Commencing in 2023 Jersey is introducing enhanced regulatory and supervision requirements for a sub-set of Non-Profit Organisations ( NPOs) set up in or administered from Jersey which have been classified as potentially vulnerable to terrorist financing activity risks. These new rules are being introduced to align Jersey law and regulation with the revised requirements of FATF Recommendation 8 which prescribes standards to forestall terrorism financing risk in connection with NPOs.
This briefing note focuses primarily on in scope NPOs which are managed or administered within the financial services sector in Jersey. However the new rules apply equally to in scope NPOs which are self-managed or administered in or from Jersey.
The new regime will apply to a category of NPOs defined as “prescribed NPOs” under the Non-Profit Organisations (Prescribed NPOs – Additional Obligations) (Jersey) Order 2022 ( the “Prescribed NPOs Order”). This term will cover NPOs established solely or primarily for charitable, religious, educational, social or fraternal purposes which raise in a twelve month period sums in excess of £1,000 from sources outside Jersey, Guernsey, the Isle of Man or England and Wales and Scotland or which disburse sums exceeding £1,000 outside those jurisdictions.
Finance sector administered NPOs in Jersey will need to assess as a first step whether they fall within the scope of the statutory NPO purposes set out in the NPO definition and if so whether they also exceed the threshold test for raising or disbursing funds from sources outside of Jersey, Guernsey, the Isle of Man or England and Wales and Scotland.
If such NPOs determine that they fall within the definition of “prescribed NPO” then steps will need to be taken to ensure they are compliant with the supervision and regulatory regime which is being introduced for these entities.
In summary these provisions require the following measures to be adopted or adhered to:
- A prescribed NPO will have to register with the Jersey Financial Services Commission under the Proceeds of Crime ( Supervisory Bodies) (Jersey) Law 2008 and thereby become subject to supervision for AML/CFT compliance with the obligations set out in the Prescribed NPOs Order and a newly introduced Section 17 of the AML/CFT Handbook issued by the Commission in Jersey setting out codes of practice to be followed by prescribed NPOs.
- In due course, once further legislative changes are introduced, prescribed NPOs which are managed or administered by regulated financial services providers in Jersey will also be required to register with the Commission in Jersey under the Non-Profit Organizations (Jersey) Law 2008. They are currently exempt from doing so. Registration under the 2008 NPO Law will mean they become subject to information access powers which the Commission in Jersey can exercise in relation to registered NPOs.
- The Prescribed NPOs Order in combination with Section 17 of the AML/CFT Handbook is introducing a significant array of record keeping requirements and due diligence obligations on prescribed NPOs.
- Prescribed NPOs will be required to maintain information on their purposes, objectives and activities, to ensure they have appropriate controls in place to ensure all funds are fully accounted for; and file annual financial statements with the Commission in Jersey that provide a detailed breakdown of income and expenditure.
- Section 17 of the AML/CFT Handbook will mandate the preparation by prescribed NPOs of a Risk Appetite Statement which will define how much tolerable exposure to terrorism financing related risks the NPO is prepared to accept exposure to in order to achieve its objectives. The NPO will also need to prepare a Programme Risk Assessment for each non-profit activity it engages in which will identify and assess the range and degree of terrorism financing related risks the NPO will be exposed to and how these risks will be mitigated or managed; the NPO will also have to maintain a Risk Register which will provide a framework for risk monitoring by the NPO. These requirements will undoubtedly entail a significant time and cost commitment by each prescribed NPO.
- Section 17 also provides guidance and further elaboration on due diligence practices which prescribed NPOs are required to follow. While the overarching principles of the new regime confirm that it would be disproportionate to subject in scope NPOs to a requirement to carry out CDD to a standard equivalent to that applicable to supervised financial services businesses, the new Section 17 of the AML/CFT Handbook still imposes considerable diligence requirements on NPOs in this context.
- Under the new provisions prescribed NPOs must maintain information on the identity of the persons who own, control and direct the activities of the NPO including charity governors, board members, trustees and senior officers ( whether they hold paid office or serve in an honorary role); the NPO must also take steps to document the identity of the significant donors to the NPO – that is persons or entities giving £10,000 or more or in excess of 50% of the donations made in a twelve month period; and they also need to take reasonable measures to confirm the identity , credentials and good standing of NPO Beneficiaries (where this is practicable) and NPO Partners. NPO Partners in this context extends beyond other NPOs that the subject NPO may collaborate or work in conjunction with in fulfilling its purpose but also others such as suppliers, vendors, contractors and consultants to the subject NPO.
- Section 17 contains guidance on screening the competence and probity of volunteers, employees and controllers of the prescribed NPO. Employees in this context extends to employees of any external party fulfilling a function in relation to a prescribed NPO under an outsourcing agreement.
- Section 17 also contains guidance on how to implement a programme of training and awareness amongst volunteers, employees and controllers in respect of terrorist financing risks and the need to promote an anti-terrorist culture. Guidance is also provided on operating a programme to monitor and test volunteers’ employees’ and controllers’ level of awareness of terrorist financing risk.
- On the subject of records management and retrieval a prescribed NPO must be able to access and make available its records relating to due diligence obligations within five working days and other records must be accessible and retrievable within ten working days.
While the need for a duty to counter the financing of terrorism is widely recognised and supported, it is beyond doubt that these new regulatory requirements will constitute a significant administrative burden on prescribed NPOs. Notwithstanding that a risk-based approach will apply to the degree and depth of diligence obligations, the range of regulatory and compliance duties which now need to be complied with is extensive. Unfortunately this may well pose a threat to the viability of some small to medium sized prescribed NPOs.
In a further round of follow up enhancements to be implemented in future it is proposed that a Nominated Persons Regime will be introduced for prescribed NPOs equivalent to a lite version of MLRO and MLCO positions, coupled with obligations on the Nominated Persons to report on behalf of prescribed NPOs suspected breaches of financial sanctions and cases of suspected terrorist financing activity.