Consultation on enhancements to criminal background checks

1 Overview

1.1 Executive summary

1.1.1 The proposals in this consultation paper seek to strengthen our current regulatory regime to prevent criminals and their associates from owning, controlling or being in a position of key influence in a Jersey supervised person in order to meet international AML/CFT/CPF requirements. Our proposals aim to achieve this in a proportionate, cost-efficient manner that does not adversely impact the competitiveness and attractiveness of Jersey as a place to do business.

1.1.2 To achieve this, there needs to be a consistent approach across all firms and sectors on the systems they each have in place to check the criminal history of those that will act, or are, acting in principal person (PP) and key person (KP) positions. We are proposing more emphasis is placed on the controls that should already exist within firms in this regard. This mitigates risks to their reputation, customer losses which they would need to compensate, or direct financial loss arising from the consequences of permitting their business to be used for the purposes of financial crime.

1.1.3 Our proposals further seek to respond to the recommendations made by MONEYVAL in their fifth-round evaluation of Jersey and are part of the nationally coordinated programme of work led by the Government of Jersey, in partnership with other island agencies, to implement the FATF Recommendations.

1.1.4 We would like your feedback on our proposals to

• enhance our application process for individuals seeking to be a PP (which includes directors, beneficial owners and controllers and others) or a KP (including the MLRO), the MLCO and compliance officer) of supervised persons, by requiring the provision of a certified copy of a current DBS check (or foreign equivalent) at first application, on defined events and on a 3-year rolling period
• require a supervised person to regularly consider whether its PPs and KPs are fit and proper to hold the roles

(together the Proposed Regime).

1.1.5 For the avoidance of doubt, notwithstanding that a NPO must register with the JFSC pursuant to Article 4 of the NPO Law and if prescribed falls within the scope of the Supervisory Bodies Law, it is currently not intended that NPOs will be subject to the Proposed Regime. The JFSC has taken this approach in order to align with the FATF Recommendation 8 requirements that state countries should apply proportionate measures to the oversight of NPOs. Prescribed NPOs remain subject to the obligations set out in the NPO Order and Section 17 of the Handbook.

1.1.6 To maintain consistency in the treatment of individuals who hold significant roles in equivalent businesses to supervised persons, our Proposed Regime will also apply to a registered person of a general insurance mediation business, and their PPs and KPs.

1.1.7 These proposals will allow us to better evidence compliance with FATF Recommendations, as well as protecting the public and Jersey’s reputation as a jurisdiction that will not tolerate bad actors being connected with Jersey supervised persons.

1.2 FATF, MONEYVAL and our powers

1.2.1 As a leading International Finance Centre (IFC), Jersey must comply with international standards. Any proposed change to an existing process to ensure this compliance should be approached in a proportionate manner. We will make any process improvements that will strengthen the integrity and transparency of Jersey’s financial services industry while ensuring that these changes don’t significantly disrupt Jersey’s ability to compete and grow.

1.2.2 While worded slightly differently across several FATF Recommendations, one such requirement is that “…Competent Authorities or Financial Supervisors should take the necessary legal or regulatory measures to prevent criminals or their associates from holding or being the beneficial owner of significant or controlling interest or holding a management function in a [supervised person].” (FATF Requirement)

1.2.3 The recent MONEYVAL report found “The JFSC’s practice of relying on a self-declaration to report criminal convictions followed by checks in specific databases instead of requesting criminal record certificates as a routine practice is a vulnerability. This is further exacerbated as Jersey’s legislation does not prescribe an all-crimes approach for reputational checks albeit the JFSC suggests that all crimes are considered in practice” (MONEYVAL Finding).

1.2.4 MONEYVAL recommend that:

“a) Jersey should enhance criminal background checks for beneficial owners, controllers and key function holders applied at the market entry stage and in the course of subsequent changes.” (MONEYVAL Recommendation)

1.2.5 The MONEYVAL Finding and the MONEYVAL Recommendation are related but are two distinct parts:

i. the need to enhance criminal background checks

ii. the need to legislate an ‘all-crimes’ approach.

This consultation paper focuses on the MONEYVAL Recommendation.

1.2.6 In reference to point (i): We currently deploy a suite of background checks, based around an unverified self-declaration process, to identify whether an individual applying to operate, or who is currently operating, in a position of key influence of a supervised person has a criminal history. This process can be further enhanced, especially where a person is or has been resident or worked in a jurisdiction outside of Jersey. It is a feature of an offshore jurisdiction, such as Jersey, that individuals from many countries may be involved in the ownership and control of supervised persons, and it is these participants, in particular, for whom a confirmed criminal history is often difficult to obtain outside of those background checks already undertaken.

1.2.7 On point (ii): Our power to conduct checks and to require supervised persons to supply information emanates from the Supervisory Bodies Law. That same law also provides the scope for us to determine whether an individual involved in the financial services industry is a ‘fit and proper person’. As identified in the MONEYVAL Finding, the ‘fit and proper person’ test could be wider than currently stands, to include ‘all crimes’. Broadening the test would require a change to the Supervisory Bodies Law. Amending the Supervisory Bodies Law is not the subject of this consultation paper; however, it is important to understand the potential future context these proposals may operate in.

1.3 What is proposed and why?

1.3.1 When formulating the Proposed Regime, we reflected on local industry practice and the approach of other comparable regulators subject to the FATF Requirement, to ensure that any implementation does not put the jurisdiction in a less competitive and attractive position.

1.3.2 While each regulator approached the FATF Requirement differently based on their respective regulatory landscape, a common thread was the production of a DBS check (or foreign equivalent) for holders of significant roles in supervised or regulated entities. We propose that Jersey adopts a similar practice.

1.3.3 An area of the Proposed Regime that will differ from comparable jurisdictions concerns the suggested 3-year rolling refresh requirement for criminal record checks. We feel that to maintain the integrity of Jersey as a pre-eminent IFC it is imperative that all individuals (including foreign owners and controllers) who are involved in a Jersey supervised person are, and always remain, of the highest integrity. The weakness in either the unverified self-declaration process or a one-off criminal record check regime is that an individual’s circumstances may change, and without the compulsion to refresh criminal checks on a regular basis Jersey could, inadvertently, facilitate a bad actor remaining in a significant role.

1.3.4 The 3-year rolling requirement aims to capture those that would otherwise fall outside of the ‘subsequent changes’ provision referenced in the MONEYVAL Recommendation and focusses on those who have and will remain in a position for a prolonged period of time. For PP/KPs who have either no criminal history, or a criminal history which will not adversely affect an application or continuance in a role, the minor inconvenience to refresh their criminal records check at least once every 3 years does not, in our view, outweigh the need to proactively identify bad actors associated with Jersey supervised persons who have the potential to tarnish the jurisdiction as a whole, if left undetected.

1.3.5 The Money Laundering Order requires a relevant person to screen its employees. The Handbook (Section 9) includes guidance that this screening may be achieved by obtaining and confirming any criminal convictions (or absence of such convictions) of an employee. We understand that, while not compulsory to do so, industry routinely uses this check to screen employees at the onboarding stage, including those who are intended to hold KP roles. We are also aware that sections of industry complete an internal annual self-certification process, which includes a requirement for employees to disclose any material changes that may affect their fitness to continue to act in a role.

1.3.6 We recognise that employers are generally prevented, by the Rehabilitation of Offenders framework, from asking employees certain questions about spent convictions. The framework does, however, include exemptions, meaning that we and supervised persons can ask PPs (or prospective PPs) and KPs (or prospective KPs) for details about some spent convictions.

1.3.7 The Proposed Regime will be achieved by the introduction of additional code requirements to our Handbook Codes of Practice and corresponding amendments to the GIMB Code.

1.3.8 We are preparing updates to the relevant myJFSC portal application forms and processes.

1.4 Who would be affected?

1.4.1 The proposals in this consultation paper will affect:

• existing supervised persons
• individuals who are currently PPs and/or KPs
• applicants applying to become supervised persons, or their PPs and KPs, post the Commencement Date

Read the full consultation paper.