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05 April 2018
On December 28 2017 the Jersey Financial Services Commission (JFSC) published feedback to Consultation Paper 6/2017 regarding amendments to the JFSC codes of practice applicable to all regulated financial services business.
The revised codes came into force on March 21 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 considered industry feedback and include both new and revised regulations to align Jersey with the Group of International Finance Centre Supervisors standard.
Definition of 'complaint'
To alleviate any avoidance of doubt, '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.
Review of corporate governance arrangements
Regulated businesses must now 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 raise an emphasis of matter therein. This will enable the JFSC to prioritise financial statement review in line with its risk-based approach to supervision.
Risk management and identification
Principal 3 of the codes provides that organisations must be able to demonstrate the existence of adequate risk management systems and incorporate them into their corporate governance framework. The notes to 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 issued no 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 that have been put in place in response to identified risks.
Notifications via 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 before the implementation of a cessation of a business plan.
Trust Company Business Code
The Trust Company Business 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 in order 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 the second quarter 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 'customers' as persons to whom TCB services are provided in order to limit the disclosure to contracting parties.
Previously, merely an understanding of the rationale for the formation of companies and trusts and services under the various TCB licences was required. Under the new code, this rationale must now be documented.
Fund Business Code
All Jersey custodians and depositaries that act in relation to a closed-ended fund will be subject to a significant increase in their minimum regulatory capital. Under the existing Fund Business Code, a trustee to a closed-ended fund must have paid-up share capital and non-distributable reserves, and a minimum net assets position of no less than £250,000. There was previously no equivalent requirement for a custodian or depositary to a closed-ended fund other than the default £10,000 requirement; however, under the new code, the same requirements that apply to trustees will be extended to all custodians and 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 interest rates disclosure should include, at a 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) must now comply with the outsourcing policy. As the requirements under the outsourcing policy are particularly detailed and likely to be largely unknown to MSBs, the implementation of appropriate oversight arrangements and policies are encouraged.
Regulated businesses must 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.
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