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01 June 2021
Internationally, there has been an increasing focus by regulators on promoting individual accountability within financial services businesses, and it is reasonable to assume that the Jersey Financial Services Commission (JFSC) will take a similar approach. It is therefore important that senior management of regulated firms ensure that they understand what is expected of them and are alive to the (potentially serious) risks to which they are exposed if they fail to meet the JFSC's high standards.
While most regulatory obligations are imposed on the registered person (ie, the firm), responsibility for ensuring compliance ultimately rests on the firm's officers and employees. This is because firms are legal fictions and so, in practice, must operate through individuals.
Seen in this way, it is clear that senior management play a vital role in ensuring compliance with a firm's regulatory obligations. The expectations on senior management can arguably be distilled into two simple phrases:
So what does this mean in practice? Helpfully, a number of themes emerge from the JFSC's Codes of Practice and Licensing Policies that give insight into what it expects of senior management. For example:
Questions that senior managers should therefore be asking themselves on an ongoing basis include as follows:
As part of their role, senior management should also challenge themselves on whether their firm has the right culture (it being commonly accepted that firms with good cultures are more likely to deliver good outcomes). Among other things, senior management should be asking themselves the following questions:
Asking and addressing these types of question on an ongoing basis can help senior management to show that they are performing their functions and doing so with integrity and competence.
The JFSC has a broad range of powers available to it if a senior individual fails to meet the standards expected of them. The use of such powers is a serious step and can have severe consequences for an individual.
Broadly, the JFSC's powers fall into two categories:
In terms of mitigating ongoing or future risks, options open to the JFSC include:
In either case, the JFSC will have particular regard to the individual's integrity and their competence for the role. The JFSC has published guidance on what these terms mean, but it is clear that it has high expectations, and steps taken recently by the UK Financial Conduct Authority(1) illustrate that (mis)conduct outside of an individual's professional role may well be relevant.
In terms of sanctions, the key tool available to the JFSC is the imposition of a civil financial penalty. The penalties that the JFSC can impose are substantial – up to £400,000, depending on the circumstances. However, the JFSC is presently able to impose such penalties only on 'principal persons' (in broad terms, directors and shareholders) and it must first show that:
The JFSC's power to impose financial penalties on principal persons was only introduced on 26 October 2018. While the JFSC has yet to formally exercise this power, it is reasonable to assume that it will not hesitate to do so in appropriate cases.
With the increasing focus on individual accountability, it is important that each senior individual considers the role that they play in promoting a good culture within the firm and ensuring compliance with JFSC regulatory requirements. Doing so will not only help to improve client outcomes, but should also mitigate the risk of (potentially significant) action being taken against both the firm and its principal persons.
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