Resilience requires hard work, even in a pandemic

JFSC Annual Business Plan presentation at the Radisson.Mark Hoban, Chairman designate..Picture: DAVID FERGUSON. (34021285)

AS crime never sleeps, the financial regulator, the Jersey Financial Services Commission, has been unable to sit back on its well-earned laurels for fear that financial criminals will spoil the Island’s reputation.

Even during the lull in normal business that stemmed from Covid, the JFSC worked hard to stay ahead in responding to financial-crime threats, according to its recently published annual report for 2021.

At the same time, the report says that the commission has transformed its supervision of the crucial finance sector by using modern technology and building a new but effective company registry.

The depth and complexity of the commission’s work by its 177 staff is spelt out in great detail in the report, which covers the second year impacted by the pandemic.

Resilience is mentioned often in the document, as that is what is needed to preserve the Island’s good name by consistently meeting international standards without too much complexity or cost.

As the chairman, Mark Hoban, says in his report: ‘After the events of the last two years, it feels that there are more and more events that could knock us off course. So it is right to learn the lessons of our response to the pandemic to help us plan and reshape going forward.’

The conclusion was to look at all areas, ranging from risk management to regtech, and enhance them as necessary. Despite Covid, the usual programme of inspections of financial institutions continued but took place remotely.

The commission also continued to plan with the government and the industry for next year’s Council of Europe’s Moneyval inspection. That is the first review by the experts in anti-money-laundering and countering the funding of terrorism since 2015. Next year’s report could therefore have a significant impact on the finance sector.

‘Our starting point was to accept that we have no automatic right to remain a leading IFC,’ Mr Hoban wrote in the report.

‘In a world where firms and their clients benefit from jurisdictional choices, how do we ensure they choose Jersey? We concluded that we wanted Jersey to remain a high-quality jurisdiction where it was straightforward to do business.’

This required strengthening the legislative and regulatory frameworks and enhancing anti-money-laundering and terrorism-financing measures. The commission said it needed to focus on that, even after the Moneyval assessment.

‘Our success relies on the Island’s reputation, and this is permanently under scrutiny, not just every time there is an assessment,’ Mr Hoban said.

‘Therefore, our focus on AML/CFT is and will be a permanent priority for the commission.’

To continue to make the Island a straightforward place in which to do business, streamlining and standardising were required to improve efficiency and effectiveness,’ he added.

‘This is not just about providing better guidance and improving internal consistency: we also set up a central operations team to handle both registry and supervision applications processes,’ the report says. ‘We know that our rulebook and guidance had grown organically and that it was time to prune these to create clearer standards for industry to follow.’

The period covered by the report included the arrival of a new director-general, Jill Britton, who was taken on in an interim capacity and this year confirmed as the permanent replacement for Martin Moloney.

Mr Moloney had resigned to become the secretary-general for IOSCO, the international securities regulator, which, according to Mr Hoban, was a recognition that Jersey was a proving ground for international regulation.

Under Jill Britton, the membership of the commission increased to more than 50% female, and several projects were, says the report, successfully delivered in 2021.

The companies’ registry, myRegistry, was digitalised and huge amounts of data transferred to the new system, which lets users update and submit information online. Around 600,000 data items were collected and vetted for more than 35,000 entities.

Jersey was also one of a few jurisdictions globally that kept its registry ‘open for business’ during the initial pandemic lockdowns. This was done by splitting the registry team into three and using the digital infrastructure to work remotely.

At the same time, a new disclosure law with increased sanctions came into effect. This requires all companies, foundations and partnerships to have a nominated person in the Island with power over the entity who can be visited by registry staff checking the details.

This has helped to clarify the Island’s approach to the much-publicised beneficial-ownership argument.

‘Beneficial-ownership data (held under the law) is reconfirmed annually via a confirmation statement,’ the annual report says.

‘Associated party data is collected centrally and, where appropriate (such as director details), now made public. The Disclosure Law also introduced new sanctions for failing to comply, and the registry set up a new division (Registry Supervision) to supervise registered entities in accordance with these new powers.

‘Consequently, for the first time, Jersey entities (including entities not administered by a Jersey trust company business) will be physically visited under a risk-based visit programme to authenticate their submissions to the central registers.’

By the end of the year, the registers were 98% compliant with the new rules, and the remaining 2% were being processed to be struck off.

Despite the pandemic disruption, the enforcement operations team was kept busy and dealt with 94 cases during the year, including requests for assistance from overseas agencies. Most investigations were into inadequate internal systems and controls, unauthorised financial-services providers or non-compliance with the AML/CFT regime, but three civil financial penalties were also levied for negligent breaches of codes of practice.

A relatively new risk in the financial-services sector, identified in the report, was ‘greenwashing’, a practice under which products and services are passed off as being environmentally friendly. Along with the industry and environmental experts, the commission developed codes of practice for funds and advisers which, they say, are ‘pragmatic and commercial’. They were also designed to be future-proof in a rapidly evolving area.

All of these activities cost an operating expenditure of £22.1m for the year, an increase of 9%. Income from regulatory fees amounted to £16.9m and the registry’s fees generated £5.2m, giving the commission a surplus of £326,000.

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