Understanding the impact on Schedule 2 Business

The JFSC has made these amendments in response to an upcoming inspection by Moneyval, a regional body of the Financial Action Task Force (FATF), scheduled for later in 2023. Moneyval evaluates how effectively countries combat money laundering and related activities. A negative outcome from this inspection can lead to a jurisdiction being placed on the FATF “grey list,” which signifies increased monitoring.

Countries currently on the grey list, such as the Cayman Islands, South Africa, and the UAE, may face challenges in attracting business and can also impact other assessments by entities like the European Union (EU).

During Jersey’s previous Moneyval inspection in 2015/16, a recommendation was made to review the exemptions in the Proceeds of Crime (Jersey) Law, ensuring they were justified by low risk of money laundering. After careful analysis, authorities concluded that, at present, there is insufficient evidence to justify these exemptions. Consequently, they are being removed to demonstrate Jersey’s proactive response to address Moneyval’s concerns.

Ideally, a longer lead-in time for the amendments would have been preferable, however, due to factors like the COVID-19 pandemic, the authorities have granted short extension periods for certain categories of affected businesses to comply with the changes.

Undoubtedly, the assessment process can be complex as the guidance and FAQs provided by the authorities often fail to establish a clear “bright line” between entities that are now caught and those that are not.

In general, the assessment involves considering whether an entity:

• Engages in one or more “Schedule 2” activities (the definitions of which are quite broad).
• Conducts these activities “as a business.”
• Provides services to customers (for trustee activities, the test is whether they are performed for a third party).

The second aspect, determining whether something is done “as a business,” tends to pose the greatest challenge. In many organisational structures, there may be factors that support both the argument for meeting this test and the argument against it.

The authorities are advocating for an inclusive approach, aiming to encompass a wide range of entities. In their published lending guidelines, they have even deemed it necessary to clarify that “parents lending their children money” would not fall within the scope of these regulations.

Indeed, there is noticeable variation in approaches, some of which can be justified, while others appear to be overly rigid, which is unhelpful.

If a business determines that it is not within the scope of the regulations but later a court determines otherwise, the business may be held accountable for the criminal offense of engaging in unauthorised Schedule 2 business, along with the associated consequences.

It is our expectation that the authorities will continue to provide ongoing clarification and adopt a pragmatic stance, even if they disagree with the conclusion reached through a reasonable assessment. The focus of enforcement efforts should primarily be on more severe instances of non-compliance.

In essence, if your business is classified as being in scope, the requirements outlined in the Money Laundering (Jersey) Order will directly apply to your operations. This entails having your own Money Laundering Reporting Officer, a Money Laundering Compliance Officer, and adhering to additional obligations such as conducting a business risk assessment.

Fortunately, we are equipped to serve as an “Anti-Money Laundering Service Provider,” offering the provision of these officers and assistance in meeting the necessary compliance measures. Regrettably, there will be initial registration fees as well as annual fees payable to the regulator.

It is crucial to remain vigilant regarding any prospective new activities or modifications to your current business operations that could potentially bring your business within the regulatory purview. If such circumstances arise, it is imperative to refrain from commencing these activities until the business has successfully completed the registration process with the regulator, which may involve a certain duration. Altum is available to help if registration becomes necessary.