The Jersey Financial Services Commission ("JFSC") recently announced that its first area of focus for its 2024 thematic examination programme will be politically exposed persons ("PEPs") (the "Examination"). The Examination will commence in January and selected supervised persons for the Examination can expect to be notified soon.
What is a PEP?
The Money Laundering (Jersey) Order (2008) (the "Order") sets out that a PEP is an individual who is or has been entrusted with a prominent public function including, but not limited to:
- heads of state, heads of government or senior politicians
- senior government officials, judicial officials or military officials
- senior executives of state-owned corporations
- important political party officials
- immediate family members and close associates of a PEP
The JFSC's principal concern in respect of PEPs is that, whilst the majority of PEPs "are neither in a position to, nor do they, abuse their position", the "risk of handling the proceeds of corruption or becoming engaged in an arrangement that is designed to facilitate corruption is greatly increased where the arrangement involves a PEP" (especially a PEP connected to business sectors or countries with greater corruption risk).
A supervised person's obligations in relation to PEPs
In order to address the risks associated with having business relationships with PEPs, supervised persons are required to apply enhanced customer due diligence measures, including enhanced ongoing monitoring. These obligations are set out in the Order and the JFSC's Handbook for the prevention and detection of money laundering and the countering of terrorist financing and proliferation financing.
Declassification of PEPs
With effect from 1 September 2023, the Order was amended enabling supervised persons, subject to certain conditions, to declassify PEPs such that they are no longer required to apply enhanced customer due diligence measures in respect of declassified PEPs.
Key areas of focus for the Examination
The Examination will include consideration of the extent to which supervised persons are incorporating the declassification amendments under the Order in their business. In particular, the Examination will focus on the following key areas:
- business risk – whether PEP risk been comprehensively evaluated as part of the supervised person's business risk assessment
- policies and procedures – whether they are adequate and whether they enable staff to mitigate risks associated with PEP customers
- customer risk assessment / enhanced customer due diligence – whether relevant factors are taken into account in the customer risk assessment, and whether relevant and proportionate due diligence measures are applied
- screening – whether measures to identify PEPs are effective, and whether the assessment of any risks identified are appropriately evaluated
- enhanced ongoing monitoring – an assessment of what monitoring is undertaken in relation to PEP relationships and whether it is commensurate with risk
- compliance monitoring plans – an assessment of what testing is undertaken to assess the effectiveness of the supervised person's systems and controls which are designed to mitigate PEP risks
- training – whether staff are provided with adequate training in respect of PEPs
The announcement of the Examination clearly sets out the JFSC's focus on supervised persons' approach to business relationships with PEPs, and should be factored into 2024 horizon scanning board updates, and the regulatory and compliance planning of all supervised persons (not only those selected for the Examination). Supervised persons may also wish to proactively carry out a review of their approach to business relationships with PEPs, addressing the key areas set out above, and considering what enhancements to their systems and controls might be required.
Our dedicated regulatory and risk advisory team has considerable expertise providing regulatory advice to a wide range of international and domestic entities on Jersey's anti-money laundering regime, including PEP obligations. We are on hand to assist supervised persons in carrying out a review of their approach to business relationships with PEPs, and to guide JFSC selected supervised persons through the Examination process.
We will also keep clients updated on further announcements in respect of the JFSC's 2024 thematic examination programme.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.