Covid-19 threat response
Despite Jersey not having been subject to any hurricanes, major earthquakes or major disasters and having a stable environment, the Jersey Regulator – the Jersey financial Services Commission (JFSC) – has long been an advocate of ensuring that firms are able to manage such threats by ensuring they test their business continuity procedures and disaster recovery procedures annually (testing at appropriate intervals is required in the various Codes of Practice) and that the compliance function reviews these as having been carried out successfully.
Whilst there are fully equipped disaster recovery sites in the Island, many workers had already worked from home, with some firms offering this flexibility and even those who had not, had this ability tested to ensure it worked. Even though there was no time to transition slowly to ‘working from home arrangements’ most workers and compliance functions were easily able to access and safely interrogate their work systems and via the paperless office concept monitor existing and new clients and transactions. Firms ensured workers kept their home working spaces secure and were strict on no printing or paper being taken from the office.
COVID-19 also created new risks to be added to Business Risk Assessments and made insurance renewals more difficult as some insurers did not afford businesses the same level of cover as they had previously.
Thanks to firms complying with the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for Regulated Financial Services Businesses (AML/CFT Handbook) and the Codes of Practice, they were able to continue business as usual in that key risks identified in their Business Risk Assessments and fed through to their procedures and compliance monitoring plans were monitored and the results, actions arising and reports, transmitted to the Boards by email and online meetings through channels such as Microsoft Team Meetings and Zoom.
JFSC response to COVID-19
The JFSC was pro-active and suspended or delayed immediate examinations, extended deadlines for annual returns and provided webinars on ‘working through the pandemic’, ‘virtual examinations’ and ‘COVID-19 implications for customer due diligence’ which covered the difficulties in not being able to meet customers face-to-face or obtain wet ink certified documents, plus the use of appropriate technologies for identification and how flexibilities within the anti-money laundering regime could assist firms and how they use electronic identification. They also provided helpful webinars on ‘outsourcing’ and ‘reliance’.
The JFSC provided information for businesses covering business continuity planning, the relaxation of lockdown requirements, AML/CFT Requirements – customer identification, board resilience and span of control, the Compliance Monitoring Programme and Professional indemnity insurance and encouraged open communication.
The JFSC expected all regulated businesses to continue to meet regulatory requirements during lockdown and adopted ‘virtual examinations’ without face-to-face interviews and increased the amount of time for businesses to provide requested information and for internal reviews and fieldwork, together with longer reporting and response timeframes.
During the crisis electronic signatures proved useful and the Jersey authorities had already embarked on an e-signatures project of which ‘phase 2’ was due to start in 2020, ensuring Jersey was fully able to conduct business and close deals remotely. It is intended that the Electronic Communications (Jersey) Law 2000 will be amended by the end of January 2021.
This will assist compliance by facilitating remote witnessing of signatures, authority to attach signature electronically on behalf of another, statement of positive use of electronic signatures for all documents, electronic notarisation, electronic company documents and seals, authority to attach a signature electronically and rules on attaching electronic signatures.
Companies registry legislation
Jersey is modernising its laws in relation to companies to meet the digital age and Financial Action Task Force (FATF) requirements, which sets standards for combatting money laundering, terrorist financing and other threats to the international financial system. As such the Financial Services (Disclosure and Provision of information) (Jersey) Law was adopted in July 2020 and secondary legislation in the form of an Order and Regulations are due to come into force circa 1st December 2020.
The Order will ensure compliance with the requirements of FATF Recommendation 24 and details information to be provided to the JFSC about beneficial owners of entities and significant persons (directors and officers) of entities, additional information from companies and exemptions regarding entities in bankruptcy.
The Regulations seek to provide what information about a significant person will appear on a public register of significant persons, set out the application process to prevent information about a significant person being available for public inspection, set out an appeals process and additional confirmation fees and will include transitional provisions and consequential amendments which will include a prohibition on bearer shares.
Under an agreement with Jersey’s Government and those of the Isle of Man and Guernsey on a proposed approach in 2019, it was agreed that information about beneficial owners will not be made public at this stage.
The new Financial Crime Unit (FCEU) of the JFSC published their key findings on their financial crime examinations which were conducted in quarter four of the previous year. This covered board responsibilities, the business risk assessment and strategy, ongoing monitoring, transaction monitoring and automated systems, policies and procedures for reporting, the MLRO and screening, awareness and training of employees. Examples of best practice were given. Whilst there were findings, the FCEU noted high levels of awareness of financial crime risk and consequences of non-compliance with policies and procedures amongst the employees examined. Compliance officers continue to engage senior management in ensuring full compliance.
The JFSC also published its findings in relation to its themed examination on ‘reliance on obliged persons’ for Customer Due Diligence (CDD) and as a result of some findings, the application of Article 16 of the Money Laundering (Jersey) Order 2008 and section 5 of the AML/CFT Handbook will continue to be reviewed in examinations conducted by FCEU and Pooled Supervision Team examinations.
The JFSC has committed to support the industry by the development of a shared ‘know your customer’ (KYC) utility which will be a shared tool for verifying customer identities. This would in theory reduce take on costs and provide greater quality assurance on take on.
For the banking sector the JFSC also intends to implement the Basel III framework in full by 2023 having received back consultation from the industry.
Migration of foreign limited partnership
Jersey has made possible the migration of foreign limited partnerships into Jersey via application and submission of a declaration from the general partner, if they are formed in a jurisdiction which does not prohibit this, they do not have legal personality and are solvent. Once approved by the JFSC they can continue as a Jersey Limited Partnership (LP) registered under the Limited Partnerships (Jersey) law 1994. This ensures the smooth continuation of the LP and it meeting regulatory requirements under Jersey law.
There are also amendments to the Codes of Practice coming in on sustainable investments which covers any fund with environmental, sustainable or social investments (ES) and firms providing investment business related to ES funds. The funds and firms must have policies and procedures that disclose, verify and document the credentials of the ES investments, with funds requiring an appropriate corporate governance and structure to support them. This is to avoid ‘greenwashing’ where investments are mislabelled as ES investments. This means Jersey will be on par with international environmental, sustainable and governance (ESG) regulations, such as those introduced in the EU from ESMA and meet the wide-ranging EU reforms being introduced in 2021. The requirements will include the fund producing public statements, verifying and documenting the ESG credentials of the investment in the due diligence process, by way of a recognised taxonomy, continuous (annual) review and monitoring of the investment management process. Whilst creating more work for compliance officers, it will give investors added comfort in relation to sustainable investments and their authenticity.
The national risk assessment and risk-based supervision
The Jersey Financial Crime Strategy Group (JFCSG) have conducted a National Risk Assessment of Money Laundering and Terrorist Financing (NRA), a requirement of FATF, using the World Bank NRA Methodology. The review covers the national threat, national vulnerability and sectoral modules which include all financial services businesses. So far this has covered mainly money laundering but will focus on terrorist financing in 2021. The first NRA published September 2020 (covering 2013 – 2018) shows healthy compliance and an understanding of AML regulations and requirements by the financial services industry in Jersey, albeit with some areas for improvement for which an action plan has been put in place. Financial services were identified as being the sector most exposed to money laundering risk which is no surprise as Jersey is an International Financial Centre. It can be noted that the JFSC also collate this information as part their risk-based supervision enabling them to assess firms’ risk levels and identify areas of focus for visits.
Anti-money laundering and countering the financing of terrorism (AML/CFT)
Jersey has proposed amendments to the AML/CFT Handbooks to implement the requirements of the 2012 FATF Recommendations. These include, in relation to Business Risk Assessments to make a copy available on request to the JFSC, for CDD guidance on required documents in a variety of cases and being more specific for legal arrangements and entities, for Reliance, shortening the period to produce evidence of original documents from five to two working days and to review the country risk of the Obliged Person and for equivalent countries and territories the JFSC no longer providing a list but guidance instead and merging the four AML/CFT Handbooks which presently cover different sectors. This extra compliance work will give clients and other jurisdictions added confidence that Jersey is meeting all of its obligations and more.
In terms of progress on the 5th EU Money Laundering Directive (5MLD), as previously mentioned the companies registry is committed to a public register of beneficial ownership by 2023 and feedback from Jersey has been provided to the UK Government (who issued their summary of responses in July 2020) in January 2020, which also covered trusts to ensure no discrimination regarding their treatment where the regulation is similar to the UK and where the trust company provider is subject to regulation in a compliant jurisdiction. Whilst ensuring law enforcement agencies and relevant competent authorities have full access, there are concerns from a criminal, security and privacy data protection point of view, of allowing access to those without legitimate interests and also of cutting across long standing case law.
From the Island’s point of view AML/CFT continues to be a major focus ahead of the MONEYVAL visit to Jersey, which has been postponed to 2023.
The Jersey Compliance Officers Association (JCOA)
The JCOA has continued to deliver up to date and relevant seminars to its members during lockdown via webinars from various guest speakers. This has proved successful and maintained a satisfactory level of Continuing Professional Development for its 500 plus members.
The challenges brought about by COVID-19 on Jersey’s finance industry and its compliance professionals, have meant they have had to adapt, develop and continue to meet the regulatory requirements in Jersey which are continuously evolving to comply with international standards, as they unravel.