Memorandum from the Jersey Financial Services
Commission
. INTRODUCTION
1.1 This submission, in response to the
Treasury Committee's inquiry into offshore financial centres,
is made by the Jersey Financial Services Commission (the "JFSC").
The JFSC is Jersey's financial services regulator.
2. EXECUTIVE
SUMMARY
2.1 This paper seeks, in particular, to
draw the Committee's attention to:
2.1.1 The role of the JFSC as Jersey's independent,
appropriately resourced financial services regulator with clear
purposes, aims and statutory powers.
2.1.2 Jersey's modern framework for the prudential
supervision of financial services businesses, and the comprehensive
measures in place to prevent and detect money laundering and the
financing of terrorism.;
2.1.3 Jersey's commitment to meeting international
regulatory standards and the independent assessments that have
confirmed that Jersey does indeed meet those standards.
2.1.4 The JFSC's active engagement with the
international regulatory community and the involvement of its
staff in providing support and training to other regulatory bodies.
2.1.5 The assistance and co-operation that
the JFSC provides to other regulatory bodies.
2.1.6 The JFSC's commitment to providing
publicly available information on the breadth and size of Jersey's
finance industry.
3. THE JFSC
3.1 The JFSC is responsible for the regulation
and supervision of the financial services industry in Jersey.
It is a statutory body corporate, set up under the Financial Services
Commission (Jersey) Law 1998 (the "Commission Law").
3.2 The JFSC also operates Jersey's Registry
for companies, limited partnerships, limited liability partnerships
and business names. The types of companies on the Register include
special purpose vehicles and, on a smaller scale, structured investment
vehicles. Jersey companies are either required to provide beneficial
ownership information to the JFSC or, in cases where the company
is administered by a regulated trust company business (see 4.1),
the JFSC may obtain such information from the trust company business.
By law, trust company businesses are required to obtain beneficial
ownership information on companies they administer. (Failure to
do so is a ground for a criminal penalty or a regulatory sanction
to be applied (which, in the latter case, may include the revocation
of a firm's regulatory licence)).
3.3 The Commission Law provides for a Board
of Commissioners to be the governing body of the JFSC. The Board
presently consists of 10 Commissioners, who—as required
by the Commission Law—are made up of a balance of persons
covering providers of financial services, users of financial services
and persons representing the public interest.
3.4 The Commission Law established the JFSC
as an independent body, fully responsible for its own regulatory
decisions. The JFSC is accountable for its overall performance
to the States of Jersey (the Island's parliament).
3.5 The JFSC's key purpose is to maintain
Jersey's position as an international finance centre with high
regulatory standards by:
3.5.1 reducing risk to the public of financial
loss due to dishonesty, incompetence, malpractice or the financial
unsoundness of financial service providers;
3.5.2 protecting and enhancing the Island's
reputation and integrity in commercial and financial matters;
3.5.3 safeguarding the Island's best economic
interests; and
3.5.4 countering financial crime both in Jersey and
elsewhere.
3.6 In support of its key purpose, the JFSC
aims to:
3.6.1 ensure that all entities that are authorised
meet fit and proper criteria;
3.6.2 ensure that all regulated entities
are operating within accepted standards of good regulatory practice;
3.6.3 match international standards in respect
of banking, securities, trust company business, insurance regulation,
anti-money laundering, and terrorist financing defences;
3.6.4 identify and deter abuses and breaches
of regulatory standards; and
3.6.5 ensure that the JFSC operates effectively
and efficiently, and is accountable to the States of Jersey.
3.7 The JFSC presently has a staff complement
of 105 (full-time equivalent).
3.8 Further information about the structure
and governance of the JFSC can be found on its website (www.jerseyfsc.org)
and in its recently published 2007 Annual Report.[562]
4. THE REGULATORY
ENVIRONMENT
4.1 The JFSC has responsibility for the
prudential oversight of banks, insurance companies, fund services
businesses, investment businesses (investment managers, dealers
and advisers), trust company businesses (trust and company service
providers), general insurance mediation businesses and money service
businesses (bureaux de change and money transmitters). Collectively,
these will be referred to herein as "regulated businesses".
4.2 The legal basis for overseeing regulated
businesses is contained in the following laws: the Banking Business
(Jersey) Law 1991; the Collective Investment Funds (Jersey) Law
1988; the Financial Services (Jersey) Law 1998; the Insurance
Business (Jersey) Law 1996 (the "four regulatory laws").
Copies of these laws are publicly available from the website of
the Jersey Legal Information Board.[563]
4.3 The four regulatory laws, combined with
the Commission Law, provide the JFSC with the statutory power
to conduct off-site and on-site supervision of regulated businesses.
(With regard to the latter, 155 on-site examinations were completed
in 2007.) The four regulatory laws also provide the JFSC with
various tools and powers to ensure that it can carry out effective
supervision. The JFSC is able to require the provision of information
and documents, to conduct investigations and to enter and search
premises (upon issue of a warrant).
4.4 In addition, the four regulatory laws
provide for the JFSC to be able to revoke a regulated business's
licence (or refuse to licence an applicant), to set conditions
on a licence, to issue directions requiring a regulated business
to take or not take specific action, to appoint a manager to manage
a regulated business, and to issue public statements that warn
the public and/or censure the regulated business.
4.5 The four regulatory laws also provide
for criminal offences to be committed where (inter alia) a person
conducts a financial service business without the relevant licence
from the JFSC or provides information to the JFSC that is false
or misleading.
4.6 The JFSC has powers under the four regulatory
laws to issue Codes of Practice that set standards that regulated
businesses must meet. The Codes that have been issued are available
from the JFSC's website[564]
and these set, for example, conduct of business rules and financial
resource requirements.
4.7 The Committee may have noted from the
list of regulated businesses in 4.1 that Jersey is one of the
few jurisdictions in the world that comprehensively regulates
and supervises trust and company service providers.
4.8 The JFSC currently supervises 47 banks,
184 insurance companies, 480 fund services businesses, 115 investment
businesses, 192 trust company businesses, 120 general insurance
mediation businesses and 48 money service businesses.
5. ANTI-MONEY
LAUNDERING AND
COUNTERING THE
FINANCING OF
TERRORISM ("AML/CFT")
5.1 As well as the prudential supervision
of regulated businesses, the JFSC is also responsible for overseeing
regulated businesses for their compliance with AML/CFT legislation
and associated regulatory requirements, as well as for their compliance
with United Nations and European Union sanctions requirements.
5.2 The JFSC issues and maintains Jersey's
"Handbook for the Prevention and Detection of Money Laundering
and the Financing of Terrorism". This is available from the
JFSC's website.[565]
The Handbook sets AML/CFT regulatory requirements on regulated
businesses.
5.3 Non-compliance with Jersey's AML/CFT
legislation by a regulated business attracts a range of criminal
offences, with various levels of fine and terms of imprisonment.
In addition, the four regulatory laws provide for AML/CFT breaches
to attract regulatory sanctions by the JFSC (including those listed
in 4.4). For example, in a recent case, AML/CFT breaches were
a significant factor in the JFSC's decision to close down a trust
company business.
5.4 The JFSC works closely with Jersey's
joint police/customs financial intelligence unit (the "Joint
Financial Crimes Unit" or "JFCU"). There is a regular
exchange of information in relation to regulated businesses, in
particular where a suspicious activity report submitted to the
JFCU indicates that there may be issues at the regulated business
that the JFSC should look into. Conversely, there have been a
number of instances where an on-site examination of a regulated
business has resulted in the JFSC becoming aware of potential
breaches of AML/CFT (and other) legislation and a referral to
the JFCU has been made. Investigations and criminal prosecutions
have resulted from these referrals. These have included a major
criminal prosecution where a regulated trust company and one of
its directors was convicted of breaching statutory "know
your customer" requirements and fined a total of £100,000.
5.5 Regulated businesses play a key role
in the Island's fight against criminals and the "know your
customer" requirements they must follow enables them to be
in a position to recognise suspicious or unusual activity by their
clients. The vigilance of regulated businesses is reflected in
the large number of "suspicious activity reports" submitted
by them to the JFCU. For example, in the period January 2005 to
December 2007 regulated businesses submitted in excess of 3,500
SARs for investigation. (Further statistical and other information
about SARS and the work of the JFCU generally can be obtained
from the States of Jersey Police Annual Performance Report).[566]
5.6 The States of Jersey has recently adopted
a new law (currently awaiting Privy Council approval) that will
extend the remit of the JFSC to overseeing lawyers, accountants,
estate agents, high value goods dealers, and a number of other
business sectors, for their compliance with their statutory AML/CFT
obligations. The JFSC has already recruited the additional staff
necessary to ensure that it has the resources to carry out effective
oversight of these new sectors.
6. COMPLIANCE
WITH INTERNATIONAL
STANDARDS
6.1 Jersey's government has publicly committed
the Island to meeting international standards on financial regulation
and AML/CFT controls. The JFSC is fully supportive of this and
attaches particular importance to independent assessments of its
compliance with standards set by the FATF, IOSCO, IAIS, and the
BCBS.
6.2 In 2003, the IMF carried out an assessment
of Jersey's compliance with these standards. The IMF concluded
that "the financial regulatory and supervisory system of
Jersey complies well with international standards". The full
text of the IMF report can be obtained from the JFSC's website.[567]
6.3 Since then, there have been significant
changes in the international standards to be met, most particularly
in respect of those set by the FATF and the BCBS, and more emphasis
on the effectiveness with which those standards are being met.
The JFSC (and other relevant Island agencies) has been, and continues
to be, actively engaged in a process of updating relevant legislation,
regulations and procedures to ensure that the Island will continue
to meet international standards.
6.4 The next assessment of Jersey's regulatory
standards by the IMF—under its FSAP[568]
Updates programme—will take place in October and November
of this year. The enactment of updating legislation and the implementation
of updated Codes of Practice, and the planning undertaken for
the IMF assessment generally, is expected to put Jersey in a good
position to achieve standards of compliance that compare favourably
with those of other countries, including many EU Member States
and G7 countries. The IMF assessment will also include "stress-testing"
to assess the likely resilience of the banking sector to financial
sector shocks. The JFSC is confident that its regulatory framework
for banks in Jersey will ensure that they are well prepared to
cope with such shocks.
6.5 Jersey's AML/CFT systems have recently
been subject to review by the European Union's Committee on the
Prevention of Money Laundering and Terrorist Financing. The committee
has been considering which jurisdictions should be considered
by Member States to have equivalent AML/CFT systems to the European
Union. In a "Common Understanding" published last month
the committee stated that "the UK Crown Dependencies (Jersey,
Guernsey and the Isle of Man) may also be considered as equivalent
by Member States". Following the publication of the Common
Understanding, the United Kingdom government publicly confirmed
that it considers Jersey to have EU equivalent AML/CFT systems.[569]
7. INTERNATIONAL
ENGAGEMENT
7.1 The JFSC is committed to active engagement
with the international regulatory community and does this in a
number of different ways.
7.2 The JFSC is a member of the International
Organisation of Securities Commissions (IOSCO), the International
Association of Insurance Supervisors (IAIS), the Offshore Group
of Banking Supervisors (OGBS), and the Offshore Group of Insurance
Supervisors (OGIS).
7.3 Officers of the JFSC sit on IOSCO Standing
Committee 5 (investment management) and also the Implementation
Task Force, which developed the Methodology used to assess compliance
with IOSCO's Objectives and Principles. An officer of the JFSC
also sits on the IAIS's pensions committee and the OGIS management
committee.
7.4 The JFSC has been a member of the OGBS
since its creation in 1980, and has played a leading role in the
OGBS's anti-money laundering programme; particularly through the
OGBS Chairman Colin Powell, who is also Chairman of the JFSC.
7.5 Through its membership of the OGBS,
the JFSC works with the Financial Action Task Force (FATF) (the
international body responsible for setting AML/CFT standards)
and the Basel Committee on Banking Supervision (BCBS). The JFSC's
Chairman attends all FATF meetings. The Chairman co-led the FATF
typologies project on the misuse of corporate vehicles, the report
on which was published in October 2006. The JFSC's Chairman also
co-chaired the Basel Committee Working Group on Cross-Border Banking,
which issued a paper on customer due diligence for banks. The
OGBS is also involved in Interpol's Working Group on Anti-Money
Laundering and Terrorist Financing.
7.6 As part of the OGBS, the JFSC has also
participated in the development by the OGBS of a statement of
best practice for trust and company service providers.
7.7 The JFSC also attends and contributes
to the work of the Wolfsberg Group, an association of eleven global
banks, which aims to develop financial services industry standards,
and related products, for "Know Your Customer" and AML/CFT
policies.
7.8 The JFSC's Companies' Registry division
is also active internationally. The JFSC's Director, Registry
sits on the board of the European Business Register (EBR). The
EBR is responsible for maintaining access to the data of 20 million
companies held in the Registries of 19 European jurisdictions
(including the United Kingdom and Jersey). The EBR also manages
a number of research projects funded by the European Union.
7.9 The JFSC's Director, Registry also sits
on the board of the International Association of Commercial Administrators
(IACA) as the director representing the international section
chair. IACA is the association of all United States and Canadian
companies' registries.
7.10 The JFSC actively monitors international
regulatory developments. For example, it has recently completed
a comprehensive review of the April 2008 Financial Stability Forum's
report on "Enhancing Market and Institutional Resilience"
and assessed what action the JFSC should take in support of the
report's recommendations.
7.11 The expertise of the JFSC has resulted
in its staff being asked to participate in assessment exercises
and to provide training to regulators and other bodies. Some examples
are given below.
7.12 Officers of the JFSC have been seconded
to the International Monetary Fund (IMF) to act as subject experts
on IMF assessments of the standards of financial regulation in
Cyprus, Vanuatu and the Bahamas. In addition, a JFSC officer provided
AML/CFT training at a seminar hosted by the World Bank for North
African and Middle East regulators. Earlier this year, a JFSC
officer provided AML/CFT training to the financial services regulator
in Nevis. Later this month, a member of the JFSC's staff, at the
invitation of the European Commission under its TAIEX[570]
programme, will provide anti-money laundering training to the
Serbian Ministry of Finance.
7.13 To assist in the development of the
skills of overseas regulatory staff, the JFSC has provided secondments
to officers of financial service regulators from the British Virgin
Islands, Bahrain, China, the Netherlands and Vanuatu. JFSC staff
have also provided training on "Effective Supervision"
to regulators situated in a number of Caribbean jurisdictions
as part of initiatives funded by the IMF or the Foreign and Commonwealth
Office.
7.14 The JFSC also hosts periodic awareness-raising
seminars for staff of the Metropolitan Police and the Serious
Fraud Office on the "uses and abuses of offshore structures"
and how to investigate them. Other organisations that have benefited
from awareness-raising seminars from subject specialists at the
JFSC include the Royal Canadian Mounted Police, French investigating
magistrates and the City of London Police.
8. INTERNATIONAL
CO-OPERATION
AND TRANSPARENCY
8.1 The four regulatory laws provide the
JFSC with wide powers to assist regulators in countries or territories
outside of Jersey. For example, these include the following powers
that may be exercised by the JFSC in order to assist an overseas
regulator:
8.1.1 the power to refuse or revoke a licence;
8.1.2 the power to impose, revoke or vary
conditions of registration;
8.1.3 the power to obtain information and
documents;
8.1.4 the power to appoint an inspector;
8.1.5 the power to communicate information
that is in the possession of the JFSC (notwithstanding confidentiality
provisions).
8.2 In response to formal requests for assistance
from an overseas regulator the JFSC can serve notices on persons/businesses
in Jersey requiring the production of evidence on behalf of the
overseas regulator making the request. Over the past four years,
the JFSC's Enforcement Division has responded to formal requests
for assistance from overseas regulators on 42 occasions. Generally
speaking, these requests from overseas regulators sought information
to assist with investigations linked to suspected insider dealing,
market manipulation or the provision of false and misleading information.
In addition to these formal requests, the JFSC's supervision divisions
respond each year to numerous routine requests from overseas regulators,
for example, to confirm that a particular business is regulated,
that no adverse information about a particular entity or person
is held, etc.
8.3 Jersey legislation does not require
bi-lateral agreements to be in place in order for the JFSC to
co-operate internationally. Notwithstanding this, the JFSC is
of the view that bi-lateral agreements can be of assistance in
setting out the practical steps to be taken when assistance is
required. They also publicly demonstrate the JFSC's clear commitment
to international regulatory co-operation.
8.4 To date, the JFSC has concluded 33 bilateral
memoranda of understanding with overseas financial services regulators.
The full list is available from the JFSC's website.[571]
8.5 In addition, the JFSC has concluded
a letter of intent with the Hong Kong Securities and Futures Commission
and a Statement of Co-operation with the China Banking Regulatory
Commission.
8.6 Jersey was amongst the first jurisdictions
to become a signatory to IOSCO's multilateral memorandum of understanding.
The memorandum sets a benchmark for co-operation on combating
securities and derivatives violations, and commits Jersey to sharing
a wide range of information about the illegal use of the securities
and derivatives markets with securities regulators in other countries.
Before signing the memorandum, the JFSC had to satisfy IOSCO that
it has the necessary laws, powers and practices to co-operate
effectively in investigations. A full list of the 47 signatories
to the memorandum can be found on IOSCO's website.[572]
The signatories include regulators in major European countries,
the Far East and the United States.
8.7 Given the increasingly cross-border
nature of financial services, the JFSC recognises the importance
of the publication of statistical information on the size of Jersey's
finance industry. The JFSC publishes data in a number of different
ways.
8.8 On a quarterly basis the JFSC collates
information on the breadth and size of Jersey's finance industry.
This includes, for example, information on the size of bank deposits
and funds under management. These statistics are formally published
by another Island agency, Jersey Finance Limited, and can be viewed
on its website.[573]
8.9 The JFSC is a voluntary contributor
to the IMF's Information Framework (the "Framework").
The Framework is intended to help improve transparency in the
operations of international and offshore financial centres by
providing jurisdictions with a common template in their information
dissemination efforts. The Framework also provides the IMF with
a mechanism to collect comparable information on a regular basis
to facilitate monitoring developments in financial centres. The
most recent data submitted to the IMF can be viewed on the JFSC's
website.[574]
8.10 Another IMF statistics initiative that
the JFSC voluntary contributes data to is its Co-ordinated Portfolio
Investment Survey ("CPIS"). The purpose of the CPIS
is to collect information on the stock of cross-border holdings
of equities and long- and short-term debt securities valued at
market prices prevailing at the time of the CPIS, and broken down
by the economy of residence of the issuer. Jersey's CPIS data
is published on the IMF's website,[575]
along with the data from the other 73 contributing jurisdictions.
8.11 On a quarterly basis, the JFSC provides
statistics to the Bank for International Settlements (BIS) under
its Locational International Banking Statistics programme. Currently,
40 jurisdictions report their aggregate national locational data
to the BIS, which uses them as the basis for calculating and publishing
global figures. The data are published as part of the BIS Quarterly
Review available from the BIS website.[576]
June 2008
562 http://www.jerseyfsc.org/pdf/Annual_Report_2007.pdf Back
563
http://www.jerseylaw.je/law/LawsInForce/chapter.aspx?chapter=13 Back
564
See- http://www.jerseyfsc.org/banking_business/codes_of_practice/index.asp
http://www.jerseyfsc.org/funds_securities_issues/codes_of_practice/index.asp
http://www.jerseyfsc.org/insurance_business/insurance_companies/codes_of_practice/index.asp
http://www.jerseyfsc.org/insurance_business/general_insurance_mediation/codes_of_practice/index.asp
http://www.jerseyfsc.org/trust_company_business/codes_of_practice/index.asp
http://www.jerseyfsc.org/money_service_business/codes_of_practice/index.asp Back
565
http://www.jerseyfsc.org/pdf/AML%20_Handbook_Consolidated_Version_26_March_2008.pdf Back
566
http://www.jersey.police.uk/pdf- files/StatesofJersey%20Police%202007%20Annual%20ReportFINAL.pdf Back
567
http://www.jerseyfsc.org/the_commission/international_co-operation/evaluations/imf-assessments.asp Back
568
Financial Sector Assessment Programme. Back
569
See http://www.hm-treasury.gov.uk./documents/financial_services/money/fin_crime_equivalence.cfm Back
570
Technical Assistance and Information Exchange programme. Back
571
http://www.jerseyfsc.org/the_commission/international_co-operation/list-of-memoranda.asp Back
572
http//www.iosco.org/library/index.cfm?section=mou_siglist Back
573
For example, see http://www.jerseyfinance.je/content/2852/index.html Back
574
http://www.jerseyfsc.org/the_commission/general_information/statistics/international_monetary_fund.asp Back
575
http://www.imf.org/external/np/sta/pi/part.asp?iso=JEY Back
576
http://www.bis.org/statistics/bankstats.htm Back
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