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Jersey praised for anti-money laundering compliance

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Jersey has been praised for the regulation and supervision of its financial sector and for its money laundering and terrorist financing defences.

Jersey has been praised for the regulation and supervision of its financial sector and for its money laundering and terrorist financing defences.

A report published by the International Monetary Fund concludes that financial sector regulation and supervision are of a high standard and comply well with international standards.

The Financial System Stability Assessment Update says Jersey has put in place a ‘comprehensive and robust’ framework for countering money laundering and terrorist financing and has achieved a ‘high level of compliance’ with almost all aspects of the Financial Action Task Force’s 40+9 recommendations.

The report also says that financial soundness indicators for banks are satisfactory and that Jersey’s banking system is resilient to a range of shocks.

The detailed assessment reports that form the basis for most of the FSSA show compliance ratings for each of the international standards against which the Island has been assessed.  The reports show that Jersey complies or largely complies with:

• All of the Basel Committee’s Core Principles for Effective Banking Supervision
• 24 of the 27 Insurance Core Principles that it has been assessed against
• 44 of the 49 FATF recommendations, and 15 of the 16 ‘core’ and ‘key’ FATF recommendations (Singapore and the US comply, or largely comply, with 43 of the FATF Recommendations and Belgium with 42)

These ratings place Jersey in the ‘top division’ of international finance centres, including those in the G20 and European Union. Where it is possible to make comparisons to other jurisdictions, Jersey’s ratings put it at the top of compliance tables.

While compliance with the International Organisation of Securities Commissions’ objectives and principles of securities regulation was not assessed, the FSSA says it is evident that the regulation of investment business, particularly funds business, has been significantly strengthened since the last IMF report in 2003.  The FSSA also says the trust and company services business sector enjoys a comprehensive regulatory and supervisory framework.

The FSSA highlights two particular areas that are specific to Jersey’s business model and where further enhancements could be considered.

Reference is made to the common business practice of up-streaming, where Jersey banks take deposits from customers (in Jersey and elsewhere) and then place these funds with group entities (mostly in the UK and other member states of the European Union) – providing liquidity to the group.  The report says that, in the event that the health of the group deteriorates, the exposure of Jersey banks would require careful management. 

Mention is made of the reliance that may be placed by Jersey businesses on third parties (in Jersey and elsewhere) to have carried out customer due diligence measures for AML/CFT purposes.  The IMF encourages the insular authorities to review the use of this concession, which is described as overly generous. 

The FSSA also makes a number of recommendations, identified as high or medium priority.   The authorities will develop an action plan to deal with these recommendations.  The plan will be published and the authorities will report annually on progress.

Despite the very positive assessment, the insular authorities accept there is no room for complacency.  In particular, the FSSA says the Jersey Financial Services Commission will be challenged to react to changes in supervisory standards coming out of the global financial turmoil and implement them proportionately to the risks on the island. 

In a joint statement, the Chief Minister Senator Terry Le Sueur and Commission Chairman Colin Powell said: ‘This is an excellent outcome and we attach tremendous importance to the IMF’s assessment.  We are delighted that it has yet again demonstrated Jersey’s high degree of compliance with international standards.  The FSSA and other reports will provide a strong base from which to continue discussions with our European neighbours about recognising the equivalence of what we have in place in Jersey.

‘Jersey remains committed to maintaining and enhancing its adherence to international standards and welcomes the recommendations made within the FSSA.  These recommendations will assist Jersey in further strengthening its regulatory, supervisory and AML/CFT arrangements and in developing its capacity to deal with financial sector shocks. 

‘The assessment reinforces Jersey’s position as a member of the community of nations that adhere to international standards in prudential, tax and AML/CFT areas.’

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