JFSC Risk data on Sound-Business-Practice-Policy & Appendix D2

As a reminder, the following JFSC changes should be considered in Jersey AML-BRAs along with policy and procedures.

Sound-Business-Practice-Policy

01 November 2019 =

https://www.jerseyfsc.org/industry/guidance-and-policy/sound-business-practice-policy/

Where an activity is regulated in Jersey and not in the target market:

Where an activity is regulated in Jersey and not in the ‘target market’, the JFSC has the right to decline the incorporation/establishment.  In addition, the JFSC has the right to decline an incorporation/establishment if, in particular, the jurisdiction appears on the JFSC’s published list of countries, and the country in which the business is being carried out has an indicator against it (http://www.jerseyfsc.org/media/2548/hb-part-1-appendix-d2-aml-handbook.pdf), unless the applicant can show that the indicator overstates the risk profile, in which case the JFSC will be willing to consider the incorporation/establishment designation as ‘high risk activity’.

For example:

Where an application for a COBO consent is being made to the JFSC by a Jersey Trust Company Business (TCB) to set up a Jersey Holding Company (JHC) to hold shares in a separate company incorporated in another jurisdiction, and the separate company engages in activity that is not subject to regulation in that jurisdiction, but would be regulated if it were carried out from or within Jersey (e.g. Trust Company Business), the starting point is that the JFSC will decline the incorporation, even though that activity is not being conducted in Jersey itself.

• The JFSC has identified a reputational risk with the above type of incorporation
• The JFSC is concerned primarily about incorporations of this type involving jurisdictions which do not have a trust company services law or jurisdictions which do have a trust company services law, but do not have a trust company services regulatory regime.

Possible mitigation of risk

Requiring a director from the JHC to be placed on the board of the separate company incorporated

Identify if the separate company has been incorporated in a higher (yellow) or lower risk jurisdiction (white): http://www.jerseyfsc.org/media/2548/hb-part-1-appendix-d2-aml-handbook.pdf

If the ultimate beneficial owner (UBO) is well regarded international financial institution/ other institution

If the UBO is itself a TCB operating in a regulated environment.

If the above mitigation is present, the JFSC will designate the activity as a ‘high risk activity’ thus increasing the obligations of the Jersey TCB.

The cultivation, production and supply of cannabis.

The cultivation, production and supply of cannabis in Jersey for medicinal purposes will be lawful if licensed under the Misuse of Drugs (Jersey) Law 1978 (or supply is in accordance with the lawful prescription of medicinal cannabis products). Where a licence has been granted by the Minister for Health under the said Law, consent under COBO is likely to be given.

Whilst lawful activity elsewhere is not automatically restricted, no assurance can be given at the present time not least because of the inability to define ‘equivalent’ legislation in different countries.  It is understood that this results in ambiguity.  This places Jersey in a similar position with other countries including the UK.

Among the factors underpinning this approach are:

• Focus on securing the reputation of the island as a well-regulated centre which does not support illegal activity
• Difficulty with funds derived from businesses investing in medicinal and recreational cannabis where both may be legal in a jurisdiction but not in Jersey
• Dealing with jurisdictions where cannabis production may be legal but not regulated
• Providing broader recommendations would require considerable law drafting and careful review of regulations.  Managing the potential risk would be significant.  Given industry pressure for new development and taking into account JFSC and government pressure in AML/CTF areas this issue cannot be considered a priority.

This is a developing industry and as regulations develop internationally the approach may be subject to review in the future

Appendix D2

the JFSC amended Appendix D2 of the AML/CFT Handbook, effective 24th January 2020.  Quite a number of changes, which are explained in the summary document.

Changes summarised below:

17 countries/territories have been added;

• Azerbaijan
• Benin
• Bhutan
• Bosnia and Herzegovina
• Brunei
• Burkina Faso
• Cuba
• Kosovo
• Lake Chad Region
• Lesotho
• Malawi
• Moldova
• Montenegro
• Serbia
• Southern Philippines
• West Bank and Gaza
• Zambia

4 countries have been deleted;

• Anguilla
• Curacao
• Marshall Islands
• Philippines

The ‘sources’ have been amended for a lot of countries/territories.