The Jersey Financial Services Commission (“JFSC”) conducted an onsite examination of one of its fiduciary licensee’s which has resulted in a public statement being issued. The findings provide an insight in to the areas that our sister Island regulator is focusing on and the regulatory action they are taking in respect of their findings. I believe that the key points of the onsite examination are as follows;
Anti-Money Laundering and Combatting Financing of Terrorism (“AML/CTF”)
The key points made in respect of the examination of the area of AML/CFT noted the following areas as failure to comply with the AML/CFT regulatory requirements:
- Out of date CDD.
- Lack of sufficient evidencing of source of funds and source of wealth.
- Lack of evidence to demonstrate that CDD had been sufficiently evaluated.
- Inadequate evidence of EDD having been undertaken on High Risk customers
- Inadequate evidence of the review of risk assessments.
- Providing registered office only business and the issuance of Powers of Attorney with little control of the risks and oversight expected to be applied to these products.
An investigation was also undertaken into a customer entity that had received funds that may have been connected to a fraud. The investigation found the following matters of concern:
- Mind and management not with the Jersey appointed Directors but with the beneficial owners.
- Lack of questioning and properly understanding the activities of the customer entity.
- Allowing payments to be made by the Customer entity without knowing or assessing whether adequate funds would be available to complete transactions.
- Over reliance on the ultimate beneficial owners instructions and did not challenge the rationale for acquiring assets.
- Receiving loans which did not have formal loan agreements and were from entities that had the same beneficial owners.
- Failing to understand the source of funds through the customer entity.
- Failing to consider adverse information made available to it regarding the source of funds received by the customer’s entity.
- Receiving funds without knowledge of the remitter and paying them out the next day.
- Failing to keep adequate books and records for the customer entity
- Being re-active instead of pro-active in the management of the customer entity.
Breaches of the Code of Conduct of Trust Company Business
The key points that led to breaches of the Jersey regulatory framework and principles for the conduct of Trust Company Business were as follows:
- Failing to act with skill, care and diligence.
- Failing to evidence in writing decisions made.
- Failing to identify conflicts of interests.
- Failing to ensure adequate review procedures were implemented to monitor Trust Company Business.
- Failing to maintain adequate internal systems and controls.
- Failing to exercise an adequate level of Corporate Governance.
These failures led to remedial action having to be implemented as follows:
- Directors stepping down and the appointment of new local Directors and a new Non-Executive Chairperson.
- Review in conjunction with an external resource of the processes and procedures of the business to effect changes to strengthen its systems and controls.
- Initiation of a review process of customer files to remedy customer due diligence deficiencies.
- Remediation programme has been put in place to rectify issues identified by the investigation.
In conclusion I believe that a robust compliance function and a compliance monitoring programme encompassing the regulatory framework would have alerted the business to its deficiencies and assisted in the evidencing of areas of concern that required remedial action that were subsequently identified by the JFSC . I recommend that the points raised are taken in to account in any Financial Regulated or Registered Business and assessed against its current compliance framework. If you do find that you have issues of concern or that you cannot adequately evidence compliance to the regulatory framework my advice is to form a remediation plan and inform the Commission as soon as practical. A problem shared is a problem halved, I cannot give any guarantees that you will not face regulatory sanction but being open and honest has the potential to reduce or negate the use of regulatory sanctions, as William Mason Director General, mentioned in his December 2013 address to the Industry. If the regulator in our sister Island is looking at these areas I believe that the Guernsey Commission will also be.