The Jersey Financial Services Commission and the Bank Supervision Department of South Africa's reserve bank have signed a memorandum of understanding.

The agreement relates to banking only and, as with all other MOUs, is not legally binding and merely sets out protocols to govern the ways in which things should be done. Either party can end it within 30 days of announcing its intention to do so. The agreement governs joint supervision and the exchange of confidential information.

Each regulator agrees to use its 'best endeavours' to tell the other about its supervisory worries regarding branches of banks from the other's country in its jurisdiction. The agreement also covers banks or groups of banks where both regulators are host-country authorities.

There will be no need to reveal any anti-money-laundering concerns, however. The term 'material supervisory concern' only covers evidence of law-breaking that might "materially affect the operations of a banking entity." Most laundering activity at banks does not fit this description.

Obviously there cannot be a transfer of information if either regulator suddenly discovers that it is against one of its country's laws (5.4.1). Section 6 of the MOU sets out the format of a request, which is worth repeating here. Each signatory must do the following in writing.

• Nominate somebody to act as a 'go-to' person for activity in line with the MOU.
• List the names and contact details of that person.
• Give the other party notice when those are to change.
• Describe the information it wants as accurately as possible and the purpose for the request.
• Take all reasonable steps to provide the information and/or help and say whether it wants to attach conditions to the disclosure.
• Say how sensitive or confidential the information is.
• Lay out the time period in which it requires the information or help.
• Lay out the format it wants.

If a bank from country A wishes to set up a branch/affiliate in country B, country B must tell country A at once (7.1). Country A must give country B information about the parent entity's own funds/capital and reserves and its solency ratio "and whether it is fully subject to and complies with the domestic banking regulation," a phrase that sounds uncomfortably close to an obligation to go through the bank's regulatory history (7.2). Any available information about people's fitness and propriety is on the table (7.3).

The authorities agree that MOUs of this sort are especially useful for mutual help in carrying out on-site inspections. Authority A will always allow authority B, or the auditors or other 'professionals' it commissions, to carry out inspections of branches and subsidiaries of country A's banking entities in country B and vice versa (11.1). The home country regulator is obliged to 'endeavour' to give the host-country a summary report on its findings if it will help it 'exercise its functions', but no more. The weakness of the wording here is interesting.

Despite some pious platitudes in section 13 about keeping information confidential, both signatories have realised that policemen or other government agents might wade in and confiscate documents in accordance with the law in either country. If this happens, the authority that has to comply will immediately tell its brother-regualator, "indicating what information it is compelled to release and the circumstances." This might be a good strategy for an agreement between Jersey and South Africa, but it would probably constitute the offence of 'tipping off' under the European Union's money-laundering directive if one of the regulators that signed the MOU was Italian, and therefore subject to the influence of organised crime.

It is interesting to note that every document provided under the agreement should bear a legend that (more or less) says: "Confidential - provided pursuant to the MOU between..."

The memorandum supersedes a previous one of 1997. It is renewable every year (15.3), which gives either authority a date to aim for if it wants to pull out.