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11 May 2017
The outsourcing policy published by the Jersey Financial Services Commission (JFSC) on March 1 2017 achieves much by doing away with the distinction between delegation and outsourcing, which has historically been a source of confusion for registered persons conducting financial services business in Jersey.
However, it has added an extra layer of regulatory burden on registered persons and non-regulated entities alike by broadening the definition of 'outsourced' activity to capture activity which in itself is not regulated, but by virtue of its ability to materially affect the provision of services for which the registered person is licensed falls within the activities that will henceforth be covered by the policy.
The policy will come into effect three months from its date of publication (ie, June 1 2017). In practice, this means that:
The underlying premise of the policy is that registered persons remain fully responsible and accountable to the JFSC for any outsourced activity.
Business risk assessment
It is clear that any outsourcing arrangements entered into by a registered person must be risk assessed by the registered person before entering into such arrangements. This complies with existing requirements under the relevant codes of practice and anti-money laundering compliance requirements to which registered persons are subject. In addition, registered persons must ensure that any sub-outsourcing arrangements comply with the policy.
In keeping with the requirement to assess the risk associated with any outsourcing, the policy provides that due diligence must be conducted on the service provider, which includes considering any conflicts of interest or concentration or jurisdictional risks involved. The JFSC will expect to see board minutes and internal policies and procedures as evidence that due diligence has been conducted on a service provider.
All outsourcing arrangements must be governed by documented, legally binding and enforceable agreements. Among other things, these contracts must:
Termination of outsourcing contracts
With respect to the termination of outsourcing arrangements, the policy imposes an additional burden on registered persons. A registered person must ensure that:
Outsourcing notification and no objection
The notification form is available on the JFSC's website and seeks information on, among other things:
Any proposal to outsource or make material changes to an existing outsourcing arrangement will require a prior no objection from the JFSC. The JFSC will seek to respond within 20 days and, as such, notice of such proposed outsourcing arrangements should be given early in the process. No outsourcing arrangements may be entered into until a no objection is received.
Funds and fund services business providers
There are certain exemptions from adherence to the policy provided to funds and fund service providers, which are available as long as the following conditions are met:
Where the service provider to the fund enters into any sub-outsourcing or any of the above conditions are not met, the policy will apply.
Other relevant exemptions
Certain activities that might otherwise be considered outsourcing for the purposes of the policy are exempt from compliance, including:
The policy is flexible and applications can be made to the JFSC in order to vary the requirements of the policy under certain circumstances. The JFSC will consider each application on a case-by-case basis. Notwithstanding this flexibility, all arrangements with service providers (even those which are ostensibly not defined as 'outsourcing' or 'delegation' under the 2011 policy) must be reviewed to ensure that they are not captured by the policy and, if they are, must comply with the policy by June 1 2018.
For further information on this topic please contact Matthew Shaxson or Tara Kapur at Ogier by telephone (+44 1534 514 000) or email (email@example.com or firstname.lastname@example.org). The Ogier website can be accessed at www.ogier.com.
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