## IMF assessment of Jersey (cr03368) ## Source details **Canonical URL:** [IMF assessment of Jersey (cr03368)](https://www.imf.org/-/media/files/publications/ofca/english/cr03368.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/cr03368.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/cr03368.pdf.json) --- ### Mission scope, timing, and participants - The IMF carried out a Module 2 assessment of Jersey under the program approved in July 2000. - The assessment mission took place September 11–25, 2002. The review of observance of the FATF 40+8 Recommendations was completed during a second visit January 13–21, 2003. - The mission was led by R. Barry Johnston (Monetary and Financial Systems Department (MFD)) and included Neville Grant (Deputy Mission Chief, Consultant, MFD), Ian Carrington (MFD), Ross Delston (Consulting Counsel, LEG), Marcel Maes (Consultant, MFD), Jack Heyes (Consultant MFD), Helmut Mueller (Consultant, MFD), John Farrell (Consultant, MFD), Richard Carpenter (Consultant MFD), and Detective Chief Superintendent Felix Mc Kenna (Independent Anti-Money Laundering Expert). Jacqueline Pentz-Greene (MFD) assisted with report preparation. ### Executive summary — key findings, strengths, and recommended actions - Key finding: - The assessment concluded that Jersey’s financial regulatory and supervisory system "complies well with international standards." - Noted strengths: - A comprehensive legal framework and supervisory structure that works well in practice. - Active measures to protect reputation, including a 2002 new regime for regulation and supervision of trust company business with supporting orders, codes of practice, and guidance notes. - Formal agreements for information exchange and cooperation with foreign supervisory agencies. - Comprehensive measures for confiscation of proceeds of criminal conduct; customer identification; and international cooperation. - Areas for further strengthening: - The functions and independence of the Jersey Financial Services Commission (the Commission). - The on-site regime, particularly for banks, implying a need for additional resources. - Extension of the Convention for Suppression of the Financing of Terrorism to Jersey. - Greater consistency in customer identification standards across financial institutions, guided by the Overriding Principles Paper. - Summary recommended actions: - Enhance the independence of the Commission. - Increase Commission resources and improve on-site banking supervision processes. - Issue instructions and develop supervisory guidance for on-site banking examinations on prudential risks, including credit policies, loan evaluation, and loan-loss provisioning. - Introduce capital requirements for market risk (the Commission had set capital requirements for credit risk but not for market risk). - Increase insurance-division staff and institute more frequent on-site inspections. - Amend AML/CFT-related laws as recommended in the detailed assessment. ### Financial system overview and macro characteristics - General features and fiscal context: - Jersey area: 45 square miles (118 square kilometers). - Population: more than 87,000. - Finance and related services estimated to provide about 55 percent of Jersey’s GDP and about 60 percent of its tax income. - Income tax: current level of 20 percent for individuals and corporate entities. - Jersey has double taxation arrangements with Guernsey and the United Kingdom. - Employment in financial services: - Number employed in financial services at June 2001: 12,606 (a 14.2 percent rise compared to 1998). - Banking accounted for about 47 percent of total industry employment. - Employment in legal activities rose by 48.4 percent. - Financial institutions and market characteristics: - System dominated by private banks providing asset management to high-net-worth individuals. - Nonbank institutions offer asset management and mutual funds; insurance is less developed relative to some other international financial centers. - Increasing corporate services: securitizations, employee-share-ownership schemes, SPVs. ### Banking sector — structure, key statistics, and prudential findings (end-June 2002) - Structural data: - Registered banks at end-June 2002: 62 (compared with 70 a year earlier). - Bank structure: 38 subsidiaries and 24 branches. - Banks from 16 different countries represented; 25 from the United Kingdom. - Jersey considers itself the home supervisor for 14 banks. - Balance-sheet and activity statistics: - Total bank deposits: £132.4 billion (compared with £125.9 billion a year earlier). - Total assets: £170 billion. - Interbank placements: £133.9 billion, representing 78.8 percent of total assets (largely with parent or holding company group). - Loans are a fraction of deposits. - Supervisory framework and findings: - Minimum risk-asset ratio prescribed by the Commission: 10 percent; higher minimum ratios can be imposed on individual institutions. - Capital requirements for credit risks set on a solo and consolidated basis; capital requirements for market risk had not been introduced at the time of the mission. - Commission developed corporate governance and credit-risk route planners; recommendation to elaborate credit-risk techniques, best practices on internal controls and internal audit. - Subsequent to the mission, Jersey significantly increased resource allocation to banking supervision. ### Recommended actions for banking (selected Basel Core Principles items) - CP 1.2 Independence and adequate resources: - Conduct a review of the Finance and Economic Committee’s power of direction and the Commission’s development function. - Conduct an in-depth analysis of the resources required to fulfill supervisory objectives and establish a change plan. - CP 7 and 8: - Develop guidance/guidelines or orders covering generally accepted credit risk policies and procedures. - CP 12 Market Risks: - Impose market risk capital requirements. - CP 13 Other Risks: - Develop guidance and "best practice" documents. - CP 14 Internal Control and Audit: - Systematic confirmation by senior management and Board regarding fiduciary responsibilities. - Introduce “best practice” paper on internal controls and internal audit. - CP 16 On-Site and Off-site Supervision: - Establish a full scope on-site examination program supplemented by formalized quality control procedures. ### Insurance market structure, permits, and IAIS findings - Insurance permits: - Two kinds of permits: Category “A” (applicants authorized in jurisdictions outside Jersey) and Category “B” (for companies that establish their head offices in Jersey; Commission is home supervisor for Category B). - Number of insurance permits outstanding at end of June 2002: 179 (160 Category A permits and 19 Category B permits), down from 186 a year earlier. - Motor liability insurance cannot be offered by Category B companies; only covered by U.K. Category A companies. - Market composition: - Mix of locally incorporated companies and branches of foreign entities, mostly from the United Kingdom and continental Europe. - Life and nonlife mix; nonlife mostly property, motor, and health. - Commission does not collect data for premiums or other indicators for Category A companies. - IAIS Core Principles assessment — summary: - Jersey has achieved a high standard of compliance with IAIS Core Principles. - Insurance Division staffing: staff of three (director, finance manager, finance officer); Division appears under-resourced given need to increase on-site inspections. - Minimum solvency/capital requirements: - Minimum solvency margin for life insurers and pension business: the greater of £50,000 and 2.5 percent of the long-term fund. - For general business minimum solvency margin: 17.5 percent of the premium income. - Minimum capital for all insurance companies: £100,000. - Derivatives: not approved as admissible assets; limited use may be authorized by special license condition—practice should be incorporated into Codes of Practice. - Selected IAIS recommended actions: - CP 1 Organization: Increase number of staff of the Insurance Division; avoid impairing supervisor independence. - CP 4 Corporate Governance: Incorporate corporate governance requirements into Codes of Practice. - CP 5 Internal Controls: Introduce Codes of Practice requiring internal controls, risk management systems, and Board confirmations. - CP 8 Capital Adequacy and Solvency: Continue to review minimum capital standards to ensure alignment with international standards. - CP 9 Derivatives: Incorporate Commission practices in relation to derivatives into Codes of Practice. - CP 13 On-site Inspection: Intensify on-site inspections by increasing staff. - CP 14 Sanctions: Grant supervisor power to impose monetary penalties (administrative fines). ### Collective investment funds (CIFs), SPVs, and securities sector (IOSCO highlights) - CIFs and SPVs: - Principal investment products: interests in CIFs and interests in securitized assets through SPVs. - CIF types: ‘open-ended’ or ‘closed-ended’; ‘recognized’ or ‘unclassified’. - Value of collective investment funds: £106.2 billion at end of June 2002, compared with £105.6 billion a year earlier. - Funds under investment management: £31 billion. - Number of funds and sub-funds: 368 funds and 1,528 sub-funds compared with 302 funds and 1,575 sub-funds a year earlier. - Total funds under investment management (Class B of the Financial Services (Jersey) Law 1998): £31 billion, a decrease of 17.3 percent when compared to the same period last year. - As at September 17, 2002, the Commission supervised 210 firms engaged in investment business on behalf of others in or from Jersey. - Market infrastructure: - No stock exchange in Jersey; listings occur in Dublin, Luxembourg, and the United Kingdom. - Channel Islands Stock Exchange (CISX) exists in Guernsey and is regulated by the Guernsey Financial Services Commission; the Commission has no authority over the CISX. - IOSCO assessment — summary findings: - The Commission is a statutory single regulator with clear responsibilities; operational independence is generally adequate though FEC may issue guidance or directions. - Commission has wide powers of inspection, investigation, surveillance and has entered into 13 MOUs with foreign counterparts. - Recommendations include tightening timeframes for periodic reporting, emphasizing timely and accurate investor information, and finalizing a contingency plan for failure of a market intermediary. - Selected IOSCO recommended actions: - Principle 1: Consider explicitly recognizing commitment to IOSCO Objectives and recognize statutory accountability of the Registrar of Companies in the Commission’s annual report. - Principle 9: Review roles of Commission, government and the court in enforcement for effective outcomes. - Principle 10: Emphasize supervision to ensure timely, balanced, clear and accurate information to investors; tighten timeframes for communicating information. - Principle 24: Finalize and disseminate a clear contingency plan for dealing with the failure of a market intermediary. ### Company and trust service providers (trust company business) — regulation, scale, and supervision - Regulatory extension and applications: - Financial Services (Extension) (Jersey) Law 2000 came into force in November 2000, bringing trust and company service providers within scope as "trust company businesses". - The Commission received 295 applications for trust company business licenses (including applications for registration as an experienced personal advisor); transitional arrangements allowed continued operation pending determination. - At the time of the mission, approximately 90 applications were outstanding; Commission expected to complete assessment of transitional applicants by end of June 2003. - Scale and economic significance: - Commission estimates trust company businesses administer approximately 200,000 client entities. - Trust company businesses administer approximately three times as many companies incorporated outside Jersey than Jersey companies. - Trust company businesses derive a fee income of approximately £500 million per year. - Commission estimates total value of assets under management could exceed £200 billion. - Supervisory approach and actions: - Codes of Practice exist for investment business and trust company business; Codes of Practice will be amended to explicitly refer to record keeping requirements and maintenance of policy and procedures manuals. - Commission will review extending registration regime to key employees and consider requiring management declarations on internal controls more broadly. ### Regulatory framework, Financial Services Commission, and issues of independence - Commission characteristics: - The Commission was established in 1998 under the Financial Services Commission (Jersey) Law 1998 with a Board of Commissioners; accountable to the States of Jersey through the Finance and Economics Committee (FEC). - Statutory responsibilities include supervision and development of financial services, and provision of advice to the States of Jersey. - Staff establishment: 72 and current complement of 68; 26 hold professional qualifications and 10 hold technical qualifications; six staff studying for qualifications. - Budget funded by fees paid by regulated entities; Annual Report is public and includes policies, a two-year regulatory plan, and audited financial statements. - Independence issues identified: - Article 5 of the JFSC Law gives the Commission responsibility for development of financial services. - Article 11 gives the FEC authority to give guidance and directions to the Commission concerning policies to be followed. - The Mission recommends review to ensure these provisions do not reduce supervisory independence and recommends removing the Commission’s responsibility for “development” from the Commission law. - Mission recommendations on independence: - The Commission and the FEC undertake a review of the powers of the FEC with a view to remove its ability to provide guidance and direction to the Commission. - The Commission’s responsibility for "development" should be removed from the Commission law to avoid conflicts. ### Anti-money laundering and combating financing of terrorism (AML/CFT) — findings, JFCU, and recommendations - Overall finding: - Jersey demonstrates a high level of compliance with the FATF 40+8 Recommendations assessed, particularly regarding confiscation of proceeds of criminal conduct; law enforcement and prosecution powers; customer identification; exchange of information; international cooperation; and measures to combat terrorist financing. - Legal and criminal justice measures: - Money laundering criminalized as a serious offense extending to all proceeds of criminal conduct; financing of terrorism criminalized consistent with the Convention for the Suppression of the Financing of Terrorism. - The Vienna Convention has been ratified by the United Kingdom on Jersey’s behalf. - The Convention for Suppression of the Financing of Terrorism, the Council of Europe Convention, and the Palermo Convention had not been extended to Jersey at time of mission. - Joint Financial Crimes Unit (JFCU) structure and resourcing: - Reporting parties required to disclose all suspicious reports to a police or customs officer; regulatory authorities and third-party inspectors must report to police where they have information relating to money laundering. - JFCU staffing (current composition): - Headed by a detective inspector; Intelligence section: one detective sergeant, three detective constables, and three civilian personnel (including a financial analyst). - Operational section: one detective sergeant, four detective constables, and two senior customs officers. - JFCU currently supported by seven personnel from the U.K. and local police. - Approved and recommended strength of the JFCU: 17.5 positions. - Since 1999, JFCU workload increased 600 percent because of increased STRs and requests from foreign law enforcement agencies; permanent staffing levels less than adequate. - Preventive measures and supervisory practices: - The Commission has issued detailed Guidance Notes, established on- and off-site surveillance programs, and completed on-site visits to most licensed institutions over the prior two years. - Financial institutions generally displayed a high level of AML/CFT awareness; systems for verification of customer identity generally in place, though KYC practices varied. - The Commission participated in cross-Crown dependency coordination on an Overriding Principles Paper for revised Know Your Customer framework. - Selected AML/CFT recommended actions: - Customer identification and record-keeping (FATF 10–13): - Amend relevant laws to explicitly require that customer identification procedures be followed. - Redouble Commission efforts to ensure greater consistency among licensees with Position Paper standards. - Increased diligence (FATF 14–19): - Amend the Proceeds of Crime (POCL) to provide financial institutions with an affirmative obligation to report suspicious transactions rather than relying on reporting as a defensive shield against money laundering offense. - Measures for countries with insufficient AML measures (FATF 20–21): - Consider ensuring foreign branches and subsidiaries observe AML/CFT measures consistent with Jersey’s requirements, to the extent local laws permit. - FATF Special Recommendations on Terrorist Financing: - Extend the Convention for Suppression of the Financing of Terrorism to Jersey. - Amend laws within FATF timetables to require originator information to remain with wire transfers and enhance scrutiny of transfers lacking complete originator information. - JFCU resourcing: - Ensure the JFCU has sufficient permanent staffing and IT systems; JFCU testing a prototype replacement IT system; approved plan calls for 17.5 positions. ### Authorities’ response, action plan, and implementation steps - Authorities’ general stance: - Authorities welcome the Fund’s confirmation of high degrees of compliance and constructive recommendations; many recommendations support action planned or already underway. - Authorities committed to maintaining and improving adherence to international standards and prepared a consolidated action plan appended to the assessment volume. - Independence and governance: - Authorities note FEC has not exercised its authority to give guidance or directions; Article 7 constrains any direction conflicting with statutory guiding principles. - Authorities concluded it is appropriate for the Commission to retain the development function in practice but plan enhancements addressing the Committee’s power of direction to be recommended to the Economic Development Committee in 2004. - Resourcing and supervision enhancements: - Compliance Division staffing increased from 27 to 40; of the 40, 35 are now in post, including an additional senior manager with banking experience. - Insurance Division: an additional staff member was approved in the Commission’s business plan for 2003 and to be recruited in 2003. - Commission developed a new risk model, comprehensive on-site visit programs, revised report formats, and route planners; outside consultants assisted. - Regulatory and legislative initiatives (selected): - Commit to finalizing Codes of Practice for banks, insurers, CIF functionaries, and deposit-takers (subject to consultation and legislative approval), with many Codes targeted for 2004 implementation. - Review whether directors (and senior management of branches) of all regulated businesses should be required to submit declarations on internal controls. - Consider transferring regulation of deposit-taking, fund functionaries, and insurance business to the Financial Services (Jersey) Law 1998 as part of consolidation. - Consider legal amendments to provide the Commission explicit authority to issue AML Guidance Notes and to expand information-gathering powers to outsourced functions where necessary. - Consider introduction of civil money penalties (administrative fines) subject to resolution of legal issues and consultation. ### Communication, contingency planning, and audit oversight - Communication to investors: - Commission places great emphasis on timely, balanced, clear, and accurate information to investors; controls include Companies (General Provisions) (Jersey) Order 2002 and Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995. - Actions planned: consultation on transferring regulation of fund functionaries; Codes of Practice for fund functionaries and investment business amendments; review of filing deadlines; proposed advertising standards. - Contingency arrangements: - Commission has powers (appointment of a manager, power to direct, and power of intervention) and will formalize contingency plans and training to manage failure of regulated entities. - Audit and financial reporting: - Article 104 of the Companies (Jersey) Law 1991 requires accounts in accordance with generally accepted accounting principles; Commission to review suitability of accounting and auditing standards and methods of audit supervision in 2004. - Commission will review options for oversight of external auditors and possible approval powers subject to consultation and legislative approval. *Source: IMF assessment mission (Module 2), September 11–25, 2002; FATF review visit January 13–21, 2003.* ### Preface................................................................................................................. ### Preface ### Mission scope, timing, and participants - The IMF carried out a Module 2 assessment of Jersey under the program approved in July 2000. - The assessment mission took place September 11–25, 2002. The review of observance of the FATF 40+8 Recommendations was completed during a second visit January 13–21, 2003. - The mission was led by R. Barry Johnston (Monetary and Financial Systems Department (MFD)) and included Neville Grant (Deputy Mission Chief, Consultant, MFD), Ian Carrington (MFD), Ross Delston (Consulting Counsel, LEG), Marcel Maes (Consultant, MFD), Jack Heyes (Consultant MFD), Helmut Mueller (Consultant, MFD), John Farrell (Consultant, MFD), Richard Carpenter (Consultant MFD), and Detective Chief Superintendent Felix Mc Kenna (Independent Anti-Money Laundering Expert). Jacqueline Pentz-Greene (MFD) assisted with report preparation. ### Assessment scope and methodology - The assessment covered both offshore and domestic markets; both are governed by the same legislation and supervised by the same agency. - Assessment standards and guidelines used: - Basel Core Principles for Effective Banking Supervision (banking) - IAIS Insurance Core Principles (insurance) - IOSCO Objectives and Principles of Securities Regulation (mutual funds and securities) - OGBS draft Statement of Best Practice for Trust and Company Service Providers (company and trust service providers) - FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) - The mission reviewed legislation and practices, and held discussions with the Jersey Financial Services Commission (the Commission), government officials, private sector practitioners, and UK-FSA officials. ### Executive summary — key findings and strengths - The assessment concluded that Jersey’s financial regulatory and supervisory system "complies well with international standards." - Noted strengths: - A comprehensive legal framework and supervisory structure that works well in practice. - Active measures to protect reputation, including a 2002 new regime for regulation and supervision of trust company business with supporting orders, codes of practice, and guidance notes. - Formal agreements for information exchange and cooperation with foreign supervisory agencies. - Comprehensive measures for confiscation of proceeds of criminal conduct; customer identification; and international cooperation. ### Executive summary — identified areas for further strengthening - Areas where consideration should be given to strengthening arrangements: - the functions and independence of the Commission; - the on-site regime, particularly for banks, to address future changes in commercial practices and new risks (implying a need for additional resources); - extension of the Convention for Suppression of the Financing of Terrorism to Jersey; - greater consistency in customer identification standards across financial institutions, guided by the Overriding Principles Paper. ### Executive summary — recommended actions (summary) - The assessment encouraged authorities to: - enhance the independence of the Commission; - increase Commission resources and improve on-site banking supervision processes; - issue instructions and develop supervisory guidance for on-site banking examinations on prudential risks, including credit policies, loan evaluation, and loan-loss provisioning; - introduce capital requirements for market risk (the Commission had set capital requirements for credit risk but not for market risk); - increase insurance-division staff and institute more frequent on-site inspections; - amend AML/CFT-related laws as recommended in the detailed assessment. ### Financial system overview and background - General features: - Jersey area: 45 square miles (118 square kilometers). - Population: more than 87,000. - Finance and related services estimated to provide about 55 percent of Jersey’s GDP and about 60 percent of its tax income. - Income tax: current level of 20 percent for individuals and corporate entities. - Jersey has double taxation arrangements with Guernsey and the United Kingdom. - Employment in financial services: - Number employed in financial services at June 2001: 12,606 (a 14.2 percent rise compared to 1998). - Banking accounted for about 47 percent of total industry employment. - Employment in legal activities rose by 48.4 percent, outstripping other categories. ### Financial institutions and markets — structure and characteristics - Jersey attracts a broad range of financial business: banking, insurance, investment, trust and company business, with the majority of transactions conducted with and between nonresidents. - System characteristics: - Dominance of private banks providing asset management services for high-net-worth individuals. - Nonbank institutions also offer asset management and mutual funds. - Insurance services exist but are less developed relative to some other international financial centers. - Increasing services for corporations, including securitizations and employee-share-ownership schemes, leveraging trust, company administration, and legal expertise. - Factors supporting Jersey’s role as a financial center: - Proximity to the United Kingdom and continental Europe, low taxes, and stable government. - Historical influences: U.K. sterling-area boundary redrawing in 1972, removal of U.K. exchange controls in 1979, growth in world private wealth and international investment climate (notably in the 1980s). - Supervisory focus and developments: - The Commission has assessed main risks and focused on corporate governance and "know-your-customer" principles. - The Commission completed a first round of visits to all regulated institutions over the past two years and identified control weaknesses, taking effective remedial action. - The on-site visitation process was in transition at the time of the mission. ### Banking sector — structure and key statistics (end-June 2002) - Registered banks at end-June 2002: 62 (compared with 70 a year earlier). - Bank structure: - 38 subsidiaries and 24 branches. - Banks from 16 different countries represented; 25 from the United Kingdom. - Deposits and assets: - Total bank deposits: £132.4 billion (compared with £125.9 billion a year earlier). - Jersey resident depositors accounted for a small percentage of total deposits; the bulk were nonresidents. - Total assets: £170 billion. - Interbank placements: £133.9 billion, representing 78.8 percent of total assets (largely with parent or holding company group). *Source: IMF assessment mission (Module 2), September 11–25, 2002; FATF review visit January 13–21, 2003.* ### 13. The Jersey insurance market is relatively small in comparison with other similar ### 13. The Jersey insurance market is relatively small in comparison with other similar jurisdictions, especially Guernsey ### Insurance market structure and permits - Two kinds of insurance permits under Jersey law: Category “A” and Category “B.” - Category A permits are granted to applicants authorized in jurisdictions outside of Jersey. - Category B permits are for companies that establish their head offices in Jersey. The Commission is the home supervisor for companies with Category “B” permits. - Number of insurance permits outstanding at end of June 2002: 179 (160 Category A permits and 19 Category B permits), down from 186 a year earlier. - Motor liability insurance cannot be offered by Category B companies because there is no motor insurance bureau covering claims in case of failure of the insurance company; this business is only covered by U.K. Category A companies, which are members of the U.K. bureau. - Market composition: - Mixture of locally incorporated companies and branches of foreign entities, mostly from the United Kingdom and continental Europe. - Mix of life and nonlife companies; nonlife mostly write property, motor, and health insurance. - Data limitation: The Commission does not collect data for premiums or other relevant indicators for Category A companies. ### Investments, collective investment funds (CIFs), and SPVs - Principal investment products: interests in collective investment funds (CIFs) and interests in securitized assets through special purpose vehicles (SPVs). - CIF types and marketability: - CIFs may be ‘open-ended’ or ‘closed-ended’ and may be ‘recognized’ or ‘unclassified.’ - Recognized CIFs can be marketed in the U.K. on the same basis as U.K. CIFs due to Jersey’s Recognized Funds legislation and a regulatory regime deemed by HM Treasury to provide equivalent investor protection. - Unclassified CIFs are marketed in the jurisdiction and in selected other jurisdictions under special bilateral arrangements between regulators. - Investor focus: - Majority of funds designed for and marketed to sophisticated or institutional investors; only a minority for the general public. - Growing number of funds aimed at fewer than 50 investors and thus controlled under the Control of Borrowing legislation rather than the CIF Law. - Majority of CIF investment is derived from offshore investors; SPV interests are marketed to professional investors almost exclusively overseas. - Listings and markets: - No stock exchange in Jersey; any listing of CIF or SPV interests will be in another jurisdiction (largely Dublin, Luxembourg, and the United Kingdom). - Channel Islands Stock Exchange (CISX) exists in Guernsey and is regulated by the Guernsey Financial Services Commission; the Commission has no authority over the CISX. - Key statistics (end-June 2002 and related dates): - Value of collective investment funds: £106.2 billion at end of June 2002, compared with £105.6 billion a year earlier. - Funds under investment management: £31 billion. - Number of funds and sub-funds: 368 funds and 1,528 sub-funds compared with 302 funds and 1,575 sub-funds a year earlier. - Total funds under investment management (Class B of the Financial Services (Jersey) Law 1998): £31 billion, a decrease of 17.3 percent when compared to the same period last year. - As at September 17, 2002, the Commission was responsible for supervising 210 firms engaged in investment business on behalf of others in or from Jersey. ### Company and trust service providers (trust company businesses) - Regulatory history: - Financial Services (Extension) (Jersey) Law 2000 came into force in November 2000, amending the Investment Business (Jersey) Law 1998 to bring trust and company service providers within scope (termed “trust company businesses”). - Subsequent orders, Trust Company Business Codes of Practice, and guidance notes have been issued; a consultation paper on advertising standards was also issued. - Application and transitional arrangements: - Transitional provisions permitted existing trust company businesses that applied for registration within the permitted timeframe to continue operating until determination of their application by the Commission. - The Commission received 295 applications for trust company business licenses (including applications for registration as an experienced personal advisor) and was dealing with applications using a risk-based approach. - At the time of the mission, approximately 90 applications were outstanding; the Commission advised that about a third of these are close to determination and expected to complete assessment of transitional applicants by the end of June 2003. - Scale and economic significance: - Commission estimates trust company businesses currently administer approximately 200,000 client entities (including trusts, Jersey companies, and companies incorporated outside Jersey). - Commission estimates trust company businesses administer approximately three times as many companies incorporated outside Jersey than Jersey companies. - Trust company businesses derive a fee income of approximately £500 million per year. - Commission estimates that the total value of assets under management could exceed £200 billion. ### Companies, partnerships, and corporate registry activity - All Jersey incorporated companies are subject to the Companies (Jersey) Law, which makes no distinction between companies owned by residents and nonresidents, though for tax purposes there are three categories: income tax exempt companies; international business companies (IBCs); and income tax paying companies. - At end of June 2002: - In excess of 33,000 live companies registered in Jersey. - Approximately 21,000 were exempt companies; 120 were international business companies; the rest were income tax paying companies. - Registry incorporates approximately 3,000 companies per year. - Approximately 2,500 companies are dissolved each year; number of active companies increases at approximately 500 per year. - Of the companies on the register, 522 are public companies. - Registry believes most companies incorporated in Jersey for offshore clients are utilized as asset holding companies and do not carry out commercial activity. - Partnerships: - Approximately 300 limited partnerships registered in Jersey, principally utilized by offshore clients. - Limited liability partnerships enabling legislation enacted but none yet registered. ### Regulatory framework, oversight, and the Financial Services Commission (the Commission) - Commission establishment and mandate: - The Commission was established in 1998 and is responsible for regulation and supervision of deposit-taking business, insurance business, investment business, trust companies and company service providers, and collective investment funds (and their functionaries). - The Commission is a statutory body corporate set up under the Financial Services Commission (Jersey) Law 1998 with a Board of Commissioners as governing body; it is accountable to the States of Jersey through the Finance and Economics Committee. - Statutory responsibilities include: - Supervision and development of financial services provided in or from within the island. - Providing the States of Jersey, any committee of the States of Jersey, or any other public body with reports, advice, assistance, and information in relation to any matter connected with financial services. - Preparing and submitting to the Finance and Economics Committee recommendations for introduction, amendment, or replacement of legislation pertaining to financial services, companies, and other forms of business structure. - Commission purpose and guiding principles: - Purpose described as maintaining Jersey’s position as an international finance center with the highest regulatory standards. - Aims to achieve this by: reducing risk to the public; protecting and enhancing the island’s reputation and integrity; safeguarding the island’s best economic interests; and contributing to the fight against financial crime. - Article 7 of the Financial Services Commission (Jersey) Law 1998 established the Commission’s guiding principles. - Resources and governance: - Staff establishment of 72 and current complement of 68, of whom 26 hold professional qualifications and 10 hold technical qualifications; a further six staff are studying to obtain either professional or technical qualifications. - Budget funded by fees paid by regulated entities; budget prepared by the Commission and incorporated within a business plan submitted to the Finance and Economics Committee. - Commissioners are appointed by the States of Jersey on recommendation of the Finance and Economics Committee; appointment process overseen by the independent Commission of Appointments. - The Finance and Economics Committee may give guidance or general directions to the Commission in relation to States policies, but to date has refrained from issuing guidance. - The Annual Report of the Commission is made public and includes policies, developments and activities, a two-year regulatory plan, and audited financial statements. - Supervisory approach and risk focus: - Licensing policy aimed at selecting applicants from among the very largest firms in each industry to minimize solvency risk. - Regulatory and supervisory efforts directed towards mitigation of financial crime risks because of reputational impact; Commission focuses on adequate real presence by financial institutions; conduct of business risks; strong mechanisms to prevent money laundering and terrorist-financing; adequate levels of competence in institutions; and high levels of integrity. - Authorization and ongoing supervision practices: - Authorization/minimization practices include: - Policy to only license banks from the top 500 banking groups. - General policy to require other businesses to be operations of international stature. - Requirement to demonstrate satisfactory regulatory and audit track records. - Requirement to submit comprehensive business plans. - Ongoing supervision conducted through off-site supervision and on-site visits, with on-site access to Board minutes, control documents, and client files. - Where serious matters arise, Commission has supervisory and investigatory powers including ability to appoint an inspector, seek revocation of a license, or remove individuals. ### Legal environment and key legislation - Constitutional and legal context: - Jersey is a dependency of the British Crown and is not part of the United Kingdom; British Government has ultimate responsibility, within conventions, for the jurisdiction’s defense and international relations. - Executive functions delegated to committees; Finance and Economics Committee has political responsibility for the Financial Services Commission. - Criminal law originally influenced by Norman law, now draws on English law; commercial law heavily influenced by common law principles of England but not identical; property and succession law differ from English law. - Financial regulation law in Jersey is based substantially on equivalent statutes of the United Kingdom. - Relationship with EU: - Jersey is neither a separate member state nor an associate member of the EU. - A Protocol to the Treaty of Accession sets out limited extent to which European measures apply within Jersey; ensures Jersey is not subject to regulation or directives relating to European Monetary Union, harmonization of direct or indirect taxation, financial services exchange of information between fiscal authorities, or social policies. - Principal legislation and regulatory powers (listing of laws and their roles): - Financial Services Commission (Jersey) Law, 1998: sets out Commission responsibilities and general powers for supervisory functions. - Banking Business (Jersey) Law, 1991: regime for licensing and supervision of banks, ability to impose conditions and penalties. - Insurance Business (Jersey) Law, 1996: primary legislation for insurance supervision; prohibits carrying on insurance business without a permit, sets licensing conditions, appeals, and withdrawal processes. - Complemented by Insurance Business (General Provisions) (Jersey) Order 1996 and Insurance Business (Solvency Margin) (Jersey) Order 1996 governing ongoing supervision (information requirements; duties and qualifications of directors, auditors, actuaries; assets; solvency; technical provisions; disclosure; advertising; transfer of portfolio; on-site inspection; enforcement, etc.). - Collective Investment Funds (Jersey) Law 1988: main legislation governing CIF business; prohibits unauthorized operation and regulates such persons and funds. - Other relevant laws: Financial Services (Jersey) Law 1998; Companies (Jersey) Law 1991; Borrowing Control (Jersey) Law, 1947. - Jersey is a full member of the International Organization of Securities Commissions. - Companies (Jersey) Law 1991: governs incorporation, administration, and winding up; specifies duties of company directors; provides for disqualification of directors for up to 15 years and permits the Commission to petition the court for disqualification. - Borrowing (Control) (Jersey) Law 1947 and Control of Borrowing (Jersey) Order 1958: require disclosure of legal and beneficial owners to the registrar for approval to issue shares; registry carries out due diligence checks; registrar can impose conditions; legal ownership information available from registry; beneficial ownership information confidential but can be made available to overseas regulators and law enforcement agencies. - Orders under Borrowing (Control) Law enable the Commission to require declaration of intended activities of Jersey entities and further details where activities are “sensitive” (e.g., provision of professional and financial services). - Limited Partnerships (Jersey) Law 1994 and Limited Liability Partnerships (Jersey) Law 1997: enable formation of limited partnerships and limited liability partnerships. - Trusts (Jersey) Law 1984 and case law: govern trusts and trustees. - Financial Services (Extension) (Jersey) Law 2000 amended Investment Business (Jersey) Law 1998 to require licensing of persons providing company and trust services. - Legislation on fraud, proceeds of drug trafficking, and terrorism: - Investigation of Fraud (Jersey) Law 1991; Drug Trafficking Offenses (Jersey) Law 1988; Terrorism (Jersey) Law, 2002 (scheduled to come into effect in September 2003). - Proceeds of Crime (Jersey) Law, 1999 and Money Laundering (Jersey) Order, 1999; Drug Trafficking Offenses (Jersey) Law 1988; Terrorism (Jersey) Law 2002 define money laundering offense, impose obligations on financial service providers to help prevent money laundering, and allow courts to confiscate funds found to originate from criminal activities. *Source: IMF staff report.* ### 45. The Commission is a well-established, well-respected supervisory agency, with an ### cr03368 - 45. The Commission is a well-established, well-respected supervisory agency, with an ### Summary assessment and overall findings - The Commission is a well-established, well-respected supervisory agency, with an experienced staff and a good range of regulatory and enforcement powers. (The Mission) - The supervisory process is effective and the financial regulatory system complies well with: - the Basel Core Principles, - the IAIS Core Principles, - the IOSCO Principles, and - the FATF Recommendations. (The Mission) - The legal framework for company and trust service providers is consistent with the OGBS Statement of Best Practice. (The Mission) - Detailed assessments are contained in Volume II; Section III of the volume provides ROSCS. (The Mission) ### Issues affecting operational independence - The assessments identified two issues that could affect the operational independence of the Commission: (The Mission) - Article 5 of the Financial Services Commission (Jersey) Law 1998 (JFSC Law) gives the Commission responsibility, among other things, for the development of the financial services provided in or from within the jurisdiction. - Article 11 of the JFSC Law gives the Finance and Economics Committee (FEC) authority to give guidance and directions to the Commission concerning policies to be followed by the Commission in relation to development and supervision of financial services in the bailiwick, and the manner in which any functions of the Commission are to be carried out. - Article 7 provides overriding statutory guiding principles to which the Commission must adhere; any FEC guidance or Commission development activity must not conflict with the Commission’s statutory obligation to protect and enhance the jurisdiction’s reputation and reduce risk to the public. (The Mission) - The Mission notes that the FEC has not exercised its authority to give guidance or directions and has not interfered with the Commission’s capacity to carry out its functions, but recommends a review to ensure these provisions do not reduce supervisory independence. (The Mission) ### Sectoral assessments — high-level findings - Basel Core Principles (The Mission) - Jersey has achieved a high degree of compliance. - Three general areas to strengthen: (i) the Commission’s functions and its independence; (ii) the current resource deficit in the banking resource in the Compliance Division with respect to on-site inspections; and (iii) the need for regulatory guidance with respect to capital requirements, credit policies, loan evaluation, loan-loss provisioning and internal controls. - Subsequent to the mission, Jersey has significantly increased the resource allocation to banking supervision. - IAIS Core Principles (The Mission) - High degree of compliance. - Independence considerations apply; insurance division needs to augment staff for on-site inspections. - IOSCO Principles (The Mission) - Jersey complies well. - Independence considerations apply; the Mission recommends finalizing and disseminating a contingency plan for dealing with the failure of a market intermediary. - AML/CFT Standards — FATF 40+8 (The Mission) - Jersey demonstrates a high level of compliance, particularly regarding confiscation of proceeds of criminal conduct; law enforcement and prosecution powers; customer identification; exchange of information; international cooperation; and measures to combat terrorist financing. - Regulation of the financial sector by a single effective authority is a strength. - The general AML/CFT framework is well implemented; the Commission has issued detailed guidance notes and established on- and off-site surveillance programs. There is a high level of awareness within financial institutions of appropriate AML/CFT policies and procedures. - Company and trust service providers (trust company business) (The Mission) - The Commission’s regulatory and supervisory framework for trust company business is consistent with all practices set out in the OGBS Statement of Best Practice for trust and company service providers. ### Actions to strengthen observance of standards and codes — recommendations (cross-sector) - Functions and operational independence — Mission recommendations (The Mission) - The Commission and the Finance and Economics Committee undertake a review of the powers of the Finance and Economics Committee with a view to remove its ability to provide guidance and direction to the Commission. - The Commission’s responsibility for “development” should be removed from the Commission law to avoid potential conflicts in the functions of the Commission. - The attainment and sustainability of these objectives will enhance the reputation and contribute to the development of the financial system in Jersey. - Additional sector-specific recommended actions are provided in the ROSC and detailed assessments. (The Mission) ### Authorities’ response and planned actions - The authorities note the Fund’s key concerns and welcome the Fund’s cross-sector recommendations; many recommendations support action planned or already underway. (Authorities) - The authorities have committed to maintaining and improving adherence to international standards and have established an action plan (appended to the volume) describing how the Fund’s issues are to be addressed. (Authorities) - On independence and development function: (Authorities) - Authorities agree the JFSC Law permits the FEC to give guidance and directions to the Commission, but note the FEC has never in fact exercised this power and that Article 7 would prevent compliance with any direction that conflicted with statutory guiding principles. - Authorities have concluded it is appropriate for the Commission to retain the development function, asserting in practice the Commission’s development role is limited by statutory guiding principles which ensure the regulatory function is preeminent. - The Commission has developed a model for independence, accountability, and transparency based on Basel Committee, IOSCO, IAIS, and IMF guidance; enhancements addressing the Committee’s power of direction are expected to be recommended to the Economic Development Committee in 2004. (Authorities) ### Banking system structure, key statistics, and prudential findings (end-June 2002 and surrounding context) (The Mission) - Banking population and structure (30 June data): - Number of banks: 62 at end-June 2002 compared with 70 a year earlier. - Composition: 38 subsidiaries and 24 branches from 16 different countries; 25 from the U.K.; Jersey considers itself the home supervisor for 14 banks. - Deposits and assets: - Total bank deposits: £132.4 billion compared with £125.9 billion a year earlier. - Total assets: £170 billion. - Interbank placements: £133.9 billion or 78.8 percent of total assets (largely with the parent or holding company group). - Loans are a fraction of deposits (reflecting clientele). - Market structure: - Banking system dominated by private banks providing asset management to high-net-worth individuals; significant corporate business includes securitizations, employee stock ownership plans, and special purpose vehicles. - Supervisory and regulatory framework observations: - Well-developed public infrastructure; effective mechanisms for market discipline; adequate measures for the resolution of problem banks. - The Commission is the banking supervisory agency; licensing authority supplemented by comprehensive criteria for permissible activities and ownership. - Jersey incorporated subsidiary banks must produce “true and fair” audited accounts to the Commission; secondary legislation provides auditor reporting obligations and regular communication between the Commission and external auditors. - Minimum risk-asset ratio prescribed by the Commission: 10 percent; higher minimum ratios can be imposed on individual institutions. - Capital requirements for credit risks set on a solo and consolidated basis; capital requirements for market risk have not been introduced to date. - Commission has developed corporate governance and credit-risk route planners; further elaboration of generally accepted credit-risk techniques and best practices on internal controls and internal audit is recommended. - Comprehensive efforts to enhance on- and off-site supervision include revised organizational structure, a risk-rating system, route planners, a technology platform for statistical comparisons, and standardized reporting formats. - Subsequent to the mission, Jersey has significantly increased the resource allocation to banking supervision. (The Mission) ### Recommended actions to improve compliance with the Basel Core Principles (as summarized) - CP 1.2 Independence and adequate resources: - Conduct a review of the Finance and Economic Committee’s power of direction and the Commission’s development function. - Conduct an in-depth analysis of the resources required to fulfill the supervisory objectives and as a consequence establish a change plan. - CP 7 and 8: - Develop guidance/guidelines or orders covering generally accepted credit risk policies and procedures. - CP 12 Market Risks: - Impose market risk capital requirements. - CP 13 Other Risks: - Develop guidance and "best practice" documents. - CP 14 Internal Control and Audit: - Systematic confirmation by senior management and Board regarding their fiduciary responsibilities. - Introduce “best practice” paper on internal controls and internal audit. - CP 16 On-Site and Off-site Supervision: - Establishment of a full scope on-site examination program supplemented by formalized quality control procedures. *Source: The Mission’s assessment and the authorities’ response contained in the referenced IMF assessment volume.* ### 81. The authorities welcome the Fund’s confirmation that the Island has achieved a high ### cr03368 - 81. The authorities welcome the Fund’s confirmation that the Island has achieved a high ### Authorities’ overall response to the Basel Core Principles assessment - The authorities welcome the Fund’s confirmation that the Island has achieved a high degree of compliance with the Basel Core Principles. - The authorities welcome the Fund’s constructive recommendations to further enhance implementation of international standards, many of which support action planned or already underway at the time of the Fund’s assessment. - The authorities consider that the Commission’s overall risk-based approach to supervision was not sufficiently highlighted in the assessment. - The Commission’s risk-based approach prioritized supervisory attention to investment and trust company business over certain banking prudential matters because: - Licensing criteria and the nature of banking business in Jersey meant that supervisory guidance on credit policies, loan evaluations, loan-loss provisioning, and specific capital requirements for market risk in banks were afforded lower priority than addressing risks from investment and trust company business. - Consequently, banking supervision has focused on corporate governance, detailed conduct of business, and money laundering risk. - The Commission will be addressing the particular prudential risks referred to in the Fund’s assessment. ### Resourcing and ongoing supervision (CPs 1.2 and 16) - The Commission moved quickly to address a resource deficit noted at the time of the Fund’s visit, which took place shortly after the loss of some key banking staff. - Staffing changes in the Compliance Division: - Increased from 27 to 40 staff. - Of the 40, 35 are now in post. - Includes an additional senior manager with considerable experience of the banking industry to provide technical support to the Division’s banking team. - Staffing requirements will continue to be reviewed on an ongoing basis to support the Commission’s objectives and a comprehensive on-site supervision program. - With support from outside consultants, the Commission has enhanced its on-site visit program to use resources more effectively: - Developed a new risk model to identify higher risk operations more accurately. - Implemented a comprehensive set of on-site visit programs. - Adopted a revised report format to more accurately reflect materiality of findings and enhance quality-control procedures. ### Prudential regulations and requirements (CPs 7, 8, 12, and 13) - Commission assessment of credit and market risk: - Assessed as low based on information collected from banks on a quarterly basis. - Mitigated by Jersey’s high capital requirements: a 10 percent risk capital requirement against the international norm of 8 percent. - Mitigated by strict licensing policies: the Commission restricts licenses to banks in the top 500, measured by capital, and requires a letter of comfort from the parent company. - Commission focus has been on corporate governance, detailed conduct of business, and money-laundering risk rather than on credit and market risk. - The Commission proposes to finalize Codes of Practice for banks in 2004 (preparation was already underway at the time of the Fund’s assessment) to address: - Best practices for management of credit, market, and other risks (including loan evaluation and loan-loss provisioning). - Internal controls and internal audit. - Review of capital requirements as part of assessment and implementation of the second Basel Capital Accord. ### Management declaration on internal controls (CP 14) - Current requirement: only trust company businesses are required to submit a declaration to the Commission that they have complied with relevant regulatory and anti-money-laundering legislation and Codes of Practice (Article 6 of the Financial Services (Trust Company Business (Accounts, Audits and Reports)) (Jersey) Order 2000). - The Commission intends to review whether directors (and senior management of branches) of all regulated businesses should be required to make such a declaration. - Any proposed changes would be subject to a period of consultation and legislative approval. ### FATF 40+8 AML/CFT assessment — introduction and methodology - The Report on the Observance of Standards and Codes (ROSC) for the FATF 40+8 Recommendations was prepared by a team composed of staff of the International Monetary Fund and an independent expert not under the supervision of Fund staff. - The assessment reviewed AML/CFT laws and regulations, supervisory and regulatory systems for prudentially regulated financial institutions, transitional regulatory arrangements for trust and company service providers, and criminal law enforcement capacity and implementation. - The mission was undertaken over the course of two visits to Jersey and is based on information available at the time of the two visits: September 25, 2002 and January 21, 2003. ### Criminal justice measures and international cooperation - Legal framework: - Money laundering is criminalized as a serious offense, extends to all proceeds of criminal conduct, and is consistent with definitions in the Vienna Convention, Palermo Convention, and the FATF 40+8 recommendations. - Financing of terrorism is criminalized as a serious offense and is consistent with the Convention for the Suppression of the Financing of Terrorism. - The Vienna Convention has been ratified by the United Kingdom on Jersey’s behalf. - The Convention for Suppression of the Financing of Terrorism, the Council of Europe Convention, and the Palermo Convention have not been extended to Jersey. - Confiscation and asset measures: - Framework includes provisions for confiscation, freezing and seizure of assets; orders to identify and trace assets; and protection of rights of innocent third parties. - Civil forfeiture is available with respect to crimes relating to the financing of terrorism, but not otherwise. - Under Jersey rules of civil procedure, a third-party intervener may assert legal rights over property; courts will not enforce illegal contracts as a matter of common law. ### The Joint Financial Crimes Unit (JFCU) and reporting framework - Reporting of suspicious transactions: - Reporting parties are required to disclose all suspicious reports to a police or customs officer. - Regulatory authorities and third-party inspectors appointed by regulatory authorities or the court are required to report to the police where they have information relating to money laundering. - No authority in the law requires reporting parties to provide additional documentation to the JFCU; the police can seek additional information by obtaining a production order from the Bailiff, which would require a suspicion of criminal activity. - JFCU structure and staffing: - Headed by a detective inspector appointed by the Chief Officer of Jersey Police; answerable to him on JFCU activities. - Subdivided into an Intelligence and Operational Unit. - Intelligence section staffed by: one detective sergeant, three detective constables, and three civilian personnel (including a financial analyst). - Operational section staffed by: one detective sergeant, four detective constables, and two senior customs officers. - JFCU is currently supported by seven personnel from the U.K. and local police to service increased workload and ongoing ML/FT investigations. - The approved and recommended strength of the JFCU is 17.5 positions. - Training and statistics: - All police officers and customs officers attached to the JFCU have undergone training in company and trust law, advanced financial investigation, and compliance procedures. - The attorney general’s office records statistics relating to amounts of property frozen, seized, and confiscated relating to ML, predicate offenses, and FT; records requests for mutual legal assistance and categorizes them by type. ### Law enforcement, prosecutions, and international cooperation - The JFCU and the attorney general’s office have responsibility for ensuring ML and FT offenses are properly investigated. - Ongoing major investigations exist; some arose from STRs, others from investigations of other criminal activity. - Law enforcement agencies are making reasonable efforts to investigate, prosecute, convict, and freeze/seize/confiscate proceeds of crime or property to be used to finance terrorism. - Laws and procedures exist for mutual legal assistance in ML and FT regarding production of records, searches, seizure, and obtaining evidence, in some cases via application to the attorney general. - Principal concerns identified: - Jersey needs to adopt implementing legislation so that the Convention for Suppression of the Financing of Terrorism and the Palermo Convention may be extended to Jersey. - Permanent staff level of the JFCU is less than adequate: - Since 1999, the workload of the JFCU has increased 600 percent because of increased STRs and increased requests for assistance from foreign law enforcement agencies. - Permanent staffing levels have not kept pace with the increased workload. ### Preventive measures for financial institutions and supervisory practices - The Commission’s program: - Has established a comprehensive program for implementing the AML/CFT legal framework. - Issued detailed Guidance Notes and developed a system of notices to update guidance to financial institutions. - Carries out its mandate through on- and off-site surveillance mechanisms. - Over the last two years has completed a program of on-site visits to most licensed institutions. - Appears to have a constructive relationship with regulated institutions. - Commission organization and resources: - Principal AML/CFT responsibility rests with the Director of Policy and Legal Affairs. - The Authorization, Compliance and Enforcement Divisions have AML/CFT responsibilities. - The Commission has access to external assistance for specialized projects (e.g., revision of the Notes) and formed an AML Steering Group of lawyers, compliance officers, and financial executives. - Manpower resources of the Compliance Division were increased in 2003 and are expected to be further increased in 2004. - Financial institution practices: - Over a 24-month period, on-site inspections of most licensed institutions included focus on AML/CFT procedures and practices. - Financial institutions visited generally displayed a high level of awareness of AML/CFT issues with measures that generally met international standards. - Systems for verification of customer identity were generally in place; high level of awareness of customers’ normal activity trends. - Most institutions had well-developed systems to recognize unusual transactions; in some cases manual systems should be upgraded to automated systems. - Institutions generally had systems to allocate countries into different risk categories based on AML/CFT system weaknesses. - Coordination across Crown dependencies: - In December 2000 Jersey, in conjunction with Guernsey and the Isle of Man, developed a consultation document “Overriding Principles For a Revised Know Your Customer Framework.” - Based on responses, the Commissions issued a paper outlining direction for AML legal and regulatory frameworks in each jurisdiction, focusing on verification of customer identity (does not replace existing Guidance Notes). - Paper addresses introduced business and verification of identity for existing customers under the Progressive Program: - Envisages that an “accepting party” will always hold either originals or copies of verification documents. - For Progressive Program customers, where FIs discover deficiencies in existing verification documents they should seek necessary information to address deficiencies on the basis of risk prioritization and trigger events. ### Principal concerns in preventive measures for financial institutions - Visits revealed a wide range of KYC practices in relation to issues addressed by the Overriding Principles Paper. - The Commission has undertaken considerable work to direct FSBs towards standards required by the Position Paper but it is recommended that efforts be redoubled to ensure greater consistency by licensees. - Language of the Notes: - In some instances the language of the Notes should be amended to express more clearly the standard expected of licensees. ### Summary assessment and recommended action plan (FATF 40+8) - Overall finding: Jersey has a comprehensive legal and institutional AML/CFT framework with high levels of compliance observed among regulated institutions, but the report makes recommendations for further strengthening. - Selected recommended actions (as reflected in Table 3): - Customer identification and record-keeping rules (FATF 10–13): - Relevant laws should be amended to explicitly require that customer identification procedures be followed. - The Commission’s work directing FSBs toward Position Paper standards should be redoubled to ensure greater consistency among licensees. - Increased diligence of financial institutions (FATF 14–19): - The POCL should be amended to provide financial institutions with an affirmative obligation to report suspicious transactions rather than the act of reporting being used as a defense against the money laundering offense. - Measures to cope with countries with insufficient AML measures (FATF 20–21): - Consideration should be given to ensuring foreign branches and subsidiaries observe appropriate AML/CFT measures consistent with Jersey’s requirements, to the extent local laws and regulations permit. - Eight Special Recommendations on Terrorist Financing — I. Ratification and implementation of UN Instruments: - The Convention for Suppression of the Financing of Terrorism should be extended to Jersey. - Eight Special Recommendations on Terrorist Financing — VII. Wire transfers: - Within the two-year period referred to by FATF, relevant laws should be amended to require that accurate and meaningful originator information on funds transfers remain with the transfer through the payment chain, and that FIs give enhanced scrutiny to wire transfers that do not contain complete originator information. - Other recommended actions arising from the AML/CFT assessment appear in Table 9 of Volume II. ### Authorities’ response to the FATF assessment - The authorities welcome the Fund’s confirmation that the Island demonstrates a high level of compliance with the FATF 40+8 Recommendations assessed and its constructive recommendations to further enhance implementation of international standards, many of which support action planned or already underway at the time of the Fund’s assessment. - The authorities report commitment to following the standards set by the FATF’s recently revised 40 Recommendations. - A consolidated and more detailed action plan, prepared by the authorities, is appended to the volume. - Civil forfeiture: - The authorities observe that the FATF’s Recommendations were revised in Berlin in June 2003 and state for the first time that countries may consider adopting measures that allow proceeds of crime or instrumentalities to be forfeited without requiring a criminal conviction. *International Monetary Fund* ### 114. In common with many other jurisdictions, the authorities will now consult on the ### Review of anti-money laundering framework and IAIS Core Principles assessment ### Anti-money laundering framework — consultation and legal reach - The authorities will consult on inclusion of a provision in Jersey’s anti-money laundering framework to assist enforcement of overseas civil forfeiture orders; Jersey already can assist following Re Illinois District Court JLR 1995 (Note 10) and Re Batalla-Esquival 2001 (Jersey Legal Review 160, at page 165), where the Royal Court of Jersey held it had jurisdiction to enforce a forfeiture order made abroad after civil proceedings in rem. - The Island’s framework to counter money laundering and the financing of terrorism is "constantly under review and being updated" in line with changing international standards. - Recent legislative and consultative actions: - Terrorism (Jersey) Law 2002 updated the definition of terrorism and criminalized the financing of terrorist activities in line with the Convention for the Suppression of the Financing of Terrorism. - The Commission consulted on an oversight regime for bureaux de change and money service businesses in line with FATF Special Recommendation VII. - Publication in February 2002 of a paper outlining direction on identification of customers and underlying “principals” and treatment of professional intermediaries. - An industry Steering Group is established to assist with updating the Commission’s Anti-Money Laundering Guidance Notes for the Finance Sector; consultation on these Guidance Notes will take place later in 2003. ### Specific proposals under consultation - Proposals to be considered in consultation (later in 2003): - Require financial services businesses to apply anti-money laundering standards equivalent to those in place in Jersey to subsidiary and branch operations outside the Island (noting that the majority of such operations are in either Guernsey or the Isle of Man and already covered by a pan-Island agreement for consistent standards). - Implement provisions to enable compliance with FATF Special Recommendation VII on wire transfers, in line with the FATF timetable, including: - provision of accurate and meaningful originator information on funds transfers; and - scrutiny of incoming transfers that do not contain complete originator information. ### Customer identification and reporting obligations - Existing legislation (Article 3 of the Money Laundering (Jersey) Order 1999) already requires customer identification procedures for all financial services business; authorities confirm no changes are considered necessary in this respect. - Affirmative obligation to report: - Article 18A of the Drug Trafficking Offenses (Jersey) Law 1988 and Article 23 of the Terrorism (Jersey) Law 2002 establish an affirmative obligation to report knowledge or suspicion that another person is laundering proceeds of drug trafficking or a terrorist activity. - Authorities intend to propose, subject to consultation and legislative approval, amendments to the Proceeds of Crime (Jersey) Law 1999 to ensure financial services businesses report knowledge or suspicion directly to the Joint Financial Crimes Unit (JFCU). Currently, such businesses must have reporting procedures in place, and reporting knowledge or suspicion provides a defense against commission of a money-laundering offense. - Consultation will consider whether the JFCU should be able to give instructions to financial services businesses. ### International conventions, ratifications, and resourcing - Money laundering is criminalized as a serious offense extending to all proceeds of criminal conduct, consistent with definitions in the Vienna Convention, Palermo Convention, and the FATF 40+8 Recommendations; the financing of terrorism is criminalized consistent with the Convention for the Suppression of the Financing of Terrorism. - Authorities have requested the United Kingdom government to extend its ratification of the Convention for the Suppression of the Financing of Terrorism to Jersey with effect from September 1, 2003; similar requests are expected for the 1959 Council of Europe Convention and the Palermo Convention. - Authorities reaffirm they will ensure the JFCU has sufficient resources to meet its domestic and international obligations. ### IAIS Insurance Core Principles — general assessment and institutional setting - The assessment of Jersey’s compliance with the IAIS Insurance Core Principles was completed as part of the IMF Offshore Financial Sector (OFC) report; the assessment benchmarks current insurance supervision, notes extensive recent changes, and provides input for an action plan toward full compliance. - Institutional and market context: - The Insurance Business (Jersey) Law 1996 (amended in 1998, 1999, and 2000) came into force in 1996 and provided for supervision and licensing of all classes of insurance business; the Insurance Business (Amendment No 4) (Jersey) Law 2003 came into force on 28 March 2003. - The Insurance Division is responsible for insurance supervision within the Commission and retains responsibility for all aspects of regulation given the sector size. - The insurance industry in Jersey is small relative to Guernsey and the Isle of Man; data on Category A Insurers (authorized elsewhere) are not available. - Preconditions for effective supervision are present: - infrastructure well developed; - legal framework consistent, modern, and in compliance with international standards; - court system efficient and reliable; - applied accounting standards internationally accepted; - actuarial and auditing professions available and applying recognized principles; - efficient financial market (banks, investment funds) exists; - sound and effective macroeconomic policies provide stability. ### Resources, staff, and organizational recommendations - Insurance Division staffing and capacity: - The Insurance Division has a staff of three: a director, a finance manager, and a finance officer; staff are professionally qualified. - The Division appears under-resourced given additional tasks (e.g., financial planning for the Commission) and the need to increase on-site inspections; recommendation to increase staff numbers. - Independence and governance: - The supervisor must be operationally independent; the Finance and Economics Committee (FEC) can give guidance or general directions to the Commission on States policy, but such guidance is subject to the Commission’s overriding statutory obligations. Recommendation that the Commission and the FEC review the FEC’s power to give such guidance or general directions. ### Principle-by-principle findings and recommendations - Overall compliance: - Jersey has achieved a high standard of compliance with the IAIS Insurance Core Principles. - Licensing and changes in control (Principles 2 and 3): - Licensing mechanism and detailed minimum criteria are contained in the Insurance Business Law; Commission will not grant a license unless satisfied criteria met. - Commission may suspend or revoke licenses for substantial irregularities. - Changes of owners, shareholder controllers, chief executives, or directors must be notified in writing; Commission may accept or reject changes in control as if a new license application. - Corporate governance and internal control (Principles 4 and 5): - Corporate governance and internal control requirements are not fully consolidated in the Insurance Business Law but are enabled through the Insurance Business Law 1996, the Financial Services Law, the Companies Law 1991, and license conditions. - Commission intends to issue Codes of Practice pursuant to Article 39 of the Insurance Business Law 1996; draft Codes containing corporate governance criteria were issued for industry consultation and are expected to come into force during 2003. - Recommendation: consolidate internal control provisions in Codes of Practice and encourage management to implement efficient internal control systems, including risk-management methods and board confirmations of responsibility. - Prudential rules (Principles 6–10): - Insurance Business (Solvency Margin) Order 1996 details permissible asset types; permitted investments may be extended or restricted via special license conditions. - Valuation rules follow Recognized Accounting Standards (e.g., U.K. GAAP); every long-term insurer must appoint a qualified actuary responsible for provisions in accordance with actuarial principles. - Insurers must submit financial returns to the Commission every six months disclosing technical provisions and solvency margin position. - Minimum solvency margin and capital requirements: - Minimum solvency margin for life insurers and pension business is the greater of £50,000 and 2.5 percent of the long-term fund. - For general business the minimum solvency margin is 17.5 percent of the premium income. - Minimum capital for all insurance companies is £100,000. - Supervisor may require higher levels considering company size, complexity, and risk exposure; Jersey complies with IAIS solvency requirements but should ensure minimum capital requirements align with international standards in light of recent European developments. - Derivatives are not approved as admissible assets; limited use of derivatives may be authorized by special license condition upon insurer request—conditions for approval are not specified in law; recommendation to incorporate Commission practices regarding derivatives into the Codes of Practice. - Reinsurance: - Commission can review reinsurance arrangements, consider reinsurer security, cooperate with home supervisors, require changes to reinsurance cover, and spread reinsurance where over-exposure exists. - Reinsurance companies are treated the same as primary insurance companies under the Insurance Business Law 1996. - Market conduct (Principle 11): - Intermediaries dealing directly with the general public are regulated by the Financial Services Law 1998 and its Codes of Practice for advice and sale of long-term insurance products. - No specific legislation for giving advice on and selling general insurance; Jersey follows U.K. self-regulation practices where intermediaries are regulated by the General Insurance Standards Council and are expected to join and respect its standards. - Monitoring, inspection, and sanctions (Principles 12–14): - Commission can require six-monthly accounts (individual or consolidated) in a Commission-determined form; annual audited financial statements are required. - Accounting techniques must follow internationally accepted standards (e.g., U.K. or U.S. GAAP); valuations must be prudent, realistic, and consistent and are tested by auditors and appointed actuaries for long-term insurance. - Commission has authority to obtain necessary information and conducts on-site inspections; detailed on-site inspections have only recently begun and planned to increase—requiring strengthening Insurance Division staff. - Commission has remedial powers in the interests of policyholders, including fines, prison sentences, and compulsory winding-up requiring court involvement for serious offenses. - Recommendation: grant the Commission authority to impose civil money penalties (administrative fines) consistent with international standards. - Cross-border operations, cooperation, and confidentiality (Principles 15–16): - Every person carrying out insurance business in or from Jersey must be licensed and supervised by the Commission; licensing conditions for foreign insurers mirror domestic conditions. - Commission may request independent checks on information provided by foreign insurers, typically in cooperation with the home supervisor. - Commission is able and willing to cooperate with regulators of other jurisdictions without a memorandum of understanding and has gateways to share information domestically and internationally. - Commission can communicate information related to registered companies without their consent unless it believes the request for information or assistance is other than for supervisory functions. *Source: IMF Offshore Financial Sector (OFC) report.* ### 153. Under the Insurance Business Law, any breach of confidentiality or disclosure of ### Under the Insurance Business Law, any breach of confidentiality or disclosure of information by any person who receives this information is a criminal offense. ### Confidentiality and information sharing - Any breach of confidentiality or disclosure of information by any person who receives this information is a criminal offense under the Insurance Business Law. - The Law specifies exceptional cases in which the supervisor may share or disclose information, including sharing information with other supervisors. - The confidentiality requirements also apply to information that the Commission receives from other supervisors abroad. ### Recommended actions to improve observance of IAIS Insurance Core Principles (selected) - CP 1 Organization: Increase number of staff of the Insurance Division; avoid impairing the independence of the supervisor. - CP 4 Corporate Governance: Complete initiative to incorporate corporate governance requirements into Codes of Practice. - CP 5 Internal Controls: Introduce Codes of Practice containing requirements for internal controls including risk management systems and systematic confirmation by senior management and Board regarding their responsibility for internal controls. - CP 8 Capital Adequacy and Solvency: Continue to review the minimum capital standards to ensure the legal minimum remains appropriate and in line with international standards. - CP 9 Derivatives: Incorporate present practices of the Commission in relation to derivatives into the Codes of Practice. - CP 13 On-site Inspection: Intensify on-site inspections (increasing the number of staff). - CP 14 Sanctions: Complete the range of sanctions by granting the supervisor the power to impose monetary penalties (administrative fines). ### Authorities’ response and planned actions (IAIS) - Overview: The authorities welcome the Fund’s confirmation that Jersey has achieved a high degree of compliance with the IAIS Core Principles and endorse constructive recommendations that support actions planned or underway. - Action plan: Section IV describes a consolidated action plan prepared by the authorities. - Independence (ICP 1): The authorities’ response to the Commission’s development function and the Committee’s power of direction is addressed in general comments. - Resourcing (ICPs 1 and 13): An additional staff member was approved in the Commission’s business plan for 2003 and will be recruited in 2003. - On-site inspections: Following recruitment, the additional staff member will conduct on-site inspections, increasing the frequency of such inspections. - Codes of Practice (ICPs 4, 5, and 9): Codes of Practice addressing corporate governance, internal controls, and the use of derivatives are subject to consultation and will be finalized in 2004; Codes for collective investment fund functionaries and deposit-takers will also be finalized in 2004. Draft Codes were out for public consultation at the time of the Fund’s assessment. - Management declaration on internal controls (ICP 5): Currently, only trust company businesses are required to submit a declaration under Article 6 of the Financial Services (Trust Company Business (Accounts, Audits and Reports)) (Jersey) Order 2000. The Commission intends to review whether directors (and senior management of branches) of all regulated businesses should be required to make such a declaration; any proposed changes would be subject to consultation and legislative approval. - Solvency requirements (ICP 8): Authorities note comments on European Union solvency requirements but state Jersey’s requirements currently in place are in line with international standards; the Commission will continue to review developments in international standards to ensure minimum legal solvency requirements remain consistent. - Fining and civil money penalties (ICP 14): Authorities issued a report in 1999 committing to introduce a civil fining power; legal issues remain to be resolved and will be considered with legislative proposals in consultation with the industry. ### IOSCO Objectives and Principles of Securities Regulation — assessment highlights - Scope and methodology: The report is prepared in the course of a formal assessment by the IMF of Financial Regulation and Supervision on Jersey and relates to the law and practice of securities and investments on Jersey. The assessment matched regulatory components against IOSCO Principles, using IMF guidance notes, IOSCO reports, OECD publications, selected Jersey legislation, and Commission documents. - Market structure and core products: - The core investment product is the collective investment fund (CIF). - Value of CIFs in Jersey as at June 30, 2002 was BP 106.2 billion. - Financial assets under direct administration were estimated to be BP 31 billion. - There is no formal secondary market for securities in Jersey. - Legal framework: Main legislation includes the Collective Investment Funds (Jersey) Law, 1988; Financial Services (Jersey) Law, 1998; Companies (Jersey) Law, 1991; and the Borrowing Control (Jersey) Law, 1947. The Commission has issued guidance instruments and is a full member of the International Organization of Securities Commissions. - General preconditions: Reiteration that the core investment product is the CIF; alternative representation lists the value of CIFs as at June 30, 2002 was £106.2 billion and financial assets under direct administration as £31 billion; no formal secondary market in the jurisdiction. - Regulator (Principles 1–5): The Commission is a statutory single regulator with clear responsibilities for supervision and development of financial services; adequate powers and resources for investment-related work; operational independence is generally adequate though government may issue guidance or directions on policy and some cash flows are not directly under Commission control. - Enforcement and supervision (Principles 8–10): The Commission has wide powers of inspection, investigation, and surveillance and makes effective and credible use of its powers; recommendation to place greater emphasis on ensuring timely, balanced, clear, and accurate information is communicated to investors and prospective investors. - Cooperation (Principles 11–13): The Commission has wide powers to share public and nonpublic information with domestic and foreign counterparts; it has entered into 13 MOUs with foreign counterparts and is negotiating others. - Issuers (Principles 14–16): Some timeframes for periodic reporting are not rigorous enough and should be tightened; Commission should emphasize supervision of information issuers disclose to investors; accounting and auditing standards are of an internationally acceptable quality but resources should be committed to review accounting and auditing standards and auditor performance. - Collective Investment Schemes (Principles 17–20): Extensive rules exist for collective investment schemes covering operators, legal form and structure, segregation and protection of client assets, disclosure, asset valuation, and unit pricing; the Commission maintains an active program of regulation and supervision. - Market Intermediaries (Principles 21–24): Minimum entry standards, ongoing capital and prudential requirements, and standards for internal organization and operational conduct exist; the Commission has not prepared a clear contingency plan for dealing with failure of a market intermediary. - Secondary Market (Principles 25–30): No stock exchange or securities trading system in Jersey; Principles 25–27, 29, and 30 are not applicable; there is an offense of market manipulation and the Commission’s inspection and investigation powers can assist other regulators. ### Recommended actions to improve observance of IOSCO Principles (selected) - Principle 1: Consider whether commitment to IOSCO Objectives should be recognized more explicitly; consider recognizing statutory accountability of the Registrar of Companies in the Commission’s annual report; review authority under the Borrowing Control (Jersey) Law 1947 regarding offers of interests in SPVs and certain other investment activity. - Principle 2: Review authority under which the FEC gives guidance and directions to the Commission; complete review of procedure for the Commission to raise money in excess of operating needs for transfer to government; complete work to provide codes of practice for collective investment fund functionaries. - Principle 9: Review respective roles of the Commission, government and the court in enforcement to ensure principled, practical and effective outcomes. - Principle 10: Place greater emphasis in supervision on ensuring timely, balanced, clear and accurate information to investors and prospective investors; tighten time frames for communicating information; expressly recognize investment adviser responsibility in respect of promotional literature in the Code of Practice. - Principle 16: Continue to monitor international developments on authority for financial reporting and audit standards applying to issuers of securities and investment products. - Principle 24: Finalize and disseminate a clear contingency plan for dealing with the failure of a market intermediary. ### Authorities’ response to the IOSCO assessment - Overview: Authorities welcome confirmation that the Island has achieved a high standard of compliance with the IOSCO Principles and endorse constructive recommendations; a consolidated action plan prepared by the authorities is appended to the volume. - Functions and objectives (CP 1): Authorities agree there is advantage in making commitment to international standards more explicit and plan to review guiding principles in 2004 to emphasize commitment to Basel Committee, IAIS, FATF, and IOSCO objectives. - Recognition of Registrar of Companies (CP 1): Authorities accept that statutory responsibility of the Registrar should be recognized in the Commission’s annual report and confirm this will be done in 2003. - Control of borrowing by SPVs (CP 1): Authorities note Article 29 of the Companies (Jersey) Law 1991 controls public offering of securities by Jersey companies and that Commission controls borrowing by Jersey and non-Jersey entities beyond international standards; no additional action required. - Independence (CP 2): Authorities’ response regarding development function and Committee power of direction is addressed in general comments. - Registry fees: Commission is preparing proposals to revise future fee setting so company registration and annual return fees consist of Commission-determined administration fees and a government-determined fee collected by the Commission as agent; action was well advanced at the time of the Fund’s assessment. - Codes of Practice (CP 4): Public consultation on Codes of Practice for fund functionaries is underway; Codes intended to be brought into force in 2004 when finalized. - Law enforcement (CP 9): Commission works closely with the Law Officers’ Department; will finalize a memorandum of understanding with the attorney general to formalize enforcement working practices; Enforcement Division will complete a review of policies and procedures to ensure law enforcement practices remain principled, practical and effective. - Communication to investors (CP 10): Authorities’ response and planned actions on communication were discussed in the assessment. *Source: Formal assessment by the IMF of Financial Regulation and Supervision on Jersey.* ### 193. The authorities have observed that the Commission already places great emphasis on ### cr03368 - 193. The authorities have observed that the Commission already places great emphasis on ### Communication of information to investors - The authorities have observed that the Commission places great emphasis on ensuring that timely, balanced, clear, and accurate information is communicated to investors and prospective investors. - Existing controls cited: - Companies (General Provisions) (Jersey) Order 2002 controls the circulation of prospectuses. - Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995 controls the circulation of prospectuses. - Planned and ongoing actions: - In 2004 the Commission will consult on transferring regulation of fund functionaries to the Financial Services (Jersey) Law 1998 and is already consulting on Codes of Practice for fund functionaries; both actions are intended to facilitate regulatory focus on promotional literature for retail investment funds. - The Commission’s on-site supervision will focus on the communication of information to investors; the Commission’s risk model identifies fund functionaries marketing to retail investors as a higher risk indicator. - A program of themed on- and off-site work will be carried out in 2003 and 2004 based on risk-model information. - The Commission will review in 2004 the merits of shortening the filing deadline for financial statements and whether any shorter deadline should apply to: - all public companies under the Companies (Jersey) Law 1991, or - just those offering securities to the public, and/or - collective investment funds through Codes of Practice. - Any changes to filing deadlines would be subject to consultation and legislative approval. - Amendments to Codes of Practice for investment business, more explicitly addressing disclosure requirements to investors, will be issued for consultation. - The Commission has issued a consultation paper on advertising proposing increased standards on all promotional communications used by investment businesses (excluding fund functionaries) and intends to finalize consultation and, subject to approval by the Economic Development Committee of the States of Jersey, bring legislation into force. ### Financial reporting and audit standards (CP 16) - Legal and current arrangements: - Article 104 of the Companies (Jersey) Law 1991 requires companies to prepare accounts in accordance with generally accepted accounting principles; which principles are “generally accepted” is addressed through a Statement of Channel Islands Accounting Practice. - The same law sets qualifications for appointment as auditor. - Planned reviews in 2004: - The Commission will review which accounting and auditing standards are adopted by issuers and issuers’ auditors respectively to determine whether they continue to be suitable. - The Commission will review methods of audit supervision adopted in other jurisdictions. - Any proposed changes would be subject to consultation and legislative approval. ### Contingency arrangements (CP 24) - Existing powers and procedures: - The Commission already has regulatory powers (appointment of a manager, power to direct, and power of intervention) and procedures (including responsibilities of a manager appointed by the Royal Court) to manage the failure of a regulated entity and has used these powers to facilitate winding up of regulated entities. - Strengthening contingency arrangements: - The Commission will develop its existing procedures in 2003 to manage the failure of a regulated institution by formalizing plans, training staff, and tailoring plans to entities operating in each regulated sector. ### Jersey’s Action Plan in Response to Recommendations — overview and assessment context - The Fund visited Jersey in September 2002 and January 2003 to assess regulatory and anti-money laundering regimes, examining banks, funds, insurance, securities, trust company business, and anti-money laundering and anti-terrorist defenses; the Fund’s report benchmarks Jersey against standards set by Basel Committee, IOSCO, OGBS, IAIS, and FATF. - The authorities consider the Fund’s assessment valuable and attach great importance to it; Jersey is committed to maintaining and improving adherence to international standards. - The authorities have: - responded in detail to matters raised in the report; and - established a comprehensive action plan to respond to the Fund’s recommendations. - The action plan sections include: - General recommendations; - Banking sector-specific recommendations; - Securities sector-specific recommendations; - Trust company business sector-specific recommendations; - Insurance sector-specific recommendations; and - Anti-money laundering and countering the financing of terrorism recommendations. - The authorities welcome the Fund’s confirmation of compliance levels: - compliant or largely compliant with 99 of the 102 international standards assessed overall; - compliant or largely compliant with 29 of the 30 Basel Committee’s Core Principles (and sub-principles) for banking; - implemented or broadly implemented 21 of the 23 Principles for securities. ### Action Plan — selected general recommendations and implementation details - Independence, accountability and transparency of the Commission: - The Commission intends to maintain operational independence and has developed a model for independence, accountability and transparency based on Basel Committee, IOSCO, IAIS and Fund guidance. - Enhancements addressing government’s power of direction will be recommended to the Economic Development Committee of the States of Jersey and will be subject to consultation and legislative approval. - Commission supervisory resources: - The Commission reviews staff requirements annually during business planning. - The business plan for 2003 identified additional staff needs; the Compliance Division staff complement increased from 27 to 40 positions, of whom 35 are now in post. - An additional banking expert joined at senior manager level; an additional staff member to the Insurance Division will be appointed during 2003. - To ensure adequate anti-money laundering capability, the Commission proposes at least one anti-money laundering specialist in each division (one for each visit team in the Compliance Division) with appropriate training and support. - The Commission will continue to review staffing requirements to support objectives and on-site supervision, including frequency of visits and international developments such as the second Basel Capital Accord. - Authority for on-site inspections: - The Commission already has wide information gathering powers for on-site visits. - Subject to consultation and legislative approval, the Commission will recommend amending regulatory legislation to explicitly refer to collection of information through regular supervisory visits. - Supervision of outsourced functions: - The Commission will not approve outsourcing arrangements that do not facilitate supervisory access to outsourced functions. - The Commission will review whether to extend information gathering and investigation powers to those carrying out outsourced functions and other third parties associated with a registered person, recognizing enforcement difficulties for information held outside Jersey; changes would be subject to consultation and legislative approval. - Validation of supervisory information: - The Commission will review use of external experts in validation of supervisory information, including access rights to working papers, and any legislative amendments required; changes would be subject to consultation and legislative approval. - Regulatory sanctions and fines: - The authorities have endorsed that the Commission should be able to impose fines for regulatory sanctions; legal issues remain and will be reviewed before consulting on the issue. - The Commission will undertake a general review of existing powers and sanctions to identify inconsistencies; consolidation of regulatory legislation into one law is being sought, and, subject to consultation and legislative approval, regulation of deposit-taking, fund functionaries, and insurance business will be transferred to the Financial Services (Jersey) Law 1998. - Development of Codes of Practice: - Codes are already in place for investment business and trust company business. - Codes of Practice have been drafted for deposit-taking, collective investment fund functionaries, and insurance business; those for fund functionaries and insurance business have already been issued for consultation; consultation will follow for deposit-taking activities. - Management declarations on internal control: - Trust company businesses currently must submit declarations of compliance with regulatory and anti-money laundering legislation and Codes of Practice. - The Commission intends to review whether directors (and senior management of branches) of all regulated businesses should be required to make similar declarations; changes would be subject to consultation and legislative approval. - Regulation of external auditors: - The Commission intends to review audit supervision methods used in other jurisdictions to establish oversight options for Jersey. - The Commission intends to review whether it should be permitted to approve appointment and continued appointment of auditors of all regulated entities (subject to consultation and approval by the Economic Development Committee of the States of Jersey). - Appointment and retention of auditors for trust company business and Category B insurance permit holders is already subject to Commission approval; guidance requires relevant industry experience for auditors of trust company businesses. - Law enforcement process: - The Commission will finalize a memorandum of understanding with the attorney general to formalize working practices for enforcement of regulatory legislation. - The Commission’s Enforcement Division will complete a review of policies and procedures to ensure law enforcement practices remain principled, practical and effective. - Revenue generated by the Registrar of Companies: - Registry fees will be revised; in future (subject to consultation and legislative approval) companies’ registration and annual return fees will consist of two components: Commission-determined administration fees and a government-determined fee collected by the Commission as agent. ### Banking sector-specific actions (selected) - Supervision regime: - The Commission, with outside consultants, has enhanced its on-site visit program, improved the supervisory risk model, developed comprehensive on-site visit work programs (“route planners”) covering all areas of banking risk, and incorporated improved quality control checks into the on-site visit process. - Route planners require review of management policies on credit quality and provisioning levels and application of policies and procedures to manage all core banking risks. - On-site supervision enhancements are supported by increases in Compliance Division staff resources. - Banking Codes of Practice: - Non-compliance with banking guidance notes may indicate a lack of “fit and proper” status and attract regulatory sanctions. - Subject to consultation, the Commission will bring Codes of Practice for deposit-taking activities into force to: - introduce best practices for credit risk, for connected lending, for loan evaluation and loan loss provisioning and for other key banking risks; - establish requirements for an adequate internal control framework and for internal audit; and - address capital adequacy requirements. - The Commission will review the merits of developing a credit risk rating system. - Market risk: - The Commission will consider introducing market risk capital requirements as part of its assessment of the second Basel Capital Accord. ### Securities sector-specific actions (selected) - The authorities welcome the Fund’s confirmation that Jersey implemented or broadly implemented 21 of the 23 Principles assessed and welcome constructive recommendations. - Communication of information to investors: - The Commission will consult on transferring regulation of fund functionaries to the Financial Services Law and is consulting on Codes of Practice for fund functionaries to facilitate regulatory focus on promotional literature for retail investment funds. - On-site supervision will focus on communication to investors; fund functionaries marketing to retail investors are identified as higher risk. - The Commission will review merits of shortening filing deadlines for financial statements and applicability (Companies (Jersey) Law 1991, securities to the public, or collective investment funds via Codes of Practice); any changes would be subject to consultation and legislative approval. - Amendments to Codes of Practice for investment business addressing investor disclosure will be issued for consultation. - A consultation paper on advertising proposes increased standards on promotional communications used by investment businesses (excluding fund functionaries); the Commission intends, subject to approval by the Economic Development Committee, to bring legislation into force. - Regulatory objectives: - The Financial Services Commission (Jersey) Law 1998 provides guiding principles (Article 7) substantially in line with international standard-setting objectives. - The Commission will consider reviewing guiding principles to emphasize commitment to IOSCO’s objectives and other international standards; any changes would be subject to consultation and legislative approval. - Failure of a market intermediary: - The Commission already has powers (appointment of a manager, power to direct, and power of intervention) and procedures to manage failure of regulated entities and will formalize plans, train staff, and tailor plans to sector-specific failures. - Accounting and auditing standards: - The Commission will review which accounting and auditing standards are adopted by issuers and issuers’ auditors to determine continued suitability. - Registrar of Companies: - The statutory responsibility of the Registrar of Companies will be recognized in the Commission’s 2003 annual report. *Attributed to the authorities and the Jersey Financial Services Commission as set out in the Fund assessment and Jersey’s action plan.* ### 211. The authorities welcome the Fund’s confirmation that Jersey’s regulatory and ### The authorities welcome the Fund’s confirmation that Jersey’s regulatory and supervisory framework for trust company business is consistent with all of the practices set out in the Offshore Group of Banking Supervisor’s Statement of Best Practice, and the Fund’s constructive recommendations to further enhance implementation of international standards. ### Trust company business: scope, licensing, and supervision - The Commission will continue to review the scope of regulated activities, including the definition of trust company business, taking into account developments in international regulatory standards and risks presented by non-regulated activities. - Licensing process: - The licensing process for trust company businesses has now been substantially completed. - Remaining transitional applicants are either subject to some form of regulatory action or, due to exceptional circumstances, have committed to a particular date to either cease business or to resolve an outstanding issue prior to licensing. This process is to be completed. - Extension of registration regime to key employees: - Regulatory sanctions and powers available to the Commission extend to all employees of regulated business, and not only to controllers and those in senior management positions (“principal persons”). - The Commission will review the basis for extending the definition of “principal person” to include a licensed person’s money laundering reporting and compliance officer(s); and other key post-holders (to be specified at the time of consultation). - Any changes proposed would be subject to a period of consultation and legislative approval. - Codes of Practice: - Subject to consultation, Codes of Practice will be amended to refer explicitly to record keeping requirements for customers’ and clients’ records and to provide for maintenance of a policy and procedures manual. ### Insurance sector recommendations - The Fund confirmed that Jersey has observed or broadly observed all of the IAIS Core Principles and made constructive recommendations to further enhance implementation of international standards. - Action plan items: - Subject to consultation, Codes of Practice for insurers, which will establish corporate governance and internal control requirements and requirements for the appropriate use of derivatives, will be brought into force by the Commission. - Solvency requirements currently in place for insurers are in line with international standards. The Commission will continue to review developments in international standards, and in standards applicable to the offshore market in particular, to ensure that minimum legal solvency requirements remain consistent with international standards. ### Anti-money laundering and countering the financing of terrorism (AML/CFT) - The authorities welcome the Fund’s confirmation that Jersey complies or largely complies with all of the FATF 40+8 Recommendations against which it has been assessed, and the Fund’s constructive recommendations to further enhance implementation of international standards. Jersey is equally committed to following the FATF’s recently revised standards. - The Commission is revising its Anti-Money Laundering Guidance Notes for the Finance Sector (“Guidance Notes”) and proposing changes to the Money Laundering (Jersey) Order 1999 (“Money Laundering Order”); the revised Guidance Notes and Money Laundering Order, once issued, will address many Fund recommendations, issues raised by the FATF’s recently revised Recommendations, and will incorporate the overriding principles established in the Commission’s 2002 Position Paper. - Ratification of international conventions: - The Terrorism (Jersey) Law 2002 came into force on September 1, 2003, and the UK government has been requested to extend its ratification of the UN Convention for the Suppression of the Financing of Terrorism to Jersey from that date. - Jersey also expects to make similar requests for the 1959 Council of Europe Convention and the Palermo Convention. - Proposals to strengthen primary legislation (consultation to consider): - Civil forfeiture provisions in light of the revised FATF Recommendations. - Standardizing confiscation provisions so that property of equivalent value might be confiscated under the Terrorism (Jersey) Law 2002 (as is already the case under the Proceeds of Crime (Jersey) Law 1999 and Drug Trafficking Offences (Jersey) Law 1988), and to facilitate sharing of terrorist assets. - Proposals to provide the Commission with explicit authority under anti-money laundering legislation to issue Guidance Notes (currently issued under the Commission Law). - Proposals for a direct reporting obligation for knowledge or suspicion of money laundering by financial services businesses (where such obligations do not already exist). - Proposals to amend the Second Schedule to the Proceeds of Crime (Jersey) Law 1999 to extend the scope of the Money Laundering Order to include the Financial Services Law definition of trust company business. - Increasing powers available to the Joint Financial Crimes Unit (“JFCU”) to facilitate access to additional information and increase access to additional sources of data without the need for a court order, and to allow it to give instructions to financial services businesses. - Proposals to strengthen secondary legislation and guidance for the finance sector (consultation to consider): - Secondary legislation to require financial services businesses to report suspicions directly to the JFCU in a prescribed format. - Require financial services businesses to re-verify the identity of customers when doubts appear as to their identity. - Re-examine the basis for allowing concessions to financial services businesses subject to the European Union Money Laundering Directive. - Require financial services businesses to establish a compliance officer role, and to register that officer (along with the money laundering reporting officer) with the Commission. - Implement necessary provisions to enable Jersey to comply with the FATF’s Special Recommendation VII on wire transfers, in line with the timetable established by the FATF. - Require financial services businesses to apply anti-money laundering standards equivalent to those in place in Jersey to subsidiary and branch operations outside Jersey. - Require financial services businesses to take decisions concerning high risk customers at senior management level. - Secondary legislation to explicitly require financial services businesses to maintain sufficient transaction records to enable investigating authorities to compile a satisfactory audit trail. - Explicit requirements for financial services businesses to pay special attention to complex or unusual transactions, and complex or unusual patterns of transactions, and transactions involving jurisdictions that do not have adequate systems in place to prevent or deter money laundering or terrorist financing. - Require financial services businesses to establish procedures to report suspicious business that has been turned away. - Ensure ready access by financial services businesses to identification documentation for underlying beneficial owners held by third parties. - Guidance Notes framework: - The revised Guidance Notes will clearly set out legislative and regulatory requirements, contain a description of Jersey’s legal framework, discussion of typologies and trends in money laundering and terrorist financing, and hypothetical and illustrative cases. - The revised Guidance Notes will enhance guidance specific to each industry sector to assist in the identification of suspicious activity and will propose specific requirements such as the need for banks to monitor customer activity on a consolidated basis and the need for insurers to carry out additional procedures where insurance payouts are made to third parties. ### Supervision, Codes of Practice, and regulatory powers - Supervision regime: - Route planners have been updated to ensure that levels of suspicion reporting are considered during on-site visits (in light of activities and customer base) and that an assessment is made of how financial services businesses determine the effectiveness of staff training on money laundering. - Codes of Practice: - Codes of Practice exist for investment business and trust company business, establishing requirements to vet and monitor the competence and probity of employees. - Codes of Practice have been drafted for deposit-taking, collective investment fund functionaries, and insurance business; codes for fund functionaries and insurance business have been issued for consultation. Consultation will follow for deposit-taking activities. Each will establish requirements to vet and monitor the competence and probity of employees. - Grounds for imposing regulatory sanctions: - Grounds are already sufficiently broad to enable use where a business fails to comply with procedures to counter money laundering and financing of terrorism. - The Commission will make a firm statement that the integrity of a person working within the regulated sector will be questioned where the person has been convicted of a serious offense (i.e. one which has resulted in a term of imprisonment exceeding one year). - Subject to consultation, the Commission will amend its regulatory Codes of Practice to include a requirement to comply with legislation to counter money laundering and financing of terrorism, and principles established in the Guidance Notes, where such a requirement does not already exist. ### Oversight, JFCU capacity, and operational measures - Oversight of other financial activities: - The Commission is considering legislation to provide for the oversight of money services businesses [money transmitters, check cashers and bureaux de change]. - The Commission intends to review whether there should be oversight of compliance with anti-money laundering requirements by other non-regulated sectors such as lending and nonfinancial leasing, taking into account the risk of money laundering activity occurring. Any changes would be considered as part of the consultation on changes to Jersey’s anti-money laundering framework. - Oversight of charities: - The Commission already has access to information on any nonprofit organization or charity administered by a trust company business or which issues securities. - A working party has been established to consider proposals for oversight arrangements for nonprofit and charitable organizations. - JFCU resources and systems: - The authorities reaffirm they will ensure that the Joint Financial Crimes Unit has sufficient resources to meet its domestic and international obligations. - The JFCU is testing a prototype replacement IT system to enhance analysis capability, facilitate improved analysis of trends, provide improved feedback to industry, speed up data processing, and allow for electronic archiving of documents. - The JFCU has upgraded its computer link with the UK’s National Criminal Intelligence Service to ensure that search requests are processed quickly and efficiently. The JFCU intends to update existing systems following satisfactory testing. - JFCU action plan: - A high level business plan for the JFCU is already produced as part of the States of Jersey Police annual business plan. - The JFCU and the attorney general will consider developing a more detailed plan including overseas requests for assistance and serious and complex fraud. - Regulation of Investigatory Powers: - The draft Regulation of Investigatory Powers (Jersey) Law 200- has been lodged with the States of Jersey for debate. - Cross-border cash movements: - Law enforcement authorities are authorised to seize money being imported or exported from the Island where there are reasonable grounds to suspect that money, directly or indirectly, represents the proceeds of drug trafficking or terrorist cash. - The authorities will consider proposals to amend the Proceeds of Crime (Jersey) Law 1999 which will, subject to consultation, introduce provisions by which authorised officers may seize and detain cash if suspected that it directly or indirectly represents any person’s proceeds of criminal conduct. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/cr03368.pdf_