Enhanced and Simplified Due Diligence Measures and Exemptions webinar

Questions and answers from the webinar

• Handbook for the Prevention and Detection of Money Laundering and the
• Financing of Terrorism (Handbook)
• Money Laundering (Jersey) Order 2008 (Order)
• Anti-Money Laundering (AML)
• Countering the Financing of Terrorism (CFT)
• Simplified Customer Due Diligence (SCDD)
• Enhanced Customer Due Diligence (ECDD)

ECDD

If you have a director not contributing funds to the relationship however, based in a jurisdiction where ML is the big risk. What would you propose is the best approach to EDD on the offset of the relationship in a case like this?

The JFSC cannot provide advice on the ECDD measures to be applied in specific scenarios. A relevant person should consider the increased risk factor(s) presented by the customer relationship and apply ECDD measures specific and adequate to mitigate the risk(s). Section 7 of the Handbook provides different possible measures that may address risk; a relevant person can determine which is the most appropriate to the situation / customer to mitigate risk or design alternatives.

From the limited facts presented in the scenario, as the director controller is not contributing funds, enhanced measures around source of funds / source of wealth would not be commensurate to mitigate the jurisdictional risk. It may be appropriate to obtain information relating to the reason the individual is acting as a director and ensure there is no contribution of or influence on funds. Additionally, customer due diligence measures are not just identification measures but include ongoing monitoring, so it may be appropriate to apply enhanced monitoring in this scenario, to monitor any potential introduction of funds from a higher risk jurisdiction.

Can you treat an enhanced due diligence client (article 15 A-F client) as high risk?

Article 15(1)(a)-(f) requires that ECDD measures must be applied in the specific circumstances prescribed in law.

Article 15(1)(g) requires ECDD measures to be applied in any situation which by its nature can present a higher risk of money laundering/terrorist financing.

There will be circumstances where the customer will fall within the scope of Article 15(1)(a)-(f) and Article 15(1)(g). The ECDD measures applied should be specific and adequate to mitigate all the risk factors presented by the customer relationship.

Where ECDD measures are mandated under Article 15(1)(a)-(f) of the Order, this alone will not necessitate that the customer is assessed as presenting a higher risk of money laundering/terrorist financing. A customer risk rating will be determined by the customer risk assessment, considering all relevant risk factors.

Section 3.3 of the Handbook explains the risk based approach to identification measures. The relevant person must, on the basis of information collected, assess the risk that a business relationship or one-off transaction will involve money laundering/terrorist financing. The customer risk assessment will be one of the key triggers for the application of ECDD measures.

A risk based approach consists of the identification, assessment and understanding of risk, as well as the consequent application of AML/CFT measures commensurate to the mitigation of these risks.

The AML/CFT Handbook sets out the RBA and gives suggestion for what can be done for lower risk and what should be done for higher risk. Can it be assumed therefore that the Handbook is set at a standard risk level?

The purpose of the Handbook is to provide guidance on the application of the risk based approach in practice. It is not 'set' or representative of a particular level of risk. A relevant person must establish its risk based approach, as relevant to its business, customer base and product and services offering.

Is it appropriate to have a rationale at product level for non-resident clients to apply for a product in Jersey rather than for every client?
Where there is homogeneity in the customer base to which a product or service is delivered, a relevant person may assess that this is an appropriate risk based approach.

Exemptions

Can the exemption of article 17 been applied if the overall risk for a client/ customer is assessed as high risk, however it’s investor relationship is of low risk?

No - Article 17 of the Order cannot be applied if the customer relationship has been assessed by the relevant person as presenting a higher risk of money laundering/terrorist financing.

Can you clarify if the exclusion of applying an exemption (on the basis of a higher risk of ML/TF) is a generic client ML/TF risk assessment or specific to a higher risk of ML/TF in applying that particular exemption.

The exclusion of applying an exemption applies when the relevant person has assessed the customer as presenting a higher risk of money laundering/terrorist financing.

Is testing required under Article 17B, or just 17C?

Article 17D(3) of the Order provides testing requirements for the application of exemptions under Article 17C. Please refer to section 7.15.1 (105) of the Handbook for further detail.

Can you give us an example of when Article 18(3)(c) might be applied as the conditions in the MLO are such that it seems impossible?

Article 18(3) details the permitted application of an exemption, in the prescribed circumstances, where the customer falls within one of the categories detailed in 18(3)(a)-(c). Article 18(3)(c) refers to those circumstances where the customer is a wholly owned subsidiary and satisfies the conditions specified in 18(3)(c)(i)-(iv). The JFSC observe instances of the application of this exemption within the examination programme of activity.

The MLO and the AML/CFT Handbook use different definitions of an IOSCO compliant market. Will this be corrected in the next revision of the Handbook?

The Order defines the term in law. The Handbook explains what that definition means and how to apply it in practice. This is one of the purposes of guidance provided in the Handbook.

Would it be helpful to industry if the JFSC provided a list of Regulated and IOSCO compliant markets?

The Order defines the term in law. The Handbook explains what that definition means and how to apply it in practice. This is one of the purposes of guidance provided in the Handbook. It is for a relevant person to determine whether a particular market is regulated or IOSCO compliant.

Does JFSC consider TISE to be an "IOSCO-compliant" market please?

The Order defines the term in law. The Handbook explains what that definition means and how to apply it in practice. This is one of the purposes of guidance provided in the Handbook. It is for a relevant person to determine whether a particular market is IOSCO compliant.

Re Article 17, the definition of “third party identification requirements” does not include Article 15A in respect of PEPs or Article 15B in respect of correspondent banking (excluded from all exemptions under Part 3A). Is this exclusion of PEPs from the exemptions an error in the drafting of Amendment number 10 of the MLO that came into force on 12 June 2019?

It is not an error, and is consistent with the approach in the legislation and guidance prior to 2019.    It may be possible to apply an exemption (i.e. to not find out the identity of, or obtain evidence of identity for a third party of a customer) and yet still apply ECDD measures in line with Article 15A to recognise the particular risk associated with PEPs (e.g. determine whether any third parties are PEPs;  require the new business relationship to be approved by senior management; and obtain general information on the source of wealth/source of funds, as part of assessing whether the application of SCDD is appropriate). It is recommended that you speak to your named supervisor.

The MLO only refers to e.g. suspect ML (not TF).  Will TF be included in the anticipated updates to the MLO?

Any reference to "money laundering" in the text of the Handbook also includes terrorist financing. Please refer to section 7 of Part 1 (Introduction) of the Handbook and the Handbook Glossary.

SCDD

Simplified CDD is no longer in the MLO. Will it therefore be removed from the Handbook? 

There remains one example of SCDD in section 7.17 of the Handbook (simplified identification measures).

General

For TCB, is the "Customer" the entity being managed by the TCB, or the Beneficial Owners/Controllers of the entity being managed?  Who is the "Customer" of a discretionary trust where the settlor is deceased, there is no Protector, and no beneficiaries are high risk and have received no benefit?

Section 13.3 of the Handbook outlines the statutory obligations and provides guidance, relating to identification measures for trust company business customers, including guidance for each type of structure (e.g. express trust / foundation / company). For an express trust, for example, a trust company business would be meetings its obligations to identify its customers when it identifies the persons listed (e.g. settlor / protector / beneficiaries with a vested right etc.)

As this question does not relate to the theme of the webinar, and appears more a general trust company business query, we suggest contacting your named supervisor in writing, to outline the issue, including full details relating to the issue and frequency observed in practice.

Join us on Wednesday 13 October at 14:00 for a webinar looking at the findings from our examination on Enhanced Customer Due Diligence, Simplified Customer Due Diligence and Exemptions.

During the one-hour session, Amanda Reilly, our Head of Examinations, Sarah Valerkou, Senior Manager in our Supervision Examination Unit and Hamish Armstrong, Chief Adviser – Financial Crime will cover:

• Summary of the main findings
• Next steps and key messages for IndustryAmanda, Sarah and Hamish will answer any questions at the end of the webinar.

Learn more and register