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In light of the MONEYVAL and Financial Action Task Force (FATF) review of Jersey’s anti-money laundering (AML), countering the financing of terrorism (CFT) and countering proliferation financing (CPF) measures the States of Jersey have made certain amendments to the Proceeds of Crime (Jersey) Law 1999 (the POC Law), the Proceeds of Crime Supervisory Bodies (Jersey) Law 2008 (the Supervisory Bodies Law) and the Money Laundering (Jersey) Order 2008 (the Money Laundering Order) (the AML Laws) in connection with the regulation of financial service businesses in Jersey (together, the Amendments).
The changes made by the Amendments have a significant impact on the regulation of a broad range of activities within Jersey and notably those in the private wealth sector. The technical detail of these Amendments is discussed in greater detail in our note dated 3 March 2023: “Action required following changes to Jersey’s proceeds of crime legislation“.
The purpose of this note is to highlight how these Amendments will affect the scope of regulation required for private trust companies (PTCs), single family offices (SFOs) and Jersey corporate entities acting as governance entities, such as protectors, enforcers and other power holders (Governance Entities).
Background to the Amendments
Following the MONEYVAL evaluation of Jersey’s compliance with the FATF recommendations, concerns were highlighted that too many financial service activities were exempt from compliance with the POC Law under the various exemptions contained in the Financial Services (Jersey) Law 1998, as amended (the FSJL).
The purpose of the Amendments has, therefore, been to reduce the scope of such exemptions to the AML Laws so that the remaining exemptions are in line with those permitted by the FATF recommendations. PTCs, SFOs or Governance Entities have historically been the subject of exemptions and the Amendments will limit the application of the relevant exemptions. Likewise, many structures and notably SFOs have been able to conclude that they fell outside the scope of the FSJL on the basis that they were not “acting by way of a business”. The ability to make that assessment has also been curtailed by the Amendments and the new test around “conducting as a business”.
It is worth noting that the Amendments will not affect the application of the exemptions under the FSJL. Accordingly, the current exemptions under the FSJL for PTCs and Governance Entities will remain in force unchanged by the Amendments.
PTCs have been a particularly attractive structuring option for many private wealth structures in Jersey as they provide the benefits of a trust structure from a succession planning perspective whilst allowing for a significant degree of control to be retained over the structure itself at the trustee level. For families that wish to have oversight of the structure, PTCs are often a particularly appealing option. Founders increasingly want more control and family participation. To this end experienced family members and trusted advisers with experience and knowledge of the family and the family business or other assets being transferred into trust can become board members of the PTC usually to sit alongside directors provided by the professional service provider. PTCs have since 2000 been exempt from the requirement to register under the FSJL provided (i) the PTC entity is a company (ii) it provides trust company business services only in respect of a specific trust or trusts (iii) it does not solicit from or provide trust company services to the public; and (iv) the PTC entity is administered by a “registered person” who is registered to carry out trust company business under the FSJL (together the PTC Exemption). To be clear the Amendments do not impact on the PTC Exemption for the purposes of the FSJL and the PTC Exemption remains unchanged in this regard.
Position prior to the Amendments
Before the Amendments came into effect, Schedule 2 of the POC Law defined “financial services businesses” partly by reference to the FSJL and included the various exemptions permitted by the FSJL. For example, these included specific exemptions for PTCs (at paragraph 4 of the Schedule to the Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000) and private protector companies (PPCs) (at paragraph 1 of the Schedule to the Financial Services (Trust Company Business (Exemptions No. 3)) (Jersey) Order 2001). As a result of this, certain PTCs, Governance Entities and SFOs were not considered to be “financial services businesses” for the purposes of the POC Law and therefore typically fell outside the scope of Jersey’s AML/CFT regime.
Effect of Amendments
Pursuant to the Amendments, Schedule 2 of the POC Law now provides a revised list of the activities included within the definition of “financial services business” (Schedule 2 Businesses). This list has been designed to mirror the requirements of the FATF recommendations and reduce the scope of the exemptions that had previously applied. Schedule 2 Businesses now specifically include “acting as or arranging for another person to act as, a trustee of an express trust”. In addition, whilst this is limited to persons providing their services by way of business, the guidance issued on interpretation by the Jersey Financial Services Commission (the JFSC) under the powers granted in the POC Law indicates that any corporate entity providing trustee services is likely to be considered to be providing these services or carrying out these activities whilst “conducting as a business” notwithstanding that they may only be providing these services only to a specific trust or trust (for example, to one family) and are not providing trust services to the public (see analysis below).
As a result PTCs, SFOs and Governance Entities will likely now be considered to be carrying out a Schedule 2 Business for the purposes of the POC Law. Schedule 2 Businesses are further referenced in both the Supervisory Bodies Law and the Money Laundering Order.
Pursuant to the Supervisory Bodies Law, no person may carry out a Schedule 2 Business in or from within Jersey and no company incorporated in Jersey can carry out a Schedule 2 Business anywhere in the world unless they are a registered person for the purposes of the Supervisory Bodies Law – failure to be so registered is a criminal offence. As the activities of a PTC and a PPC will now fall within the scope of a Schedule 2 Business, PTCs and PPCs will need to be registered for the purposes of the Supervisory Bodies Law. Applications for registration will need to be made to the JFSC in respect of each relevant entity.
The Money Laundering Order also applies to Schedule 2 Businesses and as such PTCs, SFOs and Governance Entities, if caught, will be required to appoint a money laundering reporting officer (MLRO), a money laundering compliance officer (MLCO), adopt risk assessments and policies and procedures and carry out their own due diligence in accordance with the provisions of the Money Laundering Order and the AML/CFT/CPF Handbook issued by the JFSC.
In addition, the Money Laundering Order has been amended to provide for an anti-money laundering service provider (AMLSP) to fulfil the obligations of a relevant person to appoint an MLRO and an MLCO and to comply with all other obligations of the relevant person under the AML Laws. In brief, this amendment permits certain eligible entities to appoint an AMLSP to assist with complying with their obligations under the AML Laws. The criteria for those eligible to appoint an AMLSP is set out in a Notice issued by the JFSC pursuant to the Money Laundering Order. The requirements for appointment as AMLSPs is also confirmed in the Notice.
“By way of business” versus “conducted as a business”
One important point to note is that the drafting of the Amendments follows certain terms used in the FATF Standards rather than terms used in existing prudential legislation, in particular, the FSJL. For example, the Amendments to Schedule 2 relate to activities when “conducted as a business”. Guidance from the JFSC has indicated that this is distinguished from the term “by way of business” used in the FSJL. In particular, the guidance issued by the JFSC suggests that the following may be indicators that a person is conducting as a business:
- they hold out or publicly offer to conduct the activity for other persons
- they conduct the activity for commercial purposes with the intention of earning a profit or receiving compensation, including non-financial benefits/benefits in kind
- the level of financial compensation received is significant
- they conduct more than one Schedule 2 activity
- they conduct the Schedule 2 activity for more than one person; or
- they conduct the Schedule 2 activity with a view to making a profit, including where the intention is for the profit to come to someone else such as another group company
The application of the term “conducted as a business” has wide scope and the guidelines issued by the JFSC indicate that most PTCs, SFOs and Governance Entities are likely to be included within the scope of this term.
The effect of the difference between the terms “conducted as a business” and “by way of business” is that some entities are not within the scope of the prudential regulations pursuant to the FSJL on the basis that they are not carried out “by way of business” but may still be caught by the broader definition applied for the purposes of the AML Laws. As such, SFOs and Governance Entities which have historically relied upon the fact that they do not operate “by way of business” will need to ensure that they review whether their activities could be considered to be “conducted as a business” for the purposes of the AML Laws. In our experience to date many will be caught by the new test and will be required to register.
Single family offices
SFOs can come in all shapes and sizes with a range of different functions. As such the regulatory treatment for SFOs will vary significantly depending upon the scope of services provided by the relevant entity. Historically many SFOs that did carry out activities that fell within the scope of regulation may have been able to rely upon an analysis that they fell outside the requirement to be regulated under the FSJL and the POC Law on the basis that they have not been offering their services “by way of business”. The change (as noted above) in this respect will therefore be of particular significance for SFOs who should ensure that they have carefully reviewed their regulatory position.
Where an SFO is satisfied that they are not providing services “conducted as a business” and do not, therefore, fall within the scope of the AML Laws they will need to ensure that they remain within this exemption. Particular care should be taken to ensure that (i) the services are not publicly offered, (ii) the services are not conducted for commercial purposes and no compensation is provided and (iii) the person providing the services is not conducting the activity for more than one person. SFOs should ensure that all arrangements (financial or otherwise) are carefully reviewed in this regard. As noted above, the list of factors which may indicate an SFO is “conducted as a business“ is now very wide indeed and includes both financial compensation and non-financial compensation. In our experience most SFOs are having to register.
Timing
The Amendments came into effect on 30 January 2023 and transitional provisions in respect of the Amendment have already come into force. These transitional provisions provide that, subject to limited exceptions, all Schedule 2 Businesses that are not already registered persons for the purposes of the Supervisory Bodies Law have until the end of either 31 August for SFOs who that do not use PTCs and 30 June 2023 for all other entities to apply for registration with the JFSC in this regard.
Comment
Compliance with MONEYVAL and FATF recommendations is highly important for the trust industry in Jersey to demonstrate that Jersey remains compliant with the latest international standards in relation to AML, CFT and CPF. These changes should, therefore, be welcomed as raising the standard of AML/CFT/CPF compliance within the island.
As an early subject of MONEYVAL evaluation assessment Jersey is at the forefront of AML/CFT/CPF legislation and it is likely that other jurisdictions will implement similar changes in the near future following their own assessment. The introduction of these changes places Jersey ahead of other jurisdictions in this regard and provides certainty for structures based in Jersey going forwards.
The significant practical benefits offered by PTCs, SFOs and Governance Entities are likely to ensure that demand for these structures remains strong within Jersey. As a result, service providers in Jersey will need to ensure that they are aware of the regulatory requirements and how these can apply to services they provide to existing PTCs, SFOs and Governance Entities.
From a practical perspective, service providers who administer or provide services to PTCs, SFOs and Governance Entities will need to ensure that a detailed review of the implications of these proposed changes on the structures that they administer is carried out to ensure that all entities remain in compliance with their ongoing regulatory obligations. In particular, PTCs, SFOs and Governance Entities will need to ensure that (where relevant) they have applied for registration with the JFSC under the Supervisory Bodies Law and have appointed an MLRO and MLCO or (if relevant) an AMLSP in respect of their obligations under the AML Laws.
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