In November 2007, the Jersey Financial Services Commission ("JFSC") issued the Codes of Practice for Fund Services Business (the "FSB Codes"). The FSB Codes were issued pursuant to the Financial Services (Jersey) Law 1998. The purpose of the FSB Codes was to provide a basis to regulate the conduct of those entities authorised to conduct fund services business. In essence, the FSB Codes established a set of principles and rules which are to be followed by those entities.
At the time the FSB Codes were introduced it was noted that funds themselves (as opposed to service providers to Funds) were not within the scope of the FSB Codes. The JFSC has now turned its attention to Funds (as opposed to managers or service providers) and issued, for consultation, a draft Codes of Practice for Certified Funds (the "CF Codes").
Certified Funds include Jersey funds offered to the public, other than recognized funds or unregulated funds.
The JFSC's objectives in introducing the CF Codes as issued pursuant to the Collective Investment Funds (Jersey) Law 1998 are:
- To ensure that Jersey complies with the IOSCO principles relating to Collective Investment Schemes as set out in the 2003 and 2008 Reports Methodology For Assessing Implementation of the IOSCO Objectives and Principles of Securities"; and
- To the extent necessary to avoid a gap in appropriate levels of regulations, to extend the principles of the FSB Codes to Certified Funds.
The CF Codes are likely to establish 8 fundamental principles:
- A Fund must conduct its business with integrity;
- A Fund must act in the best interest of unitholders;
- A Fund must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems;
- A Fund must be transparent in its business arrangements with unitholders;
- A Fund must maintain, and be able to demonstrate the existence of, both adequate financial resources and adequate insurance;
- A Fund must deal with the Commission and other authorities in Jersey in an open and co-operative manner;
- A Fund must not make statements that are misleading, false or deceptive; and
- A Fund must at all times comply and be operated in accordance with any applicable Guidance.
It would be the responsibility of the Certified Fund, operating through its Certificate Holder, to comply with these principles of the CF Codes.
Failure by the Fund to follow the CF Codes represents grounds for the JFSC to take enforcement action.
The consultation period for comments on the CF Codes ended on 7 October 2010. The funds industry in Jersey was represented by the Jersey Funds Association and Jersey Finance Limited. Both organisations have been in continual dialogue with the JFSC.
It is not known exactly when the CF Codes are to be issued, but this is expected to be in the early part of next year.
In practical terms, Jersey administrators will be familiar with certain provisions of the CF Codes, as there are similarities with the FSB Codes. The implementation of the principles and detailed provisions in respect of acting in the best interest of the unitholders controlling affairs effectively for the proper performance of business activities and demonstration of the existence of risk management systems should not cause too many operational issues, but in most cases a compliance framework will need to be developed and introduced. One significant introduction is that each Certified Fund will now be required to appoint a Compliance Officer, Money Laundering Compliance Officer and Money Laundering Reporting Officer.