JFSC publish information and guidance on its OBLIGED PERSONS RELIANCE “Thematic” findings and expectations.

Following the JFSCs Reliance on obliged persons (OPs) Thematic Examination programme in 2019, and in anticipation of its follow-on 2023 thematic examination [on the same matter], it has issued guidance and expectations.

• Read the JFSCs 2023 thematic programme here:-
• https://www.jerseyfsc.org/news-and-events/thematic-examination-programme-2023/

THE JFSC GUIDANCE AND EXPECTATIONS ARE SHOWN AS FOLLOWS:-

Reliance on Obliged Persons or Group Companies

1. Supervised persons are required to implement and adhere to effective systems and controls, this includes sound customer due diligence measures (CDD).
2. These measures are key to the prevention and detection of money laundering, terrorist financing and proliferation financing.
3. The Money Laundering (Jersey) Order 2008 (the Order) and the AML/CFT/CPF Handbook (the Handbook) including the Codes of Practice applicable to all supervised persons contain obligations in relation to CDD.
4. THIS INCLUDES INSTANCES WHERE SUPERVISED PERSONS PLACE RELIANCE ON OBLIGED PERSONS (OPS).

What is reliance?

1. Supervised persons may meet their obligations to apply certain CDD or enhanced CDD measures by placing reliance on measures that have already been applied by an obliged person to obtain evidence of identity of a mutual customer.
2. Reliance must always be subject to six conditions set out in the Order and, to the extent that a supervised person places reliance on an obliged person, it must be able to demonstrate that it meets the required conditions.

Identification measures

1. Sound identification measures are vital because they:
1. Help to protect the supervised person and the integrity of the financial sector in which it operates by reducing the likelihood of the business becoming a vehicle for, or a victim of, financial crime, including money laundering, terrorist financing, and proliferation financing
2. Assist law enforcement, by providing available information on customers or activities and transactions being investigated.
3. Constitute an essential part of sound risk management, e.g., by providing the basis for identifying, limiting and controlling risk.
4. Help to guard against identity fraud.

The six conditions for placing reliance.

The conditions which must be met can be summarised as follows:

1. The OP consents to being relied upon
2. The identification measures have been applied by the OP during an established a business relationship/one off transaction with the customer.
3. The OP must provide adequate written assurance that it has (i) applied full identification measures and (ii) it is required to keep (and does keep) evidence of identity. There should be no chain of reliance.
4. Information in relation to the identification of the customer must be immediately obtained by the supervised person. It is the evidence of identification to support the full CDD identification measures that is the subject of reliance.
5. The OP must provide adequate written assurance that evidence of identity will be kept until provided to the supervised person or until the OP is notified that it is no longer required to provide it to the supervised person on request and without delay.
6. Supervised persons must assess the risk of placing reliance on an OP.

Key areas of focus

The key areas of focus for us in this thematic examination will include:

1. Policies and Procedures: are the appropriate policies and procedures relating to the application of the requirements set out in Articles 16 and 16A of the Order in place?
2. Risk Assessment: have supervised persons adequately assessed and documented the risks involved with placing reliance on an OP before proceeding?
3. Written Assurance: have supervised persons obtained adequate written assurance from the OP to meet the obligations?
4. Testing: have supervised persons conducted appropriate periodic testing of the OP on which reliance has been placed to adequately meet the obligations?

2019 Reliance Thematic

Reliance was last examined as part of a JFSC Thematic Examination programme in 2019.

• Examination Report – Reliance on Obliged Persons

• https://www.jerseyfsc.org/industry/examinations/examination-report-reliance-on-obliged-people/

A summary of the findings from 2019 included to following:

1. Written Assurance:

• The Order is clear on what the written assurances must contain. However, we identified instances of obliged persons not explaining the evidence of identity that it had collated and assurance certificates that did not provide enough information for the supervised person to meet its own obligations.

2. Business Risk Assessment (BRA):

• A few BRAs reviewed did not adequately document the risks to the supervised person associated with placing reliance.

3. Risk Assessment of the OP:

• There were a few examples of supervised persons not properly documenting the risk assessment of the OP or failing to take into consideration all of the relevant factors such as equivalence of a jurisdiction

4. Testing:

• Some of the testing of OPs did not adequately assess the relevant controls in place regarding the OP’s identification measures.
• Additionally, some testing was incomplete. For example,
  • Where red flags had been identified, there was no evidence that these concerns had been followed up

5. Board minutes: 

• Often the decisions, discussions and challenge that had gone on at either board meetings or senior management meetings on matters relating to reliance and associated risks had not been adequately documented.

REMEMBER THE JFSC Expectation is all its feedback [& other publications] are taken into account by all supervised persons.

1. The JFSC Expect that all feedback papers published on our website are reviewed by supervised persons with a view to identifying any need for amendment or enhancement to the way in which it manages and mitigates its regulatory and financial crime risks.
2. Feedback papers from Thematic Examinations are a useful source of information for supervised persons because they extract identified good and bad practices seen by JFSC offices during the thematic.
3. While not all thematic feedback papers will be relevant to every supervised person, the feedback is nevertheless intended to be a useful tool to benchmark the effectiveness of a supervised person’s regulatory and financial crime risk management controls.

FURTHER READING

Industry update | 11 August 2020 – Feedback Paper -  More than 50 findings identified in reliance examinations

• https://www.jerseyfsc.org/news-and-events/reliance-feedback-paper/

Industry update | 19 August 2020 Reliance update and webinar recording

• https://www.jerseyfsc.org/news-and-events/reliance-update-and-webinar-recording/

The Money Laundering (Jersey) Order 2008

• Article 16 – Reliance on relevant persons and carrying on equivalent business

• https://www.jerseylaw.je/laws/current/Pages/08.780.30.aspx

• 16A – Reliance on persons in same financial group as relevant person

• https://www.jerseylaw.je/laws/current/Pages/08.780.30.aspx#_edn82

AML/CFT/CPF Codes of Practice within the Handbook

• Section 5 - Identification Measures - Reliance on Obliged Persons

• https://www.jerseyfsc.org/media/6265/section-5-identification-measures-reliance-on-obliged-persons.pdf