JFSC Publishes Fund Services Business Examination Feedback

The Jersey Financial Services Commission (JFSC) has published the summary findings from its program of onsite examinations conducted during 2015. The publication of these findings provides a useful guide as to the JFSC’s expectations of licensees.

The JFSC conducted 19 examinations during 2015, including supervision visits and themed examinations. The latter focused on SAR reporting and the role of the MLRO. The JFSC found deficiencies in compliance with the regulatory framework in all but one of the 19 firms analyzed. These resulted in action being required by the 18 firms to remediate for the shortcomings identified via a Post-Examination Monitoring Schedule (PEMS).

Examination findings

48% of the findings were identified in the area of internal systems and controls. These included:

• Lack of appropriate policies and/or procedures in areas such as third party payments
• Lack of a Business Continuity Plan (BCP)
• Inappropriate oversight of outsourced activities

The JFSC also identified deficiencies in the status and resources of the Compliance function, including the Compliance Monitoring Program (CMP). It is the Commission’s expectation for the number of compliance personnel to reflect the nature, scale and complexity of the entity’s business and for the CMP to be firm-specific and risk driven.

23% of the findings were in connection with the AML/CFT thematic reviews carried out at five registered firms.  Deficiencies identified included lack of independence of the MLRO and inadequate policies and procedures for the submission of SARs. The SAR process and the effectiveness of the MLRO will continue to be an area of focus of the Commission. The lack of enhanced CDD for high risk clients and inappropriate reliance on obliged persons to carry out due diligence were also identified.

The remaining findings (29%) related to Corporate Governance.  Deficiencies were identified in the following areas:

• Frequency of board meetings
• Adequacy of board minutes
• Identification and management of potential and actual conflicts of interest
• Infrequent or non-attendance by directors at board meetings
• Inadequate MI to the board
• Business Risk Assessment (BRA) not approved by the board or not reviewed periodically
• Failure to identify key business risks and define mitigating controls

The JFSC also highlighted the importance of compliance culture and the regulator’s role in assessing compliance culture through ways including how the registered firm interacts with the regulator. It is the regulator’s expectation for firms to be open, transparent and cooperative in their dealings with the Commission.

How Duff & Phelps can help

The above findings give insight into the JFSC’s expectations in areas of systems and controls, AML/CFT arrangements and corporate governance. Firms should take care to regularly assess their controls and resourcing and ensure policies and procedures are appropriate and accurately reflect the nature of the business.

Our experienced Compliance and Regulatory Consulting team, based in the Channel Islands and globally, can assist your firm with meeting the JFSC’s regulatory standards through:

• Drafting and reviewing policies and procedures
• Undertaking a health-check and gap analysis of your regulatory and AML approach
• Designing and implementing a Compliance Monitoring Program
• Delivering staff training on areas including AML and corporate governance