The Jersey Financial Services Commission (the JFSC) has released its revised Codes of Practice (the Codes) which will be effective from 21 March 2018. There are some important changes which could have an impact on all regulated financial services businesses, banking businesses and insurance businesses in Jersey, as well as collective investment funds and alternative investment funds and AIF services business, including:
- Incorporating a broad definition of "complaint" which must be dealt with within the parameters of the relevant Codes' complaint systems and procedure requirements;
- Adding a requirement to notify the JFSC of any decision of an auditor to qualify its audit report or to raise a matter of emphasis;
- Updating the money services businesses code to confirm that money services businesses need to comply with the JFSC's Outsourcing Policy; and
- Increasing the minimum regulatory capital for a custodian/depository to a closed-ended fund from £10,000 to £250,000.
As these changes come into effect in less than two months, regulated businesses should start to consider how these changes may affect their businesses and review their current practices in light of these changes.
The main changes are set out below:
All Financial Services Business Codes, Insurance Business Code and Deposit-taking Business Code
- A definition of "complaint" has now been included, whereas previously it was not defined. A "complaint" will mean 'any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, a person about the provision of, or failure to provide, a service that relates to [the relevant regulated business] carried on by the registered person, which alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience'. All complaints captured by this broad definition will need to be dealt with in accordance with the Codes' complaint systems and procedure requirements and may therefore increase the administrative burden of dealing with such matters.
- In relation to corporate governance, there is a requirement that all aspects of corporate governance arrangements must be subject to appropriate regular reviews to ensure their adequacy in light of the registered person's business activities and risk profiles. In addition, there must be periodic assessments (either self-assessments or external assessments) of the board's effectiveness. There is also clarification that "risk" in this context refers to all risks that a registered person faces or may face.
- The JFSC has also updated its expectations in its dealings with registered persons and now confirms that the timely provision of data and the timely payment of fees due are part of the principle of dealing with the JFSC in an open and co-operative manner. As late payment of fees may result in a breach of the relevant Code, with the consequences that follow, registered persons should have appropriate systems in place to ensure timely payment of fees.
- Registered persons must now obtain the consent of the JFSC prior to implementing a plan to cease business (not applicable to Money Services Business).
- There is now a requirement for a registered person to notify the JFSC of a decision by its auditor to qualify its audit report or to raise an emphasis of matter therein (not applicable to Money Services Business).
- In the context of notifications to the JFSC and 'becoming aware', the JFSC has clarified that they consider 'becoming aware' to mean the point at which the registered person knows, or has reasonable grounds for believing, that the relevant matter has occurred or may be about to occur, even when it is outside of the control of the registered person (not applicable to Money Services Business).
- There is also now an absolute requirement to use the JFSC's online portal where so specified by the JFSC. Where the online portal is unavailable due to a systems failure, the registered person must notify the JFSC in writing within one business day of the systems failure being identified.
Fund Services Business Code
- The minimum regulatory capital for a custodian/depository to a closed-ended fund has been raised to £250,000 from £10,000. Whilst a separate custodian or depository is not often appointed to closed-ended fund, this is a significant uplift. This is particularly relevant in the case of services to funds and managers which are required to comply with the provisions of the Alternative Investment Fund Managers Directive.
- A registered person must now notify the JFSC within 10 business days of ceasing to act for a non-Jersey domiciled fund.
Money Service Business Code
- The Code states that money services businesses have to comply with the JFSC's Outsourcing Policy. We note that Outsourcing Policy dated 1 March 2017 expressly stated that money services businesses need to comply with the Outsourcing Policy when outsourcing so we understand this to a clarification rather than introducing a new requirement.
Trust Company Business Code
- Registered persons now have a specific obligation, when forming entities, to understand, and document, the rationale for the formation of the relevant entity.
- Registered persons must now also confirm in writing the services provided as well as supply a copy of the terms of business of the registered person (which must adhere to the specific criteria specified in the Code).
- There is an increased emphasis to document the rationale for the service provided and a registered person must also maintain documented systems, controls and procedures for reconciling movements in 'client assets'. During the consultation process, the JFSC clarified that 'movement' meant a transaction and not a change in the value of an asset.
- There have been some minor changes to Class O (providing a 'specified service') which may require registered persons to conduct a review to ensure that they still fit within this class.
Investment Business Code
- Similar for TCBs, the registered person must maintain documented systems, controls and procedures for reconciling movements in 'client assets'.
- Where the registered person holds client money, there is a new obligation to set out the terms on which that money is held.
Deposit-taking Business Code
- The JFSC has relaxed its criteria of an 'acceptable parent bank' to be one that ranks within the world top 1000 banks by Tier 1 capital (previously it was top 500).
Certified Funds Code
- All matters which apply to all FSB Codes, the Insurance Business Code and the Deposit-taking Code apply equally to the Code, save for references to 'registered person' to be read as references to 'the fund'.
Alternative Investment Funds and AIF Services Business Code
- There is also now a requirement to use the JFSC's online portal where so specified by the JFSC. Where the online portal is unavailable due to a systems failure, the alternative investment fund manager must notify the JFSC in writing within one business day of the systems failure being identified.
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.