association of Insurance Supervision (IAIS) The aim of IAIS is to promote cooperation among supervisors, set standards, provide training and coordinate work with regulators from other financial sectors. ⇒ The Joint Forum The Joint Forum was established in 1996 under the auspices of the Basel Committee, IOSCO and IAIS. The Joint Forum facilitates information exchange in the 3 traditional financial sectors of banking, securities and insurance. BSI ⇒ International Association of Deposit Insurers (IADI) IADI seeks to promote international cooperation and facilitate communication among deposit insurers. Its members include representatives from deposit insurers from around the world. ⇒ Committee on Payments and Settlement Systems (CPSS) The committee on Payment and Settlement Systems (CPSS) is a forum for central banks and therefore, its focus is on monetary and financial stability. The CPSS is hosted by the BIS and is a forum for the G10 Central Banks. The CPSS provides a means for Central Banks to coordinate their payment system responsibilities. ⇒ International Accounting Standards Board (IASB) IASB is dedicated to developing high-quality and enforceable global accounting standards worldwide. 1.2.4 Regulators and their Powers Most regulators have the following functions and powers To advise and make recommendations to government To monitor and enforce compliance with regulations To provide advice and information to operators 29 | Page DCP Study Pack  To collect, analyse and publish statistics To foster cooperative relationship between the public and the operators To promote and support education and training To engage, promote and coordinate sharing of information To supervise, audit and examine the books of operators To apply appropriate Sanctions for any violation of regulations To issue licences and register operators Any other function conferred on them by law. 30 | Page DCP Study Pack  MODULE 1: PAPER3 1.3 COMPLIANCE IN PRACTICE 1.3.0 Compliance Department Compliance is the management of regulatory and statutory risks. It describes the ability to act according to an order, set rules or requests. Compliance involves adherence to both internal and external rules. External rules are imposed by legislation, regulation or industry standards. Internal rules are put in place by each institution to achieve corporate goals. Most internal rules are influenced by external rules as demanded by legislation, regulation and industry practices. The Compliance Department is the Department charged with carrying out all compliance functions in the organization. 1.3.1 The Role of the compliance Department The role of the Compliance Department is defined in relation to the rules the department is put in place to drive. The role of the compliance department can be viewed as follows: 1. Ensuring that all employees and directors obey the set rules, laws and regulations put in place for the safety, stability, security and soundness of the economy, industry the institution operates in and that of the institution. 2. Ensuring that the institution is run on a sustainable basis by following laid down rules and regulations and not cutting corners. 3. Serving as an internal monitoring system to gauge the compliance of the institution with the provisions of regulations. 4. Serving as the organization’s liaison to, and interface with, Regulatory and Law Enforcement Agents. 5. Ensuring the domestication of new laws, regulations and standards in the organization. 6. Communicating and interpreting new regulatory releases to the stakeholders of the organization and providing advice on measures to ease compliance. 7. Carrying out the regulatory reporting obligations of the organization. 8. Provision of expert advice to the employees and Directors on compliance obligations. 31 | Page DCP Study Pack  1.3.2 The compliance functions methodology The Compliance Department performs its roles through: The identification and analysis of the rules and regulations governing the operations of an institution and creating a robust policy manual for its business. Designing and implementing adequate controls in order to conduct business in a sustainable way in accordance with the policy manual. Monitoring the effectiveness of the controls put in place. Reviewing, amending and correcting the policies, where necessary, for subsequent enforcement. Communicating at all times to employees and directors, expectations, vulnerabilities, threats, risks and opportunities within the compliance ecosystem. The compliance department is also expected to act in line with both the letter and the spirit of laid down rules, guidelines, standards and laws either imposed internally or externally. Compliance with the letter of the law involves basic adherence to the principles of the law. On the other hand, compliance with the spirit of the law offers better intents into the purpose of the regulation. This involves good understanding of the objectives of the law. The compliance department should not only concern itself with obeying only the letter of the law but always work towards efficiency and results which the spirit of the law offers. 1.3.2 The role of the compliance officer The Compliance Officer is sometimes referred to as the Compliance Manager or Chief Compliance Officer or even the Executive Compliance Officer. Compliance officers are an important component of corporate governance, thus, has important role in the compliance responsibility of the reporting entity and its board. Some of these roles are as follows: 1. Ensuring that an institution conducts its business in accordance with all national and international laws and regulations pertaining to its industry as well as professional standards, acceptable business practices and internal rules. 2. Maintaining and Managing Regulatory relationship and liaising with regulators and Law Enforcement Agents. 3. Communicating compliance related issues to employees and Directors across the institution. Sometimes this requires deciphering confusing or abstract laws and ethics and determining how to establish and integrate best practices within the institution. 32 | Page DCP Study Pack 4. Regulatory Returns/Report rendition and monitoring. 5. Board and Management Report rendition 5.6. Monitoring and Reporting Compliance status to the Executive and Board. The Compliance Officer is expected to review how an institution’s compliance obligation is managed, directed and governed and should report to the Chief Executive Officer or the Board. 6.7. Compliance process review and improvement. 7.8. Serving as an Advisory to the institution, its Management and Board. He has the responsibility of educating the entire institution and instituting practices that will ensure the highest possible level of compliance. Section 13 of the Money Laundering (Prevention and Prohibition) Act 2022 states that the Chief Compliance Officer (CCO) must be appointed at management level. The duties of the CCO include the following: Receiving and vetting of suspicious transactions from staff Filing of STRs to the NFIU Filing other regulatory returns to CBN and other regulatory and supervisory bodies Rendering nil returns to the CBN and NFIU where necessary to ensure compliance Ensuring the financial institution’s compliance program is implemented Coordinating AML/CPF/CFT training for the board, management and all staff of the institution Serving as a liaison officer between his organisation and the CBN and NFIU as well as acting as a point of contact for all staff on AML/CFT/CPF issues. 1.3.3 Required attributes for good Compliance role A good Compliance Officer is one that achieves effectiveness and efficiency in carrying out his roles. To be able to carry out his roles effectively and efficiently, the Compliance officer must possess the following attributes: 1. He must have an excellent knowledge of the Industry or Sector the organization is operating in, as well as the greater industry and standard business rules and must simultaneously have a firm grasp of the business. 33 | Page DCP Study Pack 2. A compliance officer must have great people skills, including emotional intelligence and other human relations skills. 3. He must be able to communicate and cooperate up, down and across the employees’ chain. 4. He must be Ethical and Principled. These are the single most important qualities of a compliance officer 5. Objectivity: A Compliance Officer must approach his duty without bias or prejudice. He must be willing to scrutinize all the facts without making a snap judgment. 6. Proactivity: Reactivity destroys the essence of establishing the compliance function. The Compliance Officer should be able to foresee risks and mitigate them accordingly. He or she should be alert and vigilant to potential breaches in regulations and law. 7. Integrity: To fulfil his responsibilities and perform effectively and efficiently, a compliance officer should have the strength and conviction to stand by difficult decisions and be more influenced by right versus wrong rather than by relationship. He or she should be willing and be seen to be taking the lead in setting the tone for corporate integrity. 8. Diligence: A compliance officer must be willing to see an issue through to resolution every time, even when it becomes a hassle. 1.3.4 Key Compliance Activities and Processes Many institutions are transforming the role of their compliance department from that of an adviser to one that puts more emphasis on efficiency and effectiveness. Given this evolution, the act and processes of compliance are expanding to include the following Generating Manuals, Handbooks, Rulebooks that offer practical perspectives on the applicability of the laws, rules and regulations across the businesses and processes and how they translate into operational requirements. Creating standards and limits for the risk factors affecting the business and compliance of the institution. Developing and enforcing corrective controls that address the root causes of compliance issues rather than treating the symptoms. Detecting and managing all the possible red flags that could negatively impact the institutions business. 34 | Page DCP Study Pack  Directing standards through comprehensive training programs. Prevention is a key control activity of the compliance department. Part of the processes of compliance should be to stop the crystallization of risk. In principle, the key activities and processes of compliance should focus on the following four (4) types of control: Preventive, Detective, Corrective and Directive. These control measures are achieved using Policies, Processes, Procedures and Programs. They include: Manuals Monitoring Enforcement Sanction Reward Training Audit and testing Risk Identification Risk analysis Risk Measurement Risk Review 1.4.0 The Key Compliance Relationships Compliance as a professional practice cannot be practiced in solitude. It is also about reconciliation of differences, communication of provisions, liaising between the Regulator and the Regulated and reconciling of position of the two. These sum up to maintaining and managing relationships. These key relationships of the Compliance Officer can be categorized into two types viewing from the Compliance Officer’s Institution. These are: The External Relationships and the Internal Relationships 1.4.1 Types of Compliance Relationships The External Relationships The External Relationships are relationships with stakeholders outside the Institution or reporting entity the Compliance Officer represents. These include: Relationship with Regulators and Regulatory Agents 35 | Page DCP Study Pack  Relationship with Law Enforcement Agents Relationship with Customers of the Institution The Internal Relationships The Internal Relationships are relationships with stakeholders in the regulatory structure who are within the Reporting institution which the Compliance Officer represents. These include: Relationship with other employees of the Organization. Relationship with the Executive and members of the Organization’s Board of Directors. In managing these relationships considered key in carrying out the compliance function, the Compliance Officer should observe the following: The Compliance industry is evolving constantly and globally. Practitioners should therefore be risk-focusfocused and forward thinking. In relating with stakeholders, opinions expressed may be seen as the opinion of the Institution the Compliance Officer represents. Hence, he must endeavor to be professional and express sound judgment always. Compliance should not be an impediment or obstacle to efficient customer service. It should be a business enabler and not a stumbling block. One of the value propositions of compliance is to ease the process of conducting business and not to stiffen it. Compliance must have the buy-in of management and the board to succeed. It must promote the tone at the top. It is the duty of the compliance officer to sell value proposition of compliance to the front-line officers and market facing employees. Compliance relationship with all other stakeholders should be based on cooperation, collaboration and coordination towards an effective and efficient regime. Compliance Officer must have a good understanding of the business as well as the products and services being offered by the organisation. This understanding is essential to being able to properly manage the compliance risk. Conclusion 36 | Page DCP Study Pack The Compliance Officer by the demand of his role is expected to relate with all stakeholders, whether internal or external in order to achieve the objectives of both the Regulators and the Institution he represents. This he must do with professional diligence. MODULE 1: PAPER4 1.4 OTHER KEY COMPLIANCE AREAS 1.4.1 Anti-money laundering Anti-Money Laundering (AML) is a phrase used to describe all the activities or practices, whether prescribed by laws, standards or regulations, or put in place by an individual, organisationsorganizations, or recommended by institutions, to be carried out, in order to prevent, detect, control and report money laundering activities. It is any set of policies, procedures, rules and regulations, standards or laws which seeks to discourage money Laundering and related activities. Anti-money laundering (AML) is closely correlated with Combating the Finance of Terrorism (CFT),) as well as Counter Proliferation Financing (CPF) , hence, are battled with similar or same measures by the same regulatory or law enforcement agents, though, with separate laws in various countries; In Nigeria, while the legal tool for the fight against Money Laundering is the Money Laundering (Prevention and Prohibition) Act (MLPA) 2011 (as Amended),2022, the legal tool for the fight against terrorism is Terrorism Prevention and Prohibition Act (TPA) 20132022. Money laundering and the financing of terrorism are financial crimes with economic effects,; hence, the pooling of resource and the legal support of Policy makers and executors are strongly recommended. Money Laundering requires an underlying predicate crime, a primary, profit-making crime, along with the intent to disguise the source and conceal the proceeds of the crime or to further the criminal enterprise (such include crimes such as corruption, bribery, drug trafficking, market manipulation, fraud, tax evasion). These activities generate financial flows that involve the diversion of resources away from 37 | Page DCP Study Pack economically and socially productive uses, for which they were meant, to personal uses; these diversions can have negative impacts on the financial sector and external stability of any country. Counter Proliferation Financing (CPF) is a set of financial measures that aim to prevent the funding of weapons of mass destruction (WMD) proliferation. CPF is a key component of the broader non-proliferation strategy, as it targets the financial networks used to acquire, produce, or trade WMDs. 1.4.2. Financial crimes prevention Financial crimes are crimes against property, involving the unlawful conversion of the ownership of property (belonging to one person) to one's own personal use and benefit. It includes any deliberate misrepresentation by an entity which confers financial advantage on him at the expense of another, with a view to making the victim to unwittingly suffer a loss of financial value. It is a crime which creates immediate or remote gain for the perpetrator while causing the victim a direct or incidental loss. The crux in the definition and identification of a financial crime are deliberate misrepresentation and pecuniary interest/gain. This though, does not exonerate a person who has taken to financial crime to get back at a system he begrudges. 1.4.2.1 Offences Constituting Financial Crimes Financial crimes may involve fraud and other related misdemeanourmisdemeanor which involves misrepresentation, manipulation and illegal transfer of value to the criminal beneficiary. 1.4.2.2 Measure for preventing Financial Crimes To prevent financial crimes in any organisationorganization, measures must be put in place to enshrine in the corporate culture of the organisationorganization, and by extension, the individual cultures of employees and Management, a culture of integrity and honesty, taking a robust approach to address any sign of financial crime. To achieve this, Management must proactively and effectively manage the 38 | Page DCP Study Pack  risk of financial crime in order to minimiseminimize losses incurred from them. This can be achieved by carrying out the following: 1. Adopting and maintaining fully integrated financial crime policies. Organisations must adopt appropriate policies and procedures which discourage financial crimes, ensuring that these are maintained while ensuring that internal controls are built into the organisation’s systems and processes to prevent or detect financial crimes. 2. Providing training and guidance to all employees and members. The understanding of the problem a Policy is put in place to solve helps stakeholders to appreciate its existence and cooperate for its successful implementation, and the implementation of measures may yield little or no results if the people are not properly guided. Hence, it is pertinent to train, retrain and continuously guide all stakeholders on their role in helping the organisation combat financial crimes. 3. Train staff on what constitute financial crime, its identification, preventions and reporting responsibilities. Staff should be made to understand that the prevention and detection of financial crimes or corruption, and the protection of the organisation’s assets, correctly reporting of its liabilities, and adherence with laws and regulations which discourage acts capable of being interpreted or which may lead to financial crimes, is the responsibility of everyone, both internal and external to the organisation. 4. Enshrining and promoting a culture of honesty and propriety in all dealings for, and on behalf of, the organisation. 5. All such communications, which will aid the deterring of financial crimes and eliminate the crystallization of the risk of occurrence of financial crime are widely circulated and properly documented. Management should ensure that the results of any action taken against persons involved in any financial crime within the organisation, including prosecutions, are widely reported when found necessary. 6. Adopt measures to control financial crimes that cannot be deterred. Put control processes in place to ensure timely detection of financial crimes where it cannot be prevented, define expected action time for action on any case of suspected financial crime in the organisation, clearly defining what action to take. 7. Timely commence the investigation of financial crimes as soon as any is suspected or detected. In the investigation of financial crimes and possible recovery, time is of essence; every delay in closing-in, commencing and concluding investigation reduces the chances of closing-in on the proceed of the crime and, invariably further distorting 39 | Page DCP Study Pack  the transaction/audit trail and reducing the chance of recovery of the misappropriated asset, as the criminal will attempt at further hiding away his loot. 8. Show zero tolerance for Financial Crimes by applying sanctions against any staff or person who commits financial crime;: including making budgetary provisions for Financial Crime fighting and prosecution of culprits. This may include setting up a department staffed with personnel trained in the handling or financial crimes from identification, investigation, prosecution and possible recovery of proceeds of crime. 9. Seek legal redress and pursue recovery of assets in the hand of Financial Criminals when the crime is detected. Pursuing prosecution to conclusion and recovery of proceed of crime serves as a major deterrence for stakeholders of the institution, as the fear that a criminal will face prosecution and will still not get away with the proceed of crime will tend to make anyone believe that committing the crime is not worthwhile, therefore, serving as deterrent. 10. Communicate the organisation’s stands on actions capable of promoting financial crimes with contractors, the public and partners, making them aware of the policies and how to raise and report Financial Crimes concerns. The inclusion of such clause as reconsideration of existing business relationship when a stakeholder is found to have encouraged any financial crime in the organisation will not be out of place. 11. Make it a requirement that all contractors, Agents, suppliers, individuals and organisations who are in business relationship in whatever capacity with the Financial Institution sign an undertaking to act with integrity towards management and staff of the organisation and that staff members and management will lead by example. 12. Staff and Management of the Financial Institution should demonstrate and be seen to be demonstrating the highest standards of transparency, propriety and integrity; Management set the tone at the top, leading by example, by adhering to honest, ethically and legally sound practices and procedures. 13. Collaboration and information exchange between organisations in the same Sector passes the message that there is no hiding place for financial criminals. Exchange of ideas on the strategies to adopt in fighting Financial Crimes by Financial Institutions is recommended and the exchange of data and information should also be done within the ambit of the law. 40 | Page DCP Study Pack  The Compliance Officer must not only be seen to be outspoken against Financial Crimes, but his body language must abhor financial crimes and indicate a low tolerance for all crimes which qualifies to be so described. 1.4.3 MARKET ABUSE Market abuse is any form of misuse of the relationship of a person with an organisationorganization, its business, its customers and the wrong use of privilege information made accessible to such person by virtue of this relationship, for pecuniary gain. It is also the exploitation of the inadequate knowledge of the customer by a seller or a financial service provider for pecuniary gain. Market abuse includes all such action as insider dealing and Market manipulation. 1.4.3.1 Insider Dealing/information Insider dealing is a type of Market Abuse where an insider uses a privilege information not available to the public for policy for trading, either for himself, his client or on behalf of others, on the basis of material non‐public information (“inside information”) and this is against the provisions of laws and regulations. When trading is done by an insider using insider information, he is said to be engaged in insider dealing. Guernsey’s Insider Dealing Law and the FCA’s Code of Market Conduct, defined insider information as information that is precise which: is not generally available relates, directly or indirectly, to one or more issuers of financial instruments and would, if generally available, be likely to have a significant effect on the price. “Precise” means information that indicates circumstances that exist or may reasonably be expected to come into existence or an event that has occurred or may reasonably be expected to occur and is specific enough to enable a conclusion to be drawn as to the possible effect of those circumstances or that event on the price. 41 | Page DCP Study Pack  1.4.3.2 Market Manipulation Market manipulation is any conscious and illegitimate effort made by an insider with the aim of fixing or raising the price of an investment to an abnormal, artificial and unjustifiable level. This includes such action as trading, or placing orders to trade, that gives a fictitious or misleading impression of the supply of, or demand for, one or more investments to induce demand and price increase. Market manipulation can take either of two forms, Direct or Indirect Manipulation. 1.4.4 MANAGING RISKS Introduction The risk management role of the Compliance Officer is one of the three elements of Governance, Risk and Compliance (GRC), constituting the compliance tripod on which the Compliance function stands. The risk management role of the compliance function complements the function of the Enterprise Risk Management which oversees the management of the various risks an organization faces. 1.4.4.2 Objective of the risk management framework The risk management framework in addition to the above aims at: establishing the context, both internal and external, within which the designated service is, or is to be, provided (including: the customer types, types of services, delivery methods and any dealings with foreign jurisdictions) identifying risks evaluating or assessing risks I. Risk assessment II. Risk analysis and prioritization III. Root cause analysis of issues and mitigation IV. Risk analytics and trend analysis 42 | Page DCP Study Pack  treating risks (mitigating, managing, controlling, monitoring and periodically reviewing). Risk Reporting 1.4.5 ENFORCEMENT Enforcement is the process of ensuring compliance with laws, regulations, rules, standards, or social norms. By enforcing laws and regulations, governments attempt to effectuate successful implementation of policies (Wikipedia). Every measure, activity and process put in place to promote the compliance of the employee and the institution with laid down laws, regulations, internal policies and processes sums up to the enforcement mechanism of the organization. The level of enforcement has positive correlation with compliance level, and it is negatively correlated to compliance risk. The more efficient the enforcement, the higher the compliance level which translates to a lower compliance risk. 1.4.5.1 Qualities of an efficient enforcement An efficient enforcement mechanism is an enforcement mechanism which when properly implemented, guarantees a higher compliance rate at a lower cost of compliance or totally eliminating cost of non-compliance. In other words, efficient enforcement is the type of compliance which is suitable for the organisationorganization while helping to keep the compliance culture at high level. An enforcement must have the following qualities to be seen as being efficient: 1. It must keep the cost of compliance at the minimum. 2. It must be structured in such a way that it drives/encourages timely compliance. 43 | Page DCP Study Pack 3. While it may not necessarily reward compliance, it must make conscious provisions for discouraging non-compliance. E.g. sanctions must be prescribed for those who break the law. 4. It must be flexible for adaptability to unforeseen situations. 5. It must not be structured to slow down the institution’s business or unnecessarily discourage patronage. 6. It must have an assigned enforcement Driver, e.g. a Compliance Officer. 7. It must be regularly reviewed for fine-tuning. 8. It must be able to balance business performance/profitability with compliance. 1.4.5.2 Measure to be adopted for efficient enforcement To achieve efficient enforcement of required Policies, procedures and regulations in an organization, the following must be put in place by the Compliance Officer: 1. Adoption and Adaptation: To enforce laws, regulations and guidelines affecting the institution as released by appropriate authority or standards and best practices, such provisions must be domesticated in the organization by adopting a policy which includes the provisions or amending existing Internal Policies to reflect the intended changes. 2. Publicity: Publish all newly developed or adopted Policy and create consciousness of their existence immediately upon adoption and approval. 3. Employees Training and awareness: Overtime, it has been observed that some non- compliant actions of staff were not out of deviance but out of ignorance, inadequate knowledge or lack of knowledge of the risk associated with their actions. This category of staff, have a high likelihood of being compliant in their daily dealings on behalf of the organization, hence, the need to give more attention to training and education of staff to enhance the overall compliance of the organization. The compliance function should assist senior management in: educating staff on compliance issues, and acting as a contact point within the bank for compliance queries from staff members; and 44 | Page DCP Study Pack  establishing written guidance to staff on the appropriate implementation of compliance laws, rules and standards through policies, procedures and other documents such as compliance manuals, internal codes of conduct and practice guidelines (BIS, 2015). Train all staff at all levels on the implications and expectations of the Policy, creating awareness on how to apply the policies objectively and consistently, without prejudice to characteristics such as gender, race, national origin, religion and others which are non-job- related. The understanding of the subjective interpretation of the policies and how to avoid their improper application should be addressed, while emphasising the sanction for non-compliance with the Policy. 4. Policy Accessibility: Make every Policy document easily accessible to every employee for reference and guidance as the need for clarification arises. This will encourage staff to clear doubts regarding Policy positions and the implications of their actions before acting on behalf of the organization. Policies can be hosted on shared folders or copies dropped with each Department of the Institution. 5. Management tone and non-tolerance for deviation: For efficient enforcement of Internal policies, regulatory and legal provisions or pronouncements affecting the institution and its businesses, the management and the Compliance Officer of the organization must set tone for non-tolerance for non-compliance. This can be achieved by ensuring that even at the outset of the adoption of the policy, no offender is left unpunished or treated with a kid clove. 6. Publicity of punitive measures against non-compliance: To repeatedly communicate the non-tolerance of Management and Compliance Officers for non-compliance with organizational Policies, sanctions and disciplinary measures taken against non- compliant individuals/staff should be in public knowledge. This will serve as deterrence against others breaching the Policies of the organisation. 45 | Page DCP Study Pack  MODULE 2: KNOWLEDGE OF COMPLIANCE REGULATION LEARNING OBJECTIVES On completion of this module, the candidate is expected to have a good knowledge of the following. 1. The various international initiatives on anti-money laundering and prevention of terrorist financing. 2. Sanction screening, who and what should be screened and the various systems and controls that should be instituted. 3. Industry knowledge and the various agencies that regulate the industry. MODULE STRUCTURE 2.0 Knowledge of Compliance Regulation 2.1 THE INTERNATIONAL AND REGIONAL CONTEXT 2.1.1 FATF 2.1.2 UN 2.1.3 The World Bank and IMF 2.1.4 Basel Committee on Banking Supervision 2.1.5 The Wolfsberg Group 2.1.6 The Egmont Group 2.1.7 The European Union Directive 2.1.8 Focus on the US OFAC The USA Patriot Act FINCEN 2.1.9 Focus on the UK The Proceeds of Crime Act (POCA) National Crimes Agency UK FIU 2.1.10 Inter – Governmental Action Group Against Money Laundering in West Africa (GIABA) 46 | Page DCP Study Pack 2.2 SANCTIONS LISTS AND SCREENING 2.2.1 Screening systems and controls 2.2.2 Who should be screened? Individuals Entities Identifying UBOs Suppliers Targeting terrorism (FATF Rec 6) 2.2.3 Who/What else should be screened? Payments and transactions Goods and services Countries, jurisdictions, regions Sensitive words, dual-use goods and noise words Ships/vessels 2.2.4 External watch lists 2.2.5 Internal watch lists 2.2.6 Calibration Fuzzy logic False positives 2.2.7 Quality assurance and testing 2.2.8 Understanding Sanctions Definitions What are sanctions? What are they designed to achieve? Why are sanctions important? 2.2.9 Measurements Financial Non-financial 47 | Page DCP Study Pack 2.2.10 Programme Regime-based Activity-based Comprehensive 2.3 INDUSTRY KNOWLEDGE AND AWARENESS 2.3.1 MLPA 2011 (As Amended) 2.3.1 MLPPA 2022 2.3.2 CBN AML/CFT/CPF Regulation 20132022 2.3.3 SEC AML/CFT Regulation 20132022 2.3.4 NAICOM AML/CFT regulation 2013 2.3.5 Historical Evolution of Regulators & Operators 2.3.6 Codes of Corporate Governance 2.3.7 Introduction: regulatory principles 2.3.8 Overview of Nigeria financial sector 2.3.9 Overview commercial laws and mechanisms governing legal persons and arrangement. 2.3.10 Regulators 2.3.11 Products and services Recent regulatory and market developments and trends 48 | Page DCP Study Pack MODULE 2: PAPER1 2.1 THE INTERNATIONAL AND REGIONAL CONTEXT 2.1.1. THE FINANCIAL ACTION TASK FORCE (FATF) Introduction: The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the G-7. The FATF is a “policy-making body” whichIt leads the global action to tackle money laundering, terrorist and proliferation financing and works to generate the necessary political will to bring about national legislative and regulatory reforms in Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) and Proliferation. The 40-member body sets international standards to ensure national authorities can effectively go after illicit funds linked to drugs trafficking, the illicit arms trade, cyber fraud and other serious crimes. The FATF research how money is laundered, and terrorism is funded, promotes global standards to mitigate the risks, and assesses whether countries are taking effective action. In total, more than 200 countries and jurisdictions have committed to implement the FATF’s standards as part of a co-ordinated global response to preventing organised crime, corruption and terrorism. Countries and jurisdictions are assessed with the help of nine FATF Associate Member organisations including the Intergovernmental Action Group against Money Laundering in West Africa (GIABA) as well as other global partners, the IMF and World Bank. The FATF's decision -making body, the FATF Plenary, meets three times per year. and holds countries to account if they do not comply with the standards. If a country 49 | Page DCP Study Pack repeatedly fails to implement FATF standards, then it can be named a Jurisdiction under Increased Monitoring or a High-Risk Jurisdiction. These are often externally referred to as “the grey and blacklists”. The FATF was established in 1989 with the Secretariat is situated at the headquarters of the Organization for Economic Cooperation and Development (OECD) in Paris, France. As at 2016 FATF consists of 35 member jurisdictions and 2 regional organizations (The European Union (EU) and the Gulf Co-operation Council). The FATF also works in close co-operation with a number of international and regional bodies involved in combating money laundering and terrorist financing. There are 8 associate members of the FATF including the InterGovernmental Action Group against Money Laundering in West Africa (GIABA). In June 2014, the Ad-Hoc Group Membership (AHGM) of the FATF recommended Nigeria and 3 other countries; Israel, Malaysia and Saudi Arabia for the FATF membership. Presently, South Africa is the only country in Africa in the FATF. The FATF is a “policy-making body” which. Objectives of the FATF: 50 | Page DCP Study Pack ⮚ Sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. ⮚ Monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter- measurescountermeasures. ⮚ Promotes the adoption and implementation of appropriate AML/CFT measures globally. ⮚ Identification of national-level vulnerabilities in collaboration with other stakeholders, with the aim of protecting the international financial system from misuse. Functions and Tasks of the FATF In order to fulfil its objectives and working as necessary with other international stakeholders, the FATF carries out the following tasks: a) Identifying and analysing money laundering, terrorist financing and other threats to the integrity of the financial system, including the methods and trends involved; examining the impact of measures designed to combat misuse of the international financial system; supporting national, regional and global threat and risk assessments. b) Developing and refining the international standards for combating money laundering and the financing of terrorism and proliferation (the FATF Recommendations) to ensure that they are up-to-date and effective. c) Assessing and monitoring its members, through ‘peer reviews’ (‘mutual evaluations’) and follow-up processes, to determine the degree of technical compliance, implementation and effectiveness of systems to combat money laundering and the financing of terrorism and proliferation, refining the standard assessment methodology and common procedures for conducting mutual evaluations and evaluation follow-up. 51 | Page DCP Study Pack d) Identifying and engaging with high-risk, non-co-operative jurisdictions and those with strategic deficiencies in their national regimes, and co-ordinating action to protect the integrity of the financial system against the threat posed by them. e) Promoting full and effective implementation of the FATF Recommendations by all countries through the global network of FATF-style regional bodies (FSRBs) and international organisations; ensuring a clear understanding of the FATF standards and consistent application of mutual evaluation and follow-up processes throughout the FATF global network and strengthening the capacity of the FSRBs to assess and monitor their member countries, including through standards training and outreach. f) Responding as necessary to significant new and emerging threats and risks to the integrity of the financial system consistent with the needs identified by the international community, including the United Nations Security Council, the G20 and the FATF itself; preparing guidance as needed to facilitate implementation of relevant international obligations in a manner compatible with the FATF standards (e.g. continuing work on money laundering, terrorist financing, including new and emerging trends, and other misuse of the financial system relating to corruption); g) Assisting jurisdictions in implementing financial provisions of the United Nations Security Council resolutions on terrorism and non-proliferation, assessing the degree of implementation and the effectiveness of these measures in accordance with the FATF mutual evaluation and follow-up process, and preparing guidance as needed to facilitate implementation of relevant international obligations in a manner compatible with the FATF standards. h) Maintaining engagement with other international organisations and bodies, in particular the United Nations, to increase the outreach of the activities and objectives of the FATF. i) Engaging and consulting with the private sector and civil society on matters related to the overall work of the FATF, through the annual consultative forum and other methods for maintaining regular contact to foster transparency and dialogue towards more effective implementation of the FATF standards. 52 | Page DCP Study Pack  j) Undertaking any new tasks agreed by its members in the course of its activities and within the framework of this Mandate; and taking on these new tasks only where it has a particular additional contribution to make while avoiding duplication of existing efforts elsewhere. FATF Standards The objectives and goals of the FATF are achieved through a set of Recommendations also known as International Standards. The FATF has developed a series of RECOMMENDATIONS that are recognised as the international standardstandards for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field. First issued in 1990, the FATF Recommendations were revised in 1996, 2001, 2003 and most recently in 2012 to ensure that they remain up to date and relevant, and they are intended to be of universal application. These RECOMMENDATIONS totaling 40 are a comprehensive set of guidance and best practices to assist jurisdictions. The FATF 40 Recommendation, 2012. International Standards on combating Money Laundering and the Financing of Terrorism & Proliferation of weapons of mass destruction. The Recommendations are subdivided into 7 groups as follows: 53 | Page DCP Study Pack  A: AML/CFT Policies and Coordination Recommendation 1: Assessing risks & applying a risk-based approach Recommendation 2: National cooperationco-operation and coordination B: Money Laundering and Confiscation Recommendation 3: Money Laundering Offence Recommendation 4: Confiscation and provisional measures C: Terrorist Financing and Financing of Proliferation Recommendation 5: Terrorist Financing Offence Recommendation 6: Targeted Financial Sanctions related to terrorism and terrorist Financing Recommendation 7: Targeted Financial Sanctions related to proliferation Recommendation 8: Non-Profit Organization D: Preventive Measures Recommendation 9: Financial Institution Secrecy Laws 54 | Page DCP Study Pack  Recommendation 10: Customer Due Diligence Recommendation 11: Record Keeping Recommendation 12: Politically Exposed Persons Recommendation 13: Correspondent Banking Recommendation 14: Money or value transfer services Recommendation 15: New Technologies Recommendation 16: Wire Transfers Recommendation 17: Reliance on 3rd Parties Recommendation 18: International controls and foreign branches and subsidiaries Recommendation 19: Higher-risk countries Recommendation 20: Reporting of Suspicious Transactions Recommendation 21: Tipping-off and confidentiality Recommendation 22: DNFBPs*: Customer Due Diligence Recommendation 23: DNFBPs: Other measures 55 | Page DCP Study Pack  E: Transparency and Beneficial Ownership of Legal Persons and Arrangements Recommendation 24: Transparency and beneficial ownership of legal persons Recommendation 25: Transparency and beneficial ownership of legal arrangements F: Powers and Responsibilities of Competent Authorities and other Institutiona