Preparing for visits by the financial services regulator – get all documents ready beforehand
By Sybil Somaes, Managing Director, Compli-Serve Namibia.
Few things create as much tension and stress in an organization than a notice from the regulator announcing a regulatory inspection or visit. Fortunately, if your institution is one that is regulated by the Namibia Financial Institutions Supervisory Authority (NAMFISA) you should be accustomed to onsite and offsite inspections.
However, if your institution fails to prepare adequately for such a visit, it faces serious repercussions such as the imposition of regulatory penalties including substantial fines; restrictions on business activities or in the worst case, the suspension or withdrawal of your operating license.
This article seeks to provide some pointers on how to prepare for these inspections to reduce the consequences if you have fallen behind, and how best to avoid the accompanying impact from reputational risk.
Ensure senior management involvement
The notice of an intended visit or inspection would ordinarily be served on the Principal Officer of the organization. This is done to ensure that the inspection gets adequate attention in the business. It is important that all relevant senior managers and employees are informed of the nature of the visit and how it will be conducted by the regulator. It is also important to ensure that a senior employee is given accountability for the successful execution of the visit as well as to ensure that all engagements with the regulator can be coordinated. This person will also serve as the contact for the regulator. This role is normally fulfilled by a compliance officer and this person must ensure that they allocate sufficient time and resources for the process. It is important to set deadlines and ensure that roles and responsibilities are allocated to the right people within the organization.
Be adequately prepared
It is custom for the regulator to provide advance notice of an intended onsite or offsite regulatory visit or inspection. This is normally done to ensure that an entity has sufficient time to prepare all the required documentation. The FIC directive 02 of 2017 (Availing records and information to FIC/NAMFISA timely) provides the requirements for ensuring the timeous submission of records and information to the regulators regarding Anti-Money Laundering (AML) compliance. This directive inter alia provides that when information is availed timely, compliance reviews can be conducted timely and efficiently and demonstrate a firm’s effectiveness in terms of record keeping and customer behaviour monitoring, as well as due diligence controls. Conversely, the timely availing of records and information enhances the effectiveness of the regulator’s contribution to the prevention and combatting of money laundering, terrorist financing and proliferation activities as timeous actions can be taken.
Review relevant policies and procedures
Depending on the nature and area of the inspection, it is important to review the relevant policies and procedures prior to the visit to ensure that these are up-to-date and reflect the latest processes and to ensure that any recent amendments are reflected as such. It is important to ensure that documentary evidence supports processes. Part of the review process can involve testing the effectiveness of the implementation of the policies and procedures.
Review client files and ongoing customer due diligence processes
This is an essential step when it comes to an AML inspection. It is important to ensure that the internal AML compliance rules provide the process for onboarding clients and dealing with different categories of clients depending on their AML risk profile. It is important also to review the training records of all employees and to ensure that training is adequately attended by staff and so documented.
An independent compliance review can add value
By conducting an independent review, a firm is able to bring technical expertise on board within a short period of time, allowing internal resources to focus on their core responsibilities. Compli-Serve Namibia can assist a firm in this regard by reviewing the file and documentation that has been prepared for the inspection and being able to identify any gaps or issues upfront, prior to submission to the regulator. In addition, a detailed rectification plan can also be provided to the regulator, which should give some comfort to the regulator that the necessary systems are in place. It is important to note that the plan must be realistic as the regulator will conduct follow-up engagements and failure to implement an action plan may result in further reviews or even sanctions.
Do not fear
A financial institution with adequate processes and procedures in place should not fear a regulatory inspection provided they follow these tips and dedicate sufficient time and resources to prepare properly for the visit.