Jersey Financial Services Commission Refresher Series Reliance Andrew Le Brun Hamish Armstrong Financial Crime Policy Contents Purpose Reliance - what is it / overview Article 16 Obliged person Identification measures Conditions Exclusions Article 16A Reliance what it isn t Common queries 1
Purpose Purpose Nothing new Reminder / refresher Areas of most interest / confusion ECDD SCDD Reliance Beneficial ownership Common queries Surgery 2
Reliance what is it? Reliance what is it? FATF Concept Financial institutions may rely on third parties to perform certain elements of CDD, provided that: Information is obtained immediately Evidence is available upon request without delay Money Laundering Order Article 16 Obliged person Article 16A Group person Third party is regulated/supervised for AML/CFT Ultimate responsibility for CDD measures remains with the financial institution 3
Reliance - overview In order to consider what reliance might be placed on an obliged person, a relevant person will first need to determine what elements of identity must be found out and what evidence of identity is to be obtained for its customer Take account of the relevant person s risk assessment for the customer Once it has determined what identification measures it is to apply, a relevant person can then consider whether those measures have already been applied by an obliged person Reliance - overview Consider: Use of information template - Appendix C Description of evidence routinely obtained by obliged person The obliged person may not have found out all of the same information as the relevant person needs, and may have obtained evidence of identity using different documents, data or information The scope to place reliance may sometimes be quite limited, and it may be necessary for a relevant person to find out more information or obtain more evidence 4
Reliance - overview What do you need to do? What has the obliged person already done? Match? Or top-up? MLO Article 16 5
MLO Article 16 Relevant person may place reliance on certain obliged persons to have applied identification measures and to keep evidence of identity In order to meet relevant person s obligations under Articles 13 and 15 to apply identification measures Obliged persons must be: Regulated and overseen by the Commission for AML/CFT compliance; or Equivalent business Subject to six conditions and testing MLO Article 16(1) In order to comply with: Article 13(1), by virtue of 13(1)(a) or 13(1)(c)(ii) 13(1)(a) - apply ID measures prior to relationship / one-off transaction 13(1)(c)(ii) - apply ID measures where doubts about veracity / adequacy etc. Article 15(1), by virtue of 15(1)(b) or 15(3) or 15(5) 15(1)(b) 15(3) 15(5) - apply ECDD where assessment is higher risk of ML/TF - where customer is not physically present - where PEP involvement 6
MLO Article 16(1) Relevant person may rely on a person who the relevant person knows or has reasonable grounds for believing is a relevant person in respect of whose financial services business the Commission discharges AML/CFT supervisory functions, or a person carrying on equivalent business (each referred to as obliged person ) MLO Article 16(1) Article 16 of the MLO - no. of obliged persons per location 970 470 7 1101 Jersey Appendix B countries Another country or territory 12 Guernsey & IoM Source 1 or 2 of Appendix D2 of the Handbook 7
MLO Article 16(1) to apply ID measures in Article 3(2)(a), (b) or (c) [or similar FATF compliant measures] Article 3(2)(a) Article 3(2)(b) Article 3(2)(c) identifying the customer ID the third party understand ownership structure, ID BO of customer, ID representative, verify authority to act* NB: Not Article 3(2)(d) NB: Article 3(5)? obtaining info on nature / purpose risk assessment MLO Article 16(1) Rely on obliged person to ID the customer ID any third parties ID representative / verify authority to act Understand ownership/control ID beneficial owners Cannot rely on obliged person for Customer risk assessment* CDD Identification Measures Risk assessment* ID Customer ID Third parties Where customer not individual: Obtain info on purpose/nature ID person acting for customer verify authority to act Understand Ownership/control structure ID Beneficial Owners/Controllers Obtaining info on nature and purpose On-going monitoring On-going monitoring Scrutinizing transactions/activity Keep docs/info up-to-date 8
MLO Article 16(3)/(4) Conditions One: obliged person consents to being relied upon Two: identification measures applied by obliged person have been in the course of established business relationship or one-off transaction Three: obliged person provides adequate assurance in writing that: It has applied full* (and specified) identification measures It is required to keep, and does keep, evidence of identity * Obliged person must not have themselves placed reliance or applied SDD! MLO Article 16(3)/(4) Conditions Four: information found out on customer by obliged person is immediately obtained by relevant person Five: obliged person provides adequate assurance in writing that evidence of identity will be: Kept until provided to relevant person, or is notified that no longer required* Provided on request and without delay *the obligation to hold onto evidence applies even after an obliged person has terminated its relationship with what was a mutual customer (and indefinitely thereafter). 9
MLO Article 16(3)/(4) Conditions Six: relevant person assesses risk and makes written record of reason why it is appropriate to place reliance, having regard to: ML/FT risk of placing reliance Necessary identification measures have not been applied Complete and accurate information found out on identity will not be disclosed Evidence of identity will not be kept and/or disclosed on request MLO Article 16(3)/(4) Conditions six risk assessment Consider: The stature and regulatory track record of obliged person The adequacy of the AML/CFT framework in the country or territory in which the obliged person is based The adequacy of the AML/CFT supervisory regime to which the obliged person is subject The adequacy of identification measures applied by the obliged person 10
MLO Article 16(3)/(4) Conditions six risk assessment Adequacy of identification measures - Consider: Reviewing previous experience (if any) with the obliged person Making specific enquiries, e.g. through use of a questionnaire or series of questions Reviewing relevant policies and procedures Where the obliged person is a member of a financial group, making enquiries concerning the extent to which group standards are applied to and assessed by the group s internal audit function MLO Article 16(5) Testing Test that: Appropriate policies and procedures in place to apply necessary identification measures Evidence of identity is kept Evidence of identity is provided without delay on request Have regard to secrecy legislation in such manner and at such intervals as the relevant person deems appropriate in all the circumstances Codes of Practice: If testing highlights failures, must review the appropriateness of reliance! 11
MLO Article 16(9) Exclusions Reliance not permitted if: the relevant person suspects money laundering the relevant person considers that there is a higher risk of money laundering on the basis of the assessment made under Article 16(4) Necessary identification measures have not been applied Complete and accurate information found out on identity will not be disclosed Evidence of identity will not be kept and/or disclosed the obliged person is a person having a relevant connection with an enhanced risk state (as defined in Article 15(3A)(a)) MLO Article 16A 12
MLO Article 16A Group person Relevant person may place reliance on group entity to have applied identification measures and to keep evidence of identity In order to meet relevant person s obligations under Articles 13 and 15 to apply identification measures Group person must be: Member of same financial group defined* Applying CDD measures and keeping records in line with FATF Recommendations (via group policies and procedures) * only banking, securities and insurance groups, not DNFBPs! MLO Article 16A Group person Must be: Part of group that has a programme against ML and FT; and Part of group that is supervised for AML/CFT purposes by an overseas regulatory authority Reliance on group person is subject to same six conditions and testing 13
Reliance what it isn t Reliance what it isn t Suitable certification You are applying ID measures, the certified copy is the evidence you are obtaining Obtaining information or evidence from a third party (external data source, specialist investigator, other relevant person, equivalent business, etc.) You are applying ID measures, the third party is supplying the information and/or evidence you are obtaining Outsourcing You are applying ID measures, via a contracted agent 14
Common queries Common queries (1) Confluence of concessions: Articles 16 and 18 of the Money Laundering Order Condition three: assurance that obliged person has applied full (and specified) identification measures. Assurance that the obliged person has not, in reliance upon any provision in Article 17 or 18 (or in the case of the obliged person being outside Jersey, in reliance upon a provision of similar effect to a provision in Article 17 or 18), applied identification measures that are less than those referred to in paragraph (1) 15
Common queries (1) Confluence of concessions: Articles 16 and 18 of the Money Laundering Order clarification/conditions Query: Article 16 reliance cannot be applied if SDD under Article 18 has been applied by the obliged person. What if the obliged person's customer is a legal person whose UBO/controller is listed on an IOSCO compliant market and thus SDD applied? Surely such low risk situations shouldn t be excluded from reliance provisions? Common queries (1) Confluence of concessions: Articles 16 and 18 of the Money Laundering Order clarification/conditions JFSC view: Reliance could still be placed in this scenario. Placing reliance requires you to first determine what you would obtain for CDD yourself; then determine what the obliged person has done; then see if they match. In this scenario, you may be able apply Article 18 yourself and would not need to identify the listed entity. Therefore, you are not relying on the obliged person to do that identification for you. This does not prevent reliance for the rest of the identification measures. The reliance certificate and assurances given by the obliged person would only apply to the identification measures which you are required to apply (and hence are relying on the obliged person to have already applied). 16
Common queries (2) Obtaining copy documentation from a TCB in the Crown Dependencies AML/CFT Handbooks section 4.4.5 / 4.5.7 Where information is provided by a trust and company service provider that is regulated by the Commission, the Guernsey Financial Services Commission or the Isle of Man Financial Services Authority ( a regulated trust and company services provider ) on a person listed in Article 3(7) of the Money Laundering Order [or a beneficial owner/controller of a legal person] (following an assessment of risk in line with paragraph 66), a relevant person may demonstrate that it has taken reasonable measures to obtain evidence of identity for that person under Article 13 of the Money Laundering Order where it obtains a copy of a document that is listed in paragraph 27 from the regulated trust and company services provider, along with confirmation on certain matters. Common queries (2) HB Section 4.4.5 / 4.5.7 ID beneficial owners Cannot use for ID the customer ID any third parties ID representative / verify authority to act Understand ownership/control Customer risk assessment* CDD Identification Measures Risk assessment* ID Customer ID Third parties Where customer not individual: Obtain info on purpose/nature ID person acting for customer verify authority to act Understand Ownership/control structure ID Beneficial Owners/Controllers Obtaining info on nature and purpose On-going monitoring On-going monitoring Scrutinizing transactions/activity Keep docs/info up-to-date 17
Common queries (2) Obtaining copy documentation from a TCB in the Crown Dependencies The matters to be confirmed are that: the regulated trust and company services provider has seen the original document that it has copied to the relevant person, or the document that has been copied to the relevant person was provided to the regulated trust and company services provider by a suitable certifier; the regulated trust and company services provider is satisfied that the original document seen, or document provided to it by a suitable certifier, provides evidence that the individual is who he or she is said to be; and the document provided to the relevant person is a true copy of a document that is held by the regulated trust and company services provider. Common queries (2) Obtaining copy documentation from anybody else? E.g. UK lawyers Not reliance under Article 16 Not equivalent business Not certified copy Not presented to the UK lawyer for that purpose Evidence of identity? see Article 3(4)(b) HB: document, certified copy, external data source, other? Consider existing guidance (eg Section 4.4.5 / 4.5.7) 18
Key Learning Points Key Learning Points You are still responsible! You cannot place blind reliance Customer risk assessment is key Understand exactly what the obliged person actually does You may need to top up information or evidence 19
Jersey Financial Services Commission Q&A 20