An overview of the JFSC 2023 examination feedback on countering the financing of terrorism and proliferation financing [“TF/PF.”]

The following is a summary reflecting the main themes and findings of the document, highlighting the critical areas where supervised persons need to enhance their controls and compliance with the regulatory framework concerning TF and PF.

SUMMARY

1. The document is the feedback report on the thematic examination conducted in 2023 by the Jersey Financial Services Commission (JFSC) on countering the financing of terrorism (TF) and countering proliferation financing (PF).
2. Issued on October 3, 2024, the report spans 26 pages and outlines the findings, good practices, and necessary actions for supervised persons in the financial sector.

Executive Summary

1. The examination assessed how well-supervised persons implemented measures to counter TF and PF.
2. Essential requirements included documenting their risk exposure in business risk assessments (BRA), maintaining effective systems and controls, assessing risks associated with business relationships, monitoring TF/PF activities, and training employees. Insufficient control could expose supervised persons to significant financial crime risks.
3. Effective TF/PF measures protect the integrity of the financial sector, assist law enforcement, and contribute to risk management and compliance with financial sanctions [[5]].

Background and Scope

1. The thematic examination was motivated by Jersey’s National Risk Assessment of Terrorist Financing from 2021 and its update in May 2023.
2. The report outlines the definitions of TF and PF, emphasising that TF involves funding acts of terrorism. At the same time, PF relates to financing the transfer and export of weapons of mass destruction.
3. The examination aimed to evaluate compliance with legislative and regulatory requirements in the Money Laundering (Jersey) Order 2008 and the JFSCs handbook, focusing on governance, internal controls, ongoing monitoring, and training.  [[7-9]].

Overall Findings

1. The report identifies 24 findings across six on-site examinations, highlighting deficiencies in corporate governance, training, policies and procedures, customer risk assessments, and reporting mechanisms.
2. Many supervised persons did not adequately reference PF in their BRAs or maintain effective internal systems.
3. Training often failed to adequately cover PF, and policies did not align with regulatory requirements [[10-14]].

 Detailed Findings

1. Corporate Governance: Many supervised persons needed more discussions and documentation regarding TF/PF risks at the board level. Business risk assessments often required updating more frequently, and there were shortcomings in assessing the effectiveness of customer screening tools [[18-19]].
2. Awareness and Training: Training on TF and PF was found inadequate, with many employees needing to receive necessary updates on legislation. The report stresses the importance of tailored and relevant training for employees, especially those in crucial compliance roles [[19-20]].
3. Reporting Suspicious Activity: Several supervised persons needed more policies regarding reporting obligations to the Minister under the Sanctions and Asset-Freezing Law (SAFL). More clarity could be required to ensure timely compliance with reporting suspicious activities [[20]].
4. Customer Due Diligence (CDD): Findings indicate that customer risk assessment tools often needed to capture more factors to adequately assess TF/PF risk. Ongoing monitoring practices should have been conducted promptly, and periodic reviews frequently overlooked TF/PF considerations [[20-22]].
5. Enhanced Due Diligence (EDD) for Politically Exposed Persons (PEPs): Issues arose with the identification and documentation of PEPs, leading to inadequate application of EDD measures [[22-23]].
6. Internal Systems and Controls: Policies and procedures were often inconsistent, lacking specific references to PF, and did not adequately instruct on CDD measures [[23-24]].
7. Record-Keeping: Deficiencies were noted in documentation practices, including incomplete identification records and a lack of evidence for rationales behind decisions made concerning customer screening [[24-25]].

Next Steps

1. The report calls for all supervised persons to review their practices against the findings and good practices highlighted.
2. All supervised persons are expected to devise remediation plans that address identified deficiencies and ensure compliance with notification requirements.
3. The JFSC emphasises the importance of sustainable compliance measures and may conduct further examinations to evaluate improvements [[25-26]].

SOURCES

• https://www.jerseyfsc.org/media/7797/2023-thematic-feedback-paper-tf-pf.pdf
• https://www.jerseyfsc.org/industry/examinations/2023-countering-the-financing-of-terrorism-and-proliferation-financing-examination-feedback/