On 6 June 2014, draft primary legislation to provide the Jersey Financial Services Commission with the power to impose civil financial penalties for material contraventions of the Codes of Practice and the AML/CFT Handbook was published.

Who will be affected?

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 AML/CFT Handbook.

What is the current position?

Currently, the JFSC may take regulatory action, including the revocation of an entity's registration, where a registered person breaches the Codes of Practice. However, the JFSC is not able to impose any financial penalty for breaches of the Codes or the AML/CFT Handbook.

What will be the level of penalties?

It is not yet clear what levels of financial penalty will be capable of imposition by the JFSC. The  Feedback Paper on the initial consultation carried out in 2012 (link below) 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 being given an opportunity to remedy only in respect of the most serious breaches. The registered person will be given the opportunity to remedy less serious breaches before the JFSC considers imposing a civil penalty.

The JFSC will also be able to issue public statements when it imposes a penalty. There will be a right of appeal to the Royal Court.

How will money paid as a penalty be used?

The proceeds of penalties may be retained by the JFSC and applied to reduce licence fees. A substantial penalty may be paid by the JFSC to the States of Jersey either voluntarily or pursuant to an Order to be made by the Chief Minister.

What is the reason for civil liability?

The JFSC states that the power to impose civil penalties for contraventions of the Codes and the AML/CFT Handbook will act as a deterrent, encourage remediation and provide the JFSC with an additional sanction.    The IMF highlighted in its 2008 assessment of Jersey's financial regulatory standards that the JFSC had no ability to fine and the ability to impose financial penalties for breaches of AML/CFT requirements will ensure compliance with a recommendation (Recommendation 17) of the Financial Action Task Force.

How will civil liability be implemented?

The draft legislation, the Financial Services Commission (Amendment No. 6) (Jersey) Law 201-, will amend the Financial Services Commission (Jersey) Law 1998 to include provisions enabling 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.

When will the primary legislation become effective?

The consultation on the draft legislation is open until 11 August 2014. The consultation covers the detail of the draft primary legislation; 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 JFSC 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.

How can I be ready for civil liability?

Registered persons may wish to confirm that they comply with the Codes and the AML/CFT Handbook in good time before civil penalties for breaches are implemented. In particular, the Codes were amended with effect from 1 July 2014 and further requirements imposed. If they have not done so already, registered persons will wish to conduct a thorough gapping analysis to ensure that they comply to the higher standards.  Specialist teams at Ogier can help with that process.

Resources

The consultation paper on the draft legislation:

http://www.jerseyfsc.org/pdf/Consultation-Paper-No-2-2014-Civil-Penalties-primary-legislation.pdf

The feedback paper from the 2012 consultation:

http://www.jerseyfsc.org/pdf/Feedback_Consultation_Paper_No2_2012_Civil_Penalties_April_2013.pdf