Schedule 2 Business Lending FAQs Published on 09th June 2023

The JFSC has published an X14 FAQ page to address some of the common questions we have received about lending following recent changes to Schedule 2.

Here is Comsure’s copy of the x14. The link to the KFSC publication is at the bottom of this page.

Why has Schedule 2 been amended?

1. Jersey has a long-standing commitment to comply with the international standards against money laundering and terrorist financing developed by the Financial Action Task Force (FATF).
2. An assessment of Jersey's adherence to those standards was conducted by Moneyval in 2015. Following that assessment, it was determined that Schedule 2 should be recast so that all activities and operations subject to AML/CFT obligations mirror the definitions within the FATF Recommendations.

Is all lending activity in scope?

1. No
   • Lending activity is only in scope if it is being undertaken 'as a business'.
2. As a business
   • No single test determines whether that activity or operation is being conducted 'as a business'; This can be subjective, but indicators that lending is being conducted 'as a business may include:
     • Loan transactions are frequent
     • The lending forms part of a commercial transaction or forms part of a broader commercial structure
     • Where security is granted
     • The loan is based on arms-length commercial terms with regular repayments and a set or indicative final date for repayment
     • Interest is paid on the loan
     • The indicators listed above do not represent a non-exhaustive list of considerations.
     • Where loans are structured via legal persons or arrangements, you should also consider the wider structure when determining whether such lending is being undertaken 'as a business'.
     • Loans made between group companies or connected companies may be lending 'as a business'. See question 11.

As trustee(s), we often lend money from the trust. Does this mean the trustee must register that specific trust?

1. In the following scenarios, does this mean the trustee must register that specific trust?
   • Lending to a beneficiary.
   • Lending to another family trust.
   • Lending to a company within the trust structure.
   • Lending to third parties, including unconnected trusts and individuals.
2. In determining whether each scenario requires the trustee to register the specific trust, you must consider whether the lending to those parties is being undertaken 'as a business'.
3. See question 2 above.

The lending of trust assets is often part of a transaction but only ancillary to that transaction. In these instances, is the trustee now required to register that specific trust?

1. An analysis will have to be taken on a case-by-case basis.
2. The fact that lending may be ancillary to another activity or transaction of the trust is not relevant in determining whether the trustee must register that specific trust.
3. It should also be noted that the level of financial compensation, however, received from the activity of lending (both in terms of the quantum and as a proportion of the total income), is not the sole factor for determining whether a trust is in scope in such instances.
4. The trustee must consider whether the lending is being undertaken as a business. See question 2 above.

I undertake lending as a private individual. What do I need to do?

1. Private individuals conducting lending 'as a business' have been required to register with the JFSC since 2008.
2. An exemption from registering with the JFSC only occurred when:
   • The person carrying on the activity of lending 'as a business' was registered to carry on trust company business under the Financial Services (Jersey) Law 1998 (the FSJL) or
   • The person carrying on the activity of lending 'as a business' was provided with a service by another person who was registered to carry on trust company business or fund services business under the FSJL and had no established place of business in Jersey other than through the trust company business or fund services business.
3. This registration exemption has been removed in line with international standards concerning AML/CFT.
4. If you have not previously availed of the registration exemption and are already registered with the JFSC, you should have received a Workbook from us.
5. If you have not received your Workbook, please get in touch with your JFSC Supervisor.
6. If you have determined that you are undertaking lending 'as a business' (see question 2 above), and are newly in scope, you must register with the JFSC.
   • Please see question 13 for more information.

As trustee(s) money may sometime be lent from the trust to beneficiaries on a rate of interest. Is payment of interest on a loan the key/sole factor in determining whether lending is being conducted as a business?

1. No
   • Payment of interest is an indicator but is not the sole factor for determining whether lending is being undertaken 'as a business'. See questions 2 and 4 above.

It is not unusual for a trustee to provide multiple loans from a trust's assets throughout the course of a year. If it is determined that occasionally, a loan may be considered as being provided 'as a business to a customer', should the trustee de-register that trust once those loans have been repaid?

1. In this example,
   • a trustee is lending a specific trust's assets periodically and has determined that, on occasion, it is doing so as a business to customers.
   • The trustee of that trust would need to ensure that it has registered the trust with the JFSC:
     • Before the end of the transitional period on 30th June 2023 in respect of all existing lending and/or
     • In advance of any new lending as a business to a customer taking place
   • It is recognised that there may be times when the trustee is not undertaking a Schedule 2 activity, in particular the activity of lending, but is likely to do so again throughout the course of its existence.
   • In such instances, it will be necessary for the trustee to consider whether it wishes to remain registered in respect of that specific trust, as a Schedule 2 business during the intervening periods.
2. The JFSC would not expect
   • a trustee to frequently register and de-register a specific trust as a Schedule 2 business, but rather to take the view that it may be more appropriate to continue to remain registered where it considers there will be future lending as a business to a customer.
   • every trustee to register every trust to which they are trustee just in case they might undertake lending, particularly if this is not envisaged (through completion of the initial analysis of the relationship) as part of the purpose or business profile of the trust.

If I want to lend money to my sibling, will I now be in scope?

1. No
   • The JFSC does not consider direct, one-off personal lending between immediate family members to be within the scope of the FATF definition of lending.

Special purpose vehicles (SPVs) often make loans, but the loans are usually incidental to the wider activities of the structure. The financial compensation received as a result of undertaking the lending is, in the overall scheme of the wider structure, negligible. Do these SPVs have to register as a Schedule 2 business?

1. The level of financial compensation, however received, from the activity of lending (both in terms of the quantum and as a proportion of the total income), is not the sole factor for determining whether an entity is in scope.
2. You must consider whether the entity, by undertaking lending, is doing so 'as a business'. See question 2 for further details.
3. The SPV should also consider whether it is carrying on any other type of 'financial services business' as a business, such as 'Fund and security services activities', and if appropriate, should apply to register to carry on those other types of Schedule 2 business.

Is a loan that is not in writing within scope?

1. Whether a loan is in writing is not determinative of the activity being in scope. You must consider whether the lender is undertaking lending services as a business. See question 2 for further details.

Can group companies or family offices with the same beneficial owner be considered to be undertaking related party transactions rather than undertaking lending 'as a business'?

1. Loans between intra-group companies/group companies, connected companies or other types of structure (i.e. trusts, partnerships etc.) may be lending 'as a business' depending on the circumstances.
2. For example,
   • an intra-group company lending on commercial terms to other group companies between legal persons connected by common ownership may be lending as a business.
3. The Government of Jersey and the JFSC acknowledged in the joint Feedback Paper (issued February 2022) (the Feedback Paper) to the original consultation on AML/CFT Scope Exemptions that "arguments that intra-group activities.
   • do not form customer relationships, and
   • are not by way of business, seem, prima-facie, compelling…".
4. However, the Feedback Paper also recognised that the amendments to Schedule 2's overarching aim is to align Jersey's AML/CFT regime to the FATF Standards, meaning that any quantitative and qualitative data related to such intra-group activities would need to support the low-risk assertion of such activities.
5. When the Feedback Paper was published, it was concluded that such data was unavailable. As such, it was impossible to justify an exemption within the FATF's criteria for exemptions. This position has not changed.
6. The need to be aware of the activities being undertaken 'as a business' within groups, including where any or all of the connected parties are natural or legal persons that are resident/registered in Jersey, remains.

I am newly in scope. What do I do now?

1. If you have considered the above, you determine that you are lending as a business, you must register with the JFSC.
2. You will become a supervised person, subject to the provisions of Jersey's anti-money laundering, counter-terrorist financing and counter-proliferation financing regime.
3. Further details on what this means and how these duties can be discharged are set out below.
4. The application form to register can be found here: Schedule 2 Forms — Jersey Financial Services Commission (jerseyfsc.org).
   • https://www.jerseyfsc.org/industry/sectors/schedule-2-forms/

I am now in scope. What are my AML/CFT/CPF obligations, and how can I discharge them?

1. Where you are providing lending services, including as a trustee of a trust or an SPV undertaking lending 'as a business' you are required to meet the AML/CFT/CPF obligations set out in the Money Laundering (Jersey) Order 2008 (the Money Laundering Order) and the AML/CFT/CPF Handbook (the Handbook).

I am in scope. Can I discharge my AML/CFT/CPF obligations through the appointment of an Anti-Money Laundering Services Provider (AMLSP)?

1. Provided all parties meet the requisite eligibility criteria, and the AMLSP has obtained a prior no objection from the JFSC concerning its key persons, they may, should they choose, appoint an AMLSP.
2. The AMLSP should only provide services to a Schedule 2 business if it can comply with section 18 of the AML/CFT/CPF Handbook requirements.
3. If this is not applicable, see question 13.

Source

• TO SEE THE FULL STATEMENT FROM THE JFSC, SEE https://www.jerseyfsc.org/industry/financial-crime/schedule-2-business-lending-faqs/

Glossary Terms used in this document:

• AML/CFT/CPF = Anti-Money Laundering, Countering the Financing of Terrorism and Countering Proliferation Financing.
• Schedule 2 = Schedule 2 to the Proceeds of Crime (Jersey) Law 1999