Who will be affected?
What is the current position?
What will be the level of penalties?
How will money paid as a penalty be used?
What is the reason for civil liability?
How will civil liability be implemented?
When will the primary legislation come into effect?
How to prepare for civil liability
On June 6 2014 draft primary legislation to provide the Jersey Financial Services Commission (JFSC) with the power to impose civil financial penalties for material contraventions of the codes of practice and the Anti-money Laundering and Counter-terrorist Financing Handbook was published.
All entities registered under the Banking Business (Jersey) Law 1991, the Insurance Business (Jersey) Law 1996 and the Financial Services (Jersey) Law 1998 must adhere to the relevant codes of practice published by the JFSC. Entities registered under the Proceeds of Crime (Supervisory Bodies) Law 2008 are required to adhere to the JFSC's handbook.
The JFSC may take regulatory action – including revocation of an entity's registration – where a registered person breaches the codes of practice. However, the commission cannot impose any financial penalty for breaches of the codes or the handbook.
It is still unclear what levels of financial penalty the JFSC will be able to impose. The feedback paper on the initial consultation carried out in 2012(1) states that, for the most serious breaches, a financial penalty of up to 8% of 'relevant income' may be imposed. However, the method for calculating 'relevant income' will not be determined until secondary legislation is finalised. There will be further consultation on this.
A registered person will be subject to a penalty without the opportunity to remedy only for the most serious of breaches. A registered person will have the opportunity to remedy less serious breaches before the JFSC considers imposing a civil penalty.
The JFSC will also issue public statements when it imposes a penalty. There will be a right of appeal to the Royal Court.
The JFSC can retain the proceeds of penalties and apply them to reduce licence fees. The JFSC can also pay a substantial penalty to the States of Jersey, either voluntarily or pursuant to an order to be made by the chief minister.
The JFSC states that the power to impose civil penalties for contraventions of the codes and the handbook will act as a deterrent, encourage remediation and provide the JFSC with an additional sanction.
In its 2008 assessment of Jersey's financial regulatory standards, the International Monetary Fund highlighted that the JFSC had no ability to fine. The ability to impose financial penalties for breaches of anti-money laundering and counter-terrorist financing requirements will ensure compliance with Recommendation 17 of the Financial Action Task Force.
The draft legislation – the Financial Services Commission (Amendment 6) (Jersey) Law 201 – will amend the Financial Services Commission (Jersey) Law 1998 in order to allow the JFSC to impose financial penalties. Minor consequential changes will be made to other regulatory legislation, including the Banking Business (Jersey) Law 1991 and the Financial Services (Jersey) Law 1998.
The consultation on the draft legislation was open until August 11 2014 and covered the details of the draft primary legislation.(2) The principles of the statutory framework are not open for further consultation, as they were consulted on in 2012.
There will be a further consultation on the secondary legislation, including on the level of financial penalties that the commission can impose.
While the JFSC's Business Plan for 2014 indicates that this is a priority project, at this stage there is no indication of when the law will be passed.
Registered persons may wish to confirm that they are compliant with the codes and the handbook before civil penalties for breaches are implemented. In particular, the codes were amended with effect from July 1 2014 and further requirements were imposed. If they have not done so already, registered persons should conduct a thorough gapping analysis to ensure that they comply with the higher standards.
For further information on this topic please contact Edward Scott at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (email@example.com). The Ogier website can be accessed at www.ogier.com.
(2) The consultation paper on the draft legislation is available at www.jerseyfsc.org/pdf/Consultation-Paper-No-2-2014-Civil-Penalties-primary-legislation.pdf