On 28 December 2017 the Jersey Financial Services Commission (JFSC) published feedback to Consultation Paper No.6 2017 regarding amendments to the JFSC Codes of Practice applicable to all regulated financial services business (the "Codes").
The revised Codes have now been issued and will be effective from 21 March 2018. As a matter of urgency regulated businesses should therefore review the changes to the Codes and consider whether any new implementation measures are necessary.
The changes to the Codes have taken into account industry feedback and include both new and revised regulations to align Jersey with the Group of International Finance Centre Supervisors (GIFCS) Standard.
Material updates applicable to all Codes
Definition of a complaint
To alleviate any avoidance of doubt a complaint has now been formally defined as "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 service business to which that particular code relates) "…carried on by the registered person, which alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience." This definition is more aligned with the definition of "complaint" used by Channel Islands Financial Ombudsman (CIFO).
Review of corporate governance arrangements
It is now a requirement that regulated businesses regularly review all aspects of corporate governance arrangements including a periodic external or self-assessment of the board's effectiveness. The JFSC has not advised on what constitutes 'regular' review instead commenting that it depends on the complexity of the business. However, the frequency of review decided on must be justifiable by the regulated business.
Notification of qualified audit reports
The JFSC now requires that it be notified in writing of a decision by the registered person's auditor to qualify its audit report or to raise an emphasis of matter therein. This will enable the JFSC to prioritize financial statement review in line with its risk based approach to supervision.
Risk Management and Identification
Principal 3 of the Codes provides that organisations be able to demonstrate the existence of adequate risk management systems and incorporate them into their corporate governance framework. The notes of Principal 3 will now define risk as referring to "all the risks that a registered person faces, or may face, as a business enterprise".
Although the JFSC has not issued any specific guidance on risk management, it has clarified that it expects registered persons to undertake risk assessments which should be documented and cover not only risk relating to money laundering and terrorist financing, but all other risks and any mitigating measures have been put in place in response to identified risks.
Notifications via the JFSC's online portal
Where specified in the Codes, the JFSC's online portal is to be used to make notifications. In the event of a systems failure, the relevant notification must be provided in writing to the JFSC within one business day.
Cessation of business plans
The written confirmation of no objection of the JFSC is now expressly required prior to the implementation of a Cessation of Business Plan.
Material updates applicable to service line specific codes
Trust Company Business Code
The Code will be amended to require a Trust Company Business (TCB) to maintain documents systems, controls and procedures for "reconciling movement in trust company business assets." This requirement expands on a requirement under the Financial Services (TCB (Assets – Customer Money)) (Jersey) Order 2000 to reconcile customer money to include assets in a much broader sense. This should be an area of focus for businesses as the JFSC has indicated that it will be thorough in its examinations of the implementation of this requirement in Q2 of 2018.
TCBs are now required to disclose general and specific terms and conditions associated with providing services to customers, the specific requirements of which are set out in part 4 of the Code. The new Code defines a customer as persons to whom TCB services are provided to limit the disclosure to contracting parties.
Previously merely an understanding was required of the rationale for the formation of companies/trusts etc. and services under the various TCB licences. Under the new Code, this rationale must now be documented.
Fund Business Code
All Jersey custodians/depositaries that act in relation to a closed-ended fund will be subject to a significant increase in their minimum regulatory capital. Under the current Code a trustee to a closed-ended fund is required to have paid up share capital and non-distributable reserves, and a minimum net assets position of not less than £250,000. There was previously no equivalent requirement for a custodian or depositary to a closed-ended fund other than the default £10k requirement; however, under the new Code the same requirements that apply to trustees will be extended to all custodians and/or depositaries.
Investment Business Code
Regulatory requirements regarding transparency have been updated to require a registered person to disclose to clients the terms on which money is held under the client money requirements.
The JFSC has clarified that in terms of interest rates disclosure should include, at minimum, advising clients whether money will earn interest, whether interest will be paid to clients and, if so, at what frequency the payments will be made.
Money Business Code
Money service businesses (MSB) will now be required to comply with the Outsourcing Policy. As the requirements under the Outsourcing Policy are particularly detailed and likely to be largely unknown to MSBs, we would encourage the implementation of appropriate oversight arrangements and policies.
Regulated Businesses now have a short window of two months to comply with the amended codes and should make it a priority to consider strategies to implement changes to their business practices. The JFSC has a strong expectation that these updates will be implemented and it is likely that the changes will be a focus of onsite visits throughout the coming year.