Compliance function: Key Persons Regime GREEN PAPER Issued on 11 October 2024 & closes 6 December 2024.

A Compliance function: The Key Persons Regime green paper has been issued because the JFSC, government, and industry have all identified ongoing challenges (the “resourcing challenges”) in recruiting and retaining compliance professionals.

The recently published MONEYVAL Mutual Evaluation Report also raised the resourcing challenges.

Stakeholders have suggested various reasons for this, and this GREEN PAPER will explore and evaluate some of them, and the JFSC is seeking stakeholder views on three high-level options it considers the most appropriate to commence the discussions.

The JFSC is offering three options.

1. The first option is:-
1. To retain the status quo and keep the Jersey employment and residency nexus, with or without specific enhancements for Key Person roles.
2. The two other options:-
1. Consider whether there should be a relaxation, or severing, of the nexus for a Key Person to reside in Jersey or to be employed by a Jersey firm.

Whilst the JFSC is actively investigating solutions to the issues raised, they say these must be balanced against broader objectives and obligations. These include:

1. As an IFC, Jersey is committed to adhering to Financial Action Task Force (FATF) standards regarding anti-money laundering, combating terrorist finance, and countering proliferation financing (AML/CFT/CPF).
2. The JFSC must work within the bounds of the law. Although the JFSC can recommend legislative changes, the Government must decide on them. Changes to legislation take time and effort.
3. The 2022-2025 Government plan has as one of its standard strategic policies the priority of creating a sustainable, vibrant economy and skilled local workforce for the future; care needs to be taken to ensure that goals are aligned.
4. Finally, the JFSC is mindful of the wider issues that may impact here but sit outside of the Commission’s direct responsibilities, e.g., salary levels of Compliance Professionals, adoption and investment in Regulatory Technologies (RegTech) solutions, or Jersey’s ability to attract professionals from other jurisdictions.
5. December 2024

• 1. The Jersey Financial Services Commission (JFSC) invites comments on this green paper by 6 December 2024. Responses can be submitted via SmartSurvey @ https://www.smartsurvey.co.uk/s/Z6QBQ4/.  

A GREEN PAPER

• A GREEN PAPER is a preliminary report published by the government to stimulate discussion and propose ideas for debate and consideration, often on specific policy areas. It serves as a consultation document, inviting feedback from interested parties before any firm decisions are made. Green papers are typically used early in policy-making to gather input and gauge public reaction to proposed changes.
• A GREEN PAPER can lead to developing a white paper, which contains more concrete proposals and is often a step closer to legislation.

COMPLIANCE FUNCTION: KEY PERSONS REGIME GREEN PAPER OBJECTIVES

1. This green paper aims to explore and seek feedback on the status of the compliance function in Jersey.
2. A firm's compliance function must be executed through three defined roles:
1. Money laundering reporting officer (MLRO),
2. Money laundering compliance officer (MLCO),

[both as defined in legislation]

3. Compliance officer (CO), as defined in the Codes.

The Financial Services (Jersey) Law 1998 provides a collective definition of these roles as Key Persons.

1. A Jersey firm must employ each of the MLRO and MLCO and be resident in the Bailiwick—that is, the ‘employment nexus’ and ‘residency nexus’, respectively, must be present.
   1. ALTHOUGH, The JFSC may grant variations to the residence nexus for COs in certain circumstances.
2. JFSC statistics estimate that there are more than 850 Key Persons in Jersey, most of which hold two MLRO/MLCO/CO roles.
3. 1. However, this does not give the full picture of those who hold compliance functions—that figure is much greater.

GREEN PAPER AND COMPLIANCE PROFESSIONALS & KEY PERSONS,

1. For ease of reference in this green paper, The JFSC will refer to the entire cohort of those individuals who conduct compliance functions across the financial services industry as COMPLIANCE PROFESSIONALS, a subset of which are Key Persons.
1. Unless a specific reference to one of the mandated compliance roles is needed, this paper will use the term Key Persons, although there may be a slight nuance between the relevance of the context to each (i.e., the MLRO, MLCO, and CO roles).
2. While this paper is focused on Key Persons, The JFSC are mindful of any impact on the broader population of Compliance Professionals in Jersey.
3. The following regimes and how the compliance function is regulated are not addressed in this green paper:
1. The notice designating existing senior management functions.
2. A managed entity’s use of a Manager of a Managed Entity (MoME) to fulfil its regulatory obligations; and
3. the anti-money laundering services provider (AMLSP), created as a function of the Proceeds of Crime (Jersey) Law 1999 (POCL) Schedule 2 / Money Laundering (Jersey) Order 2008 (MLO).
4. However, they may be relevant when formulating a response if they are considered contributors to or alleviators of the Key Person resourcing challenge.

SMART SURVEY 

• The JFSC is seeking stakeholder views on three high-level options it considers the most appropriate to commence the discussions through a SmartSurvey - https://www.smartsurvey.co.uk/s/Z6QBQ4/

IN THE SURVEY, YOU ARE ASKED 6 QUESTIONS AS FOLLOWS

1. Rank the options in order of preference, with 1 being your preferred option and 4 being your least preferred option:   *

• • 1 Option 1 - retain the status quo, i.e. retaining both the residency and employment requirements.
  • 2 Option 2 - retain the employment connection of Key Persons and remove the Jersey residency requirement.
  • 3 Option 3 - retain the Jersey residency requirement for Key Persons and remove the Key Person employment requirement. Please explain your reasons
  • 4 None of the above

2. How would you propose that the JFSC improve the status quo by retaining both the residency and employment requirements? Please explain your reasons and what improvements, if any, you consider appropriate. In your response, please consider the following:

• • How would the proposed option address recruiting and retaining Key Persons?
  • How would the proposed option benefit the financial services industry in Jersey?
  • What effect would the proposed option have on Jersey’s compliance with FATF standards?
  • The risks associated with these enhancements and how they might be mitigated.

3. What are the risks of removing the Jersey residency requirement? How would you propose that these risks be mitigated? Please explain your reasons. In your response, please consider the following:

• • How would the proposed option address recruiting and retaining Key Persons?
  • How would the proposed option benefit the financial services industry in Jersey?
  • What effect would the proposed option have on Jersey’s compliance with FATF standards?

4. What are the risks of removing the employment requirement? How would you propose that these risks be mitigated? Please explain your reasons. In your response, please consider the following: 

• • How would the proposed option address recruiting and retaining Key Persons?
  • How would the proposed option benefit the financial services industry in Jersey?
  • What effect would the proposed option have on Jersey’s compliance with FATF standards?

5. What is your experience using RegTech, and do you agree it could be a solution for lessening the human capital burden for the compliance function? In your response, please consider the following:

• • Do you agree that RegTech helps address the challenge of recruiting and retaining Key Persons?
  • The risks associated with RegTech and how they might be mitigated.

6. Is there an alternative solution or anything else that The JFSC has not considered in the paper? In your response, please give reasons to support your answer if not covered in other question responses.

Sources

• https://www.jerseyfsc.org/industry/consultations/compliance-function-key-persons-regime-green-paper/
• SmartSurvey - https://www.smartsurvey.co.uk/s/Z6QBQ4/