Jersey reliance regime: What the latest JFSC review tells us, and what is the way forward as a jurisdiction?

Obliged person, or ’reliance’, arrangements in Jersey can help businesses to simplify customer due diligence, especially if aligned to the digitisation of onboarding. Yet, the findings of the Jersey Financial Services Commission’s (JSFC) recent thematic review of the implementation and management of reliance arrangements highlight some shortcomings in how the regime is being applied. Why then is reliance coming under heightened scrutiny and how can your business get on track?

If applied appropriately, the reliance regime should allow financial institutions to make use of customer due diligence measures carried out by other businesses without having to start again from scratch. The benefits are faster onboarding and an improved customer experience, whilst avoiding needless duplication and reducing overall costs. 

However, as the JFSC’s review highlights, there are concerns over how appropriately and effectively the regime is being managed in some organisations. The findings are perhaps no surprise, reflecting many of the issues we’ve seen across the industry. The JFSC has put out a half hour webinar outlining the key take-aways from its review. For those of you with a particular interest in this area, it’s definitely worth taking a look.

The use of reliance shouldn’t just be a matter for risk and compliance teams alone, as any shortcomings not only affect the reputation of a business, but the reputation of the financial services industry in Jersey as a whole. It’s important to remember that reliance came under close scrutiny in Jersey’s last Financial Action Task Force (FATF) mutual evaluation and will no doubt be under the spotlight again in the next assessment.

Shortcomings

The JFSC report underlined several areas where businesses struggled. These include failures in assessing respective customer and business risks, not requesting sufficient information or not conducting adequate testing. Getting these steps right should actually be reasonably straightforward.

If we look more closely at a few points, the customer risk assessment is both a statutory and regulatory requirement regardless of reliance. It’s pivotal in determining what identification measures should be applied to a customer. It should therefore form the building blocks for assessing whether identification measures put in place by another party meet your own policy requirements. An appropriate testing approach should back this up, verifying that the underlying documents exist in the expected format. The fundamentals are largely the same as if you were onboarding your own client.

Some themes in the report underpin the core principles of a reliance regime. These centre around the governance and control framework. It’s disappointing to see that some regulated firms have failed to factor reliance into their business risk assessment. By extension, reliance may also have been excluded from compliance monitoring programmes. For me, this is a fundamental risk in the anti-money laundering (AML) process. The inclusion of reliance in core documents such as the business risk assessment (BRA) should ensure clear consideration of the relevant risks, controls and safeguards at the board level.

The findings suggest that reliance hasn’t quite yet stitched itself into the overall governance and compliance framework within some businesses. When you think of the amplified effect of this on the industry, then this could be a cause for concern, not least by any incoming FATF mutual evaluation teams.

The way forward

With the JFSC recently committing to support the development of a jurisdictional know your customer (KYC) utility, there is clear industry demand to remove and simplify the duplication of certain due diligence requirements. As such, some of the current clamour around the ‘readily retrievable’ timeline for documents potentially being lowered from a suggested five days to two days may fall away. Yet if we want to be a tech-enabled, confidently compliant, world-leading jurisdiction then that timeline should really be moving to on-demand and self-serve, making two days feel very achievable.

Any future KYC utility will likely be powered by ever improving RegTech. However, the underlying principles of mutual clients and information sharing remain consistent with the current regime. Therefore, to make progress, we have to get reliance right as a jurisdiction. And to do that we have to make sure governance surrounding reliance is as robust as other areas of risk and compliance.

What then is the future of reliance? I think we’re inching closer to a jurisdictional digital solution. But until then, reliance is the main driver of a simplified but robust and credible approach. It’s therefore important to take heed of the findings from the JFSC review, and ensure you’re meeting the standards needed to protect both your business and the credibility of Jersey’s financial services industry.

So, as a starting point, take a look at the JFSC’s webinar and let’s go from there!