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John Robson, compliance manager at PropelFwd, explains why estate agents and other Schedule II businesses need to comply with regulations covering issues such as money laundering and terrorist financing
WITH the local property market in the doldrums, Jersey real estate agents already face enough headwinds without finding themselves on the wrong side of the Jersey Financial Services Commission.
The same could be said for private lenders who, until recently, were the lubrication in an otherwise seized-up Jersey lending sector. Their plight has already been well documented in previous editions of this business supplement.
As the regulator continues to expand the scope of its inspections to the estate agency sector, ensuring your business has in place a suitable framework of systems and controls designed to counter any risk of money laundering, terrorist financing, proliferation financing (AML/CFT/CPF) and sanctions violations, would already be well advised. It’s then important to show the JFSC that these are observed and carried out in full by staff. Add to this an obligation to keep these policies and procedures up-to-date with ongoing changes, and to record all deliberations and decisions appropriately in this respect, and there is plenty to be keeping up with.
If you run an estate agency and are struggling to achieve some of this then you will, by default, be exposing your business to potential regulatory and legal consequences, which, depending on the severity, could ultimately lead to punishments ranging from fines and public disclosures to (according to the law) prison sentences.
Regardless of whether there is any financial crime perpetrated, the absence of having adequate systems and controls in place can itself carry significant penalties. Also, if a financial crime does actually take place, it is worth noting it became an offence in 2022 to fail to prevent money laundering, so if your business is unwittingly connected to certain persons who are engaged in money laundering, your business is itself at risk of committing a criminal offence unless it can demonstrate that its AML policies and procedures (both on paper and in practice) were nonetheless fit for purpose. If business owners/directors lack confidence that this is the case, now would be a good time to review them.
As far as financial crime goes, the relevant AML/CFT/CPF laws and regulations make little distinction between Schedule II businesses (such as estate agents) and investment, trust and fund houses from the fully regulated sector. A scroll through some of the historic cases on the JFSC website can be a sobering experience, and there’s nothing, in theory, stopping the JFSC from flexing their regulatory muscles on non-compliant estate agents, so practitioners need to take this very seriously, if they are not already.
None of these tasks are insurmountable, but unless you are blessed with a seasoned AML compliance officer within your ranks, you may, understandably, be struggling to keep on top of your financial regulatory obligations alongside your other business challenges. You may be making the right noises to the JFSC but are you actually practising what you preach?
If you are in need of assistance, help can be sought from consultancy firms like Propelfwd. Our own approach is to guide estate agents, step by step, through each relevant layer of the “rules and regs” and put forward recommendations on a framework of straightforward policies and procedures befitting your sector, which the regulator will expect you to have.
One essential component of this is a business risk assessment, which is the first thing the JFSC will ask to see because it’s your own assessment of the financial crime risks you believe your business is exposed to, and how you go about mitigating these risks. This can be a particularly tricky exercise to get right, or at least to a standard expected by the regulator. A good consultant should be able to help with this though, so that you have an adequate grasp of the methodology used and can demonstrate this in any dealings with the regulator. Understanding how all internal key discussions and decisions are recorded and at what level is also integral to demonstrating strong corporate and compliance governance, another key area the JFSC will focus on in any examination.
It may be fair to say that many operating in the estate agency sector are not from a finance industry background, where an AML compliance culture is drilled into all staff from week one and throughout their career. It is important therefore that the advice and guidance directed to such staff is tailored in a way which demystifies the jargon, rules and terminology, and that policies and procedures are written in a way which is user-friendly and easy for you and your team to understand and follow.
It should address the type of activity relevant to your business, not just a generic off-the-shelf impression of the JFSC AML Handbook. The training you receive should be role-based and deal with the types of financial crime risks that could arise in the real estate sector. Such training should seek to empower your staff with the fundamental knowledge and skills needed to effectively manage their regulatory responsibilities. This doesn’t mean that your business of selling real estate will be negatively impacted – it just means that if your staff encounter a scenario which should be raising their suspicion, they have sufficient knowledge to recognise it. AML reporting requirements include the obligation to report where there is “reasonable grounds for suspicion”, which means “a reasonable person working in a similar business should have formed a suspicion in the circumstance”. The board should ensure its staff have received material training so they have the requisite knowledge do so.
Those business owners unwilling to focus adequate attention on regulatory compliance be warned; a JFSC remediation project could prove far more stressful, expensive and potentially damaging to your business than the task of getting the basics right in the first place.
This is all well and good, but when revenues are already squeezed due to house transaction inactivity, what takes priority? The last thing you need is costly consultancy bills and a large dossier of shiny new policies and procedures no one can realistically follow and a complete disruption in your day-to-day business as you attempt to roll these out. However, you might be pleasantly surprised at how affordable financial regulatory consultation and guidance on achieving this efficiently can be.
As Benjamin Franklin said, “by failing to prepare, you are preparing to fail”, but with the right attitude and a little application at the outset, together with a commitment to apply a bit of time to maintaining these standards, this is all very achievable. Having a consultant on hand, who wants to make your life easier and provide as much (or as little) guidance and training as you feel you need, is also seriously worth considering.
In recently announcing their thematic assessment visits for 2024, the JFSC informed all DNFSBPs (of which estate agencies are one) that their focus will be on staff training and employee awareness and understanding of relevant AML/CFT/CPF policies and procedures. So consider that a “heads-up”.
