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SCB releases 2019 examinations priorities

The Risk Analytics and Examinations Department of the Securities Commission of The Bahamas recently released its 2019 examination priorities, highlighting the top risk areas identified for its registrants and licensees.

The commission’s Executive Director Christina Rolle said the dissemination of the priorities was an important element of the commission’s risk-based supervision program, as it provides the industry with insight into where the commission perceives the greatest risks are.

“As the commission moves deeper into its implementation of risk-based supervision, we want to demonstrate good leadership and be transparent about our risk assessments and observations,” Rolle said. “This information will help responsible registrants and licensees to ensure they too are focused on these areas and, where necessary, that they take appropriate measures to manage those risk factors.”

The commission’s Risk and Analytics Department, formed in May 2018, will be responsible for the examinations. According to Lesley Pearson, the department’s manager, the priority focus areas identified for 2019 are:

• AML/CFT (anti-money laundering/combating the financing of terrorism) thematic reviews of financial and corporate service providers (FCSPs). Examiners will be conduct focused reviews of all FCSPs for compliance with applicable anti-money laundering requirements, sufficiency of KYC (know your customer) documentation and the effective management of IBCs (international business companies) including the maintenance of accounting records.

• Risk management including self risk-assessment and client risk-rating framework. The unit will assess the effective implementation of self risk-assessment and client risk-rating frameworks for Securities Industry Act/Investment Funds Act/financial and corporate service providers (SIA/IFA/FCSP) licensees which are now required by the Financial Transactions Reporting Act, 2018.

• Business conduct and risk profile. Examinations under this focus will include a review of large entities that potentially pose a systemic risk to the jurisdiction (i.e. employs a large number of staff; manages a large number of client assets) and have operations across multiple industries (i.e. securities, banking, insurance). Additionally, examiners will perform an assessment of other identified risk areas, inclusive of new product lines introduced by its registrants, capital adequacy levels, and corporate governance.

• Cybersecurity. All examination programs will include a review of cybersecurity with an emphasis on disaster recovery, data management and accessibility, data protection and retention, as well as proper configuration of network storage devices.

The commission took a number of factors into account in determining the priority focus areas. These included deficiencies identified in The Bahamas’ most recent mutual evaluation report by the Caribbean Financial Action Task Force; the promulgation of the Register of Beneficial Ownership Act, 2018 and the Commercial Entities (Substance Requirements) Act, 2018; and the results of the 2018 preliminary risk rating exercise for all licensees and registrants.

The areas of priority are not the sole areas of risk that will be addressed in the commission’s examinations. Under a risk-based supervisory approach, the nature and scope of any on-site examination is determined by the potential risk in a licensee’s operations, products offered, financial position, and other factors.

The risk-based approach helps to focus supervisory attention where it perceives the greatest risk is across its regulatory scope, which comprises more than 150 registered firms (including a marketplace and clearing facility), nearly 1000 investment funds and fund administrators and over 350 financial and corporate service providers.

Examination results serve to enhance the commission’s risk monitoring process, as well as improve industry standards and identify and address areas of market misconduct.

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