Naomi Rive highlights Jersey's regulatory challenges in April issue of STEP Journal
When Moneyval published the findings of it comprehensive evaluation of Jersey in May 2016, it said that the Island had a well established international finance centre (IFC) with a mature and sophisticated AML/CFT regime. With respect to international co-operation, the report recognised that the Jersey authorities had adopted a proactive and transparent approach with overseas agencies and in relation to meeting the Financial Action Task Force (FATF) standards on beneficial ownership Jersey was said to be in a leading position.
There is no doubt that 2017 has started equally positively for Jersey. In January alone it was named as ‘International Financial Centre (IFC) of the Year’ at the annual Citywealth IFC Awards, removed from the Portuguese black-list and, thanks to its “flexible institutions, wealthy economy and considerable fiscal buffers”, retained its Standard & Poor’s A - - credit rating.
One might think then that local practitioners could, for a few months at least, rest easy and enjoy the fruits of many years hard work on the part of industry, the Government and, of course, the Jersey Financial Services Commission (JFSC). Think again! “Regulations and regulatory is going through the roof” is probably one of Donald Trump’s less controversial quotes from the past year and it is certainly the case that regulatory and policy matters continue to be at the fore of Jersey’s agenda for 2017. Whilst I sense that there is little doubt amongst industry that the initiatives that will be tackled this year are worthy ones in seeking to ensure that Jersey retains its position as a leading IFC for many years to come, that does not mean to say that the burden on industry is not great. For this reason it is clearly more important than ever to ensure that regulatory and policy change continues to be driven by a genuine need to ensure compliance with agreed international standards and that initiatives fuelled more by the transient or populist political motivations of one particular party or country are identified and contained at an early stage. With this in mind, industry, and professional bodies such as STEP, would be well advised to ensure that moving forward they are alive to new initiatives from an early stage and ready to educate and influence as appropriate. As FATCA has demonstrated to us all, too little industry involvement at too late a stage can come at a heavy price.
In terms of some of the challenges facing Jersey based trust and company services providers (TCSPs) in 2017 a quick snapshot is set out below:
Common Reporting Standard (CRS)
As an ‘early adopter’ of CRS Jersey, and 53 other jurisdictions, have demonstrated their absolute commitment to sharing tax information with any of the participating jurisdictions. The reality of mastering the legislation and guidance notes, classifying thousands of entities and gathering, collating and sharing the relevant information, however, would test even the most committed of relationships. Fortunately those clients who have a connection to the UK or US are now well versed in the requirements of tax information exchange and are receptive to requests for additional data such as tax identification numbers. In 2018 when CRS becomes a reality for many Middle Eastern jurisdictions though the challenges are likely to be greater. Even if clients from these jurisdictions are aware of CRS, many continue to under-estimate the relevance to them and, of course, some won’t even have tax numbers.
OECD Global Forum Assessment of on-request information exchange
With all the talk focusing on CRS, many forget that Jersey has already offered on-request information exchange for many years and that this has often proved to be an effective means of international cooperation as well as pushing up beneficial ownership, document retention, and accounting records standards across businesses in the Island. As mentioned at the outset, Jersey has hit the ground running in 2017 and the first week of February saw an OECD on-site assessment take place on the subject of on-request information exchange. Having had the opportunity to meet with the assessors as part of an industry session, it was pleasing to be able to reinforce Jersey’s commitment to complying with overseas requests for information and to demonstrate how, as an Island, we equip ourselves to address questions raised about structures under our administration. Ongoing scrutiny of the appeals process was more concerning. As TCSPs we comply with the law but don’t often get involved with shaping it as much as we should and this is one area in particular where, before changes are conceded, careful consideration must be given to balancing an individual’s right to privacy with the need for transparency. Seeking to eliminate interlocutory game-playing is one thing but, until all fishing-trips are also eliminated, the appeals process is clearly an important one.
Enhanced Beneficial Ownership Register
Jersey’s international commitment to enhance its policy on beneficial ownership and create a central register of directors is one of the biggest items on the horizon in 2017. Much has been written on this subject and I won’t rehearse the arguments here. In short, however, following a consultation paper issued in 2016 it is now the case that by 30 June 2017 all TCSPs need to have informed the Companies Registry of the current beneficial ownership and control of any Jersey corporate and legal entities that they administer. Thereafter, they will be required to update the central registry within 21 days of knowledge of a change of beneficial ownership of a corporate that they administer. Additionally, a central register of directors of Jersey companies is to be established with information being exchanged with law enforcement and tax authorities on request, on the same basis that beneficial ownership information is exchanged.
As is increasingly the case, the challenge with such a change in policy lies not in obtaining the information but providing it to the relevant party. In this instance, the JFSC have announced the establishment of peer-to-peer systems that will enable TCSPs to update securely the information held by the central register, using automation wherever possible.
Unsurprisingly, cyber-security will also continue to be a big focus for 2017 with all businesses committed to enhancing their cyber-security measures and documenting the risks and controls around data breaches and loss within their businesses. The JFSC has indicated that moving forward cyber-security will be a part of the thematic supervisory process and, with the enhanced use of portals to share information with regulators and tax authorities this is an area that is of increased concern to many of us.
EU Data Protection Regulations
The General Data Protection Regulation (GDPR) adopted by the EU last year and set to become law on 25 May 2018 is another topic that cannot be overlooked as Jersey seeks to ensure that its data protection regime is equivalent in order to be deemed ‘adequate’ by the EU Commission. Regardless of BREXIT, compliance with the GDPR is likely to require increased accountability in relation to processing personal data by controllers and processors and will increase individuals’ rights to personal data. Sanctions of up to 4% of annual global turnover for serious breaches by businesses will certainly help to focus attention on the issues. For now, though, it is still early days and much work remains to be done on drafting local enabling legislation. All that TCSPs can do is ensure that they keep up to date with briefings on the topic and look to ensure that they are adequately resourced to deal with any new legislation that is introduced. Interestingly, it appears that it isn’t only TCSPs who may have to adjust their thinking as the GDPR looms closer. The European Data Protection Supervisor has already raised concerns as to whether or not the invasive collection of personal data proposed by the Fourth EU Anti-Money Laundering Directive is proportionate to the fight against money laundering and terrorism financing, and has challenged the significant risks that this might cause an individual who has a right to privacy and data protection. Discussions between the EDPS and the European Committee for Civil Liberties look set to heat up over the next couple of months.
And there’s more…
Other financial crime projects on the agenda for 2017 include the launch of a National Risk Assessment (NRA) for Jersey which will involve collecting, analysing and publishing an NRA data set, ahead of the publication of the NRA due in 2018. The details of this project haven’t yet been set out but data collation is once again set to be at the heart of it. We are also promised an action plan to begin work on implementing change to Laws and Codes of Practice following the Moneyval report – yes, there was some room still for improvement!
In summary, then, there’s still plenty to be done and not a lot of time to do some of it. Many of the challenges identified above are not exclusive to Jersey TCSPs and businesses across the STEP community, small and large, will each be coming to terms with and addressing them as best as they are able. It seems that in many cases the key to efficient compliance in future will be high quality, reliable, secure and easily accessible data. Surely that’s not such a big ask? What is clear, though, is that given the significant amount of industry consolidation, integration, continuing platform development and change, in reality, it isn’t always easy to deliver. 2017, then, may just be a defining year for those who can.