Affirmation of Jersey’s High International Standards

MONEYVAL is the European FATF-style regional body, based at the Council of Europe, which assesses European jurisdictions who are not FATF members, against international − i.e. FATF – standards, to determine the effectiveness of anti-money laundering and counter-terrorist financing (AML/CFT) measures.

In the MER, Jersey has been recognised as one of the leading jurisdictions worldwide for compliance with the FATF standards. As part of the FATF Methodology, jurisdictions are assessed regarding compliance with the 40 Recommendations, so called Technical Compliance, as well as the effectiveness of the respective AML/CFT regime against 11 Immediate Outcomes − i.e. how well laws and regulations are being used in combatting financial crime − so called Effectiveness. With regards to Technical Compliance, Jersey was Compliant or Largely Compliant with 39 out of 40 Recommendations. Only few jurisdictions worldwide achieve this level of technical compliance in their MER. The single Partially Compliant rating relates to the requirement for every financial institution to have an independent audit function in Recommendation 18.

With regards to Effectiveness, Jersey’s AML/CFT regime received one High rating, six Substantial ratings and four Moderate ratings and importantly, no Low rating. The High Level of effectiveness obtained by Jersey for risk understanding and national cooperation/coordination is very rare, held by only three countries worldwide and this importantly demonstrates that the Island can comprehensively manage and mitigate the risks it faces as a globally significant IFC. The Jersey regime concerning accuracy and transparency of beneficial ownership information for legal persons and arrangements is praised by the assessment team where they note the wide range of mitigating measures in place to reduce risk such as risk assessment, ongoing vetting of information and Registry supervision which occur in few other countries around the world. This shows that Jersey is part of the solution, rather than part of the problem in this area.

However, as with all evaluation reports, recommendations for continual improvement are made in line with global best practices. Most importantly the report finds that no “fundamental improvements” are required to the Jersey regime. Improvements around Supervision, Preventative Measures, Financial Intelligence and Investigation and Prosecution are identified and are the subject of Ministerial Priorities and a High-Level Action Plan published by Jersey, where many actions for improvement are already underway.

Under the banner of ‘Combatting Financial Crime – Together’, Jersey has taken significant steps since 2020 to keep up to date with the risks and threats the Island faces and coordinate an effective response. Competent authorities implemented a significant risk programme and National Risk Assessments (NRAs) have been carried out and published in several areas with progressively increasing scope as new threats emerge. These were conducted hand in hand between authorities and industry to ensure understanding of threats faced is shared and widely understood. These NRAs cover all aspect of money laundering and terrorist financing, as well as different sectors and products such as legal persons and arrangements, non-profit organisations, Jersey private funds as well as
virtual asset service providers.

Legislation has been implemented and amended and it is fair to say that the number of new laws being drafted and approved has increased exponentially over recent years. For example, exemptions from AML/CFT obligations were removed because they could not be justified as being based on low risk, a new criminal offence of failing to prevent money laundering was added to the Proceeds of Crime Law and provisions enabling deferred prosecution agreements were introduced in a new law. Also, certain non-profit organisations are now subject to further AML/CFT obligations in line with the requirements of the FATF standards and further risk assessment work. The Financial Intelligence Unit (FIU) has been restructured, along with an increased and significant staffing model change. New suspicious activity reporting forms (providing better data) and a new public private partnership, the Jersey Financial Intelligence Network (JFIN), aims to significantly enhance the development and use of financial intelligence in the Island.

International standards are critical for the reputation of Jersey and our business model as a stable, quality finance centre which acts as a responsible global citizen. A failure to meet international standards would result in damage to Jersey’s reputation, loss of confidence in the finance industry, the potential exit of firms from Jersey and an associated loss of employment in the Island. The addition of countries to the FATF Grey List has been shown by independent studies to have huge impacts on a country’s economy, including the restriction of financial transfers and inward investment. The negative effect of ‘grey listing’ has been shown to be even more pronounced for international finance centres (IFCs).

Thus, this report enhances confidence and trust among stakeholders and reinforces Jersey’s reputation as a reliable and responsible participant in the international financial system. It confirms Jersey’s long-term commitment as an international finance centre to maintaining high levels of compliance with international standards, following previous assessments in 2008 and 2015. Ultimately, this will help industry to grow in a responsible and sustainable way by attracting the right kind of business whilst demonstrating at the same time to bad actors that Jersey is not a place to hide their ill-gotten gains.

Whilst this is a good report overall, in a number of areas the ratings indicate that important improvements need to be made – this is why these have been prioritised in the Ministerial Priorities and the High Level Action Plan. These areas are supervision, preventative measures, financial intelligence and money laundering prosecutions. An approach to address these recommendations is being developed in coordination with the other competent authorities.

Jersey has consistently developed a progressive regulatory environment as part of its financial services strategy maintaining its position as a leading international financial centre over many years. The Government therefore considers that now is the right time to review how the regulatory environment should evolve and has therefore announced a strategic review into the approach to regulation of the financial and professional services sector in Jersey which will take place over 2024 and 2025. Government is committed to continuing to work together at a strategic level, with the financial crime agencies. In this regard, delivery of actions will be managed by Government in accordance with relevant legislation and progress reviewed through the vehicle of the Financial Crime Agencies Review Group (FCARG) along with oversight from the Financial Crime Political Steering Group

The tsunami of regulatory change has now passed and Jersey may find it is on something more akin to a lazy river of progress and development with a few rapids on the way. However, to say ‘lazy river’ does not mean that we can sit back and relax, that will never be the case. As noted by Tom Keatinge, founding Director of the Centre for Finance and Security (CFS) at the Royal United Services Institute (RUSI) when the report was launched, those beautiful and sandy waters can soon turn to dangerous dark blue seas. The threat picture is ever changing and the scrutiny on IFCs will globally remain high. Alongside this, the report notes there are several areas where Jersey needs to either do more or to still make changes and there is the need to embed in ongoing monitoring of effectiveness into day-to-day work, which will still take some time.

Much of the work on Financial Intelligence and Investigation and Prosecution is work already in train but further changes, resources and so forth, are required. Government will need to monitor closely how that progresses. In supervision, Government believes it is now the right time to review the approach holistically. So, there may be change called for as a result of this work but any change will happen at a more gradual pace. Much of this is also already contemplated in the National Strategy 2022 – 2026 which will be updated this autumn at the two-year point to reflect the conclusions of the evaluation – so that is a good roadmap for industry.

We also need to remind ourselves that whilst the methodology in general – that is being split into Technical Compliance and Effectiveness will stay the same – there will be changes and updates to Recommendations as well as changes to how the Core Issues within the Immediate Outcomes will be assessed over the coming years and before the next assessment. Thus, it would be reasonable to expect a constant, albeit slow, flow of changes, adaptions and new requirements before the next assessment.

Overall, this MER is testament to the great work that competent authorities and industry have been doing over the last couple of years. However, there is still work required in several critical areas which must continue to be prioritised to achieve the change required – along with the need to always monitor emerging threats in a world which is becoming increasingly more complex with risk. Whether Jersey will be able to receive similarly positive results in the next assessment in 2029/30 depends now on all of us, in Government, authorities and industry, where we need to maintain the momentum and continue with the good work. Thus, we must not be complacent. The fight against financial crime is not over and it never will be.

PUBLICATION: TIMES GROUP – First for Finance 16th Edition