Jersey: Jersey FSC Consults On Changes For All Codes Of Practice - JFSC Consultation No.10 2018

Last Updated: 7 January 2019
Article by Andrew Weaver and Benjamin Bestgen

Open for responses until 7 January 2019

The Jersey Financial Services Commission (JFSC) has published a consultation to its Codes of Practice (Codes) that will affect all registered persons under the Financial Services (Jersey) Law 1998.

These summaries and observations do not constitute legal advice. However, we hope they make life a bit easier for you when considering whether you’d like to respond to the Consultation yourself to help shape the future of Jersey’s regulatory environment.

The JFSC’s amendments fall into three broader categories:

  1. amendments that are of a “maintenance” character, e.g. clarifying certain rules and concepts or enhancing stylistic consistency across various Codes;
  2. amendments that modify regulatory requirements as a result of issues the JFSC has identified during its supervision of registered persons; and
  3. amendments designed to ensure that the JFSC’s regulatory requirements comply and keep up to date with international standards.

Some of the proposed amendments are generic and affect all Codes alike, others target specific Codes only. The JFSC considers that none of the proposals should be overly onerous, costly or time-consuming for registered persons to implement.

The JFSC acknowledges that some registered persons may require a lead-in period to update internal procedures following the new changes to the Codes. It is the regulator’s intention to bring the amended Codes into force two (2) months after they are issued.

In the below we summarise the proposals and have added our preliminary thoughts where appropriate.

1. Generic Amendments

1.1 First: Payment of fines

With the exception of the Certified Funds Code, all Codes should be amended to make clear that where a financial penalty is imposed on a person by the JFSC (be it a registered or principal person), it will be that very person who has to pay the penalty, not any insurer. Likewise, insurance should not be sought by registered persons to cover payment of financial penalties.

This does expressly not prevent registered persons from taking out indemnity cover that indemnifies against costs associated with defending a JFSC enforcement action or any court costs and legal fees a person may be ordered to pay to the JFSC as a result of any such action.

Whilst acknowledging the intent and purpose of this provision is to ensure that the registered or principal persons do not avoid the financial consequences of their behaviour, this provision may create a disincentive to some business participants (e.g. non-executive directors) to provide services unless further clarity is provided about the JFSC’s approach to issuing fines.

1.2 Second: Cyber risk management

With the exception of the AIF Code, all other Codes will include a requirement that a registered person must specifically consider the risk of a cyber security incident and have in place a documented policy that identifies assets, risks, measures for protection against and detection of cyber incidents as well as response and recovery plans to and following an incident.

Attention is drawn to the NIST cybersecurity framework and five crucial stages an appropriate policy should follow: identify, protect, detect, respond and recover.

We consider this proposal to be in line with international standards and any operation that has not given sufficient thought to cyber security measures is strongly encouraged to do so.

1.3 Third: Client, customer and fund money

The TCB, GIMB, FSB and IB Codes will be amended to include a requirement for a registered person to conduct at least annually an independent review of the client, customer or funds money under its control. Such review should in particular focus on controls that prevent the loss, misuse or misappropriation of such monies.

The reviewer must be “appropriately qualified” and independent and is allowed to be an internal or external party. Where an internal party performs the review, this person must be operationally independent from the individuals or functions within the registered person that are responsible for control over the monies in question and functions under review.

We consider that clarification around the criteria for a person being “appropriately qualified” would be beneficial, in particular as this may also depend on the nature, size and complexity of the business in question.

1.4 Fourth: PII Arrangements

The JFSC refers to its previous reviews of Professional Indemnity Insurance (PII) which it published on 7 December 2017, with further guidance on 26 June 2018. The most recent proposals aim to harmonise and make consistent the PII requirements between the Codes for GIMB, FSB, IB and TCB.

The main features to be harmonised touch on required policy inclusions and JFSC notifications regarding PII; clarifications around “adequate PII cover” when a registered person is complained against with the Financial Services Ombudsman; and clarifying the period that “run-off” PII should cover where a registered person ceases to conduct a class of financial services business.

2. Code-Specific Changes

2.1 Amendments to the Alternative Investment Funds Code

Changes to the Alternative Investment Funds Code (AIF) are mainly stylistic “housekeeping” amendments of no particular significance. The key point is that the introduction of passporting and withdrawal of private placement rules has not taken effect during 2018. As a result, non-EU AIFMs remain able to market Directive AIFs under the existing Private Placement Rules for the time being.

2.2 Amendments to the Banking Code

Apart from the generic amendments discussed above, the only key change is that any Jersey bank has to notify the JFSC in writing no less than 10 business days before a change to its capital structure is to take place. “No Objection” confirmation in writing by the JFSC must be received before such change becomes effective.

We consider that further information would be helpful: for instance, will this consent requirement cover only banks which are fully Jersey incorporated entities or also unincorporated Jersey branches of banks incorporated abroad?

Likewise, would there be a de minimis threshold for a bank seeking to repay or vary its terms of capital, below which JFSC consent would not be required?

2.3 Amendments to the Certified Funds Code

It is proposed to amend paragraph 6.7.2 of that Code to further clarify notification requirements in the event of the winding-up or dissolution of a fund (except where the event has already been agreed by the JFSC). The purpose is to make clear that the JFSC expects notification for all such events and not just in limited circumstances or for specific vehicles only.

2.4 Amendments to the Fund Services Business (FSB) Code

Apart from the generic amendments discussed above, no further substantial changes are made to the FSB Code at this stage.

2.5 Amendments to the General Insurance Meditation Business Code

The generic amendments aside, the following important amendments are proposed:

  • Paragraph 3.2.1 will be changed to clarify requirements for the holding of policy and procedure manuals in Jersey or, in cases where the registered person is not incorporated or has its place of business in Jersey, these manuals must be made available without delay to the JFSC;
  • Sub-paragraph 3.3.4.1 is amended to make clear that where a registered person has a physical presence in Jersey, its compliance officer must be based on the island also; and
  • The Code will be amended to reflect the requirement that for each and every policy of insurance, clients will receive a breakdown of costs, must not be misled and be informed about all relevant and material facts. The nature and amount of all standard fees and charges associated with a policy and levied over and above the premium have to be disclosed.

The first two amendments are in line with considerations around corporate and business substance which is an increasingly important topic, in particular for small jurisdictions like Jersey.

The third reflects the important acknowledgement (in line with international standards) that consumer and client protection as well as transparency on costs in the insurance sector (just as in other industries) is vital to maintain public trust and confidence and treat clients fairly.

2.6 Amendments to the Insurance Code

The main proposal for this Code is to clarify that the JFSC’s policy on outsourcing applies to Category B permit holders only.

2.7 Amendments to the Investment Business Code

The only changes proposed are in line with the generic amendments discussed above.

2.8 Amendments to the Money Services Business Code

The only changes proposed are in line with the generic amendments discussed above.

2.9 Amendments to the Trust Company Business Code

Limited liability partnerships are to be included where reference is made to Class I TCB. The other proposed changes are in line with the generic amendments discussed above.

3. The Codes' Future: Alignment of the Codes

The JFSC invites views for future development of the Codes. The idea is to align lay-out, principles and terminology of the Codes where possible and appropriate to enhance clarity and ease of use. This should theoretically help registered persons (especially multi-licensed firms) to navigate the Codes and enhance clarity as to their regulatory obligations.

Such alignment may affect issues of terminology, numbering, punctuation, typesetting and emphasis. For example, the requirement that a registered person must conduct its business with integrity is equal to all Codes and could therefore be expressed in exactly the same wording.

Likewise, for illustration only, the Second Principle in all Codes is that a registered person must have regard for the interests of its clients/customers/policyholders/funds. The level of regard, however, is variously expressed as “due regard”, “highest regard” or “best interests”. The JFSC proposes that a future alignment could make “highest regard” the common principle across all Codes, enhancing clarity of the level of concern, care and diligence required.

It is noted by the regulator that a similar attempt had previously been made in Consultation Paper No 4 in 2011, with strong responses both in favour and against harmonisation and alignment of the Codes. The JFSC hopes that by now the market may have reached greater consensus and therefore presents this harmonisation project again to the public.

We consider that enhancing the ease of use and consistency across the Codes is generally a commendable thought and would further strengthen the reputation of Jersey as a jurisdiction where regulatory clarity and consistency across all financial services business regulations is market-standard.

As lawyers, however, we are also all too aware that the devil often lies in the detail: it is both right and necessary that certain industries are regulated in a different manner and the relevant rules cannot always be aligned with the rules and terminology used in other sectors.

The JFSC is naturally also aware of this and emphasises that industry-specific tailoring would still be needed. We look forward to hearing more about this proposal and engaging with the regulator and our clients on any improvements that can be made to the Codes.

 

You can access the consultation here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions