Financial Crime Policy

FINANCIAL CRIME POLICY

1. Introduction and Status

1.1 Senior Management is committed to the implementation, review and renewal of this policy.

1.2 This policy has been adopted partly in light of the Firm’s legal and regulatory obligations in relation to the prevention of money laundering and terrorist finance as well as the FCA’s requirement that we should document our risk profile and risk management policies in relation to financial crime. This includes risks that the Firm might inadvertently become involved in, might encounter, or might be used to facilitate:

1.2.1      money laundering;
1.2.2      terrorist finance;
1.2.3 Proliferation finance
1.2.4      internal fraud;
1.2.5      external fraud;
1.2.6      corruption; or
1.2.7      market abuse.

1.3 The JMLSG and the FATF has provided further guidance on these requirements in relation in particular to money laundering and terrorist finance. The latest JMLSG guidance notes were issued in July 2022, with revisions published in March 2023. The latest revisions enhance the AML requirements placed on crypto-asset exchange providers and custodian wallet providers and adds the requirement for firms to undertake proliferation financing risk assessments. The JMLSG were subject to additional minor amendments as a result of the amendment to the Money Laundering Regulations effective 1 September 2022. The FCA has also produced its own III-part guidance “Financial Crime guide “FCG” and Financial Crime Thematic Reviews “FCTR”. The FCG gives firms an example of good practice and bad practice and is used in conjunction with the JMLSG and the handbook rules by the regulator as part of their supervisory assessment process to determine compliance with the regulations.

1.4 The definition of certain terms used in the policy statement are given in Annex A.

1.5 The definition of certain terms used in the policy statement are given in Annex A

2. Culture, Values and Commitments

2.1 It is central to the business model of the Firm that it continues to conduct its business with integrity and to organise and control its affairs responsibly and effectively; and that the Firm’s clients and other stakeholders understand this. The Firm therefore requires Senior Management and other staff to adopt and promulgate these values throughout the Firm.

2.2 Consistent with those values, Senior Management commit to: –

2.2.1 ensuring that we obtain satisfactory evidence of the identity of every Customer and Beneficial Owner – in accordance with the standards set out in the JMLSG Guidance Notes – before conducting business with them;

2.2.2 knowing enough about our Customers throughout our dealings with them, including who they are and why they wish to have – or continue to have – a relationship with us;

2.2.3 ensuring that our staff are trained appropriately to: (a) understand the legal and regulatory obligations relating to financial crime which fall on the Firm, as well as directly on them; and (b) recognise and deal appropriately with situations which may involve financial crime;

2.2.4 encouraging and fully assisting staff promptly to report any suspicions of financial crime to the appropriate officer of the Firm in the appropriate way;

2.2.5 monitoring regularly the effectiveness of these commitments and the Firm’s detailed procedures; and

2.2.6 updating the Firm’s policy and its detailed procedures when required

3. Allocation of Responsibilities

3.1 A Senior Manager is given overall prescribed responsibility for the Firm’s policies and procedures to prevent the firm being used to further financial crime. The policies and procedures include the Financial Crime Policy. Senior Management is led by the board of directors. As FCA Senior Management functions, the directors/partners are each ultimately personally responsible to the FCA for the Firm’s systems and controls, including its financial crime systems and controls. The Firm has designated an individual Senior Manager with the responsibility of implementing adequate systems and controls to in relation to financial crime. He or she is also the Money Laundering Reporting Officer as this is proportionate and appropriate for the Firm in light of the nature scale and complexity of the Firm’s activities.

3.2 The Firm’s MLRO (who is also the Compliance Officer) has personal responsibilities and potential liabilities which go beyond those of other approved persons. They are:-

to the FCA, for the Firm’s anti-money laundering systems and controls;
under the Money Laundering Regulations (see paragraph 14.2 below), for the Firm’s systems and controls for the reporting of suspicions of money laundering;
under the Proceeds of Crime Act 2002 and the Terrorism Act 2000, for ensuring that he/she does not commit any relevant failure to report offence or for consenting to a transaction when he/she should not consent; and
under the Criminal Finances Act 2017, for ensuring that he/she does not commit any relevant failure to report offence or for consenting to a transaction when he/she should not consent.

3.3 The directors/partners will ensure that the MLRO continues to have sufficient experience and understanding to fulfil his/her functions in relation to financial crime and that he/she has sufficient resource and access to the directors/partners to discharge his/her responsibilities and those of the Firm.

3.4 The directors/partners will ensure that the Firm does not commit any corporate offences under the Money Laundering Regulations or the Criminal Finances Act 2017. The Criminal Finance Act includes the failure of the Firm to prevent the facilitation of financial crime and tax evasion (domestic and overseas).

4. Summary of the Firm’s approach to Assessing its Financial Crime Risks

4.1 In assessing the Firm’s financial crime risks, we place considerable reliance on the JMLSG Guidance Notes and other JMLSG publications. We also rely on FATF and other international agencies such as the World Bank. The Firm pays regards to the FCA’s “FCG” for examples of good practice and poor practice.

4.2 In accordance with the JMLSG Guidance Notes, we have assessed our financial crime risk by reference to a range of factors, including the identity of our customers (and other counterparties), our products and services, delivery channels and geographical areas of operation.

4.3 Our assessment of our risk in relation to each type of financial crime is set out in sections 6 to 11 below.

5. Summary of the Firm’s approach to Monitoring its Financial Crime Risks and to ensuring that this Policy and our Procedures remain Effective

5.1 The MLRO will monitor and assess the Firm’s financial crime risks whenever a new business line or strategy is developed which might change the Firm’s customer, geographical or product risk. Investment executives and members of Senior Management must consult with the MLRO when developing a new business proposal. The Firm will employ risk weighting measures for new and existing products in view of matters such as distribution channels, transaction type, application process and geographical concentration (this list is not exhaustive); therefore, meaning procedures may vary per product or transaction type dependent on risk.

5.2 In addition, the MLRO will make reasonable efforts to monitor national and international findings in relation to financial crime risks and may from time to time recommend amendments to this policy or to the Firm’s detailed procedures after:

5.2.1 reviewing periodically the materials published by law and regulatory enforcement authorities, including the NCA and the FCA (e.g. Final Notices against firms, Dear CEO letters and speeches);

5.2.2 reviewing periodically the materials published by relevant associations, including the FCA, JMLSG, FATF and the European Union;

5.2.3 reviewing periodically the published HM Treasury’s proliferation financing risk assessment;

5.2.4 peer review through trade associations and informal groupings;

5.2.5 liaison with solicitors and other professional advisors; and

5.2.6 reviewing periodically criminal trends as published from time to time by the Office of National Statistics and on at least an annual basis providing this analysis in the MRLO’s report to senior management / the directors/partners.

5.3 The MLRO is tasked with monitoring the Firm’s detailed procedures in relation to financial crime risk on both an ad hoc basis and a rolling basis so that each type of risk is addressed at least every six months or as and when new and potential products / transaction risks are identified.

5.4 The MLRO will report to Senior Management at least annually about the Firm’s financial crime risks and will recommend whether any changes are required to this policy or to the Firm’s detailed procedures. The MLRO is required to include in the report to Senior Management an assessment of the firms UK level risk, EU Level risk and non-EU Level risk. The Report also includes details of those clients identified where enhanced due diligence and monitoring procedures are employed.

5.5 Any case of financial crime involving the Firm will be investigated and dealt with appropriately by the MLRO, with reference to other members of Senior Management as appropriate. Any such case – including any reports made to the NCA – will be reported to Senior Management to the appropriate extent, and at the appropriate time (taking account of the risks of tipping off or prejudicing an investigation). The MLRO will address what lessons can be learned and what changes may be required to this policy or to the Firm’s detailed procedures.

5.6 The MLRO will be required to share information with relevant authorities as per Regulation 11 of the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 where required by law, subject to verification of the lawful request.

6. Money Laundering Risk: Assessment and Procedures

6.1 Our money laundering risk is addressed in the Money Laundering Prevention Chapter of our Compliance Manual.

Features

6.2 There are three stages to the money laundering process:-

6.2.1 “Placement”, when criminal property is introduced into the financial system;

6.2.2 “Layering” of criminal property, which involves obscuring the source of funds through multiple transactions; and

6.2.3 “Integration” of laundered funds into the legitimate economy.

Application to our business

6.3 Chapters (I and II) of the Compliance Manual describe our business.

6.4 Existing clients: Individuals, Family offices, Individual professional, High net worth and sophisticated investors: Our risks of becoming involved in money laundering are reduced because we have direct control over the acceptance of client engagements and the administering of the client onboarding process. The Firm does not outsource the KYC (Know Your Customer) and client onboarding function and therefore reliance is not placed on third party providers. The Firm requests that all new and existing clients furnish it with information which includes (but is not limited to): –

Confirmation and evidence of legal form (individual, trust, corporate / other);
Confirmation and verification of Controllers >25% share /voting rights / other (in the case of entities such as trusts etc.);
Confirmation of named beneficiaries;
Structure / organisation chart showing operating jurisdictions;
Politically Exposed Person involvement;
Connections to FATF high risk countries;
Business type;
Source of funds;
Source of wealth;
Transaction types, volume and frequency; and
Authorised signatories.

6.5 Products: AIM Portfolio services, Bespoke Portfolios and Model Portfolio services.

6.6 Portfolio services: We have concluded that the transactions that we arrange and advise on behalf of the Clients raise some risks of money laundering. However, we have a close working relationship with the client and monitor client activity throughout the relationship with the client. Where high risk factors have been identified at the beginning of the client relationship the monitoring frequency is increased; likewise, where a new risk is identified during the client relationship a reassessment will be undertaken and monitoring frequency increased or decreased accordingly. Where new information is learned regarding the client during the relationship the risk assessment will be revisited and revised as appropriate. If we become aware or have reasonable grounds to know or suspect clients have themselves inadvertently committed criminal offences or if they have been used to facilitate money laundering, then the Firm will report its concerns to the NCA via the MLRO. Continued monitoring of client accounts is performed on an ongoing rolling basis.

6.7 Underlying portfolio assessments: We have concluded that the transactions that we arrange and advise on behalf of the Clients raise some risks of money laundering. It is our assessment that due to the fact that the Investments are into listed securities, these are a lower risk then unlisted securities as there is a regulatory body supervision for the purpose of the Money Laundering Regulations and equivalent standards for the proposed security. We apply a thorough due diligence process assessing portfolio investments and the investors into the portfolios, applying the FCA risk-based approach and complying with the requirements of the Money Laundering Regulations. Where working with overseas clients and / or securities (if and when applicable) we apply and request confirmation of compliance with EU Money Laundering Directive equivalent standards (see paragraph 13 below).

Procedures

6.8 Our detailed procedures to combat anti-money laundering are set out in The Money Laundering Prevention Chapter of the Firm’s Compliance Procedures Manual.

7. Terrorist Finance Risk: Assessment and Procedures

7.1 Our terrorist finance risk is also addressed in The Money Laundering Prevention Chapter of the Firm’s Compliance Manual.

Features

7.2 Terrorist finance has different features to money laundering, since funds directed to terrorists may not be associated with earlier criminal conduct but may have been earned legitimately. Terrorist finance may be associated with the movement of funds or the provision of investment returns on funds destined to finance terrorism.

Application to our business

7.3 We have concluded that our services present low risks of being used to facilitate the movement of funds by terrorist financiers since we do not hold any client money or assets.

7.4 The risk that terrorist financiers may seek to invest in the portfolios in order to provide high returns over the medium to long term is low although not impossible and therefore the Firm must remain vigilant for any suspicious activity, associations with sanctioned individuals and any adverse publicity from credible sources. The Firm is not permitted to transact with Sanctioned individuals and has a duty to check all new clients and investment opportunities against the HM Treasury sanctions list. Any persons/ associations found to be present on the HM treasury sanctions list must be notified immediately by the MLRO to the Office of financial sanctions implementation.

Procedures

7.5 Our terrorist finance systems and controls are integrated with our money laundering systems and controls, so that our due diligence checks address terrorist finance risks. This includes training on terrorist finance risks as part of anti-money laundering training and mechanisms for the reporting of suspicions of terrorist finance integrated with reporting of suspicions of money laundering

8. Proliferation Financing Risk; Assessment and Procedures

Features

8.1 Proliferation financing is the act of providing funds or financial services for use, in whole or in part, in the manufacture, acquisition, development, export, trans-shipment, brokering, transport, transfer, stockpiling of, or otherwise in connection with the possession of use of, chemical, biological, radiological, or nuclear weapons including the provision of funds or financial services in connection with the means of such weapons and other CBRN-related goods and technology, in contravention of a relevant sanctions obligation. It is important that we understand the business of our clients to be able to determine their potential risk of facilitating proliferation financing.

Application to our business

8.2 We have concluded that the risks that our business will knowingly facilitate proliferation financing is low. Firstly, we undertake a thorough due diligence process on our prospective clients, taking time to understand their business and potential risks. Importantly, we screen all of our clients against sanctions lists and screen for politically exposed person status, special interest person status and adverse media, therefore clients looking to exploit our industry would come up against a level of screening that is designed to inhibit their participation.

Procedures

8.2 Our proliferation financing systems and controls are integrated with our money laundering systems and control, so that our due diligence checks address proliferation financing risks. This includes training on proliferation financing as part of anti-money laundering training and mechanisms for the reporting of suspicions of sanctions violations with suspicions of money laundering.

9. Internal Fraud Risk: Assessment and Procedures

Features

9.1 Internal fraud risk has three aspects. First, the risks that our staff may choose to commit fraud motivated by disaffection with the Firm or out of greed. Second, that staff are coerced or corrupted by external criminals into committing fraud. Third, that we may be deliberately targeted by criminals seeking to place their agents in our employment.

Application to our business

9.2 We have concluded that our risks of internal fraud are relatively low because: we do not hold client money; the Firm is relatively small and operates in a small office on one floor; staff are closely supervised and work together in close teams; the culture of the Firm is friendly and not hierarchical; and staff are well remunerated on a fair basis (remuneration is designed not to incentivise bad / conflicting practice).

9.3 It is likely that any member of staff who was disaffected with the Firm or who had been corrupted or coerced into co-operation with criminals would be readily identified.

9.4 Our business involves extensive supervision and co-operation between members of the same team and between staff in all roles. There is extensive division of responsibilities. When staff are absent on holiday, others cover for them in day-to-day operations. These factors help to mitigate the risk of internal fraud.

Procedures

9.5 Where we have a mandate to control securities, that mandate may be exercised only by appropriately authorised persons. Those with the greatest degree of control and therefore the most opportunity for fraud are FCA approved persons, whose fitness and propriety will have been most closely assessed

9.6 Independent references are taken on each candidate for employment. In addition, background checks may be carried out using the services of a dedicated service provider, particularly in relation to more senior staff. All new staff are interviewed by at least one member of Senior Management and the Firm operates a formal pre-hire review process.

9.7 Electronic systems are individually password protected.

9.8 Quarterly management accounts are prepared and reviewed by Senior Management, which serves as a form of internal audit. The Firm’s external auditor is Cox Costello & Horne.

9.9 Staff are closely monitored by the Compliance Officer as part of the Firm’s other compliance systems and controls. Staff remuneration is reviewed annually payment links assessed.

9.10 The Firm has a commercial and legal obligation to assess payment links to staff (employees, contractors and agents) to ensure that is not facilitating domestic or overseas tax evasion. Payment links are assessed upon payment set up and upon receipt of any notifiable changes / requests to change

10. External Fraud Risk: Assessment and Procedures

Features

10.1 External fraud may be perpetrated by those with a business relationship with us (for example VAT fraud) or by strangers to the Firm (for example through the use of malicious software).

Application to our business

10.2 We have concluded that our risks of becoming the victim of external fraud are relatively low.

Procedures

10.3 A basic level of due diligence is applied to any proposed service provider or contractor and they will be approved by a member of Senior Management.

10.4 The Firm’s physical security arrangements include locked external doors.

10.5 The Firm’s IT security arrangements include password-protected computer workstations and appropriate firewall protection.

11. Corruption Risk: Assessment and Procedures

Features

11.1 The greatest risks of becoming involved in corruption derive from: operating in countries noted for high levels of bribery, corruption or organised crime; becoming involved in business sectors which involve large projects, for example energy or construction projects; and dealing with politically exposed persons.

Application to our business

11.2 We have concluded that we face relatively low risks of becoming involved in corruption because we do not deal in business sectors relating to projects as described above, nor usually with politically exposed persons (although we acknowledge this is incidental and there is a real risk that future clients may be politically exposed persons).

Procedures

11.3 To the extent that we transact in emerging market jurisdictions which suffer from higher levels of bribery or corruption, then we interaction with companies in those jurisdictions with a high degree of care and due diligence. We conduct extensive identity verification of the directors and shareholders of those companies, identify beneficiaries and conduct searches of the sanctions and enforcement lists; politically exposed persons list and adverse media using credible publicly available sources. The Firm would never interact with any company or persons involved in bribery or corruption.

12. Market Abuse Risk: Assessment and Procedures

Features

12.1 We face risks relating to market abuse, for example, where we may on the rare occasion from time to time come into contact with non-publicly available information which may have a material effect on the price of listed securities.

12.2 These risks may also be external to us – our clients may be the victims of market abuse. They may also be internal – staff might deliberately commit market abuse.

Application to our business

12.3 We have implemented systems and controls for reducing the risks of market abuse which we face in common with other asset managers.

12.4 Our procedures in relation to market abuse are set out in our compliance manual and separate market abuse policy and procedures document. Our key mechanisms for discouraging, detecting and forestalling market abuse are our policy and procedures relating to personal account dealing and our use of restricted lists of securities in which the Firm may not deal when in possession of inside information.

12.5 We also provide training to our team in how to recognise and deal with market abuse (including reporting suspicious transactions/ suspicious orders by others to the appropriate officer and to the FCA) and about the law and regulation which applies to the Firm and to investment executives personally (Market Abuse Regulations 2016 & Criminal Sanctions Market Abuse Directive).

13. The Firm being used to facilitate domestic and overseas tax evasion by partners, directors, employees and contractors

The Firm is required to risk assess all payment links to prevent tax evasion. Due diligence is required to be undertaken on all partners/directors, employees and contractors alike. The Firm is required to verify identity and assess payment links for the purpose of the prevention of tax evasion. The Firm is required to investigate and report any suspicions of tax evasion to the NCA. The risk of the Firm being used to facilitate tax evasion is low although not impossible, hence the Firm must remain vigilant and maintain adequate systems and controls to prevent tax evasion. The Firm is required to verify individuals and does not facilitate cash payments. All directors/partners, employees and contractors are required to confirm their tax reporting status (per jurisdiction) and include individual tax reference number

14. The Money Laundering Regulations

14.1 In the UK, the EU Money Laundering Directive was implemented by the Money Laundering Regulations 1993 and subsequently the Money Laundering Regulations 2003, which were replaced by the Money Laundering Regulations 2007, and were superseded by the Money Laundering Regulations 2017. The 2017 Regulations incorporated the European Union’s Fourth Money Laundering Directive. The latest amendments “The Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022, made on 1 September 2022, brought in the following provisions:-

Regulation 2 (Amendment of the Money Laundering and Transfer of Funds (Information on the Payer) Regulations 2017 (2));
Regulation 12 (Changes in control of registered crypto-asset businesses);
Regulation 5 (Crypto-asset transfers), which comes into force 1 September 2023;
Regulation 9 (Reporting of material discrepancies); and
Regulations 16 and 17 (Amendments to primary legislation).

14.2 The main requirements of the 2017 Regulations are:-

a requirement to identify beneficial owners in the form of natural persons;
a requirement to risk-assess customers on multiple factors which include (but are not limited to): Jurisdiction risk, industry risk, source of wealth risk, source of funds risk and transaction risks;
modification of the guidance on when simplified due diligence measures may apply;
enhanced guidance for on-going monitoring of clients;
risk profiling of clients;
application of customer due diligence applied on a risk-based approach;
extent to which reliance can be placed on other regulated firms;
enhanced guidance on Politically Exposed Person risk assessments;
enhancements to reports as is required in SYSC 6 of the FCA Handbook (Money Laundering Reporting Officer reports to the directors/partners);
senior management regime. Where required, the need to appoint a senior manager to be responsible for implementing policies and procedures to prevent the Firm being used to further financial crime/terrorist financing. The MLRO is responsible for compliance and oversight of the policies and procedures for the Firm, and for reporting to other senior managers and the directors/partners;
training and competency enhancements. The Firm is to provide appropriate and regular training targeted at the needs of its staff (on a departmental-/function-/role- targeted basis);
risk weighting – applying appropriate and proportionate risk assessments on a risk-sensitive basis (this may vary per product / service offered by the Firm); and
on-going assessments of clients’ risk profiles.

14.3 The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 brought in the following provisions:-

a requirement to identify beneficial owners in the form of natural persons;
a requirement to risk-assess customers on multiple factors which include (but are not limited to): Jurisdiction risk, industry risk, source of wealth risk, source of funds risk and transaction risks;
modification of the guidance and reduction of instances where simplified due diligence measures may apply, hence meaning these options are no longer available where other risk-factors exist;
enhanced guidance for on-going monitoring of clients;
enhanced risk profiling of clients;
enhanced application of customer due diligence applied on a risk, based approach;
guidance on the extent to which reliance can be placed on other regulated firms, and the requirement to enter into a written agreement with the third-party, with the requirement to assess their AML systems and controls and a commitment to obtain proof of checks undertaken;
enhanced guidance on Politically Exposed Person risk assessments;
enhancements to reports as is required in SYSC 6 of the FCA Handbook (Money Laundering Reporting Officer reports to the board);
training and competency enhancements. The Firm is to provide appropriate and regular training targeted at the needs of its staff (on a departmental/ function/role targeted basis);
enhanced risk weighting – Applying appropriate and proportionate risk assessments on a risk-sensitive basis (this may vary per product / service offered by the firm); and
enhanced on-going assessments of clients’ risk profiles.
The requirement for HM Treasury to make arrangements for a risk assessment to be undertaken to identify, assess, understand and mitigate the risks of proliferation financing affecting the UK. The treasury must identify the sectors of lower and greater risk from proliferation financing and provide information and analysis necessary to enable it to allocate and prioritise resources needed to counter the proliferation financing risk and consider whether exclusions contained in regulation (15) are being abused. HM treasury are required to present the report to parliament and to provide a copy to the supervisory authorities.
Take appropriate steps to identify and assess risk the risks of proliferation finance to which the business is subject. The firm must have regard to the HM Treasury risk report produced and the following risks:-
The firm’s customers;
The countries or geographic areas in which it operates;
It’s products or services;
Its transactions and; and
Its delivery channels.

The steps the firm undertakes to comply with its requirements will take into account, the size, scale and nature of the firm’s business. The firm will keep a written record of steps undertaken and provide to supervisory authorities on request.

The firm must establish policies and procedures to mitigate and manage the effectively the risks of proliferation financing identified in the firm’s risk assessment. These policies and procedures are required to be agreed by senior management, reviewed on a regular basis, updated as required and communicated to the team.

14.4 The MLRs require firms to apply high-risk measures (enhanced due diligence) where any of the following occur:-

There are relevant transactions between parties based in high-risk countries;
The customer is a beneficiary of a life-insurance policy;
The customer is a third country national seeking residence rights or citizenship in exchange for transfer of capital, purchase of a property, government bonds, or investment in corporate entities;
Non-face-to-face business relationships or transactions without certain safeguards (for example electronic identification process); and
Transactions related to oil, arms, precious metals, tobacco products, cultural artefacts, ivory or other items related to protected species, or archaeological, historical, cultural and religious significance or rare scientific value.

31 July 2024