JCOA 2017 Regulatory Update

JCOA 2017Regulatory update

Anita Matthews

Head of Unit, TCB/DNFBP

› Principal persons and the PQ Process

› Key Persons – roles and responsibilities

› Virtual Currency Exchange Business (VCEs)

› 2017 - what’s next?› Beneficial Ownership and Controllers – 3 tier test

› Group of International Financial Centre Supervisors (GIFCS)

Introduction

Principal Persons and the PQ Process

David Smith

Supervision Manager, TCB/DNFBP

Article 14 (1) of the Financial Services (Jersey) Law 1998:

› Key persons

› Principal persons

(http://www.jerseyfsc.org/pdf/EPQ_GN_Positions.pdf)

› Why are Personal Questionnaires (PQs) required?

› 14 sections to complete

› 6-8 weeks to process applications

› Use personal email address

› Submitted electronically via JFSC portal

› The PQ Form

Do’s & don’ts

› Provide 10 years residential and employment history

› Add additional positions

› Include all FSJ legislation

› Detail all qualifications and professional memberships

Do...

› Disclose all legal actions and disciplinary history

› Use “Other Information” section

› Remember to check allinformation and press submit!

› Assume we have certain information about you

› Assume we will not check up

› Assume all your PQs will be approved

› Be surprised if you are called for an interview

› Give incorrect or misleading information

Don’t…

Can I partially complete my PQ, save and re-visit it before submission?

Yes

FAQs

Can I submit new/ updated information to a PQ once it’s been submitted?

Yes – clone a PQ

› How to clone a PQ

› How to clone a PQ (continued)

› How to clone a PQ (continued)

Key persons - Roles and Responsibilities

Joanne Doyle

Senior Manager, TCB/DNFBP

Challenges to Compliance

› Compliance – ‘jack of all trades’

› Projects manager?

› FATCA/CRS?

› Beneficial owners and controllers?

› Cyber-security?

› In-house tax and legal?

› Data Protection officer?

› Mediator?

Does this look familiar?

› Are key persons sufficiently independent ?› Compliance Officer› MLRO› Compliance monitoring and testing*› Legacy customer facing role?› Also the Managing Director?

*See JFSC’s Guidance Note

Conflicts of Interest

Experience and Skill-set

› Experience?

› Funds or TCB

› Other complex products

› On-going performance

› Evaluation at PQ interview stage?

› JFSC’s mis-selling campaign

› Who is monitoring Compliance/Key Persons?

› Public Statements

› Investigation into fitness and propriety of the Compliance Officer

› Concluded that the Compliance Officer acted without integrity and displayed a level of incompetence of the most serious kind

› Directions prevent performing any function, engaging in any employment and holding any position in any registered person

Public Statement – Compliance Officer

Specifically:

› Ineffective corporate governance

› Failure to oversee the business through monitoring

› Failure to recognise a services company was conducting unauthorised business

› Lack of transparency over fees levied on customers

› Failure to manage risk and identify issues

Public Statement – Summary Findings

› Ensuring robust arrangements for compliance with FSJL and Codes

› Ensuring monitoring of operational performance and instigating action to remedy deficiencies

› Ensuring compliance with AML legislation within the conduct of financial services business

Public Statement – Key Person Responsibilities

› Investigation into fitness and propriety MLRO as a principal person and key person

› Article 23 FSJL – prevented from engaging in employment

› As MLRO, failed to process (acknowledge receipt of, consider content of and externalise) 15 internal SARs

› Relating to 19 individuals or entities over a 20 month period

› MLCO failed to report the status of internal and external SARs to the Board

Public Statement – MLRO

› Registered person was also sanctioned as it had failed to monitor performance of the key person

› Led to significant breaches within the business

› Also public statement, reputational issues

› Court and legal costs

› MLRO and Director was unchallenged by the board

› MLRO assumed control of a number of business areas

Public Statement – Registered Person

Practical Steps

› Refer to FSJL, MLO, Handbook and Codes

› Use the BRA & Strategy of the business › Set out a robust CMP and provide robust reporting to the Board

› Use the Commission’s Published Guidance and Policy Statements

› Refer to Commission Outreach communications › Such as Dear CEO, Summary feedback reports and Public

Statements, Communications and presentations

Practical Steps

Based upon what has been presented, what attributes do you think are needed to “make the grade” for an effective key person?

Question

› Technical skills

› Experience

› Judgement (under advice if needed)

› Seniority (grey hair?)

› Independence

Suggested Answer…

› Ability to say no

› Strength of character to ‘walk away’

› Uncompromising

› Whistle blower

Virtual Currency Exchange Business (VCEs)

Miguel Zaragoza

Manager, TCB/DNFBP

1) Virtual Currencies and ML/FT risks

2) Jersey’s New Regulatory Framework› Scope

› Registration Exemptions available for Virtual Currency Exchange Business (VCEs)

3) Why all this might be relevant for you

4) How do I get started?

5) Conclusions

Agenda

Virtual Currency (e.g. Bitcoin) means any currency not issued by or recognised as legal tender in any jurisdiction, that:

1) Digitally represents value (value determined by offer and demand)

2) Functions as a medium of exchange (payments for goods and services widely)

3) Is a unit of account (1 BTC)

4) Can be digitally exchanged for money (FIAT currencies e.g. pounds, dollars)

Definition

1) Anonymous ownership: e-Wallets are not associated with the identity of their users + Wallet disposability

2) Traceability of transactions – Blockchain but anonymous ownership

3) Existence outside the reach of a country – internet only

4) Variety of regulatory frameworks - no single approach to fight against ML/FT – but FATF guidelines

Risks - Bitcoin

Jersey’s New Legal Framework – Summary of New Amending Regulations and Orders

1) Proceeds of Crime (Miscellaneous Amendments) (Jersey) Regulations 2016 amended the following primary legislation:› Proceeds of Crime (Jersey) Law 1999

› Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008

2) Money Laundering (Amendment No.9) (Jersey) Order 2016 amended the following secondary legislation:› Money Laundering (Jersey) Order 2008

› Proceeds of Crime (Supervisory Bodies) (Virtual Currency Exchange Business) (Jersey) Order 2016, has been enacted in order to deal with the exemptions applicable to virtual currency exchange businesses

Jersey’s New Legal Framework – Scope

› In force since 26 September 2016

› Defines the concept of virtual currency (as above) VCE

› Amends concept of ‘’high value dealer’’ & ‘’one-off transaction’’

› Establishes a regulatory framework for VCE Business –including:

› General rule - obligation to register with the Commission

› Exemptions from registration under certain conditions = Turnover below £150k

› Why is there an exemption regime?

› Regulatory Sandbox to foster innovation by lowering compliance burden

› Why VCE Business only?

› Intersection between FIAT and virtual currencies concentrates most risks

Virtual Currency Exchange Businesses

Bitcoin ATM

Debit Cards – eWallet with Bitcoins converted instantly to FIAT when card is used

Exchange platforms for professional traders –Bitcoin is highly volatile

Bitcoin ATM

› General rule – person required to register with the JFSC for AML/CFT purposes (Level 1 application) – framework similar to DNFBPs

› Exceptional rule –person neither required to register nor to pay fees IF the person notifies the JFSC:› That it intends to carry on VCE Business

› That the turnover of that business has been less than 150k - in practice turnover = 0

› Of the amount of turnover - in practice turnover = 0

Exemption Regime available for VCE Business –Main Obligation

› Additional obligation - annual confirmation that:› The person is carrying on VCE Business

› The turnover of that business has been less than £150k

› …and of the amount of turnover

› However (details are non exhaustive)› Money Laundering (Jersey) Order 2008 still applies

› JFSC retains certain powers under Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 – require information, issue directions etc.

Exemption regime available for VCE Business –Other Obligations

› STEP Journal January 2017 – “‘Virtual Currencies' trading value and volume

continue to soar globally’’

› Jurisdictions are developing cash-less economies to fight against illicit activities

› India has removed 88% of its cash from circulation

› Jersey’s new innovative legal framework combined with traditional USPs makes Jersey more attractive for VCE businesses

› Any foreign company wishing to operate from Jersey may need a minimum level of assistance

› Eventually, rise of HNWI with VC being part of wealth affairs

Why this may be relevant for you

New Notification Form for VCE business – JFSC website

How do I get started?

› SCH2 Level 1 Application Form- Registration of Lenders, e-Gaming operators, VCE Business etc.

› SCH2 Level 2 Application Form - Registration of Lawyers, Accountants etc.

› Notification Form – Registration exemption for SCH 2 Business carried on by fully regulated business (e.g. TCB conducting lending or safe custody services)

Other Forms available on the JFSC Website

› Virtual currency businesses are here to stay and their use is growing (e.g. Bitcoin reaching tipping point)

› New legal framework makes Jersey now more attractive than before - this adds potential business opportunities for everybody

› We are open for VCE business! – Any questions please come to see us

Conclusion

2017 - what’s next? Beneficial ownership & controllers

Pia Holm

Manager, TCB/DNFBP

› Enhanced to meet government policy

› Changes in how the Commission collates information

› Action required on or before 30 June 2017

Beneficial Ownership Register

What is new?

On or before 30 June 2017 – All

Corporate and Legal Entities

existing before 1 January 2017:

› Must verify and refresh Beneficial Ownership and Control information

› Must submit a C17S form

› Once the C17S form has been submitted, must notify the Companies Registry continuouslywithin 21 days of knowledge of changes

Corporate and Legal Entities coming into being on or after 1 January 2017 must notify the Companies Registry continuously within 21 days of knowledge of changes, however, do not need to complete a C17S form.

Effective from 1 January 2017› All Corporate and Legal Entities (except

Foundations) will be issued with a new COBO (template available on the Commission’s website)

› The removal or addition of a Beneficial Owner/Controller -or

› A change to details (address/name).

What Changes are notifiable within 21 days from Knowledge?

The JFSC Website

The JFSC Website

The JFSC Website

› The JFSC applies the FATF standards in respect of beneficial ownership and control

› Requirements have not changed – information is simply centralised› AML/CFT Handbook (in particular section 4) outlines how the

three tier test applies in respect of legal persons and legal arrangements

› Remember the risk based approach

How to Ascertain who is a Beneficial Owner or Controller

High Risk Factors – always notify the Companies Registry – An Example

NewCo

OwnerCo

OwnerCo

OwnerCo

20%

40% 40%

Bank $ to ISIS?

A Further Example

Company

32% 32% 32%

Children

Father

4%

Further guidance and practical examples will follow, in particular concerning discretionary trusts

Questions › APIs – registryapi@jerseyfsc.org› Other – p.holm@jerseyfsc.org

Next Steps

2017 - Group of International Financial Centre Supervisors (GIFCS)

Anita Matthews

Head of Unit, TCB/DNFBP

› Jersey – leading role in the development of the Standard on the Regulation of TCSPs (issued September 2014)

› Implementation now a priority for GIFCS

› ‘Regulatory colleges’ – who, when and what

2017 - Group of International Financial Centre Supervisors (GIFCS)

› Self assessment vs the Standard already conducted by the JFSC

› Independent peer assessment of Jersey to follow in H2 2017› GIFCS Press Release December 2016

› Goal of all jurisdictions – “largely compliant” by April 2019

› More details and and updates at: www.gifcs.org

2017 - Group of International Financial Centre Supervisors (GIFCS)

› A chance to meet the Team responsible for Supervision of TCBs and DNFBPs

› Some of the key themes, challenges and new developments that the JFSC faces jointly with industry

› The need for Jersey to demonstrate that it remains a ‘good citizen’, meeting international standards with effective regulation

Closing Thoughts

Follow us at @JerseyFSC

Like us at Jersey Financial Services Commission

Follow us at Jersey Financial Services Commission

Anita Matthews, Joanne DoyleHead of Unit & Senior Manager, TCB/DNFBP Unit

a.matthews@jerseyfsc.org & j.doyle@jerseyfsc.org