Jersey Financial Services Commission

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1 Jersey Financial Services Commission JSCCA CDP Conference Regulatory Update David Porter Andrew Le Brun Hamish Armstrong

2 Introduction Overview Regulation and supervision of securities AIFMD - passport developments Fund Regime Review MIFID 2 Regulation and supervision of AML/CFT requirements Collective investment funds Electronic CDD (E-CDD) MONEYVAL Where are we now?

3 Regulation and supervision of securities

4 AIFMD passport developments Process ESMA announcement Timelines What would it mean to have a passport? NPPR AIFMD2

5 Funds Review Background JRIG: Industry, JFSC, JFL, Government Simplify but maintain compliance with international standards Private and public funds Focus on key areas Commission processes Continue to work with Industry

6 MIFID2 Local impact of equivalent regime in Jersey Industry presentation 19 one to one meetings MIFID 2 lite equivalence project Public consultation in Q4 of 2015 Article-by-article comparative analysis Jersey/Guernsey Regulators/Government working together

7 Administration points Filing of accounts Public company that holds a certificate or permit must file accounts with: Management letters Reminder to board that letter must be copied to Commission Commission; and Registrar Emphasis of matter or qualification in audit report must be explained

8 Regulation and supervision of AML/CFT requirements

9 Updated AML/CFT Handbook Published on 19 January 2015 Greater consistency with other AML/CFT Handbooks Still number of bespoke sections Sections 1.5, , to , , 4.8.1, 6.4, 8.2.3, 8.24 and 8.7 to 8.10 all lifted from earlier version Subject to review Some duplication Need to reflect recent changes to AML/CFT legislation, e.g. reporting obligations

10 Updated AML/CFT Handbook Simplified identification measures Section 7.13 Explains operation of Article 17(8) of Money Laundering Order Case 5 Applies to customer that is registered to carry on trust company business (or equivalent business) where acting for company, trust etc Subject to risk assessment Subject to collection of assurances Subject to testing Subject to collection of basic information on company, trust etc But only where nature of relationship presents little risk of ML/TF

11 Updated AML/CFT Handbook Simplified identification measures Little risk of ML/TF? Provision of generic information on: Jersey accounting requirements for preparation of financial statements; or Jersey tax requirements But only where context permits, e.g. Information on company, trust etc not needed; and Nominal fee charged

12 Collective investment schemes Current guidance Inter alia, Money Laundering Order applies to: COBO-only funds Paragraphs 7(1)(h) and (n) of Part B of Schedule 2 of Proceeds of Crime Law Those providing services related to COBO-only funds (fund operator) Paragraph 4 of Part A of Schedule 2 of Proceeds of Crime Law acting as partner or trustee Paragraph 7(1)(h), (k), (m) or (n) of Part B of Schedule 2 of Proceeds of Crime Law

13 Collective investment schemes Current guidance In case of fund, obligation to comply with Money Laundering Order rests with: Directors of company General partner of limited partnership Trustee of unit trust

14 Collective investment schemes Further guidance? Fund Identification measures to be applied to all equity investors Position of debt-holders? In case of protected cell company, obligation to comply with Money Laundering Order rests with directors of cell company (and not cells) Fund may be an obliged person under Article 16 of the Money Laundering Order but not delegate, e.g. administrator, where fund outsources identification measures

15 E-CDD

16 Use of smart phone and tablet applications Innovative technology New ways of collecting information and obtaining evidence of individuals identities Requirement to find out identity Article 3(4) of Money Laundering Order Obtaining evidence on basis of documents, data or information from reliable source, that is reasonably capable of verifying that an individual to be identified is who the person is said to be Sight of passport, national identity card or driving licence Use of suitable certifier Independent data sources

17 Use of smart phone and tablet applications Other requirements Article 11 of Money Laundering Order Policies and procedures for identification and assessment of risks that arise from use of new or developing technology for new or existing products AML/CFT Code Assess, record and monitor risk where any element of CDD process is outsourced Senior management responsibility Clarity of what application does and does not do

18 Use of smart phone and tablet applications Guidance Risks that arise when documents not physically presented to relevant person or suitable certifier Documents tampered with or forged Images of individual or documents tampered with before or during transmission Documents or images captured are stolen or use unauthorised

19 Use of smart phone and tablet applications Guidance Measures that might be taken to mitigate such risks Documents tampered with or forged Use very high level of clarity and resolution Access biometric and other data coded on document Compare against document templates Examine security features (e.g. watermarks, holograms, micro-text, etc.) Examination by trained analysts/examiners

20 Use of smart phone and tablet applications Guidance Measures that might be taken to mitigate such risks Images tampered with before or during transmission The application itself controls the copying of the document, photography, and transmission process A highly secure connection is used to transmit documents and photographs Application security is regularly tested in order to guard against hacking or other security breaches

21 Use of smart phone and tablet applications Guidance Measures that might be taken to mitigate such risks Documents or images captured are stolen or use unauthorised A "selfie" is biometrically matched to identity document A video or stream of photographs is taken A code or password is sent to the customer to display Use of a location matching

22 Use of smart phone and tablet applications Risk Assessment is key What will you use the application for? What are the risks? What are your mitigants? (may be features of the application or others) Guidance may be relevant in other circumstances Speak to Financial Crime Policy team

23 MONEYVAL

24 MONEYVAL Council of Europe body Peer review organisation Fourth round mutual evaluation (MER) January 2015: onsite and key findings report Before 24 March 2015: changes to legislation, Codes and guidance June and July 2015: pre-meetings to discuss first draft of MER End of October 2015: second draft of MER December 2015: plenary discussion

25 MER Fourth round MER September 2015: plenary discussion of Guernsey MER Fifth round MER April / May 2016: Isle of Man 2019: Guernsey 2021: Jersey National Risk Assessment

26 Key findings? Accumulation of risk over-arching ML/TF risks Properly reflected in business risk assessments and customer risk assessments? Exemptions from Schedule 2 of Proceeds of Crime Law Too many? High risk? Individuals acting as director for less than 6 companies Definition of beneficial ownership and control Too great a focus on control through ownership

27 Key findings? Application of identification measures to customers who are trustees Sight of trust deed in entirety? Sight of letter of wishes? Application of simplified identification measures Still too generous? Discretion to refrain entirely from application of certain measures in defined circumstances Application to T&CSPs and lawyers outside Jersey? Request information on beneficial ownership and control of corporate trustees?

28 Key findings? Application of enhanced CDD measures Too much flexibility: when and what? Reliance on obliged persons Apply outside Channel Islands? CDD files presented during on-boarding Use of alternatives e.g. Sections and of AML/CFT Handbooks Supervision of use of exemptions, simplified measures, enhanced measures and reliance Looking in the right areas?

29 Key findings? Transparency of legal persons and legal arrangements Awareness of terrorist financing risks Patchy? Insufficient measures to ensure beneficial ownership information is available for: Persons and arrangements that are not administered by a licensed T&CSP; and Collective investment funds that apply simplified identification measures to investors Money laundering and other offences Limited number of cases involving third party money laundering Failure to report

30 Administration points Business risk assessments Must focus on Jersey risk Not sufficient to rely upon UK or network BRA

31 Jersey Financial Services Commission Q&A

Jersey Financial Services Commission

Jersey Financial Services Commission STEP seminar AML/CFT update Andrew Le Brun Hamish Armstrong Financial Crime Policy Introduction Overview MONEYVAL - Where are we now? Electronic CDD ( E-CDD ) - Guidance