ASK MAT: Do I verify ALL individuals in a legal entity or just those with a THRESHOLD of control (e.g. 25%)?

ASK MAT –

• I am confused about the rules for verifying controllers of a legal entity. Do I verify ALL individuals in a legal entity or just those with a threshold of control (e.g. 10% or 25%)?

MATS ANSWER –

• Thank you for your excellent question, and I understand your confusion.

To start answering this question, you should understand that there are at least two legal and regulatory drivers for verifying a legal entity’s controllers. These drivers being

• ANTI-FINANCIAL CRIME LAWS AND RULES (AML/CTF/CPF laws and rules) and
• COMPANY REGISTRY LAWS AND RULES (CR laws and rules)

These two drivers are similar but not the same. However, in many parts of the world, they have merged into one, resulting in confusion and inadequate due diligence being collected and analysed for preventing and detecting financial crime (IN MY VIEW 😊).

CR LAWS AND RULES

1. Concerning COMPANY REGISTRY LAWS AND RULES, FATF has issued guidance on UBO CONTROLLERS AND PERCENTAGE THRESHOLDS, as follows:-
   1. FATF's Recommendation 24 requires countries to ensure that competent authorities have access to adequate, accurate, and up-to-date information on the beneficial ownership of legal persons.
      1. The Interpretive Note to Recommendation 24 requires all companies created in a country to be registered in a company registry.
   2. The FATF suggests beneficial ownership information should include individuals who own or control a significant percentage of the entity, typically defined as owning more than 25% of the shares or voting rights. Albeit FATF does say some jurisdictions may use a lower threshold, such as 10%, to capture more detailed ownership information

1. 1. https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/Guidance-Beneficial-Ownership-Legal-Persons.pdf.coredownload.pdf
2. Regarding the FATF requirements:-
1. Many countries have adopted the 25% threshold for their company registry laws and regulations. 
2. These are not rules for supervised entities' application of CDD/KYC; however, many countries have applied the same threshold for their AML CDD REQUIREMENTS

CR LAWS AND RULES - JERSEY

1. Concerning FATF above requirements, Jersey applies a two-tier approach:-
1. The Jersey company registry requires 25% on company formation
2. However, the Jersey company registry expects a relevant entity to hold all evidence on all those individuals with 1% OR MORE
2. One of the requirements under the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the DPI Law) and FINANCIAL SERVICES (DISCLOSURE AND PROVISION OF INFORMATION) (JERSEY) ORDER 2020, ARTICLE 5, Information to be provided in annual confirmation statement) is that a relevant entity:-
1. MUST VERIFY THE NAME AND ADDRESS of each member WHO HOLDS 1% OR MORE (in nominal value or number, as applicable) of all the issued class shares.
2. It is within the JFSC REGISTRY SUPERVISORY TEAMS VISITS remit to require the relevant entity to AUTHENTICATE THOSE DETAILS in any manner it reasonably determines.
3. I have later, in this response (part 2), added some further information on these matters

AML/CTF/CPF LAWS AND RULES

1. Further to the CR LAWS AND RULES, many countries have adopted the same fixed threshold for their AML/CTF/CPF laws, and rules have adopted the same threshold. This is wrong unless they force a reduction in the threshold through their rules and regulations. 

AML/CTF/CPF LAWS AND RULES - LET ME OUTLINE WHAT IS REQUIRED IN JERSEY

1. For example, Jersey AML/CTF/CPF laws and rules:-
   1. Start with 25% but for only LOWER RISK RELATIONSHIPS.
   2. Require reasonable measures concerning the case's circumstances, including the degree of RISK ASSESSED that may lower the threshold.
2. An AML/CTF/CPF supervised person MUST demonstrate that it has identified everyone who is the person’s Beneficial owner and/or controller as outlined in the Money Laundering Order (MLO),
   • https://www.jerseylaw.je/laws/current/ro_20_2008
3. An extract of the MLO is as follows:-
   • 3. Meaning of “customer due diligence measures” –
   • (2) Identification measures are measures for – (c) in respect of a customer that is not an individual –
     • (ii) understanding the ownership and control structure of that customer and the provisions under which the customer can enter contracts, or other similar legally binding arrangements, with third parties and
     • (iii) IDENTIFY the individuals who are the customer’s beneficial owners or controllers.
   • (6) For the purposes of paragraphs (2)(b) and (c), measures for obtaining evidence must involve reasonable measures concerning all the circumstances of the case, including the degree of RISK ASSESSED.
4. In support of the Money Laundering Order and 3(2)(6), the JFSC says identified:-
   • Everyone with a material controlling ownership interest in the capital of the person (through direct or indirect holdings of interests or voting rights) or who exerts control through other ownership means and for LOWER RISK RELATIONSHIPS, a general threshold of 25% indicates a material controlling ownership interest in the capital.
5. As you will see, 3(2)(c) requires ) a Jersey-supervised person to IDENTIFY ALL the individuals. However, 3(2)(6) is a requirement to verify only those that fall within a risk assessment/threshold as stated by the JFSC. this, therefore, means a Jersey-supervised person:-
   • Keep lowering the threshold (25%, to 20% to 15% to 10% to 5% to 1%)
   • Where the risk increases (LOWER, MEDIUM, MEDIUM HIGH, HIGHER, VERY HIGH, HIGHEST)
6. Concerning this 25%, the JFSC, in its AML/CTF/CPF rules, offers the following thoughts about lowering 25%
   • Where the distribution of interests is uneven, the percentage where effective control may be exercised (a material interest) may be less than 25% when the distribution of other interests is considered, i.e., interests of less than 25% may be material interests
   • Also, in higher-risk scenarios, unit holders holding interests of LESS THAN 25% may need to be identified and verified.
7. Examples of higher-risk scenarios are outlined in part 2 below

Part 2

CR LAWS AND RULES – JERSEY (continued from above)

1. The JFSC COMPANY REGISTRY says:-
   1. One of the requirements under the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the DPI Law) and FINANCIAL SERVICES (DISCLOSURE AND PROVISION OF INFORMATION) (JERSEY) ORDER 2020, ARTICLE 5 Information to be provided in annual confirmation statement, is that a relevant entity:-
      1. MUST VERIFY THE NAME AND ADDRESS of each member WHO HOLDS 1% OR MORE (in nominal value or number, as applicable) of all the issued class shares.
      2. It is within the JFSC REGISTRY SUPERVISORY TEAMS VISITS remit to require the relevant entity to AUTHENTICATE THOSE DETAILS in any manner it reasonably determines.
   2. However, to align the DPI Law’s 1% or more membership authentication threshold with that set out in the JFSC AML/CFT/CPF Handbook, as well as global norms set by the Financial Action Task Force, THE JFSC REGISTRY upon incorporation will not require authentication of information or documents for:-
      1. Members of a relevant entity who hold 25% OR LESS (in nominal value or number, as applicable) of all the issued class shares.
      2. It is generally accepted that individuals with 25% OR LESS SHAREHOLDING, voting or appointment rights ARE UNLIKELY to have significant influence or control over an entity.
   3. The JFSC REGISTRY SUPERVISORY REPORT adds, for the avoidance of doubt:
      1. Whilst Registry Supervision may not require the relevant entity to authenticate the information of members who hold 25% or less (in nominal value or number, as applicable) of all the issued shares of a class, (THE AUTHENTICATION EXEMPTION) the relevant entity must provide verified information under the Law
      2. The authentication exemption does not apply to SIGNIFICANT PERSONS of the relevant entity, notwithstanding that they may have a shareholding of 25% or less, and the exemption otherwise applies to the relevant entity
      3. The exemption shall not affect the powers of Registry Supervision to require an entity or its NOMINATED OR SIGNIFICANT PERSON to provide any information the JFSC requires under the Law or any other law
      4. Registry Supervision operates within its framework, which is distinct from Jersey’s financial crime laws
2. The JFSC registry guidance provides the following information on applying 25% and 10%
   1. THE JFSC says the 25% or less exemption WILL NOT apply in the following two scenarios:-
      1. Where the relevant entity is Administered by a REGULATED SERVICE PROVIDER:-
         • https://www.jerseyfsc.org/industry/guidance-and-policy/beneficial-ownership-and-controller-guidance/ and/or
      2. Where the relevant entity is considered to carry an associated HEIGHTENED RISK
         • [See 4.2, page 8 https://www.jerseyfsc.org/media/8148/registry-supervision-inspection-programme-q4-2024.pdf ]
   2. THE JFSC, in its industry guidance, says where a regulated service provider administers the relevant entity, the following must be considered:-
      1. The JFSC apply the FATF standards regarding beneficial ownership and control. To this end, corporate and legal entities registered in Jersey may use:-
         • Upon incorporation = use a general threshold of 10% OR MORE and
         • Upon a change of beneficial ownership and control = 25% OR MORE
      2. Further to providing the two percentages [25/10%], the JFSC does say:-
         • The percentages ARE NOT set thresholds, and a case-by-case RISK ASSESSMENT is required, as required by the JFSC AML/CFT/CPF Handbook.
         • The risk assessment must be based on the whole/complete relationship. For example,
           1. Upon a change of beneficial ownership, where a regulated service provider views a 20% beneficial owner as HIGH RISK,
           2. The regulated service provider should consider registering the beneficial owner on the central register even though its interest is LESS THAN THE 25% THRESHOLD.

RISK ASSESSMENT & HEIGHTENED RISK

1. Further to the above requirements to consider risk, the JFSC REGISTRY SUPERVISORY TEAM VISIT REPORT says HEIGHTENED RISK indicators include credible intelligence the JFSC receive from a variety of sources in addition but not limited to:
   1. The relevant entity and beneficial ownership and controllers, and any of the relevant minority shareholders, being associated or connected to a:-
      1. Any PEP or PEP connections as part of the structure
      2. The activity of the relevant entity is sensitive and captured in either table of THE JFSC SOUND BUSINESS PRACTICE POLICY
      3. HIGH-RISK JURISDICTION.
   2. Concerning HIGH-RISK JURISDICTION 6.2.2 of the JFSC AML/CTF/CPF handbook provides the following definition:-
      1. The risk that a business relationship is tainted by funds that are THE PROCEEDS OF CRIMINAL CONDUCT OR INSTRUMENTALITIES or are used to finance terrorism or the financing of proliferation is increased where the business relationship or one-off transaction is with a person or entity connected with:

1. 1. 1. 1. AN ENHANCED RISK STATE (as defined in the JFSC glossary as Appendix D1 of the JFSC AML/CTF/CPF Handbook). Currently, March 2025 – Iran, the Democratic People’s Republic of Korea, and Myanmar (Burma)
            1. https://www.jerseyfsc.org/industry/financial-crime/amlcftcpf-handbooks/appendix-d1-countries-and-territories-for-which-a-fatf-call-for-action-applies/
         2. A SANCTIONED COUNTRY OR TERRITORY (as defined in the JFSC glossary as - Appendix D2 of the JFSC AML Handbook, sources 6 and 12 therein).
            1. This means, at any time, a country or territory which is itself, or whose government (or equivalent) is, the subject of any sanctions broadly prohibiting dealings with such government (or equivalent), country or territory, including trade sanctions, arms embargoes and other trade restrictions in force in Jersey (refer to Sources 6 and 12 of Appendix D2 of this Handbook for a current list of sanctioned countries and territories).
               1. Source 6 = a Jersey-sanctioned country or territory
               2. Source 12 = Jersey Arms embargo, trade sanctions and other trade restrictions
         3. A SANCTIONED PERSON (as defined in the JFSC glossary as “a person or entity listed on the sanctions designations lists under the Jersey sanctions regime”)
            1. In addition, it is noteworthy to state the JFSC AML HB 3.3.4.2 says:-
               • Appendix D2 of the JFSC AML/CTF/CPF Handbook lists many countries, territories, and areas (133 as of March 2025) identified by FOURTEEN reliable and independent external sources as presenting A HIGHER RISK.
               • When assessing Appendix D2 country risk for AML/CFT/CPF purposes, it will be relevant to consider the number of occasions that a particular country, territory, or area is listed for different reasons

[See 4.2, page 8/9 https://www.jerseyfsc.org/media/8148/registry-supervision-inspection-programme-q4-2024.pdf ]

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FINANCIAL SERVICES (DISCLOSURE AND PROVISION OF INFORMATION) (JERSEY) ORDER 2020

https://www.jerseylaw.je/laws/current/PDFs/RO_184_2020.pdf

SOURCES

1. https://www.jerseyfsc.org/news-and-events/read-our-q4-2024-registry-supervision-inspection-programme-feedback/
2. https://www.jerseyfsc.org/media/8148/registry-supervision-inspection-programme-q4-2024.pdf
3. https://www.jerseyfsc.org/industry/guidance-and-policy/beneficial-ownership-and-controller-guidance/
4. https://www.jerseyfsc.org/registry/registry-supervision-and-how-it-will-affect-you/

 RELEVANT LAWS

1. Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020
1. https://www.jerseylaw.je/laws/unofficialconsolidated/Pages/13.230.aspx
2. Financial Services (Disclosure and Provision of Information) (Jersey) Regulations 2020
1. https://www.jerseylaw.je/laws/unofficialconsolidated/Pages/13.230.20.aspx
3. Financial Services (Disclosure and Provision of Information) (Jersey) Order 2020
1. https://www.jerseylaw.je/laws/unofficialconsolidated/Pages/13.230.21.aspx
4. Financial Services (Disclosure and Provision of Information – Person with Standing) (Jersey) Order 2023
1. https://www.jerseylaw.je/laws/current/Pages/13.230.50.aspx
5. Offences and Penalties - Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020
1. https://www.jerseyfsc.org/registry/registry-legislation/offences-and-penalties-financial-services-disclosure-and-provision-of-information-jersey-law-2020/