Exemptions Consultaton Paper 2021
Exemptions Consultaton Paper 2021 Consultation on AML/CFT scope exemptions
Consultation on aligning Jersey’s AML/CFT registration regime with the 2012 FATF Recommendations
We invite comments on this consultation paper by 17 January 2022. If you require assistance, clarification or wish to discuss any aspect of the proposals prior to formulating a response, it is of course appropriate to contact us.
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The JFSC contact is: Jon Stevens Telephone: +44 (0) 1534 822085 |
The Government contact is: Dr Bastian Hertstein Email: b.hertstein@gov.je |
Alternatively, Lisa Springate at Jersey Finance Limited (JFL) is coordinating an Industry response that will incorporate any matters raised by local businesses. Comments should be submitted to JFL by 17 January 2022.
The JFL contact is:
Lisa Springate
Head of Legal and Technical
Jersey Finance Limited
4th Floor, Sir Walter Raleigh House
48-50 Esplanade
St Helier
Jersey
JE2 3QB
Telephone: +44 (0) 1534 836029
Email: Lisa.Springate@jerseyfinance.je
Our policy is to provide the content of responses for inspection unless specifically requested otherwise.
It is the policy of JFL (unless otherwise requested or agreed) to collate all responses and share them verbatim with the JFSC 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 JFL’s permanent electronic archive which is currently open to all JFL members.
Glossary of Terms
Defined terms are indicated throughout this document as follows:
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AML |
Anti-Money Laundering |
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CFT |
Countering the Financing of Terrorism |
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DNFBP |
Designated Non-Financial Businesses and Professions |
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FATF |
Financial Action Task Force |
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FATF Recommendations |
The International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation |
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FI |
Financial Institution |
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FSB |
Fund Services Business |
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Government |
Government of Jersey |
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IB |
Investment Business |
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JFSC |
Jersey Financial Services Commission |
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Mutual Evaluation Report |
Mutual Evaluation Report, specifically the Report on Fourth Assessment |
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MLO |
Money Laundering (Jersey) Order 2008 |
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MONEYVAL |
Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism |
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NRA |
National Risk Assessment |
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PIRS |
Professional Investor Regulated Schemes |
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Private TCB |
Private Trust Company Business |
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POCL |
Proceeds of Crime (Jersey) Law 1999 |
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Regulatory Laws |
Alternative Investment Funds (Jersey) Regulations 2012 Banking Business (Jersey) Law 1991 Collective Investment Funds (Jersey) Law 1988 Financial Services (Jersey) Law 1998 Insurance Business (Jersey) Law 1996 SBJL |
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SBJL |
Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 |
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Schedule 2 |
POCL’s Second Schedule |
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Scope exemptions |
Exemptions that exclude activity from the scope of activities caught by AML/CFT obligations in Jersey |
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TCB |
Trust Company Business |
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VASP |
Virtual Asset Service Provider |
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We / us |
Government and the JFSC |
1 Executive Summary
1.1 Overview
1.1.1 The proposals within this consultation paper are part of the nationally coordinated programme of work led by the Government of Jersey (Government) in partnership with other Island Agencies to implement the International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation (FATF Recommendations). This consultation is a joint initiative between the Jersey Financial Services Commission (JFSC) and Government.
1.1.2 In December 2015, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) agreed its Report on Fourth Assessment Visit of Jersey (Mutual Evaluation Report) regarding the Island’s compliance with the FATF Recommendations. This report was conducted against a previous version of the international standards concerning anti-money laundering and countering the financing of terrorism (AML/CFT), known as the 2003 FATF Recommendations. However, many of the recommendations are relevant to the current international standards, known as the 2012 FATF standards, against which Jersey will next be assessed by MONEYVAL during 2023/24.
1.1.3 The Mutual Evaluation Report concluded that certain scope exemptions from AML/CFT obligations in Jersey were not compatible with the FATF Recommendations which allow such exemptions only where:
1.1.3.1 “there is a proven low risk of money laundering and terrorist financing; this occurs in strictly limited and justified circumstances; and it relates to a particular type of financial institution or activity, or DNFBP”; or
1.1.3.2 “a financial activity (other than the transferring of money or value) is carried out by a natural or legal person on an occasional or very limited basis (having regard to quantitative and absolute criteria), such that there is low risk of money laundering and terrorist financing.”
1.1.4 Specifically, the Mutual Evaluation Report highlighted concern about the rationale for scope exemptions that mean businesses are not required to comply with AML/CFT obligations.
1.1.5 AML/CFT regulation, including exemptions from AML/CFT obligations, evolved as the Island brought its AML/CFT regime into force in line with developing international standards. The Proceeds of Crime (Jersey) Law 1999 (POCL) introduced AML obligations for certain financial services activities which were specified in POCL’s Second Schedule (Schedule 2). At the time, these activities included Banking, Insurance and Investment Business. These were activities already supervised for conduct and prudential matters by the JFSC.
1.1.6 Subsequently, more activities were included within Schedule 2, and so became subject to AML/CFT obligations. The most significant example of this was in 2008 when amendments to Schedule 2 brought a number of activities within AML/CFT regulatory scope including that of Designated Non-Financial Businesses and Professions (DNFBP), this included accountants and lawyers.
1.1.7 Whilst Schedule 2 sets out the activities which define financial services business, it is the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 (SBJL) which establishes when a financial services business is required to register with the JFSC, and the Money Laundering (Jersey) Order 2008 (MLO) which determines the statutory preventative measures which must be in place. The SBJL also provides the JFSC with its AML/CFT supervisory powers for all financial services businesses – whether registered with the JFSC under the SBJL or another enactment.
1.1.8 Several scope exemptions remain directly linked to Jersey’s conduct and prudential regime. As the international standards have been developed by the FATF, it has become clear that such activities are now expected to be directly subject to AML/CFT obligations in line with the FATF Recommendations. However, the regime in Jersey may currently exempt them from both AML/CFT obligations as well as conduct and prudential obligations by virtue of the way the regime has evolved. Under the current FATF standards, exemptions are only permitted to exist in proven low risk circumstances of money laundering and terrorist financing and the exemption must only occur in strictly limited and justified circumstances.
1.1.9 Equally, certain activities are now expected to be directly subject to AML/CFT obligations pursuant to the revised FATF Recommendations which are not currently specified in Schedule 2.
1.1.10 Our proposals address both of these issues (1.1.8 and 1.1.9).
1.1.11 In order to better understand the extent to which the scope exemptions are relied upon by Island businesses, we established an Industry working group made up of experienced practitioners from a cross-section of Industry.
1.1.12 The working group considered several scope exemptions in detail including how they are used in practice, and the potential impact should certain scope exemptions no longer be available to Industry because they are not compatible with the current FATF Recommendations’ definitions of financial institutions (FIs), DNFBPs and Virtual Asset Service Providers (VASPs).
1.1.13 The working group endorsed the policy of implementing the FATF FI, DNFBP and VASP definitions in full. The working group also identified that an ideal solution when amending the scope exemptions would:
1.1.13.1 avoid unnecessary duplication where AML/CFT obligations are already performed by other businesses, for example, through reliance measures that are compatible with FATF Recommendation 17 and the MLO;
1.1.13.2 simplify the regime; and
1.1.13.3 offer consistency (e.g. for as many fund structure types as possible using a single definition for all private and public fund types).
1.1.14 Following the working group’s initial consideration of several scope exemptions, we identified that the most pragmatic route forward would be to disconnect AML/CFT obligations from conduct and prudential obligations. Thereafter, where a business is to be subject to AML/CFT obligations, this will be the case irrespective of that business’s obligations in respect of conduct and prudential matters.
1.1.15 The key benefit of this approach is that it will provide clarity and certainty to Industry regarding what activities are subject to AML/CFT regulation and there is no requirement to amend the wider network of statutes relating to financial services.
1.1.16 The approach will also allow us to demonstrate that any future scope exemptions from AML/CFT obligations are fully aligned to the criteria for exemptions within the FATF Recommendations (1.1.3.1 and 1.1.3.2).
1.2 Consultation and implementation timeline
1.2.1 This consultation paper is an important milestone in the consultation process that started in December 2020 when the Industry working group first met. The proposals in this paper outline the overall shape of the solution to aligning Jersey’s AML/CFT scope exemptions to the FATF Recommendations, which importantly includes the primary law changes that are required.
1.2.2 Should these proposals progress as outlined, further consultation will continue in 2022 as we develop proposals for the secondary legislation that will implement the changes in full, including appropriate transitional provisions for businesses that will become subject to AML/CFT obligations for the first time or for whom a registration/notification will apply for the first time.
1.2.3 Outline of consultation process.
1.2.4 As no changes to Jersey legislation can be made for a period of several months during 2022 due to Jersey’s General Election, we are proposing the fundamental changes to primary law now in order that the subsequent changes can be further developed and consultation with Industry undertaken during the General Election period. Debate and scrutiny of these amendments will occur after the General Election by the new States Assembly.
1.3 What is proposed and why?
1.3.1 It is proposed to recast Schedule 2 (Appendix A) so that all activities subject to AML/CFT obligations, which includes registration with (or notification to) the JFSC, mirrors the FI, DNFBP and VASP definitions within the FATF Recommendations.
1.3.1.1 This will remove the direct link between AML/CFT, and conduct and prudential regulation so that all businesses will be subject to AML/CFT obligations in line with the FATF Recommendations.
1.3.1.2 There will not be any change to those businesses’ status in respect of conduct or prudential obligations which will continue to be set out within the other Regulatory Laws.
1.3.2 Where it can be demonstrated, based on an assessment of risk, that specific activities meet the FATF criteria for exemptions (1.1.3.1 and 1.1.3.2), scope exemptions for these activities will be specified.
1.3.2.1 This will enable Jersey to demonstrate that any future scope exemptions are aligned to the FATF Recommendations and based on a sound understanding of risk.
1.3.3 All activities within the recast Schedule 2 will, as a minimum, be subject to appropriate notification obligations even where there is a scope exemption as described at 1.3.2.
1.3.3.1 This will enable us to maintain a current understanding of all activities that the FATF Recommendations require to be subject to AML/CFT obligations and ensure that scope exemptions are periodically reviewed based on up to date information about their use.
1.3.4 The Draft Proceeds of Crime (Miscellaneous Amendments) (Jersey) Law 202- (Appendix A) shows the recast Schedule 2 and provides for consequential and transitional provisions to be made by way of Regulation.
1.3.4.1 Should the proposals at Appendix A progress we anticipate that various consequential amendments will be required to other statutes. In particular, to the Schedule to the SBJL which directly links to the current Schedule 2 in order to determine which businesses are required to register with us under the SBJL, and the MLO which establishes the preventative measures to be implemented.
1.3.4.2 We anticipate that transitional provisions will provide for a period of six months during which businesses that currently take advantage of a scope exemption would be required to prepare to register with the JFSC or notify under the SBJL in line with the recast Schedule 2, or notify us of reliance on a scope exemption.
1.3.5 It is proposed that the Draft Proceeds of Crime (Miscellaneous Amendments) (Jersey) Law 202- should come into force by way of an Appointed Day Act, rather than automatically coming into force on a specified date in order to accomplish a smooth transition process.
1.4 Who would be affected?
1.4.1 The proposals in this consultation paper have the potential to affect businesses that are not currently required to comply with some or all AML/CFT obligations by virtue of a scope exemption. Further detail on the scope exemptions as they are now, and their proposed future state, is provided in Appendix B.
1.4.2 An important part of the process that we have undertaken has been to filter, at a high level, certain activities where they are undertaken in respect of “connected parties” and where the activities are not undertaken in the context of “carrying on business”.
1.4.3 These filters have the effect of excluding or exempting persons who undertake activities specified in Schedule 2 from registration where the activities are not done in the context of carrying on a business, and/or where the activities are not services provided to third parties. This is a simplification of the exemptions regime where previously several individual exemptions may have produced the same net effect.
1.5 How will this affect me?
1.5.1 If you currently employ a scope exemption that we have identified will no longer be available, you will be required, as a minimum, to notify the JFSC of your reliance on that scope exemption, and may be required to register with the JFSC for AML/CFT oversight. Examples of scenarios are provided at section 4.
1.5.2 We understand from the working group discussions that many businesses which will be required to register/notify in the future will already have certain AML/CFT obligations fulfilled by their service providers, albeit presently in order to fulfil their service providers’ own AML/CFT obligations.
1.6 What action should I take?
1.6.1 If you currently employ a scope exemption, or believe that you may, we encourage you to review your business in light of Appendix B and develop plans to ensure that, as a minimum, you are able to notify the JFSC of your reliance on any relevant scope exemptions.
1.6.2 If, following this review, you identify that you will be required register with the JFSC for AML/CFT oversight, we encourage you to plan how you will go about ensuring that you have adequate systems, procedures and controls in place in line with the obligations on all businesses registered for AML/CFT purposes under the SBJL. These obligations are detailed in the MLO and AML/CFT Handbook.
1.6.3 This planning work will need to take place over the course of 2022 in line with the transitional period outlined at section 1.2 (Consultation and implementation timeline).
2 Consultation
2.1 Basis for consultation
2.1.1 The JFSC are issuing this consultation in accordance with Article 8(3) of the Financial Services Commission (Jersey) Law 1998 under which the JFSC may “consult and seek the advice of such persons or bodies” as it considers appropriate.
2.1.2 Government closely observed the work undertaken by the working group, then participated in the Law Drafting process, and support the proposed approach.
2.2 Responding to the consultation
2.2.1 We invite 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 JFL are coordinating an Industry response that will incorporate any matters raised by local businesses which will be shared with us on an aggregated and anonymised basis.
2.2.3 Comments should be received no later than 17 January 2022.
2.3 Next steps
2.3.1 Feedback will be published in January 2022 and both the Government and JFSC are available during the consultation period should you wish to discuss any matters in the consultation paper with us.
2.3.2 As highlighted at section 1.2 (Consultation and implementation timeline), subject to feedback on the proposals in this consultation paper, it is intended that Government proceed to lodge (February 2022) the Draft Proceeds of Crime (Miscellaneous Amendments) (Jersey) Law 202- for scrutiny then States debate (March 2022).
2.3.3 While the primary law progresses through that process, we intend to reconvene a working group to discuss how to most effectively develop the secondary legislation (Regulation and Order) that will be necessary to implement the overall changes that will successfully amend the AML/CFT scope exemptions regime such that it becomes fully compliant with the FATF Recommendations.
3 Proposals
3.1 Recast Schedule 2 so that all activities subject to AML/CFT obligations mirror the definitions within the FATF Recommendations.
3.1.1 Schedule 2 currently specifies activities that are subject to AML/CFT obligations through a mix of references to other statutes and standalone definitions. While Schedule 2 is reflective of the majority of activities that the FATF Recommendations require to be subject to AML/CFT obligations, it does not tie-in precisely.
3.1.2 Where Schedule 2 relies on cross-references to other statutes in order to define an activity that is subject to AML/CFT obligations, the way in which those statutes define activities diverges further from the FATF Recommendations. This is generally where the current scope exemptions arise.
3.1.3 The proposal to disconnect the scope of AML/CFT obligations from conduct and prudential regulations works on the following basis:
Scheme of recasting of Schedule 2
3.1.4 The definitions from the FATF Recommendations for FIs, DNFBPs, and VASPs are replicated within the recast Schedule 2 (Appendix A).
3.1.5 This provides a clear mapping of activities from the FATF Recommendations to activities that will be subject to AML/CFT obligations on an ongoing basis.
3.1.6 Activities detailed within the current Schedule 2 are defined within the recast Schedule 2 as follows:
3.1.6.1 The first (and at times only) provision follows the FATF FI, DNFBP and VASP definitions precisely. This creates a general rule.
3.1.6.2 We understand that the FATF wording is often very general, and that stakeholders will be more familiar with the language in the present Schedule 2. We have therefore sought to retain the familiar provisions from the present Schedule 2, and these will be “automatically included” as activities falling within the recast Schedule 2. It is important to note that when bringing across the current provisions into the new regime, we have removed most cross-references to other statutes, which has necessitated some changes away from familiar descriptions. In doing this, scope exemptions that arose by reason of such cross-referrals to various other enactments are not brought into the recast Schedule 2. Whether scope exemptions are retained is dealt with elsewhere (3.3.7).
3.1.7 The recast Schedule 2 operates independently of the conduct and prudential regulatory framework moving forwards while providing for a smooth transition from the current Schedule 2.
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Do you agree with the approach of disconnecting AML/CFT obligations from conduct and prudential obligations as outlined? |
3.2 Connected companies/persons/etc
3.2.1 The FATF Recommendations apply to activities when performed for customers as part of a business. This is a filter for activity that takes place in circumstances that are not within scope of the FATF Recommendations. We propose the following approach which is shown in Appendix A at the proposed revised Article 36 of the POCL:
3.2.1.1 Services to connected companies or within joint enterprises will normally be excluded from AML/CFT obligations excepting notification in line with 3.4.
3.2.1.2 If the company group or the joint enterprise itself involves performing the listed activities for external customers, then it will be included.
3.2.1.3 If the “internal customer” is outside of Jersey, then this will be treated as an ordinary customer relationship, that is, it will not be excluded by reason of the parties being connected.
3.2.2 As such, the connected person issue which underpins many of the individual scope exemptions is largely dealt with by considering the scope of the FATF Recommendations. The focus is not on divisions of labour within a business, but activity offered to external customers who apply for that business.
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Do you agree with the proposed approach to connected companies/persons/etc? |
3.3 Where it can be demonstrated, based on an assessment of risk, that specific activities meet the FATF criteria for exemptions, scope exemptions for these activities will be specified within POCL
3.3.1 As outlined at 1.1.3.1 the FATF Recommendations contemplate that exemptions may be permitted where “there is a proven low risk of money laundering and terrorist financing; this occurs in strictly limited and justified circumstances; and it relates to a particular type of financial institution or activity, or DNFBP”.
3.3.2 In undertaking our work, we have referred to the analysis of Industry activities within Jersey’s National Risk Assessment (NRA). Whilst the initial national risk assessments were published in 2020 and 2021, national risk assessment work is ongoing and will be updated. When risk assessment work is updated and published, it will be considered whether it justifies any changes to the exemptions regime. For the majority of current scope exemptions there is insufficient data or information to determine that the type of FI, activity, or DNFBP availing itself of that scope exemption is able to demonstrate a proven low risk of money laundering and terrorist financing; nor that the activity occurs in strictly limited and justified circumstances.
3.3.3 At least in part, this is because there is a lack of data and information available on scope exempted FIs, DNFBPs, VASPS, and their activities compounded by our not being able to collect such data and information by virtue of the current scope exemptions.
3.3.4 As further outlined at 1.1.3.2, the other scenario in which the FATF Recommendations contemplate that exemptions may be permitted is where “a financial activity (other than the transferring of money or value) is carried out by a natural or legal person on an occasional or very limited basis (having regard to quantitative and absolute criteria), such that there is low risk of money laundering and terrorist financing.”
3.3.5 Similarly to 3.3.3, we do not have readily available data to determine quantitative and absolute criteria that will enable us to make clear a determination in a scenario where a financial activity would meet the second criteria for a scope exemption that is compatible with the FATF Recommendations in all situations.
3.3.6 We recognise that there are likely to be activities that could meet either or both of these criteria, provided data and information is available to make the relevant determination. This is in keeping with the ongoing approach to national risk assessment. Our approach is therefore to provide for circumstances in which future scope exemptions may be specified, provided that we are able to recommend their introduction based on an assessment of risk, which will take account of the criteria for exemptions allowed by the FATF Recommendations.
3.3.7 We propose to do this through the Order-making power described in Appendix A that would enable the Minister, on the recommendation of the JFSC, to add, remove, and amend the exemptions that will be brought into Schedule 2.
3.3.8 Entities that are carrying on a business will be in one of the following scenarios:
3.3.8.1 Outside the scope of Schedule 2, including those who are outside by virtue of the approach to the “customer/business” issue derived from the FATF Recommendations. (3.2.1 and 3.2.2).
3.3.8.2 Within the scope of Schedule 2, but do not need to register as they have a scope exemption. They must notify their reliance on the scope exemption.
3.3.8.3 Within the scope of Schedule 2 and cannot rely on a future scope exemption, but are currently within the remit of the SBJL by virtue of other registration in the financial services legislation. These continue to be in scope and, in time, will need to register directly for AML/CFT purposes.
3.3.8.4 Currently deemed registered. These businesses continue to be in the remit of the SBJL as before, and, in time, will need to register directly.
3.3.8.5 Businesses who previously relied on a scope exemption that no longer applies. These businesses will need to register.
3.3.8.6 Finally, businesses who are within Schedule 2 and have none of the above issues, they must either register or simply maintain their existing registration.
3.3.9 Our proposals at 3.4 regarding notification obligations and at 3.7 regarding transitional provisions are also relevant in considering our proposed approach to the assessment of risk in respect of future scope exemptions.
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Do you agree with the approach of specifying future scope exemptions within the POCL based on an assessment of risk? |
3.4 All activities will, as a minimum, be subject to appropriate notification obligations even where there is an Exemption
3.4.1 As outlined at 3.3, it is important that Jersey maintains an up to date understanding of activities, and FIs, DNFBPs, and VASPs that are able to utilise scope exemptions. This is so that:
3.4.1.1 Jersey has evidence to demonstrate that scope exemptions are working in line with the criteria specified in the FATF Recommendations; and
3.4.1.2 Where activities do meet those criteria, that appropriate scope exemptions can be introduced.
3.4.2 We propose that all businesses that meet the definitions within the recast Schedule 2, irrespective of whether they are subject to future scope exemptions, should be subject to appropriate notification obligations which would include:
3.4.2.1 Notifying the JFSC of the Schedule 2 activity they undertake; and
3.4.2.2 Providing data on a periodic basis regarding their business activities.
3.4.3 This will enable us to maintain a current understanding of all activities that the FATF Recommendations require to be subject to AML/CFT obligations and ensure that scope exemptions are periodically reviewed based on up to date information about their use.
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Do you agree with the approach of requiring all activities, as a minimum, to be subject to appropriate notification obligations? |
3.5 Guidelines on interpretation
3.5.1 Articles 36(5) – 36(8) of the Draft Proceeds of Crime (Miscellaneous Amendments) (Jersey) Law 202- provides that:
36(6)The Commission may issue guidelines on the interpretation of any provision in Schedule 2, including any expression used in Schedule 2.
36(7)Regard must be had to any guidelines issued under paragraph (6) concerning the interpretation of any expression in Schedule 2.
36(8)Guidelines issued under paragraph (6) must be published by the Commission in a manner which the Commission considers will bring it to the attention of those most likely to be affected by it.
36(9)In interpreting an expression used in Schedule 2 and not defined, account must be taken of the meaning, if any, given to that expression in –
(a)the FATF International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation - the FATF Recommendations as updated from time to time; or
(b) the FATF Methodology for Assessing Technical Compliance with the FATF Recommendations and Effective of AML/CFT Systems, as updated from time to time.
3.5.2 The intent behind these provisions is that where there is uncertainty about the interpretation, or practical implementation, of the recast Schedule 2, the JFSC will be able to provide clarity to Industry.
3.6 Other regulation making powers under SBJL
3.6.1 In addition to the recast Schedule 2, proposed amendments to Article 36 of the POCL including proposed Regulation and Order making powers under POCL, the Draft Proceeds of Crime (Miscellaneous Amendments) (Jersey) Law 202- includes proposals to bring Regulation making powers under SBJL as well.
3.6.2 It is intended that these powers would enable the States of Jersey to bring about:
3.6.2.1 Changes to the Schedule of SBJL to reflect the recast Schedule 2 of POCL;
3.6.2.2 Necessary amendments to ensure that SBJL encompasses all entities required to register or notify (3.4) in accordance with the recast Schedule 2;
3.6.2.3 Surety in respect of the position for those entities currently regulated under the SBJL but who are not currently required to register under that Law;
3.6.2.4 Transitional provisions such as are necessary or expedient to bring those mentioned in the last bullet point in to being registered under the SBJL.
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Do you agree with the approach to Regulation making powers under the SBJL? |
3.7 Consequential and transitional provisions, commencement
3.7.1 The Draft Proceeds of Crime (Miscellaneous Amendments) (Jersey) Law 202- provides for consequential and transitional provisions to be made by way of Regulation. In developing such Regulation, further engagement with a working group, and a follow-on consultation, will take place as highlighted at sections 1.2 and 2.3.
3.7.2 We anticipate that that various consequential amendments will be required to other statutes, in particular to the Schedule to the SBJL which links directly to the current Schedule 2.
3.7.3 We anticipate that transitional provisions will provide for a period of six months, during which, businesses that are currently availed of a scope exemption would be required to register with us or notify under the SBJL in line with the recast Schedule 2.
3.7.4 It is proposed that the Draft Proceeds of Crime (Miscellaneous Amendments) (Jersey) Law 202- should come into force by way of an Appointed Day Act rather than automatically coming into force on a specified date. This is in order that a smooth transition is achieved in parallel with the additional secondary legislation that will be consulted on during the first half of 2022.
3.8 Undertaking more than one activity
3.8.1 Several businesses are registered to undertake activities that fall within more than one definition in the current Schedule 2 and we anticipate that this will continue to be the case.
3.8.2 Many businesses undertaking more than one type of Schedule 2 activity are currently required to notify us of all Schedule 2 activities that they undertake. It is intended that all businesses should register or notify us of the Schedule 2 activities they undertake.
3.8.3 Fees payable by Schedule 2 businesses registered under the SBJL are payable per-business (i.e. the business as whole) rather than per-activity. It is intended that this approach to fees will continue.
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Do you agree with the approach to registration of more than one activity including AML/CFT fees being payable per-business rather than per-activity? |
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Do you have any other comments regarding the proposals within this consultation? |
4 Examples
4.1 Purpose of this section
4.1.1 This section provides examples of different activities that are currently subject to scope exemptions and how these activities will be affected by the proposals at Section 3.
4.2 Professional Investor Regulated Schemes (PIRS)
4.2.1 There are two key scope exemptions, commonly referred to as PIRS, which are currently in use and will fall away under our proposals in respect of AML/CFT obligations. These are items 23 and 40 in the section of Appendix B that illustrates those exemptions listed in Part 4, section 1 of the AML/CFT Handbook.
4.2.2 These PIRS scope exemptions are commonly used when establishing private investment structures such as Jersey Private Funds and other professional investment schemes. Their effect is to exempt a functionary (service provider) to such structures from needing to comply with the MLO and register under the FSJL provided that the functionary itself is administered by a fully regulated (for AML/CFT, conduct of business, and prudential matters) TCB licence holder, in certain circumstances the person may be a FSB licence holder.
4.2.3 The benefit of this approach is that there is a fully regulated financial services business with comprehensive AML/CFT (and other) obligations being adhered to in respect of the PIRS. However, the drawback is that there are not AML/CFT obligations on the service provider to the PIRS itself. This is not compatible with the FATF exemptions criteria.
4.2.4 On a practical basis, the working group was clear that AML/CFT obligations are discharged in respect of both PIRS and their service providers. This is positive as we look to the regime after the proposals have been implemented. The service providers that are currently exempt by virtue of the PIRS exemptions will need to ensure that they are able to demonstrate compliance with the obligations applicable to all businesses registered for AML/CFT purposes under the SBJL. These obligations are detailed in the MLO and AML/CFT Handbook.
4.2.5 As illustrated at section 1.2 the precise details regarding transitional arrangements, as well as arrangements in respect of outsourcing and reliance will be subject to further consultation after which secondary legislation and guidance will be issued to support the transitional process for affected businesses.
4.2.6 Where the AML/CFT obligations described at 4.2.4 are fulfilled by existing fully regulated service providers we anticipate that our follow-on consultation will include how outsourcing and reliance arrangements can be employed in a way that maximises the value of work already undertaken.
4.2.7 The effect of these scope exemptions will continue in respect of conduct of business and prudential matters in line with their original design.
4.3 Private Trust Company Business (Private TCB)
4.3.1 The Private TCB exemption is prescribed by the Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000, Schedule, Part 1, paragraph 4 and it will fall away under our proposals in respect of AML/CFT obligations. This is item 24 in the section of Appendix B that illustrates those exemptions listed in Part 4, section 1 of the AML/CFT Handbook.
4.3.2 The Private TCB scope exemption is used when establishing private trust structures, for example by certain family offices. Its effect is to exempt a person providing trust company and company services to private trust structures from registration under the Financial Services (Jersey) Law 1998 as a TCB provided that the Private TCB itself is administered by a fully regulated (for AML/CFT, conduct of business, and prudential matters) TCB licence holder.
4.3.3 The benefit of this approach is that there is a fully regulated financial services business with comprehensive AML/CFT (and other) obligations being adhered to in respect of the Private TCB. However, the drawback is that there are no AML/CFT obligations on the Private TCB itself. This is not compatible with the FATF exemptions criteria.
4.3.4 On a practical basis, we understand that AML/CFT obligations are discharged in respect of both Private TCBs and the private structures that they provide services to. This is positive as we look to the regime after the proposals have been implemented. The Private TCBs that are currently exempt by virtue of the Private TCB exemption will need to ensure that they are able to demonstrate compliance with the obligations applicable to all businesses registered for AML/CFT purposes under the SBJL. These obligations are detailed in the MLO and AML/CFT Handbook.
4.3.5 As illustrated at section 1.2 the precise details regarding transitional arrangements, as well as arrangements in respect of outsourcing and reliance will be subject to further consultation, after which secondary legislation and guidance will be issued to support the transitional process for affected businesses.
4.3.6 The effect of these scope exemptions will continue in respect of conduct of business and prudential matters in line with their original design.
4.4 Connected Persons
4.4.1 Sections 3.2.1 and 3.2.2 highlight that the connected person issue which underpins many of the individual scope exemptions, are largely dealt with by considering the scope of the FATF Recommendations through the amendments to Article 36 of POCL. Where a connected entity meets the definition of a “connected party” it will be exempted from direct AML/CFT obligations. However, where it does not, the scope exemption will no longer be available.
4.4.2 While this is a technical amendment, the outcome is the simplification and clarification of the exemptions regime.
4.4.3 In addition to the “connected party” filter (whether or not you are providing services to a third party) there is a further filter, being “carrying on business”. This filter has the effect of excluding persons who undertake activities specified in Schedule 2 from registration where this is not done in the context of carrying on a business that undertakes the activity, for example:
4.4.3.1 A natural person who is dealing in shares for their own benefit (e.g. as part of their personal investment in a pension portfolio); or
4.4.3.2 A company issuing its own securities on its own behalf.
4.4.4 There are a total of 17 scope exemptions within this broad category which we have analysed and which are presented in Appendix B. Our conclusion is that these exemptions are either already within the AML/CFT regime, will not be available in the future, or will be partially available subject to the circumstances in which the business employing the exemption matches the criteria specified in Article 36.
4.4.5 On a practical basis, we understand that the connected person exemptions are generally used within the context of operating groups of companies, for example Jersey resident TCB affiliations under common ownership and control. The decoupling of the AML/CFT regime from the conduct and prudential regime means that in the future these scope exemptions, when used within operating groups of Jersey resident companies under common ownership and control, will be fully aligned to the FATF Standards.
4.4.6 As illustrated at section 1.2, the precise details regarding transitional arrangements, as well as arrangements in respect of outsourcing and reliance will be subject to further consultation after which secondary legislation and guidance will be issued to support the transitional process for affected businesses.
4.4.7 The effect of these scope exemptions will continue in respect of conduct of business and prudential matters in line with their original design.
5 Summary of Questions
Appendix A: Draft Proceeds of Crime (Miscellaneous Amendments) (Jersey) Law 202-
Appendix B: Scope exemptions now and future
Appendix C: List of Representative Bodies
- Channel Islands Wealth Management Association
- Chartered Institute for Securities & Investment, Jersey branch
- Institute of Chartered Secretaries and Administrators, Jersey branch
- Institute of Directors, Jersey branch
- Jersey Association of Trust Companies
- Jersey Bankers Association
- Jersey Chamber of Commerce and Industry Incorporated
- Jersey Compliance Officers Association
- Jersey Estate Agents Association
- Jersey Funds Association
- Jersey Society of Chartered and Certified Accountants
- Insurance Institute of Jersey (Chartered Insurance Institute)
- Law Society of Jersey
- Society of Trust and Estates Practitioners, Jersey branch