Guernsey: All Change - Proposed Amendments to Regulatory Legislation

In June of this year, the Jersey Financial Services Commission (the "Commission") issued Position Paper No. 4 in relation to amendments to regulatory legislation. The primary legislation to which this relates is the Banking Business Law (Jersey) 1991, Collective Investments Funds (Jersey) Law 1988 (the "CIF Law"), Financial Services (Jersey) Law 1998 ("FSL") and the Insurance Business Law (Jersey) 1996 (together, the "Regulatory Laws").

The proposed amendments are in anticipation of the visit of the International Monetary Fund ("IMF") to the Island for an assessment, due to take place in 2008, of the extent to which Jersey meets the standards set by various international regulatory bodies (including the International Organization of Securities Commissions and the Basel Committee on Banking Supervision). The emphasis of the assessment is to focus primarily upon the practical implementation of the regulatory legislation that has already been put in place. The assessment is conducted by comparison of the level of compliance by Jersey with a number of principles set by these international regulatory bodies.

The importance of the IMF visit cannot be underestimated as assessments are undertaken every five years and there is no opportunity to update the findings in the intervening period. As such, Jersey must demonstrate not only the extent and high standard of regulation implemented in the Island, but also the degree to which the regulatory framework is applied in practice.

Logistically, given the short timeframe to effect the amendments, the key focus at present is on primary legislation. However, there are also proposals to make amendments to secondary legislation (Orders and Regulations) which may be brought into force in a shorter period.

The purpose of this brief article is to highlight a few of the changes to the Regulatory Laws that are proposed.

An explicit power will be introduced in the Regulatory Laws to prevent an individual from operating in the regulated finance industry. It is worth noting that this may apply to any person involved in a regulated financial industry sector, whether they constitute a "principal person" (or indeed a "key person") or not (as defined in the Regulatory Laws). At present, the current legislative framework only enables the Commission to ensure that persons do not work in the finance industry indirectly, though the licensing of regulated entities. It has been emphasised that this course will only be taken by the Commission in exceptional circumstances and a policy document will be formulated for guidance in this respect. There will also be a right of appeal to the Royal Court.

It is proposed to extend the scope of powers contained in the Regulatory Laws for the Commission to interact with individuals acting as "key persons" in the same manner as with "principal persons". "Key persons" are considered to be those holding a position of Compliance Officer, Money Laundering Reporting Officer and a new position of Money Laundering Compliance Officer (from 1 January 2008, following the implementation of a revised anti-money laundering framework). At present, there are no explicit powers for the Commission to vet individuals wishing to act as "key persons" and the Commission must go indirectly to the relevant registered entity to request for removal of an individual if unsuitable. It is felt that the increasingly important role of "key persons" is such that the powers and obligations of the Commission under the Regulatory Laws relating to principal persons should be extended to "key persons" in addition. In practice, as "key persons" submit personal questionnaires to the Commission already, this should have limited impact on filing requirements.

In order to ensure that the IOSCO requirement to provide the public access to relevant information concerning a licensee will be met, the Commission proposes to make publicly available any specific conditions applicable to a regulated entity which may limit the scope of its permitted activities. The Regulatory Laws will be amended to permit the Commission to make disclosure of conditions where it believes it is in the public interest to do so. Again, an explicit power is required in this regard, as it is not clear at present whether there is adequate authority under the Regulatory Laws to disclose conditions. A policy statement will be issued to outline the criteria for determining whether disclosure of certain conditions will be appropriate. Whilst this change is primarily focussed on investment business, it is proposed that the policy will also apply to other regulated finance sectors: banking business, collective investment funds, insurance business and trust company business.

It is further proposed to disclose the identity of senior management and investment employees of regulated entities on the Commission’s website.

The introduction of an advertising order for businesses regulated to conduct financial services businesses will not only provide greater clarity as to the minimum standards for advertisements placed in the Island, but more importantly provide a basis for reliance on certain exemptions under the FSL (relating to overseas persons) requiring compliance with an advertising order that currently does not exist. The proposals for an advertising order will prescribe the following general principles, including (a) the identification of the issuer; (b) that written advertisements should be clear, fair and not misleading and indicate that the relevant person is licensed to undertake the business to which the advertisement relates; and (c) a statement to be included that the Commission has not endorsed the advertisement or the product or service to which it relates.

The current framework for disclosure requirements in relation to collective investment funds leaves some categories of funds without any specific requirements for the contents of an offering document. In particular, this applies to limited partnerships and closed-ended unit trusts. It is therefore proposed to amend the relevant statutory order of the CIF Law to address the gaps identified in disclosure requirements.

The changes are intended to conform each of the Regulatory Laws as much as possible, but also to respond to the requirements of international regulatory bodies. It is worth noting that the majority of the proposed amendments to the Regulatory Laws reflect the current practice and approach of the Commission. Nevertheless, the amendments are considered important to ensure that Jersey maintains its reputation as a well regulated jurisdiction and that, in practice, the regulatory framework is applied.

A further paper will be issued shortly by the Commission with drafts of the specific amendments to the Regulatory Laws for comment by the industry.

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