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Taking change in your stride: Jersey’s National Risk Assessment of Money Laundering

06 October, 2020

By: Neil Howlett, Partner; Tom Cowsill, Tax Director; and Owen Woolgar, Advisory Director, PwC Channel Islands

Far from ushering in an overhaul of the island’s anti-money laundering (AML) regime, Jersey’s first National Risk Assessment (NRA) provides a helpful self-assessment, based on data from a snapshot in time, which will assist policy makers best deploy finite resources to ensure the island remains at the forefront of fighting financial crime globally.

While the launch of more detailed action plans, policy initiatives and the consequential regulatory change may be a few months off, the direction of travel is inevitable and now is an opportune time for regulated firms to ensure their AML framework is operating as efficiently and effectively as possible.

What is the NRA?

Three years in preparation and running to more than 200 pages long, Jersey’s NRA may not be easy to digest. Yet, it’s essential reading for Key and Principal Persons. So, what is the NRA and why should you care?

The Financial Action Task Force (FATF), the international standard setter in the fight against financial crime, recommends that jurisdictions carry out an NRA to assess their money laundering risks and how these are being managed. The results help policy makers identify potential weaknesses in their regimes, determine where change is required and where resources should be allocated.

The NRA is a key milestone ahead of our next assessment by MONEYVAL, a body of the Council of Europe which independently assesses jurisdictions’ compliance with the FATF Recommendations. Jersey’s last assessment resulted in the island being found to be “Compliant” or “Largely Compliant” with 48 of the 49 Recommendations, putting us right at the top of the international rankings, alongside Guernsey. However, each review gets a little tougher; the last review focussed primarily on the island’s framework, laws and regulations while the next will focus on their effectiveness. The NRA is a vital source of information in helping our Government and the JFSC ensure the island remains well positioned to score highly when next assessed in a couple of years’ time

The UK, Guernsey and Isle of Man have all published NRAs in recent years and, for the uninitiated, they can make for alarming reading, paying little to no attention to what works well and only focussing on development points. The UK’s 2015 report, for example, candidly stated “The law enforcement response to money laundering has been weak for an extended period of time” while the Isle of Man reported “deficiencies in the structure, operating model and performance” of its financial crimes unit.

What did the NRA find?

Many of the findings will be unsurprising. Few will raise an eyebrow at the report identifying the highest risk areas as banking, funds, trust and corporate services and investment business activity. These are the largest sub-sectors of our international finance centre activities, attracting flows from across the world and often concerning large values and complex structures.

When looking at areas with room for improvement, the NRA highlighted 22 recommended actions, including:

  • More resources are required to enhance the quality of AML policy and strategy
  • Enhancing the quality of financial intelligence gathering and processing and the effectiveness of international co-operation should be prioritised
  • Tax enforcement could also be strengthened.

As noted above, the NRA is a self-assessment based on a point in time and some of the data collected which drove the analysis is now several years old, with remedial action already being taken. The potential weakness in tax enforcement for example has been addressed through the introduction of the Revenue Administration (Jersey) Law 2019.

What’s coming?

Nothing changes overnight, but weaknesses identified will need to be addressed before the next MONEYVAL assessment. We will no doubt see lots of activity over the coming months, particularly looking at resourcing of policy makers and law enforcement.

At an industry level, we will no doubt see legislative and regulatory changes in due course, but we may also get some helpful information and insights; something many in industry have requested. One example is the proposal in the NRA that more detailed information be prepared and provided on the money laundering risks posed by Jersey’s primary trading partners, which will enable regulated firms to enhance their own jurisdictional risk assessments and even better tailor their client due diligence procedures to each client.

A proposal to provide more information to MLROs on the outcome of Suspicious Activity Reports submitted will also be welcomed.

What can you do now?

Change is coming. It may take a little while to feed through from policy to practical change, but Jersey cannot rest on its laurels in the fight against financial crime and AML requirements will only get tougher. While we await further announcements, now is a good time to ensure you’re already at the top of your game and not starting on the back foot when further changes come.

Readers may recall previous handbook changes requiring firms take into account the results of any published NRA in their Business and Client Risk Assessments. These are actions which should be prioritised.

The NRA also provides helpful insight into the different sectors of the island’s financial services industry. This could prove particularly helpful to those firms operating reliance models for example as they look to ensure they adequately understand the risks of those they’re entering into Obliged Person relationships with. This is already an area the JFSC have shown interest in and which we’ve blogged about previously.

More broadly, any new requirements emanating from the NRA are likely to intensify the already growing pressures on AML teams. Clients are already aware that simply throwing in more people is unsustainable, not just financially but also due to the finite resources available in a small island economy. The NRA should be a wake-up call to those not already investigating more sustainable solutions, now may be the time to start. Options include using digital technology to cover routine tasks, allowing compliance teams to focus on high risk areas and on analysis rather than collation. Outsourcing models and utilising centres of excellence are also increasingly on Board agendas. The potential benefits don’t just include cost and efficiency, but also an enhanced experience for clients who are often the ones who bear the brunt of inefficient AML processes in the form of delayed product and service availability

So, there is a lot to consider here, but no need for alarm. The NRA is just another step in our journey to continually improve our AML regime. Using this report and the potential lull in regulatory change over the next couple of months provides an opportunity to make sure everything is in order and you can hit the ground running when any changes start to come through.

If you would like to know about the NRA and what it means for your business, please feel free to get in touch.

Contact us

Neil Howlett

Neil Howlett

Advisory Partner, PwC Channel Islands

Tel: +44 7700 838349

Tom Cowsill

Tom Cowsill

Tax Director, PwC Channel Islands

Tel: +44 7797 710529

Owen Woolgar

Owen Woolgar

Advisory Director, PwC Channel Islands

Tel: +44 7700 838363