In December 2015, MONEYVAL concluded that certain AML/CFT scope exemptions from obligations in Jersey were not compatible with the Financial Action Task Force (FATF) Recommendations, which currently allow such exemptions only where:
- there is a proven low risk of money laundering and terrorist financing, this occurs in strictly limited and justified circumstances and only relates to particular types of financial institutions or activities; or
- a financial activity (other than the transferring of money or value) is carried out by a natural or legal person on an occasional or very limited basis, such that there is low risk of money laundering and terrorist financing.
The rationale for the application of certain current scope exemptions, which mean certain businesses do not have to comply with the anti-money laundering framework, was also identified by the MONEYVAL Report as a cause for concern.
If brought into force, the Draft Proceeds of Crime (Amendment No. 6) (Jersey) Law 202- will recast Schedule 2 of the POCL in order to ensure consistency with definitions used in the FATF Recommendations. Presently, there are several scope exemptions set out in Schedule 2 which remain directly linked to Jersey’s conduct and prudential regime. Further, there are certain exempted activities that are now expected to be subject to AML/CFT obligations in line with the FATF Recommendations, but are not currently specified in Schedule 2. The JFSC and the Government consider the most pragmatic route forward will be to disconnect AML/CFT obligations from conduct and prudential obligations and recast Schedule 2 of the POCL. Thereafter, where a business is subject to AML/CFT obligations, this will be the case irrespective of that business’s obligations in respect of conduct and prudential matters.
Whilst the intention is to provide clarity to certain businesses, particularly in the finance industry, the effect of the proposed change is particularly far-reaching. If implemented, the change will affect every company undertaking the specified activities by way of business. All businesses undertaking the activities listed within the recast Schedule 2 will be required to notify the JFSC, even if an apparently relevant scope exemption is listed in the revised POCL. Where it can be demonstrated, based on an assessment of risk, that specific activities meet the FATF criteria for exemptions, then the intention is for scope exemptions for these activities to be specified. Reliance upon such an exemption will only be available in circumstances where there is a low risk of money laundering. All activities within the recast Schedule 2 will, as a minimum, be subject to appropriate notification obligations even where there is a scope exemption. The information collected by the JFSC will also allow them to periodically review the use of scope exemptions, to ensure these are only being applied in line with FATF Recommendations and in circumstances where there is a low risk of money laundering and terrorist financing. This suggests affected businesses will also be subject to ongoing reporting obligations.
The consultation paper encourages businesses that currently rely upon an exemption to develop plans to ensure that, as a minimum, they would be able to notify the JFSC of reliance on any relevant scope exemptions. The proposed future state of the exemptions was appended to the consultation paper and in the event that a business identifies that an applicable scope exemption will no longer be available and it will have to register with the JFSC for AML/CFT oversight, those businesses are also encouraged to plan how they will implement adequate systems, procedures and controls in line with the obligations on all businesses registered for AML/CFT purposes. As a general observation, we anticipate that it will be challenging in practice for all relevant businesses to be notified of the proposed changes. The proposals are not just limited to the finance industry – as stated in the consultation paper, the changes have the “potential to affect businesses that are not currently required to comply with some or all AML/CFT obligations by virtue of a scope exemption.” Those undertaking specified Schedule 2 activities in the jurisdiction by way of business, without having a physical presence on Island, may not be aware of the proposed changes. We are aware that such firms have previously taken advice on the availability of an exemption and will continue to act in reliance, potentially without being made aware of any change. Some such businesses have had the benefit of a direct confirmation from JFSC of the applicability of an exemption.
The changes to POCL are currently due to be debated at the end of March 2022. If the proposed changes to the primary legislation are approved, the removal of the scope exemptions will be followed by a data collection exercise to be undertaken by the JFSC, with the intention of enabling the JFSC to maintain an understanding of all activities that the FATF Recommendations require to be subject to AML/CFT obligations and ensure that scope exemptions are, as mentioned above, periodically reviewed based on up to date information about their use. Further consultation is then envisaged, to consider amendments to secondary legislation that will implement the changes in full, including appropriate transitional provisions for businesses that will become subject to AML/CFT obligations for the first time, or for whom a registration/notification will apply for the first time. There are also likely to be various consequential amendments made to the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 and the Money Laundering (Jersey) Order 2008, as a result of the changes.
Those businesses currently relying on an exemption should now review the consultation paper to identify the proposed future treatment of that particular exemption. Where the exemption is to remain, businesses should consider re-assessing the risk of money laundering associated with their business activities, documenting the rationale for applying the relevant exemption and keeping records to demonstrate the assessment undertaken. If the changes to POCL are adopted, whilst it is hoped that the changes will ultimately enable the Island to demonstrate that any future scope exemptions from AML/CFT obligations are fully aligned to the criteria for exemptions within the FATF Recommendations, this could mean a significant number of previously exempt businesses become subject to JFSC oversight.
This is the latest in a number of changes to the AML/CFT legal and regulatory framework in Jersey. Please get in touch with your usual Appleby contact should you wish to discuss.