The rules surrounding anti money laundering in the industry must be fair and sensible in principle and workable in practice
By Steve Meiklejohn, Head of the Regulatory Team, Ogier & Le Masurier
There is a fine balance between sensible and necessary regulation on the one hand and over-burdensome and indeed point- less regulation on the other. In the main, most within the finance industry would say that the right balance between the two has been achieved in Jersey.
This has been managed through the use of steering groups made up of industry representatives and members of the Jersey Financial Services Commission's (JFSC) team.
Good examples to date have been the introduction to regulation of trust companies in the island and the soon to be published re-vamp of the regulations affecting funds.
However, nothing stands still and the process is either underway or about to begin in the areas of the change in beneficial ownership of companies, advertising standards, the regulation of Bureaux de Change and the reform of the Trusts (Jersey) Law 1984.
All of the regulations/laws mentioned will be significant in their sector of the market. However, the regulations which affect everyone in the finance industry, and which therefore, will attract the greatest attention, will be the anti-money laundering regulations, and especially the Anti-Money Laundering Order and Guidance Notes. It will be important that this balance is maintained when the new Order and Guidance Notes are introduced.
The new Money Laundering Order
The first draft of the Money Laundering Order has been circulated to steering group members. The new Order is likely to become law this Autumn. The main changes from the Money Laundering (Jersey) Order 1999 have been widely foreshadowed.
I would pick out as the most significant changes the fact that, in addition to having systems to forestall money laundering (already a requirement), businesses will be required to have procedures for monitoring and testing the efficacy of their systems (including the effectiveness of staff training) and additionally the fact that in maintaining internal reporting procedures, a business will be required to give special attention to transactions that are merely unusual. The obvious question, therefore will be, because a transaction is unusual, is it, therefore, suspicious as well?
Furthermore, it is likely that where an enquiry is made which arouses the suspicion in the mind of the financial service business that a crime has been committed (and that suspicion does not relate to terrorism or drugs offences), there will nevertheless be an obligation on the financial service business to make a suspicious transaction report to the Jersey police notwithstanding the fact that there has been no business relationship established.
This will create additional record-keeping requirements for financial service businesses, and an additional cost to be borne by those businesses. Many will already be operating this procedure as a matter of practice, but it is to be seen if it becomes a legal requirement.
Finally, it is anticipated that the test for 'suspicion' of criminal conduct, such as is required before making a report to the Jersey police, is to become an objective rather than a subjective test. This would bring Jersey in line with recent United Kingdom developments, and will also have a impact on the way in which risk is assessed by both businesses and individuals within businesses if it comes into force as expected.
The new Guidance Notes
In terms of that fine balance referred to in opening, it is the new Guidance Notes which could have the effect of tilting the balance the wrong way.
The steering group working on the Guidance Notes are alive to this risk, but there are areas where the requirements of the regulator and the ability to conduct business in a proper yet cost-efficient manner are difficult to reconcile.
It is the challenge of the seering group to plot a middle course which will be acceptable to the regulator, and stand up to international scrutiny, while preserving the ability of Jersey businesses to operate against their competitor jurisdictions.
The key pressure points which the new Guidance Notes will need to address are set out in the JFSC's Position Paper entitled Overriding Principles For A Revised Know Your Customer Framework, published in 2001. In my view, there are three issues which represent real pressure points for industry which are illustrated in the pull-out boxes.
To date, the fine balance described at the outset of this article has been maintained in the island. The new anti-money laundering regulations (and particularly the three issues highlighted) is only one of a number of challenges facing the finance industry at the moment.
It is my fervent hope that, for the good of the island, when the dust settles on these new regulations, it will be said that the balance between sensible regulation and over-regulation has been maintained and that businesses in the island can continue to operate competitively, while maintaining internationally accepted standards of regulation.
acceptable introducers and pooled accounts
Professional intermediaries frequently hold funds on behalf of their clients in ˜Client Accounts', opened with other financial services' businesses. The Position Paper states that where the intermediary is both regulated and operating in either Guernsey, the Isle of Man, Jersey or an equivalent jurisdiction, an accepting person is not required to look through this arrangement so long as it has assessed and is satisfied with the customer due diligence procedures in place at the professional intermediary.
This assessment process is also required in determining who is or is not an ˜acceptable introducer'. Industry's concern here is twofold: firstly, that to satisfy oneself with a customer's due diligence procedures will require a huge amount of work, and secondly, that certain key intermediaries such as lawyers are not ˜regulated' in the sense meant in the Paper and therefore, would be unable to take advantage of these provisions.
So far as intermediaries that are regulated, I would say that being licensed in itself should be sufficient and there should be no additional burden such as assessing the due diligence procedures of that intermediary. The intermediary will have met the ˜fit and proper' test in order to become licensed.
As for intermediaries who are not regulated, they should be able to be considered as acceptable introducers and operate pooled accounts (because albeit not regulated, they will be subject to anti-money laundering regulations), even though I accept the ˜due diligence test' might need to be satisfied here.
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