Keeping Pace with Compliance Challenges

Jersey has a vibrant financial services sector, not least due to the strength and effectiveness of laws and regulation, meaning that investors can have confidence in the products and services offered in the Island. Other jurisdictions strive to compete, however, there is no doubt that Jersey’s success is down to the part regulation has played. As an example, Jersey is just one of a few places which regulates trust and company service providers and was an early adopter of regulation for this sector. The regulator, the Jersey Financial Services Commission (JFSC), ensures − through its licensing process and regular oversight − that the Island has strength and quality in its service providers.

Jersey has codes of practice which all regulated firms must follow and the JFSC, using a risk-based approach, routinely measures their performance against requirements. Such rigour instils trust and confidence in Jersey’s service offering resulting in investors, promoters, depositors and settlors entrusting their wealth to the Island’s providers.

A key factor to the success of such high standards is also due to the roles held by Jersey’s compliance officers who perform regular monitoring and testing. Those who perform the role have legal and regulatory acumen, qualifications and experience and a good understanding of culture and ethics. Working as a compliance officer in Jersey’s financial services industry is crucial to Jersey’s success and is an exciting, interesting and rewarding role where no two days are the same.

The ever-changing regulatory environment remains a constant challenge, which is not unique to Jersey. Like all well-regulated jurisdictions it is constantly evolving to keep pace with ever-changing threats, such as those seeking to exploit others, the geopolitical landscape (giving rise to sanctions compliance and threat of proliferation financing) and moving forward with opportunities, such as with the adoption of regtech and tokenisation.

The last two years in Jersey has seen significant change in the anti-money laundering (AML) space as different types of organisations have been included into the expanded definitions of those who need to comply with anti-money laundering regulations, with necessary changes made to keep pace with international standards.

Regulatory changes are constant, not least with refinements to Jersey’s Private Fund Guide and the implementation of new and further sanctions to address global issues. As an international finance centre, Jersey is home to firms who need to consider additional or cross jurisdictional issues (for example the Digital Operational Resilience Act). Whatever the number and nature of changes, Jersey’s compliance officers keep pace with them, they adapt and learn about new risks and consider how to address them.

A compliance officer is the engineer designing the controls in respect of the architectural framework drawn up by government and regulators. Jersey’s compliance officers have ably and consistently helped with practical measures ensuring requirements are appropriately adopted and implemented within their organisation, ensuring compliance. It is this strength of application and understanding which assists with instilling the trust and confidence bringing investment and talent, to Jersey.

The intellectual challenge involved in compliance work is demanding. As an example, the war between Russia and Ukraine has resulted in a significant number of sanctions, not just in terms of the jurisdictions where clients may be located but also where their investments are held and what activity they are undertaking. The necessary and consequent interpreting of requirements, which apply, for example, to a complex structure involving a multitude of jurisdictions with differing legal requirements in each, cannot be underestimated. A compliance officer is expected to work through and understand legal and regulatory implications for the customer and their own business, along with devising practical strategies in relation to many and varied customer type (e.g. trust, fund and special purpose vehicles) to ensure adherence. Compliance officers have analytical skills, attention to detail and the ability to think critically about how regulations apply to real-world scenarios.

Ultimately, compliance officers play a vital role in maintaining the integrity and stability of the financial system. However, while they help in the prevention of financial crimes such as money laundering, fraud and insider trading, there is always a tension between the need to balance regulatory compliance against business objectives. After all, without business there can be no compliance. This balancing act requires a compliance officer to be considerate of all risk issues, to have strategic thinking and to be a good communicator. The rise of regtech and the increasing use of artificial intelligence in compliance have helped to drive advances in the compliance field. Screening and monitoring are now much more sophisticated than they ever used to be, there are now more regtech products available and the acknowledgement by industry, Jersey’s government and regulator, has also assisted with efficiencies in the field of compliance.

Formed in 1996, the JCOA currently has around 300 members, comprising compliance officers, money laundering reporting officers and money laundering compliance officers. Members span a myriad of organisations in the Island from new start-ups to large firms with a global presence, including trust and corporate service providers, fund services businesses, lenders, banks and law firms.

The JCOA provides a supportive network, particularly where members are the sole officer in an organisation. Being part of the JCOA’s membership presents an opportunity to share knowledge, ask questions and provides a forum for members to collaborate. On behalf of its members, the JCOA responds to consultations issued by Jersey’s government and regulator, providing practical insight into policy changes, which can affect the running of an organisation, such matters that can impact the productivity of a business and concern compliance effectiveness.

The JCOA provides training opportunities to its members and is fortunate to be able to attract high quality speakers from within Jersey and further afield − all relevant subject matter experts, who deliver informative seminars through a mix of webinars and in person events (which provide compliance officers with an opportunity to meet with their peers). Such training provides continuous learning and professional development on topical, relevant and key issues adding to the depth of knowledge and expertise of a compliance officer. The range of topics that a compliance officer needs to be familiar with is wider and more diverse than it ever has been, so our members need to consider different regulations (where a firm is multilicenced) and differing requirements for companies comprising part of the same financial services group. Keeping apprised is vital in Jersey where there is an expectation of quality standards and service provision, where an active regulator is only a short distance away.

As the JFSC has announced its change in focus from AML controls (to include countering proliferation financing and terrorist financing) to wider AML controls and a renewed focus on conduct matters (more directly affecting consumers and the services they receive), the boards of Jersey entities and their compliance officers need to more broadly assess compliance risk.

Compliance risk is more than just money laundering, terrorist financing and proliferation financing, it covers all risks: data protection, employment and conduct regulation, as well as financial crime. Addressing all risk topics, not just one and focussing on the risks that are the most likely present, is the key to successful compliance monitoring.

Whilst the focus of the regulator moves, businesses must also be mindful of the conduct risk presented by their customers. It is important to understand what your customers do, what their purpose is and what their vulnerabilities are, all of which assists a business to understand whether or not the customer is conducting legitimate activity and to provide quality service.

At the end of September, the JCOA will be hosting a conference for Jersey’s compliance officers. Speakers will include a representative of Global Witness, a financial investigative journalist and a keen analyst of UK Company House formations. They will be talking about real and common risks. It is important that compliance officers and businesses understand why it is important to keep these real risks in mind, such as fraud and corruption, which can cross multiple borders and create so much harm. Looking at all categories of risks and real risks should result in compliance effectiveness.

Working as a compliance officer in the field of financial regulation in Jersey is far from mundane. It is a pivotal role demanding high standards and one which may involve personal liability. However, the career path is a rewarding one that combines intellectual challenge, ethical responsibility, strategic thinking and continuous learning. The JCOA is proud and pleased to continue supporting those who work in such a dynamic environment, making a tangible impact on both their organisation and the broader financial system in Jersey and further afield. For Jersey and those who invest into Jersey, a compliance officer is key to its strength.

PUBLICATION: TIMES GROUP – First for Finance 16th Edition