jersey funds association educational training session – 22 june 2010

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Jersey Funds AssociationEducational training session – 22 June 2010

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Overview

• Dealing with intermediaries and introducers– Requirement to carry out identification

measures– Concessions available under Articles 16 and

17 of the Money Laundering Order (“MLO”)– Significance of jurisdictional equivalence

• Dealing with suitable certifiers• Some areas where clarification

requested

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Dealing with intermediaries and introducers

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Scope of identification measures

• Article 3(2)(a) of the MLO– Identify and verify the identity of the

customer

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• Article 3(2)(c) of the MLO– In respect of a customer that is not an

individual:• Identify and verify the identity of any person

purporting to act on behalf of customer and verify the authority of that person to do so

• Understand the ownership and control structure of the customer and the provisions under which the customer can enter into contracts

• Identify and verify the identity of each individual who is the customer’s beneficial owner or controller

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• Article 3(2)(b)(i) and (ii) of the MLO– Determine whether the customer is

acting for a third party and, if so:• Identify and verify the identity of that third

party• Where third party is a legal person,

understand the ownership and control of that legal person

• Identify and verify the identity of each individual who is the legal person’s beneficial owner or controller

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• Article 3(2)(b)(i) and (ii) of the MLO– Determine whether the customer (the

trustee) is acting for a third party and, if so:• Identify and verify the identity of that third party• Where third party is a trust, understand the

nature of the legal arrangement (e.g. type of trust)

• Identify and verify the identity of each person who falls within Article 3(7)

• Where a person who falls within Article 3(7) is a legal person, identify and verify the identity of each individual who is the legal person’s beneficial owner or controller

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Identification measures - concessions

• Article 17 of the MLO– Allows a relevant person to establish a

relationship without collecting information on the third parties for which an intermediary acts (exemption from Article 3(2)(b))

– Concession applies only:• to intermediaries that:

– are registered to carry on deposit-taking business, insurance business, investment business, or fund services business; or

– hold a fund permit or certificate

• where relevant person “thinks fit”

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• Article 16 of the MLO– Allows a relevant person to rely upon

information and evidence of identity that has already been collected and which is held by an introducer or an intermediary)• Rather than request that same information

and evidence again (duplication of effort)• Evidence held may not be current

– Concession applies to following information and evidence of identity that has already been collected:• Introducer – Article 3(2)(a) to (c)• Intermediary – Article 3(2)(b)

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• Article 16 of the MLO– Concessions only apply where:

• Third party carries on Schedule 2 business and is supervised under the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008

• Relevant person “thinks fit”• Third party consents to being relied upon

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• Article 16 of the MLO– Concessions only apply where (cont’d):

• Relevant person obtains adequate assurance in writing from third party

– That it has applied identification measures– That it holds evidence of identity– That it will provide that evidence without delay and

on request» Section 4.10.3 of AML Handbook provides for 5

working days

– In the case of introduced business, that each customer introduced is an existing customer of the introducer

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• Application of Articles 16 and 17 of the MLO to non-Jersey introducers and intermediaries – References to “person who carries on

equivalent business” – defined in Article 5– It is business:

• that is carried on outside Jersey• that would be Schedule 2 business if carried

on in Jersey• that may only be carried on by a person that

is registered to do so (or otherwise authorised)

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• Application of Articles 16 and 17 of the MLO to non-Jersey introducers and intermediaries (cont’d)

• the conduct of which is subject to AML/CFT requirements that are consistent with the FATF Recommendations and supervised for such compliance by an overseas regulatory authority

– Requirements and supervision set directly through legal framework

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• Application of Articles 16 and 17 of the MLO to non-Jersey introducers and intermediaries (cont’d)– Guidance in Section 1.7 of AML Handbook

• Basis for determining equivalence– Generally – whether a country or territory is a

member of the FATF, FATF-Style Regional Body, Member State of the EEA, or another Crown Dependency

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• Application of Articles 16 and 17 of the MLO to non-Jersey introducers and intermediaries– Guidance in Section 1.7 of AML Handbook

• Basis for determining equivalence– Specifically – whether a country or territory is

“compliant” or “largely compliant” with those FATF Recommendations that are directly relevant to the application of available concessions: Recommendations 5-11, 13-15, 18, 21, 23 and Special Recommendations IV and VII

– Following sources used to determine compliance:» Laws and instruments» Independent assessments» Other public information

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• Application of Articles 16 and 17 of the MLO to non-Jersey introducers and intermediaries– Guidance in Section 1.7 of AML Handbook

• Appendix B– List of countries and territories considered by

Commission to have set requirements for measures to be taken by their financial institutions (“FIs”) to forestall and prevent ML and TF that are consistent with the FATF Recommendations

– Not an exhaustive list and no conclusions should be drawn from omission

» Relevant persons may assess countries or territories not listed in Appendix B

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• Application of Articles 16 and 17 of the MLO to non-Jersey introducers and intermediaries– Appendix B– Be aware also of

Appendix D – jurisdictions that are covered by a statement from an international body

Appendix B – Equivalent countries and territories

Appendix B provides a list of countries and territories that are considered by the Commission to have set requirements for measures to be taken by their domestic financial institutions and designated non-financial businesses and professions to forestall and prevent money laundering and the financing of terrorism that are consistent with those in the FATF Recommendations.

This is not intended to be an exhaustive list of such countries and territories, and no conclusions should be drawn from the omission of a particular country or territory from the list. (See section 1.7).

Australia Italy

Austria Japan

Belgium Latvia

Bulgaria Liechtenstein

Canada Lithuania

Cayman Islands Luxembourg

Cyprus Malta

Czech Republic Netherlands (excluding Netherlands Antilles and Aruba)

Denmark New Zealand

Estonia Norway

Finland Portugal

France Romania

Germany Singapore

Gibraltar Slovakia

Greece Slovenia

Guernsey South Africa

Hong Kong Spain

Hungary Sweden

Iceland Switzerland

Ireland United Kingdom

Isle of Man United States

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• Article 17 of the MLO - significance of jurisdictional equivalence– Simplifies identification measures– Similar concessions available in

“competitor” jurisdictions

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• Article 16 of the MLO – significance of jurisdictional equivalence– Simplifies identification measures

• Information on customer is collected just once• Evidence of identity need not be collected

afresh• “Paper chase” may be avoided

– Evidence passed by an intermediary or introducer must be confirmed by the third party as being a true copy of either an original or copy document held on its file

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• Article 16 of the MLO – significance of jurisdictional equivalence– May avoid requirement to apply

enhanced measures where customer has not been physically present for identification measures• On basis that customer is known to introducer

– Similar concessions available in “competitor” jurisdictions

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• Articles 16 and 17 of the MLO - significance of jurisdictional equivalence?– Focus is on AML/CFT measures applied at

FIs, rather than a wider compliance with FATF Recommendations

– Concessions are limited to identification measures• Not Article 3(2)(d) – obtaining information on the

purpose and intended nature of a business relationship

• Not ongoing monitoring

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• Articles 16 and 17 of the MLO - significance of jurisdictional equivalence?– Not universally used - some FIs do not

place reliance on third parties outside the Crown Dependencies

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Dealing with suitable certifiers

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Identification measures – non-face to face

• Use of suitable certifier relevant where:– Relevant person applying identification

measures itself• Not where reliance is placed on measures

that have already been carried out by an introducer under Article 16 of the MLO

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• Use of suitable certifier relevant where:– Customer or individuals connected to

customer not physically present for identification purposes• Article 15 of the Money Laundering Order

requires specific and adequate measures to compensate for higher risk of money laundering where customer is not physically present

• 4.8 of AML Handbook requires additional check to reduce risk of identity fraud where individual to be identified under Article 3 of the MLO is not physically present

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• Use of suitable certifier not mandated– Other checks to reduce risk listed in 4.8

of AML Handbook, e.g.• Use of further verification sources• Funds to be drawn from an account in the

customer’s name at a bank in an “equivalent” jurisdiction

• “Welcome call”

– Other checks may be appropriate

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• Suitable certification– Some basic rules set:

• Certifier must see evidence of identity• Certifier must confirm that the copy of the

evidence to be provided to the relevant person is a complete and accurate copy of the evidence seen

• Where evidence contains a photograph, the certifier must confirm that the photograph contained in a document bears a true likeness to the individual requesting certification

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• Suitable certification– Some basic rules set (cont’d):

• Certifier must sign and date the copy of the evidence

• Certifier must provide contact information • “Know your certifier” – in any case where:

– Certifier is located in higher risk jurisdiction– Things don’t look right

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• Where rules not followed – then not suitable certification

• Derivatives may be acceptable, where a relevant person is satisfied that:– Evidence held is reasonably capable of

verifying that the person to be identified is who the person is said to be and satisfies the person responsible for the identification that the evidence does establish that fact

– Enhanced identification measures applied or additional check performed to reduce the risk of identity fraud

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Other areas

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Other areas

• JFA– Dealing with politically exposed persons

(“PEPs”)– Definition for “regulated market”– Secondary market issues

• Association of Investment Companies– Secondary market issues

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Other areas

• PEPs– Effect on risk rating of customer where:

• The customer is a fund that has a small number of investors that are PEPs (holding only very small interests)

• The customer (a legal person) is an investor in a fund and has one or more PEP directors (acting in a public role rather than person capacity)

– Range of enhanced customer due diligence measures to reflect the actual level of risk

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Other areas

• PEPs– Application of enhanced measures in the

case of a relationship that has previously been subject to simplified measures• PEP identified as board member of a listed

company

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Other areas

• Regulated market– Same meaning as in MiFID– In the case of EEA markets:

• http://mifiddatabase.cesr.eu/

– In the case of non-EEA markets:• Article 6(1) to (4) of the Market Abuse

Directive• Articles 3, 5, 7, 8, 10, 14 and 16 of the

Prospectus Directive• Articles 4 to 6, 14, 16 to 19 and 30 of the

Transparency Directive

http://mifiddatabase.cesr.eu/

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Questions

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Jersey Funds AssociationEducational training session – 22 June 2010

jersey funds association educational training session – 22 june 2010

Documents

evidence of identity

behalf of customer

legal persons beneficial

legal arrangement

legal personidentify

introducer article

investment business

insurance business