JFSC Registry Supervision inspection Q2 2023 REPORT - key findings, best practice and priorities

1. The JFSC Registry Supervision function was established to demonstrate compliance with international standards and the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020.
2. To facilitate The JFSC transparency regime, The JFSC Registry Supervision function proactively monitor and undertake additional risk-based supervision to ensure information is adequate and up to date.
3. The JFSC Q2 key findings, examples of best practice and priorities for the rest of 2023 are here.
• READ THE REPORT = https://www.jerseyfsc.org/media/6873/registry-supervision-inspection-programme-q2-2023.pdf
• THE REPORT HIGHLIGHTS ARE BELOW.

KEY MESSAGES

The report highlights the following key messages.

• Having undergone a period of outreach and engagement to increase understanding of the information requirements, we will now be focusing on the use of appropriate and proportionate sanctions.

The JFSC has referred its first cases to HM Attorney General for prosecution of entities not having a nominated person.

The fines levied by the Magistrate’s Court [see below for the list of x19 convictions] so far have been high [between £3k-£8k)

• Directors are encouraged to review the activities listed in Schedule 2 of the Proceeds of Crime (Jersey) Law 1999 revised in January 2023.

They should consider whether their own activities as directors, or the activities of the entities they act for, are now in scope. If so, registration may be required as a Schedule 2 business.

• Please take note of the examples of best practice [listed below].

The JFSC expect the findings highlighted in this paper to inform entities and related associated parties of some of the common “pit falls” effecting entities.

Each entity should make its own arrangements to ensure it is complying with all relevant statutory requirements and by doing so can avoid known “pit falls”.

• The inspection programme in the second half of 2023 [see below] will focus more on entities with a trust company service provider and so will include different types of legal persons.

Companies, foundations, limited liability companies, separate limited partnerships and incorporated limited partnerships, limited partnerships.

One of the first thematic reviews will be to consider the risk of serviced offices.

• Inspections may take place for unforeseen reasons such as those that are intelligence led, risk driven or to support JFSC Supervision/Enforcement.

REPORT KEY FINDINGS

The inspection programme identified several inaccuracies. Of the 2,247 associated parties (of which there are 6,275 roles), 1,122 roles inaccuracies were identified and are analysed in the pie chart (pie chart 3) below:

Pie chart 3: Associated parties (roles) with inaccuracies

REPORT OTHER FINDINGS

1. Of the 787 entities inspected:
   • 384 entities did not initially evidence that statutory requirements to maintain registers were met.

1. In all cases, after further investigation, we were able to authenticate the data held on the central register. Entities were reminded of the requirements of the respective entity laws to maintain registers.

APPLICATION OF PENALTIES

1. Nominated Person breaches.
2. One of the requirements of the DPI Law is that every entity must have a nominated person.
3. If a nominated person resigns or the appointment is revoked, then within 21 days a replacement must be appointed and the JFSC must be notified of the details of the new nominated person (Article 6).

• Failure to comply with these requirements without a reasonable excuse is a criminal offence, punishable by a fine of up to £10,000.

1. As part of Registry Supervision’s ongoing monitoring, analysis of the digital registry identified several entities without a current nominated person, this led to
   1. further investigation and the relevant entities (164) were sent letters to notify them that they were in breach of the law and that if they failed to comply within a further 21 days,
   2. the Registrar would refer the cases to the Attorney General for a decision on whether to prosecute.
2. Some of those entities complied upon receipt of the letters and some contacted us to explain they were in the process of appointing a replacement.
   1. 36 entities, which failed to respond to the letter were referred to the Attorney General who decided to proceed with all cases.
3. The first 15 cases were heard in the Magistrate’s Court in April and May 2023 and a further 4 cases were heard on 9 August 2023.

• The outcome was 19 convictions for the offence of failing to appoint a nominated person. Each company was sentenced to a fine as follows:
  1. 4 April 2023 Ammolite Holdings Limited £8,000 fine
  2. 4 April 2023 Fieldgate Properties Limited £8,000 fine
  3. 4 April 2023 Hasabasa Investments Limited £4,000 fine
  4. 19 April 2023 Jersey Street Properties Limited £4,000 fine
  5. 19 April 2023 Intelligent Equity Limited £8,000 fine
  6. 19 April 2023 Lansdowne Capital Partners Limited £8,000 fine.
  7. 19 April 2023 Millgate Properties Limited £8,000 fine
  8. 19 April 2023 IEL F45 (Richmond) Limited £8,000 fine
  9. 5 May 2023 Walford Cunningham and Hayes Limited £3,000 fine
  10. 5 May 2023 Waterland Limited £3,000 fine
  11. 5 May 2023 Riau Superstores Fund I Limited £8,000 fine.
  12. 5 May 2023 Razors4U Limited £8,000 fine
  13. 5 May 2023 Ibis House Limited £3,000 fine
  14. 24 May 2023 IC November 1 Holdings Limited £8,000 fine
  15. 24 May 2023 IC November 2 Holdings Limited £8,000 fine
  16. 9 August 2023 Artemis Greek Taverne Limited £8,000 fine
  17. 9 August 2023 Claydon Properties Limited £4,000 fine
  18. 9 August 2023 CTV Funding (Jersey) Limited £8,000 fine
  19. 9 August 2023 ETNA Limited £8,000 fine
• The remaining cases are due to be heard in August and September.

“STRIKE OFFS”

1. Limited Partnerships
   • On 10 March 2023, 168 notices were sent to limited partnerships which were in default of the requirements of the Limited Partnerships (Jersey) Law 1994.
   • On 17 April 2023, the Registrar cancelled the registration of 98 limited partnerships.
2. Companies
   • On 10 March 2023, 428 “strike off” notices were sent to companies which had not submitted an annual confirmation for 2022. 134 companies were struck off the register on 16 June 2023.
   • 1,038 “strike off” notices were sent to companies which had not filed their 2023 annual confirmation statements for 2023. If the companies do not submit the annual confirmation and fee by 30 September 2023, they may be struck off the register on 1 October 2023.

NOTICES TO PROVIDE INFORMATION.

1. Where an entity fails to respond to requests for information or fails to attend appointments for inspection without reasonable excuse, the Registry will exercise statutory powers available to it. Under Article 9 of the DPI Law, local competent authorities (which includes the JFSC) can require the provision of information:

• Article 9(1) A local competent authority may, by notice in writing, require a defined person to provide, within a period specified in the notice, any further information, or documents that the authority requires for the purpose of carrying out the authority’s functions under
• this Law or any other enactment.
• Article 9(2) A local competent authority may, by notice in writing, require a defined person to attend at such times and places as may be specified in the notice and to answer such questions as the authority requires the person to answer for the purpose of carrying out.
• The authority’s functions under this Law or any other enactment.
• Article 9(3) provides that failure to comply with a notice under Art.9(1) or 9(2) within the specified period is a criminal offence, punishable by a fine and up to 4 years’ imprisonment.
• 6.2 Early in April 2023 we issued four Article 9 notices. We would advise all entities to make sure they have adequate processes/procedures in place to ensure communications (which includes Registrar correspondence and notices) are dealt with on a timely basis.

GOOD PRACTICE

THE JFSC SAY

1. We have found that those entities who keep up to date passport copies with the registers tend to file the right identification data. This leads to middle names, alias, and maiden names being correct.
2. The recording of joint ownership of shares incorrectly is a common issue. We recommend reading our guidance on how to record joint members of companies.

• Nominee member, nominee director and guarantor member fields are occasionally reported incorrectly. We identified that there appears to be some misunderstanding about what being a nominee director means and who might be a nominee director.

To help improve understanding, please note the guidance.

• Guidance on Associated parties for local businesses — https://www.jerseyfsc.org/registry/myregistry-for-local-businesses/associated-parties-for-local-businesses/
• Associated parties for local residents - https://www.jerseyfsc.org/registry/myregistry-for-local-businesses/associated-parties-for-local-businesses/
• Associated parties for regulated service providers - https://www.jerseyfsc.org/registry/myregistry-for-regulated-service-providers/associated-parties-for-regulated-service-providers/
• Beneficial ownership and control guidance for regulated service providers - https://www.jerseyfsc.org/industry/guidance-and-policy/beneficial-ownership-and-controller-guidance/

INSPECTION PROGRAMME 2023

1. During 2023, the following will be prioritised for inspections (the reason for the inspection is indicated in brackets in accordance with section 2.5 above):
• Sensitive activity or activity linked to high-risk jurisdictions (high risk factor).
• Key individuals linked to high-risk jurisdictions (high risk factor).
• Key individuals linked to high risk/sensitive activity outside the entity (high risk factor).
• Key individuals linked personally, or by association, to offences of dishonesty (high risk factor).
• Multiple unregulated entities using the same registered office (risk based thematic selection and unauthorised business).
• Entities where the location or number of beneficial owners/ members/ significant persons do not appear to fit with the nature of the activity (risk based thematic selection).
• Same nominated person providing services to a high number of entities (risk based thematic selection and unauthorised business).
• Entities previously subject to queries or other liaison with JFSC Supervision/Enforcement which have triggered a higher risk profile (supporting JFSC Supervision/Enforcement).
• Previous history of late/non-compliance with statutory obligations (intelligence led).
• The inspection programme in the second half of 2023 will focus more on entities with a trust company service provider.

1. So will include different types of legal persons companies, foundations, limited liability companies, separate limited partnerships and incorporated limited partnerships, limited partnerships.

• Inspections may take place for unforeseen reasons such as those that are intelligence led, risk driven or to support JFSC Supervision/Enforcement.
• The themes for Registry Supervision inspections for this year will be published on the JFSC website.
• Please refer to the JFSC Registry website from time to time to keep abreast of our themed visits and conclusions from these visits.

1. One of the first thematic reviews will be to consider the risk of serviced offices.

CONCLUSION

1. Registry Supervision continues to concentrate on ensuring the data held by Registry is accurate, adequate, and up to date.
• This includes desk-based supervision where anomalous data is identified through regular reports run on the Registry database.
• The team continues to assist those being inspected to understand and comply with the information requirements.
2. As in the first quarter [SEE PREVIOUS REPORTS BELOW], findings for the second quarter of 2023 have confirmed that most deficiencies have been minor infractions and words of advice have been given on how to rectify Registry records without using penalties, which has proved proportionate as all records have been rectified in a timely manner.
3. Please take note of the examples of best practice.
• We expect the findings highlighted in this paper to inform entities and related associated parties of some of the common “pit falls” effecting entities.
• Each entity should make its own arrangements to ensure it is complying with all relevant statutory requirements and by doing so can avoid known “pit falls”.
4. Having undergone a period of outreach and engagement to increase understanding of the information requirements, we will now be focusing on the use of appropriate and proportionate sanctions.
• I have referred our first cases to HM Attorney General for prosecution of entities not having a nominated person.
• The fines levied by the Magistrate’s Court so far have been high and I advise entities to contact the Registry if you are in difficulty finding a nominated person. There are choices but ultimately if you cannot find a nexus with the island, you may need to wind up the entity or continue the entity out of Jersey.
5. Directors are encouraged to review the activities listed in Schedule 2 of the Proceeds of Crime (Jersey) Law 1999 revised in January 2023. They should consider whether their own activities as directors, or the activities of the entities they act for, are now in scope. If so, registration may be required as a Schedule 2 business.

REGISTRY SUPERVISION QUARTERLY REPORTS

• The Registry Supervision function develops and expands existing Registry oversight activities by undertaking additional risk based supervisory activities.
• These new functions accord with existing legislation and the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the DPI Law).
• The JFSC inspection programme includes inspection appointments where relevant individuals are met face to face by Registry Examination Officers.
• During these appointments, records and original documents are inspected and information is provided to authenticate the information provided to the Registry including details of beneficial owners, controllers, directors, and other significant persons.
• The JFSC quarterly reports give examples of best practice identified during examinations and answers to questions asked during interviews and visits.

REGISTRAR OF COMPANIES REPORTS

2022

• Registry Supervision inspection programme 2022 feedback = https://www.jerseyfsc.org/media/6524/registry-supervision-inspection-programme-2022-quarterly-feedback-paper.pdf

2023

• Registry Supervision inspection programme Q1 2023 feedback = https://www.jerseyfsc.org/media/6524/registry-supervision-inspection-programme-2022-quarterly-feedback-paper.pdf
• Registry Supervision inspection Programme Q2 2023 feedback = https://www.jerseyfsc.org/media/6873/registry-supervision-inspection-programme-q2-2023.pdf

SOURCES

• https://www.jerseyfsc.org/registry/registry-supervision-quarterly-reports/
• https://www.jerseyfsc.org/registry/registry-supervision-quarterly-reports/