Consultation on proposals to provide additional guidance on AML and CFT to fund operators
Consultation on proposals to provide additional guidance on AML and CFT to fund operators
› Consultation Paper
Please note that terms in italics are defined in the Glossary of Terms.
The Commission invites comments on this consultation paper. Responses may be sent using the Response Template directly to Kate Berry at the Commission by 25 November 2016. If you require any assistance, clarification or wish to discuss any aspect of the proposal prior to formulating a response, it is of course appropriate to contact the Commission.
The Commission contacts are:
Kate Berry
Senior Adviser, Policy
Hamish Armstrong
Senior Adviser, Financial Crime Policy
Jersey Financial Services Commission
PO Box 267
14-18 Castle Street
St Helier
Jersey
JE4 8TP
Telephone:+44 (0) 1534 822162
Email:k.berry@jerseyfsc.org
Telephone:+44 (0) 1534 822045
Email:h.armstrong@jerseyfsc.org
Alternatively, Thomas Cowsill at Jersey Finance is co‑ordinating an Industry response that will incorporate any matters raised by local businesses. Comments should reach Jersey Finance by 25 November 2016.
Responses should be sent to:
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Thomas Cowsill Head of Technical Jersey Finance Limited 4th Floor, Sir Walter Raleigh House 48-50 Esplanade St Helier Jersey JE2 3QB
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Telephone:+44 (0) 1534 836000 Facsimile:+44 (0) 1534 836001 |
It is the policy of the Commission to make the content of all responses available for public inspection unless specifically requested otherwise.
It is the policy of Jersey Finance (unless otherwise requested or agreed) to collate all responses and share them verbatim with the Commission on an anonymised basis (with reference made only to the type of respondent, e.g. individual, law firm, trust company etc.). This collated, anonymised response will, typically, be placed in Jersey Finance’s permanent electronic archive which is currently open to all Jersey Finance members.
› Glossary of Terms
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AIF Regulations |
means the Alternative Investment Funds (Jersey) Regulations 2012 |
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AML/CFT |
means anti-money laundering and countering the financing of terrorism |
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AML/CFT Handbook |
means the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for Regulated Financial Services Business (as may be amended by the Commission, from time to time)[1] |
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BB(J)L |
means the Banking Business (Jersey) Law 1991 |
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Business Risk Assessment |
means the assessment of a Relevant Person’s exposure to money laundering and financing of terrorism risk that Relevant Persons are required to carry out on their business pursuant to the Money Laundering Order at Article 11(1)(f) |
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CDD Measures |
means customer due diligence measures as set out in Article 3 of the Money Laundering Order |
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Certified Fund |
means a fund issued with a certificate pursuant to the CIF(J) Law |
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Codes of Practice (or Codes)[2] |
means, collectively, the
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CIF(J) Law |
means the Collective Investment Funds (Jersey) Law, 1988 |
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Commission |
means the Jersey Financial Services Commission |
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Commission Law |
means the Financial Services Commission (Jersey) Law 1998 |
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Companies Law |
means the Companies (Jersey) Law, 1991 |
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Customer Risk Assessment |
means the assessment of the risk that a business relationship or one-off transaction will involve money laundering or financing of terrorism, including obtaining appropriate information for assessing that risk, that Relevant Persons are required to carry out on their Customer pursuant to the Money Laundering Order at Articles 13 and 3(5) |
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Enhanced Customer Due Diligence Measures |
means those measures described in the Money Laundering Order at Article 15 Enhanced Customer due diligence |
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FS(J) Law |
means the Financial Services (Jersey) Law 1998 |
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Fund Operators |
means all types of entities as set out in Section 14.1 paragraph 4 of the Funds Section providing services to funds |
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Fund Services Business |
means the Regulated Activity, involving the provision of services in relation to certain types of Funds, which is described in Article 2(10) of the Financial Services (Jersey) Law 1998 |
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Funds |
means all types of funds as set out in Section 14.1 paragraph 3 of the Funds Section |
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Funds Section |
means the draft Section 14 of the AML/CFT Handbook in relation to Funds and Fund Operators |
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Group |
means a body corporate that would be defined as a “subsidiary”, “wholly-owned subsidiary” or “holding body” of another body corporate, under the Companies Law |
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IB(J)L |
means the Insurance Business (Jersey) Law 1996 |
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Jersey Finance |
means Jersey Finance Limited |
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Money Laundering Order |
means the Money Laundering (Jersey) Order, 2008 |
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Obliged Person |
means a person referred to as the obliged person in the Money Laundering Order at Article 16(1) |
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Person |
means any natural or legal person (including a body of persons corporate or unincorporated) |
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Proceeds of Crime Law |
means the Proceeds of Crime (Jersey) Law, 1999 |
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Registered Person |
means a Person who is registered, or holds a permit or certificate, as applicable, under one or more of the Regulatory Laws |
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Regulated Activity |
means activity conducted pursuant to the Regulatory Laws, in respect of which a Person must be Licensed |
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Regulatory Laws |
means the AIF Regulations, the BBJL, the CIF(J) Law, the FS(J) Law, and the IB(J)L |
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Relevant Person |
means a Person carrying on a financial services business in or from within Jersey, and a Jersey body corporate or other legal person registered in Jersey carrying on a financial services business anywhere in the world |
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Reliance |
means the arrangements described in the Money Laundering Order at Article 16 Reliance on Relevant Person or Person carrying on equivalent business and Article 16A Reliance upon persons in same financial Group as Relevant Persons |
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Simplified Identification Measures |
means those measures described in the Money Laundering Order at Article 17 – Simplified identification measures in circumstances where the Customer is a Relevant Person and Article 18-Simplified Customer due diligence |
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Supervisory Bodies Law |
means the Proceeds of Crime (Supervisory Bodies) (Jersey) Law, 2008 |
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Three Tier Test |
means the Three Tier Test as set described in footnote 13 on page 14 of the Funds Section |
1 Executive Summary
1.1 Overview
1.1.1 The consultation paper seeks feedback on a proposal to add a new Funds Section to the AML/CFT Handbook.
1.1.2 While the statutory and regulatory AML/CFT requirements that Funds and Fund Operators are subject to have not changed the Commission considers that additional guidance may be useful. This section will apply to Registered Persons and those Funds and Fund Operators that are not regulated pursuant to the Regulatory Laws.
1.2 What is proposed and why?
1.2.1 It is proposed to add a new Funds Section to the AML/CFT Handbook.
1.2.2 A draft of the proposed new Funds Section is attached as Appendix B.
1.3 Who would be affected?
1.3.1 The proposals in this consultation paper have the potential to affect all Funds and Fund Operators.
2 Consultation
2.1 Basis for consultation
2.1.1 The Commission has issued this consultation paper in accordance with Article 8(3) of the Commission Law, as amended, under which the Commission “may, in connection with the carrying out of its functions - ….consult and seek the advice of such persons or bodies whether inside or outside Jersey as it considers appropriate”.
2.2 Responding to the consultation
2.2.1 The Commission invites comments in writing from interested parties on the proposals included in this consultation paper. Where comments are made by an industry body or association, that body or association should also provide a summary of the type of individuals and/or institutions that it represents.
2.2.2 To assist in analysing responses to the consultation paper, respondents are asked to:
2.2.2.1 prioritise comments and to indicate their relative importance; and
2.2.2.2 respond as specifically as possible and, where they refer to costs, to quantify those costs.
2.2.3 To assist in analysing responses to the consultation paper, respondents are strongly encouraged to respond by completing the response template, issued with this consultation. Please send your responses using the Response Template by email to k.berry@jerseyfsc.org
2.3 Next steps
2.3.1 The intention is that the Funds Section in the form shown in Appendix B (subject to the making of any revisions considered necessary as a result of responses to this consultation) will be issued in Q1 2017.
3 The Commission
3.1 Overview
3.1.1 The Commission is a statutory body corporate established under the Commission Law. It is responsible for the supervision and development of financial services provided in or from within Jersey.
3.2 Commission’s functions
3.2.1 The Commission Law prescribes that the Commission shall be responsible for:
3.2.1.1 the supervision and development of financial services provided in or from within Jersey;
3.2.1.2 providing the States of Jersey, any Minister or any other public body with reports, advice, assistance and information in relation to any matter connected with financial services;
3.2.1.3 preparing and submitting to Ministers recommendations for the introduction, amendment or replacement of legislation appertaining to financial services, companies and other forms of business structure;
3.2.1.4 such functions in relation to financial services or such incidental or ancillary matters:
› as are required or authorised by or under any enactment, or
› as the States of Jersey may, by Regulations, transfer; and
3.2.1.5 such other functions as are conferred on the Commission by any other Law or enactment.
3.3 Guiding principles
3.3.1 The Commission’s guiding principles require it to have particular regard to:
3.3.1.1 the reduction of risk to the public of financial loss due to dishonesty, incompetence, malpractice, or the financial unsoundness of persons carrying on the business of financial services in or from within Jersey;
3.3.1.2 the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters;
3.3.1.3 the best economic interests of Jersey; and
3.3.1.4 the need to counter financial crime in both Jersey and elsewhere.
3.4 Commission’s role with respect to AML/CFT
3.4.1 With respect to the need to counter financial crime in both Jersey and elsewhere, the Commission is the supervisory body that exercises supervisory functions in respect of:
3.4.1.1 regulated persons[3]; and
3.4.1.2 persons carrying on specified Schedule 2 business3.
3.4.2 The supervisory functions to be exercised by the Commission are defined in Article 2 of the Supervisory Bodies Law, namely:
3.4.2.1 Monitoring compliance by a supervised person3 with, inter alia:
› any requirement to which that person is subject under the Supervisory Bodies Law;
› any Order made under Article 37 of the Proceeds of Crime Law;
› any direction under Article 6 of the Money Laundering and Weapons Development (Directions) (Jersey) Law 2012; and
› any code of practice that applies to that person or the supervised business carried on by that person;
3.4.2.2 carrying out the functions, powers and duties conferred under the Supervisory Bodies Law for the purpose of compliance by a supervised person with the requirements described in paragraph 3.4.2.1
3.4.3 In accordance with Article 22 of the Supervisory Bodies Law, the Commission, as the supervisory body, has prepared and issued a number of codes of practice. In each case, the Code of Practice comprises of a number of individual codes of practice which may be found in the relevant Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism[4].
4 New Funds Section
4.1 Introduction
4.1.1 The proposed Funds Section does not amend any existing statutory or regulatory AML/CFT obligations for Funds or Fund Operators. The Section does not contain any new codes of practice. The existing statutory and regulatory AML/CFT obligations are not the subject of this consultation paper. Therefore, responses should be limited to feedback on the proposed guidance.
4.1.2 All guidance in the AML/CFT Handbook applies to relevant persons whether they are carrying on regulated business or not. See section 1.3, particularly paragraph 27.
4.1.3 Industry has requested additional clarification and guidance on certain aspects of the AML/CFT regime. The aim of the proposed Funds Section is to:
4.1.3.1 Supplement the guidance in the other sections of the AML/CFT Handbook.
4.1.3.2 Reiterate that all Funds and Fund Operators have statutory AML/CFT obligations in relation to their Customer(s);
4.1.3.3 Provide guidance on who is the Customer with respect to a Relevant Person who is a either a Fund Operator or a Fund;
4.1.3.4 Provide practical guidance on conducting Risk Assessments, by:
› providing Risk Factors in relation to a Business Risk Assessment
› detailing potential Risk Indicators for Customer Risk Assessments
› suggesting an approach to risk assessments for SPV Governing Bodies
› reiterating that Risk Assessments must be documented
4.1.3.5 Provide Guidance on how Article 3 of the Money Laundering Order applies to Funds and Fund Operators particularly focusing on beneficial ownership and control and the “Three Tier Test”;
4.1.3.6 In response to specific areas of complexity highlighted by industry, provide guidance in the following areas:
› Unit Trusts
› Passive Investors
› Multiple Layered Entities
› Nominees/Investment Managers
› Deferred Verification
› Failure to Complete Identification Measures
› Trigger Events
› Enhanced Customer Due Diligence Measures
4.1.3.7 Provide guidance on the circumstances where, although the CDD obligations remain, a Relevant Person may not undertake all CDD Measures themselves, such as by:
› Applying Simplified Identification Measures
› Relying on an Obliged Person
› Appointing a delegate
4.1.4 The proposed Fund Section restates some basic principles as this provides the foundation (in conjunction with the other sections of the AML/CFT Handbook) of how AML/CFT requirements apply to Funds and Fund Operators.
4.1.5 The Funds Section must be read in conjunction with and supplements the other sections of the AML/CFT Handbook.
4.2 Scope of the Funds Section
4.2.1 The proposed Funds Section will confirm the general applicability of AML/CFT statutory obligations to all Funds and Fund Operators.
4.2.2 At the time of Consultation some statutory exemptions exist in relation to activities that would otherwise be Fund Operators. However, see the AML/ CFT Handbook Part 4: Section 1 Proceeds of Crime (Jersey) Law 1999 - Schedule 2
4.2.3 Question: Do you consider the guidance provided in Section 14.1, in particular the explanations and diagrams setting out the Funds and the Fund Operators subject to existing statutory obligations, are clear? If not, please state in detail what your observation or concern is and explain the reason for it.
4.3 Risk Assessments
4.3.1 The proposed Funds Section (Section 14.2) focuses on the obligations to conduct Business Risk Assessments and Customer Risk Assessments.
4.3.2 As a result of requests from industry potential risk factors and higher risk indicators are provided in non-exhaustive lists. Guidance is also given on risk assessments conducted by SPV governing bodies and the requirement to document risk assessments.
4.3.3 The Risk Factors listed at Section 14.2.2 relate to a Fund’s Business Risk Assessment and emphasise the links between operational risk factors and AML/CFT Risks. In Section 14.2.3 potential higher risk indicators have been provided.
4.3.4 Question: Do you consider the guidance provided in Section 14.2, in particular the risk factors to consider and potential risk indicators, is clear? If not, please identify which guidance (by paragraph) and explain why?
4.4 Customer Due Diligence and Article 3 of the Money Laundering Order.
4.4.1 Article 3 sets out the CDD Measures that must be applied. The guidance at Sections 14.3.1 and 14.3.2 provide examples of how Identification Measures apply where a Fund and Fund Operator is the Relevant Person and the differences where the Fund is a legal person or legal arrangement.
4.4.2 Further guidance to Fund Operators is provided, following requests from industry, in areas where it may be beneficial, such as:
4.4.2.1 Section 14.3.3 Unit Trusts.
4.4.2.2 Section 14.3.4 Passive Investors.
4.4.2.3 Section 14.3.5 Promoters, an example of where control of a customer may be exercised directly through ownership or by other means.
4.4.2.4 Section 14.3.6 Multiple Layers, where multiple entities may create layers between the ultimate investor(s) and their investment.
4.4.2.5 Section 14.3.7 Nominees / Investment Managers.
4.4.2.6 Section 14.3.8 Residual Assets, where a Fund may cease to exist and a Fund Operator holds assets on behalf of investors.
4.4.3 Question: Do you consider the guidance provided in Section 14.3 of the Funds Section to be clear? If not, please identify which guidance (by paragraph) and explain why?
4.4.4 Question: Are there any additional areas of CDD Measures in relation to Funds or Fund Operators where guidance would be helpful? If yes, please detail those areas providing illustrative examples if possible.
4.5 Timing of Identification Measures.
4.5.1 Guidance is provided on delayed verification (Article 13(4) of the Money Laundering Order) at Section 14.4.
4.5.2 Question: Do you consider the guidance provided in Section 14.4 of the Funds Section to be clear? If not, please identify which guidance (by paragraph) and explain why?
4.6 Failure to Complete Identification Measures.
4.6.1 Guidance is provided on failure to complete identification measures at Section 14.5.
4.6.2 Question: Do you consider the guidance provided in Section 14.5 of the Funds Section to be clear? If not, please identify which guidance and explain why?
4.7 Updating Identification Information.
4.7.1 Guidance is provided on trigger events at Section 14.6.
4.7.2 Question: Do you consider the guidance provided in Section 14.6 of the Funds Section to be clear? If not, please identify which guidance (by paragraph) and explain why?
4.8 On-going Monitoring
4.8.1 Guidance is provided regarding on-going monitoring at Section 14.7.
4.8.2 Question: Do you consider the guidance provided in Section 14.7 of the Funds Section to be clear? If not, please identify which guidance (by paragraph) and explain why?
4.9 Collation of Customer Due Diligence
4.9.1 Every Fund and Fund Operator has statutory customer due diligence obligations. There are, however, various mechanisms which may be employed to avoid unnecessary duplication of effort, where Funds and Fund Operators are required to apply identification measures to the same Group of entities or individuals. Section 14.8 provides guidance on provisions that a Relevant Person may apply, such as:
4.9.1.1 Section 14.8.1 Simplified Identification Measures
4.9.1.2 Section 14.8.2 Reliance on Obliged Persons
4.9.1.3 Section 14.8.3 Obtaining Copy documentation from a regulated trust and company service provider in the Crown Dependencies
4.9.1.4 Section 14.8.4 Outsourcing.
4.9.2 Question: Do you consider the guidance provided in Section 14.8 of the Funds Section to be clear? If not, please identify which guidance (by paragraph) and explain why?
4.10 Enhanced Customer Due Diligence Measures
4.10.1 Most investors in Funds will not be Jersey residents and they are often not present in Jersey for identification purposes which means they will be subject to Enhanced Customer Due Diligence Measures. Section 14.9 provides guidance.
4.10.2 Question: Do you consider the guidance provided in Section 14.9 of the Funds Section to be clear? If not, please identify which guidance (by paragraph) and explain why?
4.11 Guidance Generally
4.11.1 Question: Are there additional areas where guidance would be beneficial in relation to AML/CFT for Funds and Fund Operators? If yes, please detail those areas providing illustrative examples if possible.
5 Cost Benefit Analysis
5.1 Costs to Industry
5.1.1 It is not expected that there will be any costs to industry arising from the publication of this guidance in the Funds Section save where their established policies and procedures do not accurately reflect the AML/CFT statutory obligations.
5.2 Costs to the Commission
5.2.1 Save for staff costs incurred in carrying out this consultation and the publication of the final Funds Section in due course, no other substantive expenses are expected to be incurred by the Commission.
5.3 Benefits
5.3.1 The proposals in this paper will provide guidance to assist industry in meeting their AML/CFT statutory obligations and clarify the Commission’s expectations.
6 Summary of Questions
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Reference |
Question |
Appendix A
List of representative bodies and other persons who will be sent this consultation paper
- Association of English Solicitors Practising in Jersey
- Chartered Institute for Securities & Investment, Jersey branch
- Institute of Chartered Secretaries and Administrators, Jersey branch
- Institute of Directors – Jersey branch
- Jersey Association of Directors and Officers
- Jersey Association of Trust Companies
- Jersey Bankers’ Association
- Jersey Chamber of Commerce and Industry Incorporated
- Jersey Compliance Officers Association
- Jersey Finance Limited
- Jersey Funds Association
- Jersey International Insurance Association
- Jersey Society of Chartered and Certified Accountants
- Law Society of Jersey
- Society of Trust and Estates Practitioners (STEP), Jersey branch
- The Chartered Institute of Taxation (Jersey Branch)
Appendix B
Proposed Funds Section
(The Funds Section has discrete page numbering)
Please click here to view the proposed Funds Section.
[1] https://www.jerseyfsc.org/industry/financial-crime/aml-cft-handbooks/
[2] A code of practice may be prepared and issued; or revised by the Commission pursuant to, the Regulatory Laws, the AIF Regulations and the Supervisory Bodies Law (in respect of AML/CFT requirements). The Codes are available from the Commission Website:
https://www.jerseyfsc.org/industry/codes-of-practice/
[3] These terms are defined in Article 1 of the Supervisory Bodies Law.
[4] Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for:
Regulated Financial Services Business
The Legal Sector
The Accountancy Sector
Estate Agents and High Value Dealers