ASK MAT – I have been told that my Jersey Key Person (MLCO/MLRO/CO) must be in Jersey. Is this correct?

ASK MAT – I have been told that my Jersey Key Person (MLCO/MLRO/CO) must be in Jersey. Is this correct?

The reason I ask is that I cannot find someone who is suitably qualified and experienced and has an understanding of my firm's products and services in Jersey. I therefore want my head of compliance and financial crime (head of risk) in Guernsey to be the key person. This head of risk has all the relevant qualifications, as well as 15 years in a senior risk position, and understands all our products and services.  Further, all the mechanics of the Jersey operation are run on a single data platform and visible to both islands at all times. So being in Guernsey makes no difference to the day-to-day operation of Jersey’s second and third lines of defence.

MAT SAYS – the answer is, it's possible. But there are hurdles. These matters are discussed below.

THE HURDLES ARE:

• A Guernsey-based individual CANNOT serve as the CO, MLCO, or MLRO for a JFSC-regulated business under the standard requirements of the Codes of Practice for Trust Company Business (and other FSJL Codes) and JFSC AML/CTF/CPF handbook (handbook) and its AML/CFT/CPF Codes, which mandate Jersey-based appointments.
• The CO requirement is established under the Financial Services (Jersey) Law 1998 through its Codes,
• The MLCO and MLRO requirements stem from the Money Laundering (Jersey) Order 2008 and the Handbook.
• Neither the codes nor the handbook is law, so there is wiggle room. Therefore, there is a solution to the hurdle; keep reading

THE SOLUTION

• The solution is a JFSC REGULATORY APPROVED VARIANCE to the code, which is available in exceptional circumstances where strict adherence produces an anomalous result.
• This variance would need to be negotiated and agreed with the JFSC.
• If allowed/approved, this variance could allow a Guernsey-based Key Person if the JFSC is satisfied with equivalent measures and robust oversight.
• So, I would suggest you engage with the JFSC early and seek legal and regulatory advice to navigate this process.

POSITIVE RESULT

• If the JFSC agrees to the variation, a fully qualified individual based in a government-regulated head office in Guernsey CAN SERVE as the Key Person, fulfilling the roles of Compliance Officer (CO), Money Laundering Compliance Officer (MLCO), and Money Laundering Reporting Officer (MLRO), for a business regulated by the Jersey Financial Services Commission (JFSC).

A BAD OUTCOME IS

• If the JFSC does not agree to your variance request, a Jersey-based Key Person or AMLSP is required.

IN OFFERING THIS ANSWER, WE MUST CONSIDER:

• The requirement for a CO under the Financial Services (Jersey) Law 1998 (FSJL) and its associated Codes of Practice, including the Codes of Practice for Trust Company Business and other relevant Codes (e.g., Fund Services Business, Investment Business).
• The residency requirements for CO, MLCO, and MLRO under the Codes of Practice for Trust Company Business and the Handbook for the Prevention and Detection of Money Laundering, the Countering of Terrorist Financing, and the Countering of Proliferation Financing (the Handbook).
• The variance provisions in the FSJL Codes and AML/CFT/CPF Codes, including the general requirement that registered persons may apply for a variance in exceptional circumstances where strict adherence would produce an anomalous result, in addition to specific variance provisions.

I WILL PROVIDE SOME MORE ANALYSIS BELOW.

JFSC Requirements for Key Persons

• Roles and Responsibilities:
• Compliance Officer (CO): Under the Financial Services (Jersey) Law 1998, the JFSC issues Codes of Practice for regulated activities (e.g., Codes of Practice for Trust Company Business, Section 4.2; Codes of Practice for Fund Services Business, Section 4; Codes of Practice for Investment Business, Section 4), which require a registered person to appoint a CO. The CO ensures compliance with the FSJL, the Money Laundering (Jersey) Order 2008, and other regulatory requirements, reporting to the board or senior management.
• Money Laundering Compliance Officer (MLCO): Appointed under the Money Laundering (Jersey) Order 2008 and the AML/CFT/CPF Codes of Practice (Handbook, Section 3.3), the MLCO monitors adherence to AML/CTF/CPF policies and procedures.
• Money Laundering Reporting Officer (MLRO): Also appointed under the Money Laundering (Jersey) Order 2008 and the Handbook, the MLRO receives, assesses, and reports suspicious activity reports (SARs) to the Joint Financial Crimes Unit (JFCU).
• These roles may be combined in one individual for smaller or less complex businesses, provided they have sufficient skills, experience, and authority.
• Fitness and Propriety:
• The FSJL Codes and AML/CFT/CPF Codes require Key Persons to demonstrate integrity, competence, and financial standing.
• A qualified individual from a Guernsey-regulated firm (under the Guernsey Financial Services Commission, GFSC) is likely to meet these criteria, given Guernsey’s alignment with Financial Action Task Force (FATF) standards.

Residency Requirements

• Compliance Officer (CO): The Codes of Practice for Trust Company Business (Section 4.2), Fund Services Business (Section 4), and other relevant Codes require the CO to be based in Jersey to ensure effective oversight of local operations and direct engagement with the JFSC during examinations or inquiries.
• MLCO and MLRO: The Handbook (Section 3.3), issued under the Money Laundering (Jersey) Order 2008, mandates that the MLCO and MLRO be based in Jersey to ensure timely access to records, staff, and systems, and to facilitate interaction with the JFSC and JFCU.
• Nature of the Codes: The FSJL Codes and AML/CFT/CPF Codes use “must,” indicating mandatory requirements for registered or supervised persons. While not statutory law, non-compliance may lead to regulatory sanctions (e.g., fines, license conditions), as the Codes are issued under the authority of the FSJL and Money Laundering (Jersey) Order 2008.

Variance Provisions

• FSJL Codes of Practice: The Codes of Practice for Trust Company Business, Fund Services Business, and other regulated activities include a general provision: “In exceptional circumstances, where strict adherence to the Code would produce an anomalous result, registered persons may apply to the JFSC for a variance from the Code; this is in addition to those areas of the Code which specifically provide for a registered person to apply for a variance to the Code.” This applies to requirements like the CO’s Jersey-based residency.
• AML/CFT/CPF Codes of Practice: Similarly, the Handbook allows supervised persons to apply for a variance from AML/CFT/CPF requirements (e.g., MLCO/MLRO residency) in exceptional circumstances where strict adherence would produce an anomalous result.
• Variance Application: To seek a variance for a Guernsey-based CO, MLCO, or MLRO, a registered person must:
• Submit a written application to the JFSC, justifying why a Jersey-based appointment is impractical (e.g., minimal Jersey operations, centralised compliance in Guernsey).
• Demonstrate that the Guernsey-based individual can fulfil the roles effectively, with measures equivalent to the Codes.
• Ensure no compromise to Jersey’s regulatory standards.
• Variances are rare, granted at the JFSC’s discretion, and may include conditions (e.g., a Jersey-based deputy).
• Section 1.8 – Equivalent Measures Outside Jersey: Section 1.8 of the Handbook allows obligations performed outside Jersey to be met with measures at least equivalent to the AML/CFT/CPF Codes (e.g., for customer due diligence, record-keeping). This does not explicitly waive residency requirements for MLCO or MLRO without a variance. For the CO, equivalent measures may be considered under the FSJL Codes, but the JFSC typically expects a Jersey-based CO unless a variance is granted.

Feasibility of a Guernsey-Based Key Person

• General Assessment: Appointing a Guernsey-based individual as the CO, MLCO, and MLRO is not feasible under the standard requirements of the Codes of Practice for Trust Company Business (and other FSJL Codes) and AML/CFT/CPF Codes, which mandate Jersey-based appointments to ensure:
• Immediate access to Jersey-based records, systems, and staff.
• Effective engagement with the JFSC and JFCU.
• Robust local governance, aligning with Jersey’s reputation as a well-regulated financial centre.
• Variance Option: A Guernsey-based Key Person could be feasible if the JFSC grants a variance from the residency requirements for the CO (under FSJL Codes) and MLCO/MLRO (under AML/CFT/CPF Codes). To secure a variance:
• Submit a written application to the JFSC, explaining why Jersey-based appointments are impractical (e.g., limited Jersey operations, robust Guernsey oversight).
• Provide evidence of the individual’s qualifications and experience in a GFSC-regulated environment, emphasising equivalence to Jersey’s standards per Section 1.8.
• Demonstrate effective fulfilment of the roles, with real-time access to Jersey records, familiarity with Jersey’s framework (e.g., FSJL, Money Laundering (Jersey) Order 2008), and prompt engagement with the JFSC/JFCU.
• Propose mitigating measures, such as a Jersey-based deputy or regular travel to Jersey.
• Equivalent Measures: Section 1.8 allows flexibility for non-Jersey operations, but the JFSC is likely to uphold the residency requirement for CO, MLCO, and MLRO without a variance, given their critical role in local compliance. Guernsey’s AML/CFT/CPF framework, while FATF-compliant, may not be deemed fully equivalent due to jurisdictional differences (e.g., Proceeds of Crime (Jersey) Law 1999).
• Practical Challenges: Even with a variance, a Guernsey-based Key Person may face:
• MLRO tipping off risks when the MLRO is managing SARs/STRs
• Logistical issues, such as travel time (short flights or ferries), are impacting urgent JFSC or JFCU responses.
• The need for training on Jersey-specific requirements.
• Heightened JFSC scrutiny for high-risk or complex businesses, as seen in cases like SG Kleinwort Hambros, where local oversight deficiencies led to JFSC penalties.

Why It Is Generally Not Feasible Without a Variance

• Residency Requirements: The Codes of Practice for Trust Company Business (and other FSJL Codes) and AML/CFT/CPF Codes require Jersey-based CO, MLCO, and MLRO appointments to ensure adequate oversight and compliance.
• Limited Scope of Section 1.8: Section 1.8 allows equivalent measures for certain obligations outside Jersey but does not override the residency requirement without a variance.
• Variance Rarity: Variances are exceptional, requiring strong justification. The JFSC may reject a variance if it perceives risks to compliance or Jersey’s regulatory reputation.
• Anti-Money Laundering Service Provider (AMLSP): For eligible entities, an AMLSP can fulfil MLCO and MLRO roles, but the AMLSP must be Jersey-regulated, and its appointed MLCO/MLRO must be Jersey-based, per the Handbook.

Recommendations

To pursue a Guernsey-based Key Person or comply with JFSC requirements:

1. Apply for a Variance: Submit a written application to the JFSC’s Central Authorisations team (+44 (0)1534 822000 or www.jerseyfsc.org), justifying why a Guernsey-based CO, MLCO, and MLRO is necessary. Include:
• Evidence of the individual’s qualifications and experience in a GFSC-regulated firm.
• A plan for real-time access to Jersey records, communication with Jersey staff, and engagement with the JFSC/JFCU.
• Details of equivalent AML/CFT/CPF measures in Guernsey, aligning with Section 1.8.
• Mitigating measures, such as a Jersey-based deputy or regular travel AND Jersey capacity for support, eg local compliance regulatory support firm such as Comsure
2. Appoint a Jersey-Based Key Person: If a variance is unlikely, appoint a qualified Jersey-based individual as the CO, MLCO, and MLRO, potentially seconding the Guernsey-based individual to Jersey.
3. Engage a Jersey AMLSP: For eligible entities, appoint a Jersey-regulated AMLSP to provide MLCO and MLRO services, ensuring their appointed individuals are Jersey-based.
4. Implement Robust Systems: Develop Jersey-specific policies, procedures, and monitoring tools for compliance with the FSJL, Money Laundering (Jersey) Order 2008, and all relevant Codes, ensuring the Key Person has access to records and can report promptly.
5. Seek Legal Advice: Consult a Jersey-based legal or compliance firm (e.g., Mourant, Carey Olsen) to prepare the variance application or ensure compliance with the FSJL, Money Laundering (Jersey) Order 2008, and all applicable Codes of Practice.
6. Review the Handbook and Codes: Study the Handbook (Sections 1.8 and 3.3), the Codes of Practice for Trust Company Business (Section 4.2), and other relevant Codes (e.g., Fund Services Business, Investment Business) to align the Key Person’s responsibilities with JFSC expectations.

Conclusion

• A Guernsey-based individual cannot serve as the CO, MLCO, or MLRO for a JFSC-regulated business under the standard requirements of the Codes of Practice for Trust Company Business (and other FSJL Codes) and AML/CFT/CPF Codes, which mandate Jersey-based appointments.
• The CO requirement is established under the Financial Services (Jersey) Law 1998 through its Codes, while the MLCO and MLRO requirements stem from the Money Laundering (Jersey) Order 2008 and the Handbook.
• A variance, available in exceptional circumstances where strict adherence produces an anomalous result, could allow a Guernsey-based Key Person if the JFSC is satisfied with equivalent measures (per Section 1.8) and robust oversight.
• Otherwise, a Jersey-based Key Person or AMLSP is required.
• I would suggest you engage with the JFSC early and seek legal and regulatory advice to navigate this process.