The Jersey Financial Services Commission (“JFSC”) is currently consulting on changes to the AML/CFT Handbook which will introduce requirements for Prescribed NPOs.
This consultation follows Jersey’s National Risk Assessment of the risk of terrorist financing within the NPO sector which was published in April 2022 and found that, whilst the overall risk was assessed as medium to low, there was a subset of NPOs (around 11%) which presented a heightened risk.
These were NPOs that tended to:
- Operate in higher risk jurisdictions such as conflict zones, failed states, disaster areas where relief is greatly needed (humanitarian/disaster relief) which are equally areas where terrorists undertake activity
- Use partners with the aim of reducing risk, however this practice may increase transfer risk requiring additional management. Transfer risk refers to the risk of transferring funds directly or indirectly to terrorists.
- Use informal money remittance methods and cash.
The information provided in the NRA suggests that some organisations within the non-profit sector have a high-risk tolerance but a low control environment, this rendering them more vulnerable to terrorist financing abuse.
What is Changing?
The Non-Profit Organizations (Jersey) Law 2008 (“NPO Law”) already required certain NPOs to register with the JFSC and created two types of NPOs, being Registered NPOs (registered under the NPO Law) and Regulated NPOs (NPOs which are provided with a prescribed service in the course of Trust Company Business).
The Non-Profit Organisations (Miscellaneous Amendments) (Jersey) Law 2022 will introduce a new type of NPO being Prescribed NPOs and will introduce a new power to enable the Minister for External Relations and Financial Services to impose obligations by Order on Prescribed NPOs. A further amendment will remove the previous exemptions which allowed NPOs which raised less than £1,000 and Regulated NPOs not to register with the JFSC.
Registration will be required for all NPOs, irrespective of the raised or disbursed amount.
Prescribed NPOs will fall within the JFSC supervisory regime when the Prescribed Non-Profit Organisations (Jersey) Order 2022 comes into effect, (anticipated to be 1 January 2023). It is important to note that NPOs will not be subject to the full AML/CFT regime. In line with FATF’s Recommendation 8, focused and proportionate measures will be applied to manage the risk of abuse from terrorist financing.
Which NPOs will be considered to be a Prescribed NPO?
A NPO will be considered to be a Prescribed NPO if it has either:
- Raised more than £1,000 from outside Jersey, Guernsey, the Isle of Man, Scotland, England and Wales; or
- Disbursed more than £1,000 outside those jurisdictions.
Draft Handbook Section
Whilst feedback is awaited from the consultation paper, (expected mid-November) the new section of the Handbook is expected to set out the proposed AML/CFT Codes and Guidance for Prescribed NPOs. Unless otherwise stated, the AML/CFT Codes of Practice set out in Sections 2-16 of the wider AML/CFT Handbook will not apply to Prescribed NPOs.
Prescribed NPOs will be required to:
- Register with the JFSC
- Maintain effective corporate governance measures which include:
- Information on their purpose, objectives and activities
- Information on the identity of the persons who own, control and direct their activities, including charity governors, board members, trustees, senior officers (or equivalent, whether or not they are remunerated)
- An NPO Programme Risk Assessment which assesses and documents the mitigation of the risks of the NPO being used to assist terrorism, or the financing of terrorism, or becoming likely to assist or being used to assist terrorism or the financing of terrorism
- A definition and documentation of the NPOs’ approach to terrorist financing diversion risk in a Risk Appetite Statement
- Maintain internal systems and controls to:
- Mitigate terrorist financing diversion risk, to include maintaining a Diversion Risk Register and conducting ongoing monitoring of the NPO Programme (being the NPO’s activity)
- Ensure that all funds are fully accounted for
- Prepare annual financial statements that provide detailed breakdowns of income and expenditure, to be provided to the JFSC
- Take reasonable measures to:
- Confirm the identity and good standing of the NPO’s beneficiaries and partners
- Document the identity of their significant donors
- Confirm, so far as is possible, that its associate NPOs (if any) and beneficiaries are not assisting or being used to assist terrorism or the financing of terrorism
- Screen volunteers, employees and controllers
- Train volunteers, employees and controllers
- Maintain records of domestic and international transactions that are sufficiently detailed to verify that funds have been received and spent in a manner consistent with the purpose and objectives of the organisation, for a period of at least five years.
Prescribed NPOs need to apply the requirements of the Prescribed NPO Order to all of their business relationships and one-off transactions, not just those which are connected to higher risk jurisdictions.
These changes must be considered by all charities, clubs, associations and groups which meet the definition of a NPO. Whilst a NPO may have been previously exempt, all NPOs will now need to register.
If you are either a Registered NPO or a Regulated NPO, hopefully you have already commenced the process of considering whether you will be captured by the upcoming changes. Government and the JFSC have published a process flow to assist with the consideration of whether a NPO is caught which can be found at:
If you are caught, action will be required to ensure you meet the new requirements.
Trust Company Businesses Administering Regulated NPOs
TCBs will need to conduct a review to determine which Regulated NPOs are captured. Information gathered for the Supervisory Data Collection will assist, however information should be revalidated where required.
There will be direct action required for each Regulated NPO which has been determined to be captured, the services provided to the NPO will determine the engagement required by the TCB.
The TCB will also need to consider the risks of administering a Prescribed NPO and review/update its:
- Business Risk Assessment
- Risk Appetite Statement
- Internal systems and controls (including policies and procedures)
If you have any queries or would like to discuss the appropriate steps to take to ensure compliance in this area, please do get in touch.
- JFSC NPO Section pages – https://www.jerseyfsc.org/industry/sectors/non-profit-organisations/
- Consultation Paper – https://www.jerseyfsc.org/industry/consultations/consultation-npo-handbook-requirements-no-7-2022/
- Draft NPO Risk Assessment Checklist – draft-npo-programme-risk-assessment-checklist.pdf (jerseyfsc.org)
- Draft Terrorist Financing Diversion Risk Register Template – draft-tf-diversion-risk-register-template.pdf (jerseyfsc.org)