Business Plan 2019 Sli.do Q&A - JFSC response - the Jersey ...

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Business Plan 2019
Sli.do Q&A - JFSC response

1. How many civil penalties are likely to be imposed in the next 18 months?
   Civil Financial penalty legislation was amended in 2018 to allow for the imposition of a civil
   financial penalty against a Registered Person owing to a significant and material negligent breach
   of the codes of practice. We anticipate that the change in the law will result in civil penalty cases
   being processed through our Decision Making Process. As yet it is too early to accurately assess
   how many cases may be subject to a civil financial penalty.

2. Is the NRA exercise an independent exercise to the current Supervisory regime?
   As outlined in the feedback paper on Consultation Paper No. 7 2017 'Data for Risk Based
   Supervision', issued in February 2018, we are committed to capturing sufficient data to support
   risk based supervision across all aspects of the regulatory framework: prudential, conduct and
   financial crime. As a result, our recent and ongoing data collection exercises will be used:
   › To develop our risk based approach to supervision
   › In aggregated form as part of the Island's National Risk Assessment
   › To inform the development of further data collection and reporting requirements.
   › We decided to align these exercises for multiple purposes in order to minimise Industry
       impact.

3. The GFSC Director General came from the Central Bank of Ireland (CBI) and
   implemented its Prism supervisory methodology. Now Martin has arrived from the CBI,
   is Jersey also about to implement Prism and seek alignment with Guernsey?
   During 2018 we completed a major restructure of the supervisory operating model in order to
   enhance our risk based approach. As part of this work we agreed the risk model design to
   capture all aspects of our supervisory responsibilities and we are well advanced in the
   development of this, which is on track to be operationalised in 2019.

4. Will the Supervision Examination teams also look at AML as well as the new AML
   team?
   The remit of our Financial Crime Examination Unit (FCEU) will be to undertake cyclical
   examinations of those entities which are considered to be inherently high or medium risk in
   relation to money laundering and terrorist financing. These examinations will consider the full
   control environment of the entity. The team will sit alongside the existing Supervision
   Examination Unit (SEU) and where possible will follow the same methodology and timeframes to
   ensure consistency of approach. The SEU will continue to lead on thematic examinations which
   may include such subjects as AML and CFT.

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BP19 Q&A

5. Is the JFSC open to secondments from Industry to help resource the new Financial
   Crime team?
    Secondments to the JFSC from Industry and regulators from other jurisdictions have worked well
    over the years and we are therefore keen to explore all options. We are of course always
    mindful of managing any potential conflicts appropriately and ensuring sustainability in terms of
    our resourcing.

6. Will Enhanced Customer Due Diligence be one of the areas for the JFSC to look into?
   Maybe something for the new AML/CFT team?
    A relevant person may already use other tools and/or methods to undertake customer due
    diligence measures, so long as those methods comply with the Money Laundering Order. We
    would expect firms to be able to demonstrate and explain particular risks with any technology
    that is just as robust as the traditional methods outlined in the AML Handbook. Our use of
    technology is a key focus in terms of efficiency and effectiveness and we continue to explore
    how we can use technology to collate and evaluate data to support our risk based approach to
    supervision.

7. Under Basel 3, will Jersey consider EU sovereign bonds as risk free? If so this is a
   massive mistake.
    The Basel Committee concluded that no specific changes were required regarding the treatment
    of holdings of sovereign bonds. We will consider the general enhancements proposed in Basel III
    to risk assessment as part of work on the implementation of Basel III. No holdings, sovereign or
    otherwise, are exempt from risk assessment, either now or under the proposals.

8. Does the JFSC have plans to look at the rules and guidance issued in relation to PEPs to
   bring us in line with our peers and international standards?
    The Jersey Financial Crime Strategy Group consulted on changes to the legal obligations in
    relation to PEPs in July 2018. These proposals were designed to bring the Jersey regime in line
    with International Standards and, where applicable, our peers. We expect legislation in this
    regard to be introduced mid-2019.

9. Mike mentioned 50% of staff work in Supervision, could the JFSC publicise numbers of
   staff that work in each department so we can understand numbers in each?
    We have included details of employee distribution on page 5 of our 2019 Business Plan.
    https://www.jerseyfsc.org/media/2455/jfsc-business-plan-2019.pdf

10. Isle of Man (IOM) has had its first MONEYVAL review under the revised FATF standard
    and is highly unlikely to get a gold star. Are you talking directly with the IOM regulator
    to learn from their experience?
    We are in regular contact with the regulators in the other Crown Dependencies and we monitor
    the mutual evaluation reports of competitor/comparable jurisdictions with a view to learning
    from their experiences, both good and bad.
BP19 Q&A

11. Protecting the consumer has been mentioned - the JFSC hasn't issued any
    information/guidance regarding Data Protection and personal sensitive data - data is
    now being traded (e.g. Facebook) and the FCA is now looking at how UK institutions
    like banks use data. What is going to be the JFSC's output and strategy?
    We publish guidance on our website about how we process personal data and we have a Data
    Protection Officer who helps individuals with concerns they might have. Our supervisors have
    also received training in the security controls to look for when reviewing regulated entities’
    systems and controls to help them identify whether measures to protect personal data are in
    place. Where appropriate, we also collaborate with the Office of the Information Commissioner
    which is the independent statutory authority with responsibility for promoting and protecting
    the rights of individuals under Jersey’s data protection laws. We intend to build on these
    measures during 2019, and to engage in further outreach with Industry.

12. What is the JFSC’s stance on the proposed change to the codes in relation to the
    insurance of the principal persons? Will this not discourage directors in future and
    deplete further the skilled professional pool?
    The intent of the Penalty regime is, among other things, to ensure that a financial disincentive
    exists to deter contraventions of the Codes and that persons cannot expect to profit from a
    contravention of the Codes. The Law change was passed unanimously by the States as, in line
    with established international regulatory practice, the Government of Jersey is of the view that
    behavioural change is more likely to be achieved when principal persons know that, potentially,
    they will bear a financial penalty personally for poor conduct. The UK experience with respect to
    the Senior Manager regime has been that there has been no perceptible impact on the
    willingness of high quality individuals accepting high-profile positions.

13. Mike, you mentioned in your presentation that for every new initiative introduced, you
    need to drop another or reprioritise resources. How does this align with Martin’s
    statement that regulators today need to keep growing in line with increased regulatory
    demands?
    I was describing the challenge we currently face - being asked to do ever more at a high standard
    with existing resources. I think Martin Moloney is referring to the fact most regulators have
    significantly increased their resources in light of these challenges post the global financial crisis -
    this is something that Jersey will need to review and consider the resourcing and funding of the
    JFSC.

14. Did I notice over 23,000 questions relating to the NRA exercise? Does the Commission
    regard this as a success or could more have been done with Industry before this
    important programme was rolled out?
    The 2018 supervisory data collection exercise is considered a success as we collected consistent
    data across the full spectrum of regulated financial services. Prior to the start of the data
    collection exercise in March 2018 and in conjunction with the Government of Jersey, we
    consulted with many Island Trade Bodies and Trade Associations and shared early drafts of the
    questionnaires and received useful feedback.
BP19 Q&A

15. You discussed Fintech however is Regtech on the JFSC agenda to help Industry map and
    control changes to regulation that may currently be very manual and time consuming?
    Absolutely. Regtech is regularly discussed as part of our Fintech agenda with various
    stakeholders. There are huge efficiency opportunities for both regulator and Industry from
    Regtech developments.

16. You have mentioned our hard won international reputation - do you think that the
    blacklisting of Jersey by the Netherlands is a one off or a precursor to further
    international/European pressure?
    Only time will tell is the honest answer. Jersey's constructive engagement with the EU code of
    conduct group could result in a central, co-ordinated, fair and transparent list replacing
    individual EU member state lists.

17. Do you foresee any changes to regulation or standards as a result of the economic
    substance law?
    It is possible that some changes may be necessary depending on the final outcome of that
    process and any guidance that follows. As usual we will liaise with government and Industry on
    any necessary changes to our regime.

18. If the UK deregulates after Brexit, how would the JFSC react?
    There are still multiple permutations as to the outcome of Brexit and it wouldn’t be an efficient
    use of our limited time to speculate on permutations. The UK, like Jersey, is committed to
    meeting international standards so we wouldn't envisage a dramatic change in their stance. We
    continue to have a close and regular dialogue with the UK regulatory authorities in relation to
    Brexit.

19. When will the change in the results of changes to the code be published by JFSC?
    If you are referring to the consultation regarding maintenance amendments, we published our
    final position on 22 March 2019.

20. When will the regulator provide legal and regulatory guidance to Industry on
    investments into the marijuana industry, which is now legal in Canada, given that
    clients wish to invest in this sector?
    There is no current formal position on this subject but we have discussed the topic with
    Government and further discussions are needed in relation to the Sound Business Practice
    Policy. Until such time as the position is concluded, issues and applications are being considered
    on a case by case basis.
BP19 A&A

Business Plan 2019 Sli.do Q&A
Government response
1.   When will arrangements for bank resolution and depositor compensation scheme be
     clarified? (Government response)
     The Government of Jersey is currently developing a structural framework for bank resolution in
     Jersey, and expect to consult with stakeholders in the first half of this year.

2.   When will we get guidance on substance rules, our clients are asking for answers!
     (Government response)
     The Government of Jersey is committed to providing Industry with as much certainty as possible
     on the new Economic Substance Law. We have already issued a ‘Key Aspects’ document, an
     explanatory flowchart, a ‘Q & A document’, and have engaged in extensive discussions with
     Industry on the application of the law. Relevant documents and contact details for Government
     on this topic are found here. More comprehensive guidance is under development.

3.   Given the concerns over EU relations, is there appetite to better align the MLJO with
     the EU MLD? (Government response)
     The Government of Jersey, in collaboration with the JFSC, is working through various tranches of
     legislative proposals designed to ensure the AML regime remains fit-for-purpose. The changes
     which may, as a result, be proposed are driven by various external comparators, the most
     important of which is the 2012 Recommendations of the Financial Action Task Force
     (FATF). These changes were consulted on last year, law drafting is now ongoing, and a formal
     response to the consultation will be published in due course. Similarly, the Government will
     review the EU’s Fourth and Fifth Anti-Money Laundering Directions (AMLDs) along with other
     external information sources to take account of international best practice and implement
     changes which further enhance Jersey’s regime.

4.   Rather than continually fighting substance battles and incurring costs to address them,
     is it time to move away from 0pc instead? (Government response)
     The standard rate of 0% corporate tax is based on two key principles. One is the EU Code of
     Conduct principle of non-discrimination between resident and non-resident owned companies.
     The other is the principle of tax neutrality combined with transparency. The Government’s
     commitment is clear, the Common Strategic Policy 2018-22 includes ‘maintain tax neutrality’ as
     a direct policy outcome.

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