Relying on others to conduct your client due diligence

Published: 23/08/2020

In some strictly limited circumstances, Article 16(2) of the  Money Laundering (Jersey) Order  provides that a Relevant Person may rely on identification measures that have already been applied by a regulated business (referred to as an obliged person)  to find out the identity of a mutual customer and to obtain evidence of identity. Where a Relevant Person opts to utilise what is commonly referred to as the reliance regime they are required to comply with certain criteria.

The Jersey Financial Services Commission (“JFSC”) has published the results of its on-site themed examination into compliance with the reliance provisions set out within  the Money Laundering (Jersey) Order 2008 and section 5 of the JFSC AML/CFT handbook. Helpfully the publication is supported by an excellent webinar explaining the findings and highlighting the importance of complying with the requirements, particularly as the next MoneyVal assessment is likely to focus on the industry’s compliance with Article 16. https://www.jerseyfsc.org/industry/on-site-visits/examination-report-reliance-on-obliged-people/   https://www.jerseyfsc.org/news-and-events/reliance-update-and-webinar-recording/   The feedback paper is a must read and listening to the webinar is strongly recommended.

From the feedback paper the JFSC highlight that  from the 11 examinations undertaken the JFSC identified 54 findings and in respect of risk assessing obliged persons the feedback paper summed up the position as follows  “Findings in respect of assessing obliged persons were identified in over half of the relevant persons examined which the JFSC finds concerning”.

The paper goes on to highlight short comings in relevant persons testing of obliged persons compliance with the CDD requirements. Two firms were not testing at all and in the case of three firms the JFSC deemed that the testing was insufficient.  In one instance the relevant persons business risk assessment stated that there was no reliance arrangements in place when this was not the case!

The Webinar makes it very clear that going forward the JFSC will be testing compliance with the requirements of the Reliance provisions and such testing is likely to form part of the 2021 themed examination programme – hardly surprising given the outcomes.  Following the publication of the feedback paper, which spells out what is expected of relevant persons, failing to comply with the requirements is likely to significantly increase the risk of sanctions being applied by the JFSC. The JFSC recommend conducting a gap analysis to identify and address any short comings. Failing to heed such a recommendation increases the risk that a relevant person in breach of the Reliance requirements could be viewed as negligently breaching the Money Laundering Order and Codes of Practice.

The final paragraph of the feedback paper is perhaps worth considering, “The JFSC wishes to re-iterate that the management of financial crime risk is non-negotiable and use of the powers under the Financial Services (Jersey) Law 1998 and the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 will be used where disregard to the regulatory frame work is apparent”.  Translated it appears that the regulator is placing a marker down, that if you rely on the reliance provisions and neglect the requirements, be prepared to face a civil financial penalty, public statement or other regulatory sanction.

If you need support in conducting a gap analysis and health check on your compliance with the reliance provisions, Baker & Partners can assist.

 

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