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Regulatory Updates: Q2 2023

Regulatory Updates: Q2 2023

11 July 2023


Update on regulatory matters in the period

Jersey Financial Services Commission (“JFSC”)

Guernsey Financial Services Commission (“GFSC”)

UK Financial Conduct Authority (“FCA”)

Isle of Man Financial Services Authority (“IoM FSA)

Gibraltar Financial Services Commission (“Gib FSC”)

Central Bank of Ireland (“CBoI”)

Update on regulatory matters in the period

As usual we have set out below a round-up of various regulatory updates in the quarter.

The following is a headline summary of what Redwood believes to be noteworthy regulatory news, media statements or certain, but not all, enforcement actions.

The numerous, and varied, Sanctions updates have been issued by the authorities that are applicable across multiple jurisdictions. Therefore, these have not been included below but are available on request, and across a number of jurisdictions there have been notifications against various companies being struck off or bogus. Again, these have not been included but are available on request for current clients of Redwood.

Whilst a number of the areas covered are not directly related to any particular industry, they provide a strong steer on the Regulators’ direction of travel into what is expected.

As usual, we recommend that key areas are considered by your Compliance function against your current business to assess whether similar risks or issues exist and, if they do, take the appropriate action. Should you require further assistance with this we would be pleased to help and do not hesitate to contact us.

Jersey Financial Services Commission (“JFSC”)

Feedback from Registry inspections in 2022 

The JFSC published feedback regarding their Registry Supervision inspection programme in 2022. 

From April 2022 to December 2022, 560 entity inspections have taken place and the Registry team reviewed and authenticated the details of 4,843 associated parties. 

The report can be located here

Thematic Examination: Independent Financial Advisers – investment services to vulnerable persons

The JFSC provided feedback to industry on their upcoming Thematic examinations of Independent Financial Advisers on assessing the protections afforded to Vulnerable Persons. The key areas of focus in this thematic examination include: - Policies and procedures: do registered persons have appropriate policies and procedures in place relating to: 

the identification of vulnerable persons as required by Principle 2 of the Investment Business (“IB”) Code of Practice (“Code”)?  the provision and implementation of appropriate protections for vulnerable persons as required by Principles 2 and 3 of the IB Code? Risk Assessment: do registered persons undertake adequate assessments of vulnerable persons’ risk appetite as required by Principle 2 of the IB Code? Suitability of advice to vulnerable persons: do registered persons ensure that the way in which they present their advice to vulnerable persons is suitably tailored as required by Principle 2 of the IB Code? Ongoing monitoring: do registered persons ensure that adequate procedures are implemented to ensure that the investment services that it provides to vulnerable persons are regularly reviewed at appropriate intervals as required by Principle 2 of the IB Code? 

More information can be found here. 

Guidance on remediation action plans 

The JFSC issued guidance to support businesses in preparing remediation action plans in response to areas of identified non-compliance. A remediation action plan may be required as a result of findings from an Examination, a self-identified breach notification or another form of review. The purpose of the guidance is to provide practical information to be considered by businesses when planning for remediation. In particular, the JFSC has detailed examples of good practice for businesses to consider when preparing a remediation action plan, as well as considerations for resourcing remediation and post remediation monitoring. The Guidance can be located here

Updates to the AML/CFT/CPF Handbook 

The JFSC has updated the AML/CFT/CPF Handbook following the consultation feedback issued in March 2023. The revised Handbook will come into effect on 1 July 2023. 

Schedule 2 business Anti-Money Laundering Services Provider, Business Private Trust Companies and Family Offices and Business Lending FAQ pages 

The JFSC has published an FAQ page to address some of the common questions they have been receiving regarding Schedule 2 licensing requirements. 

For Anti-Money Laundering Services Providers (AMLSP). It can be located here

For Business Private Trust Companies and Family Offices, it can be located here

For Business lending, it can be found here

The role of the Money Laundering Compliance Officer - Thematic Feedback published

During the third quarter of 2022, the JFSC undertook a thematic examination to assess the compliance of supervised persons with their regulatory obligations regarding the role of the Money Laundering Compliance Officer (MLCO). The thematic consisted of an examination of eight supervised persons and the JFSC identified 27 findings. The Feedback provides more detail on the JFSC’s findings and sets out relevant examples of good practice. 

All supervised persons should review this feedback and consider what enhancements to their systems and controls might be required. 

The Feedback can be located here.

Notice of Examination on Suspicious Activity Reporting Obligations for Designated Non-Financial Businesses and Professions and Virtual Asset Service Providers 

The JFSC will be conducting themed examinations of the Designated Non-Financial Businesses and Professions (DNFBP) and Virtual Asset Service Providers (VASP) sectors between June and October 2023, as part of their 2023 thematic examinations programme. 

Pooled Supervision and New Regime Supervision Teams to combine as new DNFBP/NPO/VASP Team 

The recent legislative changes to the Schedule 2 of the Proceeds of Crime (Jersey) Law 1999 (PoCL) and the Proceeds of Crime (Supervisory Bodies) Law 2008 (Supervisory Bodies Law), have presented the JFSC with the opportunity to combine two of their supervision teams into one:  

New Regimes Team - responsible for the supervisory implementation of Non-Profit Organisations (NPOs) and Virtual Asset Service Provider (VASPs)  

Pooled Supervision Team - responsible for the supervision of a range of ‘lower risk’ Financial Institutions (FIs) found, within Schedule 2 of the Supervisory Bodies Law, but primarily Designated Non-Financial Businesses and Professions (DNFBPs) to create the DNFBP/NPO/VASP Team. 

Government of Jersey publishes Terrorist Financing National Risk Assessment Update 2023 

The Government of Jersey has published the Terrorist Financing National Risk Assessment Update (2023 TF NRA). The 2023 TF NRA builds on the National Risk Assessment of Terrorist Financing published in April 2021 (2021 TF NRA) and should be read alongside it. It can be located here

Upcoming Supervision inspections and individual firm assessments 

As well as examinations focusing on the four main themes for the JFSC’s 2023 thematic examination programme, their teams will also be conducting sector-based conduct and financial crime inspections covering: 

AML training Compliance monitoring Customer onboarding Controls over Jersey Private Funds (JPFs) And in the second half of 2023, the JFSC will be undertaking a series of individual firm assessments to look at business model viability and the quality of governance. 

New sanctions compliance obligations in effect from 1 July 2023 

Effective from 1 July 2023, all Supervised Persons are subject to updated mandatory AML/CPF/CFT Handbook Codes of Practice related to sanctions compliance under Section 6.2.2: - A supervised person must undertake sanctions screening for all business relationships and one-off transactions. This screening must include the customer, any beneficial owners and controllers and other associated parties. The screening must be carried out at the time of take-on, periodic review and when there is a trigger event, i.e., amendments made to the sanctions designations lists. A supervised person must sign up to receive sanctions e-mail alerts from the JFSC and sanctions notices from the Government of Jersey, which are publicly available on the Jersey Gazette. A supervised person must ensure their sanctions monitoring arrangements include an assessment of the effectiveness of their sanctions’ controls and their compliance with the Jersey sanctions regime. 

Sanctions thematic questionnaire and screening systems examinations feedback published

In the first quarter of 2022, the JFSC asked 65 supervised persons to complete a thematic questionnaire in relation to targeted financial sanctions. The questionnaire sought to gather information concerning: - how those businesses implemented targeted financial sanctions; how impacted customers, transactions and activity were identified; the type and nature of screening undertaken; 

tools used; systems and controls (including policies and procedures) established to identify and report instances where there may be a connection to a designated person or entity. Additionally, during the fourth quarter of 2022, the JFSC undertook a thematic examination to assess sanctions screening systems used by 23 supervised persons.  The aim of the examination was to test client and transaction screening tools used by supervised persons to understand their: - effectiveness: the ability to create a match against the name of a designated person; and efficiency: the number of alerts generated by the screening tool per name screened. 

The JFSC’s feedback paper provides details in relation to the questionnaire responses, findings from the thematic examination and relevant examples of good practice and can be located here. All supervised persons should review this feedback and consider whether enhancements to their systems and controls are required. 

Guernsey Financial Services Commission (“GFSC”)

Ian Charles Domaille, Ian Geoffrey Clarke, Margaret Helen Hannis and Guernsey Financial Services Commission

The GFSC is preparing to ask the Guernsey Court of Appeal to review legal aspects of the judgment handed down in this matter on 18 April 2023 because some of the reasoning and interpretation of the law contained in the judgment does not align with the GFSC’s understanding of their statutory duties and powers - as endorsed by the Royal Court and Guernsey Court of Appeal in prior judgments concerning appeals against their enforcement actions. 

Enforcement Action 

Mr. Trevor James Kelham and Ms. Sarah Jayne Sarre 

The GFSC decided: To prohibit Mr. Kelham, under each of the Regulatory Laws, from holding the position of director, controller, partner, manager and financial adviser under any of the Regulatory Laws for a period of 4 years; In relation to Mr. Kelham, to disapply Section 3(1)(g) exemption under the Fiduciaries Law, for a period of 4 years; 

To impose a financial penalty of £45,000 under section 11D of the Financial Services Commission Law on Mr. Kelham; To impose a financial penalty of £13,500 under section 11D of the Financial Services Commission Law on Ms. Sarre; and To make a public statement under section 11C of the Financial Services Commission Law. The Commission considered it reasonable, proportionate and necessary to make these decisions having concluded that Mr. Kelham and Ms. Sarre failed to fulfil the relevant criteria of the minimum criteria for licensing under Schedule 1 of the Fiduciaries Law. Further information can be located here

UK Financial Conduct Authority (“FCA”)

FCA sets clear plan for next 12 months 

In the second year of its 3-year strategy, the FCA plans to accelerate 4 areas of its work over the next 12 months through further investment and increased resources. In its Business Plan 2023/24, the FCA has set out an ambitious programme for the next 12 months to achieve better outcomes for consumers and markets, in line with its 3-year strategy.   The FCA’s strategy is designed to be flexible and with the changing economic picture, the FCA is accelerating its work in 4 areas over the next year through further investment and increased resources: - 

  • Putting Consumers’ needs first; 

  • Preparing financial services for the future; 

  • Strengthening the UK’s position in global wholesale markets; 

  • Reducing and preventing financial crime. 

Three individuals convicted and sentenced to a combined 24 and a half years for 'all-or-nothing’ investment fraud 

Three people have been convicted for investment fraud and sentenced to a total of 24 and a half years for their roles, in a prosecution brought by the FCA. 

This page was updated on 22 May 2023 following the sentencing of Reuben Akpojaro. See the update below.  

A fourth defendant was convicted for trading without FCA authorisation. 

On 3 April 2023, following an 8-week trial at Southwark Crown Court, Cameron Vickers (27 years old), Raheel Mirza (38 years old) and Opeyemi Solaja (33 years old) were convicted of conspiracy to defraud through a fake, London-based company called Bespoke Markets Group (BMG). 

Their scam fleeced roughly £1.2 million from around 120 UK investors. Raheel Mirza was further convicted of perverting the course of justice and Reuben Akpojaro (40 years old) was convicted for offering binary option investments without FCA authorisation. Akpojaro was acquitted of conspiracy to defraud and money laundering. 

FCA sets out steps to improve whistleblower confidence

The FCA has set out actions to improve the confidence of whistleblowers – including sharing further information with whistleblowers on how it’s acted on their information; improving the use of information provided by whistleblowers; and improving how it captures information from whistleblowers. 

This follows a qualitative survey of whistleblowers who had provided information to the FCA, to understand their experience and identify areas for improvement.  

The FCA will: - 

  • provide whistleblowers with more detail on what has been done with the information provided, or reasons for taking or not taking action; 

  • improve the use of whistleblowers’ information across the FCA (e.g., making the best use of data and ensuring that end-to-end whistleblowing processes are as efficient as possible) 

  • enhance its webform – which is the most popular way for whistleblowers to contact the FCA – to fully capture every whistleblower’s disclosure; 

  • engage with the Department for Business and Trade to support a review of whistleblower legislation to enhance the wider whistleblowing system. 

Whistleblowing provides the FCA with unique insights from inside the firms and markets it regulates. It has allowed it to identify and correct problems including consumers being mis-sold loans, unauthorised firms taking on customers, and failings in firms’ own internal whistleblowing procedures. 

Enforcement Actions 

Banque Havilland SA and three of its former employees 

The FCA has decided to fine Banque Havilland £10m; its former London branch CEO, Edmund Rowland, £352,000; David Weller, a former London branch senior manager, £54,000; and Vladimir Bolelyy, a former London branch employee, £14,200. The FCA has decided to ban all 3 individuals from working in financial services. 

The FCA considers that between September and November 2017, Banque Havilland acted without integrity by creating and disseminating a document which contained manipulative trading strategies aimed at creating a false or misleading impression as to the market in, or the price of, Qatari bonds. The objective was to devalue the Qatari Riyal and break its peg to the US Dollar, thereby harming the economy of Qatar. 

Banque Havilland, Edmund Rowland and Vladimir Bolelyy have referred their Decision Notices to the Upper Tribunal where they will each present their case. David Weller has not referred his Decision Notice to the Upper Tribunal. David Rowland, who has been given third party rights, has also referred all 4 Decision Notices to the Upper Tribunal and will present his case.  

ED&F Man Capital Markets Ltd

The FCA has fined ED&F Man Capital Markets Ltd (‘MCM’) £17,219,300 for serious failings in its oversight of cum-ex trading. These failings allowed MCM to collect fees for trading strategies designed to enable its clients to illegitimately reclaim tax from the Danish authorities.  

Between February 2012 and March 2015 MCM enabled significant volumes of dividend arbitrage trading on behalf of clients, allowing clients to make withholding tax (‘WHT’) reclaims.  

It is established that £20m of the WHT reclaims made by MCM’s clients to the Danish tax authority (SKAT) were illegitimate. A Dubai based trading firm within the same corporate group as MCM participated in the trading strategy which resulted in these illegitimate WHT reclaims from SKAT. These reclaims were illegitimate because under this strategy WHT was reclaimed despite no shares being owned or borrowed, no dividend being received, and no tax being paid. MCM generated £5.06m in fees from this. 

MCM had inadequate compliance checks and failed to ensure that this dividend arbitrage trading was legitimate. The firm’s compliance function did not have the necessary expertise to monitor or review the trading and only carried out a high-level annual compliance review of the department responsible. It failed to take any steps to understand the trading activities or properly consider the risks of dividend arbitrage trading. 

FCA warns of impending Consumer Duty deadline 

The FCA has urged firms to ensure they are ready for the 31 July deadline. In a speech, Sheldon Mills, Executive Director of Consumers and Competition at the FCA, warned that firms who ignore the Duty or who pose the most harm can expect swift action. Sheldon Mills said: - 'Our supervisory and enforcement approach will be proportionate to the harm – or risk of harm – to consumers, with a sharp focus on outcomes.   'We will prioritise the most serious breaches and act swiftly and assertively where we find evidence of harm or risk of harm to consumers.   'In some cases, firms can expect us to take robust action, such as interventions or investigations, along with possible disciplinary sanctions.' 

Financial watchdog bans referral fees for debt packagers to help struggling consumers

The FCA is banning certain providers of debt advice from receiving referral fees from debt solution providers.  The ban should save consumers struggling with debt thousands of pounds in unnecessary fees and ensure they receive better quality advice. It will put a stop to the business model which incentivises debt packagers to recommend certain options that make them more money rather than what is in the customer’s best interest.  

Isle of Man Financial Services Authority (“IoM FSA")

Restructure to support updated supervisory approach 

Internal restructuring has taken place at the IoM FSA to support the transition to an updated approach to supervision. The intention is to focus the Authority’s resources on the greatest threats to its objectives of protecting consumers, reducing financial crime, and maintaining confidence in the financial services sector through effective regulation. Going forward, the regulator’s supervisory approach will be more proportionate to a firm’s size, the type of activities it conducts, and its potential to cause disruption to the Island’s financial system and economy. The Authority will directly contact regulated firms to confirm their impact rating and provide further information about the changes. A new page has also been added to the Authority’s website to reflect the areas of responsibility and contact details for the four supervisory divisions: 

  • Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) 

  • Prudential (Banks and Insurers) 

  • High and Medium Impact (including enhanced supervision) 

  • Portfolio (including authorisations) 

Supervisory Methodology 

The IoM FSA subsequently issued its Supervisory Methodology will help to focus the Authority’s resources on the greatest threats to its objectives of protecting consumers, reducing financial crime, and maintaining confidence in the financial services sector through effective regulation. 

For regulated firms, supervisory activity will be more proportionate to the firm’s impact, as determined by its size, the type of activities it conducts, and its potential to cause disruption to the Island’s financial system. 

In parallel, Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) supervision for all firms (regulated firms and designated businesses) will be aligned to the level of money laundering or terrorist financing risk to which a firm is exposed. The Framework can be located here

Authority publishes findings of PEP report 

The IoM FSA has published the findings of its review into one of the biggest international crime threats to the Island’s reputation as a well-regulated jurisdiction. A thematic exercise was carried out between 2021 and 2023 to evaluate the risks posed to the Isle of Man business sector in connection with foreign Politically Exposed Persons (PEPs). The review conducted by the IoM FSA tested the strength of measures and controls put in place by firms to mitigate PEP-related risks and protect their business from abuse by criminals. The outcomes, which are available to view online, will help to inform the Authority’s overall picture of risk, as well as the Island’s National Risk Assessment. The report can be located here

Gibraltar Financial Services Commission (“Gib FSC”)

No material updates of note

Central Bank of Ireland (“CBoI”)

The CBoI launches Consultation Paper seeking views on enhanced enforcement process

The CBoI launched a 12-week consultation on enhancements to the Administrative Sanctions Procedure (ASP). 

The Central Bank (Individual Accountability Framework) Act 2023 was signed into law on 9 March 2023 and introduces a number of important changes to the ASP, which underpins and supports the Individual Accountability Framework (IAF).

The IAF includes four key elements: - 

  • The Senior Executive Accountability Regime; 

  • Conduct Standards; 

  • Enhancements to the current Fitness & Probity Regime;

  • and Enhancements to the Administrative Sanctions Procedure. 

The CBoI recently completed a separate consultation on how to implement the first three elements of the IAF.   

The IAF builds on the CBoI’s existing enforcement powers, and enhances the Central Bank’s ability to hold both firms and individuals to account. 

The purpose of the consultation is to seek views on the revised procedures in the ASP following the introduction of changes under the IAF Act and to provide guidance in an open and clear manner as to how the CBoI proposes to operate these revised procedures. 

by Ian Journeaux, Senior Consultant

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