Preparing for the Senior Manager Regime

The Jersey Financial Services Commission has launched a consultation on who should be regarded as senior managers for the purposes of the civil penalties regime. The consultation paper can be found on the JFSC’s website at Consultation on Senior management functions — Jersey Financial Services Commission (jerseyfsc.org)

It remains to be seen whether the proposal will be agreed as the consultation is open until 29 July, but if it is, it will have potentially significant implications for both financial institutions (including deposit-taking businesses, lenders, lessors, insurers, investment businesses,  fund services businesses and money service businesses) and DNFBPs (designated non-financial business providers, essentially trust company businesses, casinos, estate agents, high value good dealers, lawyers and accountants) and the individuals holding senior positions withing those firms, many of whom will not have been caught at a personal level previously within the regulatory regime.

While the consultation paper includes the “conduct of business” Codes of Practice, the focus is very much on AML/CFT. The proposed senior management categories are as follows:

• Managing any aspect of a registered person’s local AML/CFT        compliance/risk function where that function is carried out by a person who sits below a board level role but above the level of a key person role. The JFSC gives the following examples:
  • Head of Compliance
  • Head of Risk
  • Channel Islands Head of Compliance & Risk 
• Managing any aspect of a registered person’s affairs (other than those referred to in Category 1 above) the performance of which may have an impact on the registered person’s compliance with the Money Laundering Order or Handbook where the function is carried out by a person who sits below a board level role and is directly accountable for the performance of the function to the board or to a principal person of the registered person. The JFSC explains that this category includes individuals with responsibility in areas such as:
  • Records management
  • Screening of employees
  • Client on-boarding, and
  • On-going client relationships
• Carrying out a duty or responsibility (alone or jointly) that the Money Laundering Order or Handbook requires to be performed by senior management. The JFSC gives the examples of individuals who are able to approve (alone or jointly):
  • The establishment or continuation of a business relationship with a PEP
  • A new correspondent banking relationship
  • The establishment or continuation of a relationship with a customer who has a relevant connection to an enhanced risk state
• Performing the duties of a senior officer as referred to in the Banking Business (General Provisions) (Jersey) Order 2002

However, whatever the outcome of the consultation, it is clear that many more roles will be brought into the scope of civil penalties and, in due course, an extended “fit and proper” regime with the submission of personal questionnaires seeking the JFSC’s “confirmation of no objection”.

So, how should firms and individuals prepare? Some suggestions to consider:

• Review your organisation chart against the criteria of the function categories to determine which roles, and hence which individuals, are likely to be caught. Document your conclusions and rationale;
• Where there is any element of doubt, consider whether, and if so how, roles may be clarified or amended;
• Review job descriptions and the terms of reference for committees and other decision-making bodies to ensure that it is clear what individuals may and may not do, and hence whether or not they are able to make any decisions sufficient to bring them into scope as a senior manager;
• Ensure that any individuals whose role brings them into scope are notified of the fact and understand the responsibility and potential implications. This will be an opportunity to reassure the individuals and explain the measures that will be taken, allowing the firm to manage its relationship with its people;
• Arrange relevant and targeted training for the individuals to prepare and equip them with the appropriate knowledge and skills, noting that some individuals may be off-island and hence have a reduced familiarity with the Jersey regime;
• Consider how you assess and monitor employee performance – is there a formal assessment process in place? Does the assessment process identify any weaknesses in performance/areas of improvement and ensure relevant action is taken to address the performance issue identified?
• Review relevant policies and procedures to ensure that they are comprehensive, up-to-date and will ensure compliance with legal and regulatory requirements. They will protect both the firm and the individuals;
• Consider whether the change will lead to additional demands being placed on members of the firm’s AML/CFT and Compliance Functions, particularly in providing advice to their colleagues. It may be appropriate to consider establishing escalation procedures or a “helpdesk” service, potentially engaging external assistance;
• Finally, consider whether insurance arrangements are adequate, noting that the Codes of Practice for some sectors preclude registered persons from insurance arrangements that are intended to have, or have or would have, the effect of indemnifying any person against all or part of a financial penalty imposed by the JFSC.

It remains to be seen which functions and which roles will be caught when the JFSC issues its Notice defining senior manager functions. Some careful planning will hopefully prepare firms and their senior managers to best face the changes and additional responsibilities.

If you have any queries on senior manager functions or would like to discuss the appropriate steps to take to prepare your team, please do get in touch.