Civil Financial Penalties Regime: the scope of “senior management function”

Following the change in legislation, the JFSC launched a consultation in May of this year, seeking feedback on their proposed notice that will define “senior management functions”. This will determine exactly who is in scope of the new regime and will have the potential to bring previously out of scope employees who perform a “senior management function” within range of civil financial penalties in respect of money laundering breaches.  It is also proposed that the Financial Services Commission (Financial Penalties) (Jersey) Order 2015 is amended to remove penalty caps for legal entities.

Article 1(1) of the Financial Services Commission (Jersey) Law 1998 defines “senior management function” as:

a function designated as such by the Commission by notice published on the Commission’s website where –

(a)   the function requires the individual performing it to be responsible for managing one or more aspects of the registered person’s affairs; and

(b)   those aspects involve, or might involve, a risk of serious consequences –

(i) for the registered person, or

(ii) for business or other interests in Jersey,

and in paragraph (a), managing one or more aspects of the registered person’s affairs includes a reference to taking decisions, or participating in the taking of decisions, about how one or more aspects of those affairs should be carried on.

The JFSC’s proposals acknowledge that whilst the board of a regulated business is the primary focus and ultimately responsible for organising and controlling the firm’s affairs to effectively mitigate money laundering and terrorist financing, senior managers to whom the Board has delegated or apportioned responsibilities should also be able to be held financially accountable for breaches.

The proposals in the consultation for who may be in scope focus on the following 4 categories:

• Category one – a person who manages any aspect of the firm’s local AML/CFT compliance or risk function, sitting below board level but above key persons. For example: Head of Compliance and/or Risk.
• Category two – a person whose management function may have an impact on the registered person’s compliance with the MLO or AML/CFT Code of Practice issued by the JFSC. This applies to senior managers sitting below board level who are directly accountable for the performance of the function to the Board or to a principal person. For example: Head of Client On-boarding or Head of Client Relationships.
• Category three – a person who carries out a duty or responsibility that the MLO or AML/CFT Code of Practice requires to be performed by senior management. For example: those approving continuation of a business relationship with a Politically Exposed Person, or approving a new correspondent banking relationship.
• Category four – applies to banks only and persons appointed and performing the duties of a ‘senior officer’, under the Banking Business (General Provisions) (Jersey) Order 2002. For example: an off-island officer approving the compliance policy of a Jersey branch.

It is important to note that all categories have the potential to bring into scope senior managers based outside Jersey.  The person’s function, and not their location, will be the determining factor.

The proposals are part of the Jersey Government’s ongoing commitment to combat financial crime and the Island’s response to the recommendations made by the Financial Action Task Force (FATF) standards, especially FATF Recommendation 35, as assessed by MONEYVAL. Under the proposals the existing civil financial penalty caps for registered persons would also be removed and the JFSC could impose penalties on “designated Non-Financial Business and Professions” such as lawyers, accountants, estate agents and casinos, and on their senior management, including principal and key persons. The JFSC anticipates that these amendments will increase the overall effectiveness and proportionality of the existing civil financial penalties regime, whilst providing for fairer and more equitable enforcement action outcomes.

The measures ultimately will extend the JFSC’s reach when it comes to combatting financial crime and holding industry responsible where significant and material breaches and contraventions occur. The JFSC has previously indicated that when considering whether a contravention is “significant and material” it adopts a risk-based approach, and its consideration focuses on the consequences or potential consequences of the contravention. By way of example, when deciding whether a contravention of the MLO should be regarded as “significant and material” the JFSC has suggested that its consideration would include assessing what impact the contravention had on the firm’s ability to adequately manage or mitigate the risk of money laundering.

The consultation closes on Friday 29 July 2022. Do get in touch with your usual Appleby contact should you wish to discuss further.