2019 JFSC Supervisory Reports – Important Themes
In 2018 the JFSC completed the major restructuring of its supervisory operating model during which time supervision visits were suspended. For 2019 the JFSC has announced it is enhancing its risk-based approach and focussing on projects that mitigate the greatest perceived risks. Supervision visits have now restarted and we are advising a number of entities and individuals both before and after such visits.
Focus of the visits is Core Principle 3 under the Codes:
“A registered person must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems."
- Corporate governance (3.1)
- Internal systems and controls (3.2)
- Integrity and competence (3.3)
- Continuing professional development (CPD) (3.4)
- Compliance function, Compliance Officer, Money Laundering Reporting Officer and Money Laundering Compliance Officer (3.5)
- Complaints (3.6)
- Record keeping (3.7)
Since 1 June 2019 Core Principle 3 has now been amended to include:
- Payment of financial penalties (3.8)
Having advised clients in advance of a visit by the JFSC and the remediation exercise that follows, some common findings are emerging:
- Unclear leadership structure;
- Undue influence of a small group of key clients on the board of directors;
- No defined risk strategy or risk appetite;
- Failure to manage conflicts of interest, especially within fund services businesses;
- Poor corporate governance;
- Weak or under-resourced Compliance function;
- Disorganised CDD, gaps, “mind and control” issues, and clients outside the risk policy;
- Out of date policies and procedures; and
- Client accounting backlogs and inadequate systems and procedures.
In August 2018, “negligence” in breaching one or more of the Principles under the Codes became a ground for imposing a civil penalty on a registered person. The threat of imposing fines for breaches is now a real exposure for regulated persons and, since October 2018, for principal persons as well.