Regulation watch: financial crime
The Guernsey Financial Services Commission (GFSC) has brought its anti-money laundering and countering financial crime framework in line with international standards, as Anthony Williams and Andrew Murphy report
The GFSC’s revised Countering Financial Crime and Terrorist Financing (Handbook) came into operation on 1 April 2019. The Commission’s goal for the Handbook is to keep the bailiwick’s framework for anti-money laundering (AML) and countering financial crime (CFT) in line with international standards, to nullify the evolving threat of increasingly sophisticated financial crime and methods of terrorist funding.
Summary of key changes
1. Retirement of the previous distinction between ‘financial services businesses’ (such as banks) and ‘prescribed businesses’ (such as lawyers, accountants and insolvency practitioners). The Handbook applies to both under the term ‘specified businesses’.
2. The appointment of a Money Laundering Compliance Officer (MLCO) by 31 March 2019, with the GFSC notified of that appointment within 14 days. The MLCO has responsibility for monitoring the business’s compliance with its AML/CFT policies, procedures and controls and reporting to the board. However, the responsibility for the business’s compliance with the bailiwick’s AML/CFT regulatory framework lies with the board. This will be welcome clarification to those appointed to the position of MLCO, who might also (if appropriate) hold the position of Money Laundering Reporting Officer (MLRO).
3. Businesses must ensure that a reviewed business risk assessment (BRA) has been revised and approved by the board by 31 July 2019.
4. The implementation of additional customer due diligence measures is no longer reserved for those matters considered to be high risk. Enhanced measures must be applied, whether or not the matter is considered to be high risk, in the following circumstances:
• The customer is not resident in the bailiwick of Guernsey
• The relationship or transaction relates to the provision of private banking services
• The customer is a legal person or arrangement used for holding personal assets
• The customer is a legal person with nominee shareholders or is owned by a legal person with nominee shareholders.
5. Politically exposed persons (PEPs) are now categorised into Foreign PEPs and Domestic PEPs, with the introduction of International Organisation PEPs applicable to persons entrusted with prominent functions by international organisations. Businesses must have suitable procedures in place to minimise the risks associated with their dealings with the different categories of PEPs.
The Handbook, a development within the island’s already rigorous AML/CFT regime, seeks to ensure that the bailiwick’s financial system is protected from illegitimate use and should prove to be yet another means to attract potential business to the bailiwick.
In the event of any uncertainty as to their obligations according to the Handbook, businesses should seek advice as soon as practicable.
Anthony Williams is a Partner and Head of the Dispute Resolution department at Appleby Guernsey. Andrew Murphy is an Associate in the department.
Regulation watch: Electronic transactions
The Electronic Transactions (Electronic Agents) (Guernsey) Ordinance 2019 offers legal certainty on smart contracts, says Richard Field
Guernsey’s States passed the Ordinance at its sitting on 27 February 2019 in response to global uncertainty over the status of electronically concluded transactions. Whilst the Electronic Transactions Law is arguably sufficiently widely drafted, the growing adoption of artificial intelligence has led to calls for greater certainty around ‘electronic agents’ and their ability to bind others to the terms of transactions.
An ‘electronic agent’ is defined as ‘a computer program or electronic or other automated means used independently to initiate an action or to respond in whole or in part to information or actions in electronic form or communicated by electronic means, without review or action by a natural person’.
In other words, it is computer code that will carry out a task or series of tasks, in response to information it receives, without further input from a human – for example, programming a computer to purchase an item online once it has scanned the web for the lowest priced item. The Ordinance confirms that the creation, formation, execution and performance of binding contracts can be effected by computers without human intervention.
Reliance on technology has raised awareness of the associated risks and the complex legal issues that arise. This has driven an interest in ensuring certainty where possible. We anticipate that the Ordinance will encourage innovation and businesses to rely on technology solutions to automate routine processing, where possible.
This is primarily a piece of ‘facilitative’ legislation. Those businesses that are interested in this space should review their terms of business and processes to ensure that the consequences of such concluded transactions are as intended. Similarly, the programming of ‘electronic agents’ should be reviewed to ensure that there are no bugs or errors that might have (unintended) binding consequences or cause confusion.
There will be a presumption that the person utilising the electronic agent wished to form a binding contract through that agent, so be careful with that programming – ensure the instructions are clear!
It may take a little time for use cases to become common, but the certainty provided by the Ordinance will be welcomed by businesses.
Richard Field is a Partner in the Dispute Resolution department at Appleby Guernsey.
Regulation watch: Personal injury damages
Changes to the way personal injury awards are calculated will force plaintiffs to take on more investment risk, Jeremy Heywood and Alexandra Baker warn
The Damages (Jersey) Law will place aspects of the calculation of damages in personal injury cases on a statutory footing. The two key aspects are:
• A statutory ‘discount rate’ and the mechanism of setting it
• Statutory provisions for a Periodic Payment Order (PPO), including an ability for the Court to impose a PPO against the wishes of the parties.
Calculation of damages
The overriding principle of compensation is that a plaintiff must be awarded a sum of money that puts them back in the position they would have been had the negligent act not occurred. Traditionally, damages have always been awarded in a single ‘lump sum’ payment.
Damages are usually split into two categories:
• General Damages, for the actual injuries suffered
• Special Damages, for losses suffered as a consequence of the injuries (such as loss of earnings). Special Damages are further divided into Past Losses and Future Losses.
Difficulties with future loss calculations
Lump sum awards for future losses are calculated by establishing the annual loss (the multiplicand) and multiplying that by a number based on the anticipated period of the loss (the multiplier).
The most difficult part of the calculation is working out what the appropriate multiplier is. Central to the calculation of the appropriate multiplier
is the discount rate.
What is the discount rate?
The discount rate is an element of the calculation designed to factor in the anticipated real return that might be achieved on a lump sum award. The real return is the return that might be achieved after taking into account inflation, which erodes the value of money over time, and other costs. The higher the assumed real return a plaintiff is expected to achieve, the higher the discount rate and the lower the lump sum award. Conversely, the lower the assumed return, the lower the discount rate and the higher the lump sum award.
Since the House of Lords decision in the case of Wells v Wells, the common law calculation of the discount rate assumed that a plaintiff would invest in the safest possible investments which, because they were linked to inflation, were thought to be ILGS (index-linked UK government securities).
What are PPOs?
An alternative method of awarding damages for future loss is to establish the annual loss, tie it to an appropriate inflation index and order that the defendant make an annual payment, to rise in value in accordance with that inflation index. A PPO must be secure – the defendant must be able to make the payment, now and many years into the future. Other factors to be considered are the circumstances in which any payment might end, or be suspended, and the circumstances in which the annual sum might be revisited.
The Damages (Jersey) Law
The law introduces a statutory discount rate. This is set at +0.50% for losses expected to last for less than 20 years and +1.80% for losses expected to last longer than 20 years. The law allows for the discount rate to be altered by the Chief Minister with the approval of the Bailiff.
The law allows the Courts to impose a PPO on the parties without consent, provided certain conditions are met. The law establishes that the PPO is deemed to be reasonably secure if the defendant is a Minister, or is protected by certain government schemes, or guaranteed by the Treasury Minister.
Are the changes good or bad?
It depends on who you think should bear the investment risk. The law moves away from the assumption that a plaintiff will invest only in the safest possible investments (ILGS) and assumes investment in a portfolio of investments.
This means a plaintiff is now required to take more investment risk than previously in order to ensure that the award will meet their needs into the future.
It is likely that plaintiffs will now also seek investment management costs as part of their claim because these costs are likely to increase significantly now that plaintiffs are required to invest their damages in portfolios.
Ultimately this is a balancing exercise. It remains to be seen whether the government has struck the right balance with the current discount rates.
Jeremy Heywood is a Partner and Alexandra Baker is an English Solicitor at BCR Law Jersey. This is an extract from an article that is available at bcrlawjersey.com