CONSULTATION PAPER NO PROPOSED AMENDMENTS TO CODES OF PRACTICE

Transcription

1 CONSULTATION PAPER NO PROPOSED AMENDMENTS TO CODES OF PRACTICE Proposals to amend the Codes of Practice to: provide clarification on the scope and basis on which the Codes are issued; align regulatory requirements across the Codes wherever possible, recognising that differing requirements will be required to reflect specific characteristics of financial sectors; and augment existing requirements or set new requirements that are particular to a financial sector. ISSUED APRIL 2011

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3 CONSULTATION PAPER The Jersey Financial Services Commission (the Commission ) invites comments on this Consultation Paper. Heather Bestwick at Jersey Finance Limited ( Jersey Finance ) is co-ordinating an Industry response that will incorporate any matters raised by local businesses. Comments should reach Jersey Finance by the date specified in its Technical Updates. Responses should be sent to: Heather Bestwick Technical Director Jersey Finance Limited 4 th Floor, Sir Walter Raleigh House, Esplanade, St Helier, Jersey JE1 3UN Telephone: +44 (0) Facsimile: +44 (0) heather.bestwick@jerseyfinance.je Alternatively, responses may be sent directly to Caroline Morgan at the Commission by 5 August If you require any assistance, clarification or wish to discuss any aspect of the proposal prior to formulating a response, it is of course appropriate to contact the Commission. The Commission contact is: Caroline Morgan Senior Manager International & Policy Division Jersey Financial Services Commission PO Box Castle Street St Helier Jersey JE4 8TP Telephone: +44 (0) Facsimile: +44 (0) cpcodes@jerseyfsc.org It is the policy of the Commission to make the content of all responses available for public inspection unless specifically requested otherwise. PROPOSED AMENDMENTS TO CODES OF PRACTICE 3 of 90

4 Glossary of terms 2005 span of control document AML/CFT Handbook ANLA ANLA calculation Article 5 notification Banking Codes BB(J)L BCBS CIF(J)L Codes the Commission the Commission Law CPD customer DCS FS(J)L FSB GIMB GIMB Codes IB IB Codes IB(J)L means the Policy Statement/Guidance Note published January 2005, which provides both requirements and guidance in respect of span of control: The "Span of control" or "4 or 6 eyes" principles means the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for Financial Services Business Regulated under the Regulatory Laws means the Adjusted Net Liquid Assets means the calculation of surplus ANLA over Total Requirements means a notification to the Commission under Article 5 of the MSB Exemptions Order that a person registered to carry on deposit-taking business under the BB(J)L is also carrying on money service business means the Codes of Practice for Deposit-taking Business means the Banking Business (Jersey) Law 1991, as amended means the Basel Committee on Banking Supervision means the Collective Investment Funds (Jersey) Law 1988, as amended is the term used to generically refer to all the Codes of Practice issued by the Commission under one of the Regulatory Laws means the Jersey Financial Services Commission means the Financial Services Commission (Jersey) Law 1998, as amended means the Continuing Professional Development is a generic term to encompass: TCB and Banking customers; IB, GIMB and MSB clients; Insurance policyholders; or with respect to FSB Codes, the fund to which the FSB is a fund services provider Jersey Bank Depositors Compensation Scheme means the Financial Services (Jersey) Law 1998, as amended means Fund Services Business means General Insurance Mediation Business means the Codes of Practice for General Insurance Mediation Business means Investment Business means the Codes of Practice for Investment Business means the Insurance Business (Jersey) Law 1996, as amended 4 of 90 ISSUED APRIL 2011

5 IMF Insurance Codes Jersey Bank Jersey Branch Jersey Finance Money Laundering Order MSB MSB Codes means the International Monetary Fund means the Codes of Practice for Insurance Business Glossary of terms means a person granted a registration to carry on deposit-taking business in or from within Jersey and which carries on its business through a Jersey incorporated company means a person granted a registration to carry on deposit-taking business in or from within Jersey and which carries on its business other than through a Jersey incorporated company means the Jersey Finance Limited means the Money Laundering (Jersey) Order 2008, as amended means Money Service Business means the Codes of Practice for Money Service Business MSB Exemptions Order means the Financial Services (Money Service Business (Exemptions)) (Jersey) Order 2007 non-domiciled fund PII RDR registered person Regulatory Laws TCB TCB Codes UK FSA means a collective investment fund that is not domiciled in Jersey means the Professional Indemnity Insurance means the UK FSA Retail Distribution Review is a generic term to encompass: a person registered to undertake business under either the BB(J)L or the FS(J)L; a person granted a permit or certificate under the CIF(J)L; or a person granted a permit to undertake business under the IB(J)L is a collective term to refer to the following legislation: BB(J)L; CIF(J)L; FS(J)L; and IB(J)L means Trust Company Business means the Codes of Practice for Trust Company Business means the United Kingdom s Financial Services Authority PROPOSED AMENDMENTS TO CODES OF PRACTICE 5 of 90

6 Contents CONSULTATION PAPER 3 Glossary of terms 4 Contents 6 1 Executive Summary Overview What is proposed and why? Who would be affected? Consultation Basis for consultation Responding to the consultation Next steps The Commission Overview Commission s functions Guiding principles and aims Future Format of the Codes Overview Proposal for the way forward Glossary Introduction to the Codes Overview Proposed amendments Corporate Governance: Span of Control Overview Proposed amendments Compliance Function and Continuing Professional Development Overview Proposed amendments Compliance Function Proposed amendments Continuing Professional Development Complaints Overview Proposed amendments Record Keeping Overview Proposed amendments Financial Resources Overview Proposed generic amendment Proposed amendments to FSB Codes, IB Codes and TCB Codes of 90 ISSUED APRIL 2011

7 Contents 10.4 Proposed amendment to be consulted on later this year Professional Indemnity Insurance Overview Proposed amendments Principle 6 Notifications Overview Proposed amendments Subordinated Loan Agreement Overview Proposed amendment to FSB Codes, IB Codes and TCB Codes Proposed amendment to Insurance Codes and GIMB Codes Sector Specific Amendments: Banking Overview Jersey Banks and Jersey Branches Principle 3: Risk management Principle 5: Financial resources Principle 6: Filing annual financial statements Principle 7: Mandatory wording in respect of the Jersey Bank Depositors Compensation Scheme ( DCS ) Sector Specific Amendments: Trust Company Business Overview Principle 2: Delegation of duties or powers Principle 3: Various regulatory requirements Principle 4: Fees and charges Principle 6: Specific notifications Third Schedule: Variance from the Codes in respect of registered persons conducting a single class of trust company business Sector Specific Amendments: Investment Business Overview Principle 2: Highest regard for the interests of clients Principle 3: Integrity and competence Principle 4: Transparency of business arrangements fees and charges Retail Distribution Review ( RDR ) Sector Specific Amendments: Fund Services Business Overview Unregulated Funds Order Principle 3: Corporate governance Principle 6: Specific notifications Sector Specific Amendments: Money Service Business Overview Current scope and requirements Future requirements PROPOSED AMENDMENTS TO CODES OF PRACTICE 7 of 90

8 Contents 19 Sector Specific Amendments: Insurance Sectors Overview Insurance Codes GIMB Codes Cost Benefit Analysis Costs to Industry Costs to the Commission Benefits Summary of Questions 72 Appendix A 77 List of representative bodies who have been sent this Consultation Paper Appendix B 78 Span of Control list of Commission documents with a possible consequential amendment Appendix C 79 Draft Guidance Note: Professional Qualifications (Trust Company Business) Appendix D 85 Draft Guidance Note: Professional Indemnity Insurance Appendix E 89 Draft Codes of Practice as they would appear if all proposed amendments are adopted Appendix F 90 Proposed proforma subordinated loan documentation of 90 ISSUED APRIL 2011

9 1 Executive Summary 1.1 Overview The Commission has issued seven sets of Codes of Practice (the Codes ), under the Regulatory Laws 1, in respect of the following activities carried on in or from within Jersey: Codes of Practice for Deposit-taking Business (the Banking Codes ), last revised on 13 September 2010; Codes of Practice for Fund Services Business (the FSB Codes ), last revised on 4 July 2008; Codes of Practice for General Insurance Mediation Business (the GIMB Codes ), last revised on 4 July 2008; Codes of Practice for Investment Business (the IB Codes ), dated 1 July 2008; Codes of Practice for Insurance Business (the Insurance Codes ), last revised on 4 July 2008; Codes of Practice for Money Service Business (the MSB Codes ), last revised on 4 July 2008; and Codes of Practice for Trust Company Business (the TCB Codes ), last revised on 13 October The Commission has reviewed each set of Codes and is proposing amendments to the Codes which broadly fall into three categories, being those that: provide clarification on the scope and basis on which the Codes are issued; align regulatory requirements across the Codes wherever possible, recognising that differing requirements will be required to reflect specific characteristics of financial sectors; and augment existing requirements or set new requirements that are particular to a financial sector. 1 Regulatory Laws is a collective term used to refer to the following legislation: Banking Business (Jersey) Law 1991, as amended (the BB(J)L) ); Collective Investment Funds (Jersey) Law 1988, as amended (the CIF(J)L ); Financial Services (Jersey) Law 1998, as amended (the FS(J)L ); and Insurance Business (Jersey) Law 1996, as amended (the IB(J)L ). PROPOSED AMENDMENTS TO CODES OF PRACTICE 9 of 90

10 Executive Summary This Consultation Paper provides information in respect of the proposed amendments, differentiating between those amendments which are common across a number of Codes (Chapters 5 to 13) and those which are specific to a single set of Codes (Chapters 14 to 19) Although amendments are being proposed to many areas of the Codes, and, at first glance, the amendments may appear extensive, the Commission believes that overall the amendments are not controversial or contentious and their implementation by Industry should not be costly. The Commission also believes that, where a registered person is registered to carry on more than one type of financial services business under the Regulatory Laws, the amendments may save a registered person time if adopted as proposed Notwithstanding the Commission s position in respect of the proposed amendments, individual financial sectors or registered persons will note that the proposed amendments have resulted in substantial word changes in certain sections of the Codes In addition to proposing amendments to the Codes, the review has highlighted two areas which the Commission considers would benefit from the publication of Guidance Notes (professional indemnity insurance ( PII ) and professional qualifications for trust company business employees) and one area where existing requirements would be better presented outside the Codes (treatment of subordinated loans in the financial resource requirements/solvency margin calculation) Finally, there are three Codes related activities that the Commission will be undertaking during 2011, as set out in paragraphs to , in addition to the proposals contained in this Consultation Paper. Large exposures With respect to the banking sector the Commission has issued a Consultation Paper on amendments to the large exposures regime Consultation Paper No , issued 18 March The large exposure consultation includes proposals to amend 5.4 (Concentration risk) and Appendix II of the Banking Codes and, consequently, no text relating to these sections has been included in the draft Banking Codes at Appendix E of this Consultation Paper. Adjusted Net Liquid Assets (the ANLA ) calculation Within the next few months the Commission intends to undertake a short consultation on consolidating the guidance associated with the ANLA calculation, which is required of registered persons carrying on fund services business, investment business or trust company business Currently, each of the FSB Codes, IB Codes and TCB Codes includes guidance on definitions to be used when completing the ANLA calculation and the Commission has published a separate guidance document which is available from the Commission Website. 10 of 90 ISSUED APRIL 2011

11 Executive Summary The proposal will be to issue a single guidance note that consolidates these two sources of guidance and provides guidance on the completion of an ANLA calculation when a registered person undertakes fund services business and trust company business. Retail Distribution Review ( RDR ) With respect to the investment business sector, many local businesses have strong links to the UK investment product market. Consequently, the ongoing work on the RDR of the UK Financial Services Authority (the UK FSA ) will have a direct impact on Jersey s investment business sector and its clients The UK FSA has stated that the four key strands of the RDR are to: increase the professional standards of all investment advisers; improve the clarity with which firms describe their services to consumers; address the potential for commission to distort consumer outcomes; and improve the sustainability of the market The Commission intends to issue a Position Paper later this year which will describe in detail the impact of RDR on the local investment market and the Commission s proposed response. 1.2 What is proposed and why? The following paragraphs set out at a very high level some of the key amendments proposed. A full appreciation of the proposed amendments can only be gained by reading the full Consultation Paper and Codes In recognition that many registered persons carry on more than one type of financial services business in a single vehicle and are therefore required to consider and follow more than one set of Codes, Chapter 4 of the Consultation Paper considers the future format of the Codes. Preparation of this paper has identified similarities and differences between the Codes and it may be appropriate to consider the feasibility of producing a single set of consolidated Codes In the Introduction section of each of the Codes, amendments are being proposed that clarify the powers exercised by the Commission in setting requirements and requiring information be delivered to the Commission for the purpose of undertaking its ongoing supervision. Additionally, amendments are being proposed that clarify the scope of the Codes; this includes text clarifying who is the registered person/permit holder for the purpose of applying the Codes. PROPOSED AMENDMENTS TO CODES OF PRACTICE 11 of 90

12 Executive Summary The Commission is proposing amendments to the Codes which introduce to all financial sectors the concept of a compliance function and differentiate between the role and responsibilities of the Compliance Officer and a compliance function. The intention is to recognise that in many registered persons/permit holders the Compliance Officer is part of a compliance function and that some of the responsibilities currently assigned by the Codes to the Compliance Officer sit better within a compliance function. However, given the diversity in complexity and size of registered persons/permit holders the amendments also look to recognise that there will be instances where the Compliance Officer will be the total compliance resource. The intention is to better highlight the role and responsibilities of the Compliance Officer and to reflect the practical position in many registered persons With respect to record keeping it is proposed that this section should focus on the management of records, including the retention period. As a general principle, it is proposed that, where legislation sets requirements, including retention periods, these should not be extended by the Codes without justification. Examples of legislation that sets record keeping requirements are the companies law of a given jurisdiction, with respect to business records; and the Money Laundering (Jersey) Order 2008, as amended (the Money Laundering Order ) with respect to customer records Where retention periods are set through requirements in the Codes, it is proposed to align retention periods for business and customer records across the Codes, such that records should be kept for at least five years from the date of the event to which the record relates. This is a change from the current position where records are required to be kept for differing periods up to 10 years Notwithstanding the above, no changes are planned to retention periods in the Banking Codes which will remain as currently drafted and will in some instances set higher requirements than required by legislation It is proposed to align the PII text across the relevant Codes (IB Codes, TCB Codes, GIMB Codes and FSB Codes) and to issue a Guidance Note on PII which provides guidance in a number of areas The proposal to align many of the PII requirements recognises that a registered person may carry on more than one type of financial services business activity in Jersey but will have a PII policy that covers their whole business With respect to persons carrying on money service business ( MSBs ) the Consultation Paper includes specific proposals to amend the MSB Codes, in line with amendments proposed in other Codes and sets the scene for further discussion, in 2011, on the level of prescription in the MSB Codes. This wider discussion is proposed against a background of increasing complexity of money service business, the Commission s three plus years experience of regulating MSBs, and the recent failure of a UK MSB - where customers lost money. 12 of 90 ISSUED APRIL 2011

13 Executive Summary 1.3 Who would be affected? This Consultation Paper proposes amendments to all Codes and therefore all registered persons 2 may be affected by the Commission s proposals The following persons are not affected by the proposals set out in this Consultation Paper: persons that have notified the Commission that they are undertaking money service business under the provisions of Article 4 of the Financial Services (Money Service Business (Exemptions)) (Jersey) Order 2007; and persons undertaking only Class R or Class S general insurance mediation business. 2 Registered person is used as a generic term to encompass: a person registered to undertake business under either the BB(J)L or the FS(J)L; a person granted a permit or certificate under the CIF(J)L; or a person granted a permit to undertake business under the IB(J)L. PROPOSED AMENDMENTS TO CODES OF PRACTICE 13 of 90

14 2 Consultation 2.1 Basis for consultation The Regulatory Laws provide the Commission with the power to issue Codes and also require that the Commission consult with such persons or bodies as appear to be representative of the interests concerned prior to revising the Codes. This Consultation Paper is part of that consultation process The relevant Articles of the Regulatory Laws are: in respect of deposit-taking business, Article 19A of the BB(J)L; in respect of insurance business, Article 42 of the IB(J)L; and Article 19 of the FS(J)L, in respect of: Fund Services Business ( FSB ); General Insurance Mediation Business ( GIMB ); Investment Business ( IB ); Money Service Business ( MSB ); and Trust Company Business ( TCB ). 2.2 Responding to the consultation The Commission invites comments in writing from interested parties on the proposals included in this Consultation Paper. Where comments are made by an Industry body or association, that body or association should also provide a summary of the type of individuals and/or institutions that it represents To assist in analysing responses to the Consultation Paper, respondents are asked to: prioritise comments and to indicate their relative importance; respond as specifically as possible and, where they refer to costs, to quantify those costs; and say whether they consider that their response is one that is likely to be relevant to other parties Comments should be provided to Jersey Finance by the date specified in its Technical Updates. Alternatively, comments may be submitted direct to the Commission no later than 5 August of 90 ISSUED APRIL 2011

15 Consultation 2.3 Next steps Following receipt and consideration of Industry comments on the amendments proposed by this Consultation Paper, the Commission will publish a Feedback Paper summarising the comments received and any action taken in response to those comments Where the Commission considers that no action is required, the Feedback Paper will provide reasons for its decision However, should the Commission receive comments that highlight further consultation is necessary to address Industry concerns, the Commission may complete this consultation process by way of use of presentations, focus groups or roundtable discussions If agreement is reached on the majority of proposed amendments, revised Codes may be published reflecting the agreed amendments whilst consultation continues to reach agreement on any disputed areas The Commission recognises that some of the changes proposed by this Consultation Paper may require transitional periods for implementation by registered persons. Any transitional periods will be highlighted in the Introduction to each set of Codes when they are finalised To the extent possible, the next published version of the Codes will incorporate the amendments agreed as a result of: this Consultation Paper; the Consultation Paper on amendments to the banking large exposure regime (see also and 1.1.9); and the consultation to be undertaken in respect of the single guidance note in respect of the ANLA calculation (see also to ). PROPOSED AMENDMENTS TO CODES OF PRACTICE 15 of 90

16 3 The Commission 3.1 Overview The Commission is a statutory body corporate established under the Financial Services (Commission) Law 1998, as amended (the Commission Law ). It is responsible for the supervision and development of financial services provided in or from within Jersey. 3.2 Commission s functions The Commission Law prescribes that the Commission shall be responsible for: the supervision and development of financial services provided in or from within Jersey; providing the States, any Minister or any other public body with reports, advice, assistance and information in relation to any matter connected with financial services; preparing and submitting to the Minister for Economic Development recommendations for the introduction, amendment or replacement of legislation appertaining to financial services, companies and other forms of business structure; such functions in relation to financial services or such incidental or ancillary matters as are required or authorised by or under any enactment, or as the States may, by Regulations, transfer; and such other functions as are conferred on the Commission by any other Law or enactment. 3.3 Guiding principles and aims The Commission s guiding principles require it to have particular regard to: the reduction of risk to the public of financial loss due to dishonesty, incompetence, malpractice, or the financial unsoundness of persons carrying on the business of financial services in or from within Jersey; the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters; the best economic interests of Jersey; and the need to counter financial crime in both Jersey and elsewhere. 16 of 90 ISSUED APRIL 2011

17 3.3.2 In support of these Guiding Principles, the Commission aims to: The Commission ensure that all entities that are authorised meet fit and proper criteria; ensure that all regulated entities are operating within accepted standards of good regulatory practice; match international standards in respect of banking, securities, trust company business and insurance regulation, and anti-money laundering and terrorist financing defences; identify and deter abuses and breaches of regulatory standards; and ensure that the Commission and the Registry operate effectively and efficiently. PROPOSED AMENDMENTS TO CODES OF PRACTICE 17 of 90

18 4 Future Format of the Codes 4.1 Overview There are currently seven sets of Codes issued by the Commission under the Regulatory Laws. This Consultation Paper is proposing amendments to all seven sets of Codes The Commission recognises that many registered persons carry on more than one financial services business in a single vehicle and are therefore required to consider and comply with more than one set of Codes In addition, the Commission currently invests heavily in maintaining the current suite of documents such that the regulatory requirements established by the Codes are not in conflict, as far as is possible, where they set requirements which operate on the entire registered person rather than being financial service or product specific The work completed by the Commission in assessing the current Codes and agreeing the proposed amendments has highlighted the similarities and differences that currently exist across the Codes. 4.2 Proposal for the way forward Mindful of the similarities and differences in the current Codes, consideration could be given to consolidating the current Codes into a single document The Commission s initial thinking is that the consolidated Codes could follow a similar structure to the current Codes enforceable requirements in the form of high level principles supported by detailed rules - except that there would be general regulatory requirements, applicable to all registered persons, augmented by sector specific regulatory requirements as necessary The Commission would not look to set rules covering all scenarios (so called rules-based approach) and would continue to vary regulatory requirements where strict adherence to the Codes would produce anomalous results for a particular registered person Whilst, the future format of the Codes is not the primary purpose of this Consultation Paper, this is an area where the Commission is interested in receiving the views of Industry and therefore encourages comments in respect of a potential change to the shape of the Codes Would you prefer a consolidated set of Codes, augmented by sector specific regulatory requirements, or would you prefer to maintain separate Codes applicable to single financial services sectors? As part of your response please provide a rationale for your preference. 18 of 90 ISSUED APRIL 2011

19 4.3 Glossary Future Format of the Codes Currently only the FSB Codes include a Glossary (Third Schedule), however as part of the current consideration of the Codes the Commission is proposing to introduce a Glossary to each set of Codes The Commission has increasingly utilised Glossaries in its documentation and considers that the inclusion of a Glossary in the Codes will aid readability It is proposed that the Glossary be included after the Introduction and before Principle Do you consider that the inclusion of a Glossary in each set of Codes improves the readability of the Codes? If not, please provide a rationale for your response. PROPOSED AMENDMENTS TO CODES OF PRACTICE 19 of 90

20 5 Introduction to the Codes 5.1 Overview Currently, each of the Codes includes an Introduction, which provides an overview of the Codes including the powers under which the Codes are issued, the arrangement of the Codes, the results of failing to comply with the Codes and information regarding revisions to the Codes However, in addition to the Introduction some Codes (FSB Codes, GIMB Codes, IB Codes, Insurance Codes and TCB Codes) contain an Advisory Note, the primary objective of which is to clarify the scope of the Codes. The scope of the Banking Codes and MSB Codes is addressed in their Introduction. It is also the case that there are instances where the current Introduction and Advisory Note do not clearly state the scope of registered persons to which each set of Codes applies, for example, the GIMB Codes do not apply to registered persons that only carry on either Class R or Class S financial service business Currently, the Codes are recognised as being: the five 3 or seven Principles; the numbered paragraphs and the notes within each Principles section; and any Schedule or Appendices referenced from and attached to the Codes The status of the Advisory Note, where it exists, is less clear, especially as it falls outside of the Introduction, which is signed by the Director General and dated Whilst the Introduction to the Codes refers to the particular power under which each set of Codes is issued, it does not set the full context in which this power is exercised. 5.2 Proposed amendments The Commission considers it critical that the scope of each set of Codes is clearly apparent and therefore proposes that: the Introduction to each set of Codes be amended to provide clarification on the scope of the Codes; and where it exists, the current Advisory Note be removed. 3 MSB Codes have five Principles rather than seven. 20 of 90 ISSUED APRIL 2011

21 Introduction to the Codes In addition, it is proposed to utilise subtitles in the Introduction to facilitate the presentation of information consistently across the Codes. Consequently, it is proposed that each Introduction section will follow a similar format and will comprise the following sections: Power exercised and scope; Arrangement of the Codes; Compliance with the Codes; Revision of the Codes; and Transitional provisions It is proposed to include text in the Introduction to the Codes which more clearly sets out the basis for the Codes and their function. Consequently, the section on Power exercised and scope identifies: the Article of the relevant Regulatory Law which sets the criteria for a fit and proper assessment of an applicant to be undertaken by the Commission and provides that the Commission may revoke a registration if it identifies that a registered person is no longer fit and proper 4 ; the Article of the relevant Regulatory Law which provides the Commission with the power to issue Codes establishing sound principles for the conduct of business, compliance with which the Commission considers essential if a registered person is to continue to be a fit and proper person; that the Commission has the power under Article 8 of the Commission Law to require a registered person to provide information to it in the facilitation of the performance of its functions; the scope of the Codes, detailing any particular class or classes of business for which the Codes do not apply; and principally with respect to the Banking Codes, how the Codes should be applied dependent upon whether a registered person is a Jersey incorporated company, or equivalent 5, or not (see 5.2.4). 4 Further information on the fit and proper assessment under the Regulatory Laws can be found in the Licensing Policies available from the Commission Website. 5 The Regulatory Laws provide that financial services business may be undertaken through structures other than a Jersey incorporated company. PROPOSED AMENDMENTS TO CODES OF PRACTICE 21 of 90

22 Introduction to the Codes With respect to , clarification is proposed that, where a registered person is a Jersey incorporated company, or equivalent, and has branches in another jurisdiction, the branch network is also subject to the Codes requirements and it is the responsibility of the Jersey based operation to apply the Codes throughout its branch network. However, in circumstances where the registered person is not incorporated in Jersey, the Codes apply only to the business carried on in or from within Jersey and not to all business operated by the registered person, unless the Codes say otherwise Within Arrangement of the Codes it is proposed to clarify that the Codes comprise three types of regulatory requirement that link to the criteria that form the basis for the fit and proper assessment referred to at These cover: conduct of business (provides for how a registered person should deal with its customers 6 ) - links to the integrity, competence and organisation criteria of the fit and proper assessment; prudential matters (includes financial information that should be provided to the Commission and, in many cases, the minimum financial resources that must be maintained) - links to the financial standing criteria of the fit and proper assessment; and corporate governance matters (provides minimum standards in respect of how a registered person should organise itself) - links to the integrity, competence, structure and organisation criteria of the fit and proper assessment The Codes arrangement section also sets out the text of the high level Principles and provides that the Codes should be understood by reference to the full text of each section Within the Compliance with the Codes section it is proposed to include information in respect of complying with the Codes and the potential results of failing to comply. It is proposed that the Introduction text in respect of failure to comply be strengthened and highlight that it may result in regulatory action being taken by the Commission such as: the issuance of a direction to do or not to do things, including the removal of specified individuals or the cessation of business (in appropriate circumstances the Regulatory Laws permit that a direction can be made public); attaching a condition to a registration; an increase in the registered person s minimum risk asset ratio requirement (where the registered person carries on deposit-taking business); 6 In this Consultation Paper customer is used as a generic term to encompass: TCB and Banking customers; IB, GIMB and MSB clients; and Insurance policyholders. With respect to FSB Codes, the customer is the Fund to which the FSB is a fund services provider. 22 of 90 ISSUED APRIL 2011

23 Introduction to the Codes issuance of a public statement regarding failure to comply with the Codes; or in serious cases, revocation of the registration The section also provides that, in exceptional circumstances, where strict adherence to the Codes would produce an anomalous result, a registered person may apply to the Commission for a variance from the Codes. This is in addition to specific provisions of the Codes which provide for a registered person to apply for a variance from the Codes Revision of the Codes this part advises that the Codes may be revised after appropriate consultation and details the principal amendments to the Codes in the current version compared to the last Transitional provisions wherever appropriate, this part details any transitional arrangements in respect of complying with the latest amendments to the Codes The proposed text for the Introduction has been reflected in the Codes attached at Appendix E, except for that relating to Revision of the Codes and Transitional Provisions, as this text is dependent upon the results of this consultation process Do you agree that the application of Codes to branches, particularly with respect to the Banking sector, is now more clearly set out? Is any further clarification needed? Is any other information needed in the Introduction to the Codes? Do you consider that the scope of the Codes has been adequately clarified, both in the Introduction to the Codes and also within each section of the Codes? If not, please identify those areas where clarity has not been achieved After considering the amendments proposed by this Consultation Paper, are there any specific amendments that you believe require a transitional period in order to allow registered persons time to comply with proposed requirements? If so, please identify those areas, highlighting why you believe a transitional period is required and indicating the length of transitional period you believe is required. PROPOSED AMENDMENTS TO CODES OF PRACTICE 23 of 90

24 6 Corporate Governance: Span of Control 6.1 Overview Principle 3 of each set of Codes deals with organisation and control matters, including setting a requirement for an effective corporate governance system. Consequently, Principle 3 includes requirements in respect of the minimum corporate governance standards to be implemented by a registered person. Specifically the Codes, except for the Banking Codes, set a requirement for an adequate span of control to be maintained Span of control is a generic term used to describe those individuals actively involved in the day-to-day management of the registered person and who exercise executive powers on behalf of the registered person. As such, any individuals not actively involved ( non-executives ) in day to-day management or who are not locally based cannot form part of a registered person s span of control The span of control maintained by any registered person is considered by the Commission to be a key component of its corporate governance structure. However, what constitutes adequate span of control varies between registered persons and is dependent upon matters such as the registered person s structure, organisation and the financial services business carried on in Jersey. For example: a registered person that is permitted to control customer assets must have a span of control which comprises at least three appropriately skilled and experienced individuals; and the span of control of a registered person that is not permitted to control customer assets may comprise two appropriately skilled and experienced individuals The detailed requirements of the Codes currently range from: the MSB Codes which require an adequate span of control appropriate to the nature of the business but provide no further detailed requirements; to the TCB Codes which provide a detailed set of key elements relating to the span of control. 7 Therefore, this Chapter is not relevant for registered persons that only hold a registration to undertake deposit-taking business. The Banking Codes address corporate governance in a different manner to the other Codes and do not include the span of control concept as described in of this Consultation Paper. 24 of 90 ISSUED APRIL 2011

25 Corporate Governance: Span of Control Additionally, in January 2005 the Commission published a Policy Statement/Guidance Note, which provides both requirements and guidance in respect of span of control: The "span of control" or "4 or 6 eyes" principles (the 2005 span of control document ). Other Commission publications, such as the FS(J)L Licensing Policy and the Collective Investment Fund Guides, all available from the Commission Website, contain reference to either span of control in general and/or the 2005 span of control document Recent consideration of the 2005 span of control document has highlighted that it is no longer current due to legislative amendments (including the introduction of fund services business to the FS(J)L) and the publication of more recent Commission Policy Statements. 6.2 Proposed amendments It is proposed that the: span of control text in each relevant set of Codes be augmented, to reflect the circumstances of each financial sector; and the 2005 span of control document referred to in be withdrawn As noted in 6.1.5, the 2005 span of control document is referred to in a number of other Commission documents and the table provided at Appendix B provides details of possible consequential amendments which will be required subsequent to the withdrawal of the document In terms of augmenting the span of control requirements to take account of the withdrawal of the 2005 span of control document, each relevant set of Codes (see for detail relating to the MSB Codes), includes proposed amendments which: clarify that individuals identified as forming part of a registered person s span of control must be actively involved in the day-to-day management; clarify the position with respect to close family members being part of the span of control, including providing (by way of note) who the Commission considers to be close family for the purpose of determining span of control; and clarify that the Commission must be notified of issues relating to the span of control as soon as they become apparent, such that arrangements may be agreed for dealing with the position Historically, the Commission s oversight of the MSB sector has been focussed on the area of countering money laundering and the financing of terrorism. However, this is now changing see Chapter 18 of this Consultation Paper and amendments are proposed which incorporate span of control requirements similar to those included in the other Codes. The proposed MSB text focuses on: PROPOSED AMENDMENTS TO CODES OF PRACTICE 25 of 90

26 Corporate Governance: Span of Control the registered person satisfying the Commission that it has an adequate span of control, at all times, appropriate to the nature of its business; the apportionment of responsibilities in such a way that they are clear and there is separation of critical functions so as to guard against fraud and market abuse; the business and affairs of the registered person being adequately monitored and controlled at senior management and board level, as appropriate; and the board of the registered person collectively reviewing its effectiveness and performance in terms of compliance with Jersey s regulatory framework, being applicable legislation and regulatory requirements Where a registered person is not incorporated in Jersey, there are circumstances where adequate span of control will include an individual other than a principal person or key person, as defined by the FS(J)L. Consequently, it is proposed to reflect, in the relevant Codes, the Commission s current practice of considering the appropriateness of those individuals using the forms and procedures established for principal persons and key persons, suitably amended. The following text is proposed for the GIMB Codes and IB Codes: To form part of the span of control, a person need not necessarily be appointed as a director. Where a registered person wishes a senior employee to form part of its span of control, the Commission will consider the appropriateness of an individual using a modified version of the procedure established for considering principal persons and key persons Do you agree that the 2005 span of control document should be withdrawn, and that Appendix B highlights all documents where a consequential amendment will be required if the document is withdrawn? If not, please provide an explanation or provide detail of additional consequential amendments Do you agree that the span of control text proposed for each set of Codes is relevant for that financial sector? If not, please explain Will the introduction of span of control provisions for MSBs cause any particular difficulty? If so, please explain. 26 of 90 ISSUED APRIL 2011

27 7 Compliance Function and Continuing Professional Development 7.1 Overview Compliance Function It is the senior management (most often the board of directors) of a registered person that is responsible for ensuring that robust compliance arrangements are in place The Commission is aware that the size and sophistication of registered persons ranges from local businesses to those that operate on an international basis and may be part of large international groups, supported by off-island centralised specialist areas. With this in mind, the Commission has considered the Codes requirements in respect of compliance matters Currently all Codes require that a Compliance Officer be appointed and assigned responsibility for specific duties. Some of the duties / responsibilities currently assigned to the Compliance Officer could be, and in some cases are being, fulfilled by a compliance function rather than a specific individual. Where a registered person has a compliance function, the Compliance Officer may be the head of this department, or a member of it, depending upon the individual circumstances of the person and the structure of the registered person The Commission s consideration of the compliance function in the Codes has concluded that amendments should be proposed to recognise compliance functions, as distinct from the Compliance Officer. However, the Codes should continue to be relevant for all registered persons, irrespective of their size and sophistication. Therefore, the Codes will recognise that, in some instances, the Compliance Officer may also carry out the activities of the compliance function With respect to the Banking Codes, an additional driver for change has been the current international focus on corporate governance in the banking sector. Consequently, the Commission has revisited the Basel Committee on Banking Supervision (the BCBS ) 2005 paper Compliance and the Compliance Function in Banks, the text of which has driven some of the proposed amendments. Continuing Professional Development ( CPD ) Currently, all Codes, with the exception of the MSB Codes, establish requirements in respect of certain employees undertaking CPD. PROPOSED AMENDMENTS TO CODES OF PRACTICE 27 of 90

28 Compliance Function and Continuing Professional Development The following table provides a high level summary of the current CPD requirements established by the Codes: Codes Scope CPD per year Banking Established in terms of the registered person providing the opportunity for relevant employees to continue their professional development FSB Fund services business employees Compliance Officer GIMB IB Relevant employees Investment employees Compliance Officer INS All employees engaged in insurance-related activity TCB Trust company business employees To be determined by registered person To be determined by the registered person, general indication that employees must undertake not less than 25 hours Recommend 35 hours where relevant employees in Jersey, otherwise in line with home jurisdiction requirements Minimum of 35 hours Category B recommended 35 hours Category A comply with requirements of the home jurisdiction Max CPD reading Not specified Pro-rate - part time Not applicable Other relevant comments Relevant employees is defined - Note 1 to 3.8 of the Banking Codes Five hours Yes May be less than 25 hours if supported by written policy on the registered person s approach to CPD levels generally Five hours, where relevant employees in Jersey Five hours Not specified Not specified Yes 25 hours Five hours Yes Not specified Relevant employees is defined - Note 1 to 3.7 of the GIMB Codes 28 of 90 ISSUED APRIL 2011

29 Compliance Function and Continuing Professional Development As can be seen from the table, the CPD requirements currently vary by financial services sector both in terms of who needs to undertake CPD and also the amount of CPD that must be completed. The differences are designed to reflect the particular characteristics of the various financial sectors. 7.2 Proposed amendments Compliance Function Whilst the specifics of the proposed amendments differ slightly within each set of Codes, the following provides an overview of the policy being enacted through the proposed amendments It is proposed that the Codes will: require that a registered person s senior management approve a compliance policy, which sets out how the registered person will identify and manage its compliance risk the risk of noncompliance with applicable laws and regulatory requirements; and provide that, alongside the requirement to appoint a Compliance Officer, a compliance function must be maintained. The compliance function is to be permanent, effective, adequately resourced and have its responsibilities documented It is proposed that the Codes recognise that there will be some registered persons where the compliance function will be carried out by the Compliance Officer. This will be effected through a note to the compliance function section of the Codes It is proposed that the compliance function must have appropriate independence; sufficient resources and direct and unfettered access to the relevant senior management (Jersey board of directors or the most senior person in the Jersey office depending on the organisational structure of each person) and all business lines and support departments The proposals do not make it a requirement of the Codes that the compliance function be maintained in Jersey, although it continues to be a requirement that the Compliance Officer be based in Jersey and has the appropriate status to fulfil the role The Compliance Officer continues to be the principal point of contact on regulatory matters for the Commission and is responsible for coordinating the identification and management of compliance risks and providing regular compliance reports to the senior management of the registered person Additionally, the Compliance Officer has to be appropriately skilled and experienced which includes holding or working towards an appropriate qualification. PROPOSED AMENDMENTS TO CODES OF PRACTICE 29 of 90

30 Compliance Function and Continuing Professional Development The Commission is aware that, in some registered persons, the role of Compliance Officer and Money Laundering Compliance Officer is undertaken by the same individual. As a result, the Codes requirements in respect of the Compliance Officer and the compliance function have been considered against those established for the Money Laundering Compliance Officer in the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for Financial Services Business Regulated under the Regulatory Laws (the AML/CFT Handbook ). This consideration has resulted in proposed amendments to the Codes and also highlighted some potential amendments to the AML/CFT Handbook, which will be consulted on separately As a result of the above considerations, the following amendments are proposed to the Codes: the Compliance Officer must operate under a contract of employment with the registered person; and members of the compliance function should have unfettered access to information necessary to appropriately perform their functions Do you agree with the inclusion of the proposed text which introduces the requirement to maintain a compliance function and redefines the responsibilities of the Compliance Officer? If not, please explain. 7.3 Proposed amendments Continuing Professional Development Scope The Commission is proposing an amendment which will establish a clear requirement for all key persons to undertake CPD, in addition to those currently within scope, except: no amendment is being made to the Banking Codes, where the registered person must continue to ensure that all relevant employees have the opportunity to continue their professional development; and the MSB Codes continue not to set CPD requirements. Part time employees Following consideration of CPD in the relevant Codes the Commission is proposing to withdraw the ability to pro-rate the application of CPD to part time employees. This proposal is being made to reflect a Commission policy decision that competency should be maintained by all relevant employees, irrespective of hours worked. 30 of 90 ISSUED APRIL 2011

31 Compliance Function and Continuing Professional Development In terms of impact, as can be seen from the above table, this proposed amendment impacts the FSB Codes, IB Codes and TCB Codes. Of these, in terms of total CPD hours to be achieved, the IB Codes establish the most onerous requirement which equates to less than three hours per month. The Commission does not consider this to be an unreasonable CPD requirement for any individual where competency must be maintained. Category C TCB employees The Commission is proposing to amend the CPD requirements in respect of Category C TCB employees by reducing the minimum number of CPD hours. The proposal is to reduce the minimum CPD hours per year to 15 hours and the table at highlights the current requirement as 25 hours per year The requirement for Category A and B trust company business employees will remain unchanged at a minimum of 25 hours per year. Insurance and GIMB Codes recommended hours per year The Commission is proposing an amendment which will reduce the recommended CPD hours in the GIMB Codes and Insurance Codes to 25 hours. Currently the recommended level is 35 hours per year The proposed amendment is designed to better reflect the number of hours that is needed to maintain competency and to align the requirement with many other Commission Codes Do you agree that key persons should be bought within the scope of the CPD requirements? If not, please provide details of why you disagree Do you consider that the withdrawal of the ability to pro-rate the CPD requirement for part time employees is unreasonable? If yes, please provide details of why you consider the proposed amendment unreasonable Do you foresee any problems with the amendments proposed to reduce the minimum/recommended CPD hours in the GIMB Codes, Insurance Codes and TCB Codes? Please provide details of any problems you foresee The following table provides a high level summary of the CPD requirements as they will appear in the Codes if all the proposed amendments are accepted: Codes Scope CPD per year Banking Established in terms of the registered person providing the opportunity for relevant employees to continue their professional development To be determined by registered person Max CPD reading Not specified Other relevant comments Relevant employees defined Note 1 to 3.8 PROPOSED AMENDMENTS TO CODES OF PRACTICE 31 of 90

32 Compliance Function and Continuing Professional Development Codes Scope CPD per year FSB Fund services business employees Key persons GIMB IB Relevant employees (definition includes key persons) Investment employees Key persons INS All employees engaged in insurance-related activity Key persons TCB Trust company business employees Key persons To be determined by the registered person, general indication that employees must undertake not less than 25 hours Recommend 25 hours where relevant employees in Jersey, otherwise in line with home jurisdiction requirements Minimum of 35 hours Category B recommended 25 hours Category A comply with requirements of the home jurisdiction Max CPD reading Other relevant comments Five hours May be less than 25 hours if supported by written policy on the registered person s approach to CPD levels generally Five hours, where relevant employees in Jersey Five hours Five hours 25 hours Five hours Relevant employees is defined - Note 1 to 3.7 and includes key person 32 of 90 ISSUED APRIL 2011

33 8 Complaints 8.1 Overview Each set of Codes, as part of Principle 3, establishes requirements in respect of complaints. The current requirements range from being very high level - MSB Codes - through to more detailed requirements which include the establishment of a central register of complaints and provision of information to the Commission in prescribed circumstances A review of the Codes requirements has highlighted that, whilst there is some consistency in the Codes requirements, there is a significant amount of diversity not all of which can be explained by the characteristics of the various Industry sectors. In some instances, there is commonality in themes but different detailed requirements are then established by the Codes Additionally in October 2009, the Commission published a Guidance Note in respect of complaints against regulated financial service providers The amendments proposed to the Codes are designed to align the requirements relating to complaints across the Codes and also to bring them into line with the Commission Guidance Note. 8.2 Proposed amendments It is proposed that the MSB Codes are amended such that the registered person is required to establish and maintain an effective complaint handling system. The rationale for this proposed amendment is that, having established a complaint handling system, it should be maintained It is proposed that all other Codes are aligned in respect of their requirements regarding the handling of customer complaints and with the Guidance Note of October Whilst the detailed proposed amendments are different by financial sector, the policy being implemented is described in the following paragraphs. Systems, procedures and record keeping It is proposed that all Codes will require that a registered person must: establish and maintain an effective complaint handling system and procedures; and maintain adequate records of complaints, including a central register which should contain details of any compensation or compromise agreed in respect of a complaint In particular, the Codes require that a registered person s complaint handling system and procedures must provide: PROPOSED AMENDMENTS TO CODES OF PRACTICE 33 of 90

34 Complaints clarity to customers on how complaints may be made to a registered person and how a customer may expect these to be responded to, including timescales within which they can expect to receive an acknowledgement and initial response to their complaint; that complaints are handled transparently, fairly and independently; and that the complaints data should be regularly considered for any emerging patterns indicating that the registered person may be failing to meet any requirements of the Codes Do you agree that the regulatory requirements for complaints handling that have been applied to the Codes are relevant and in line with the Commission s Guidance Note? If not, please explain. Notifications The Commission must be notified in writing, by a registered person, when: a complaint is not satisfactorily resolved within three months of it being lodged; it is considered to be in the best interests of the complainant or the public; a complaint progresses to litigation; or except for the Insurance Codes, a complaint results in the payment of a claim under a professional indemnity policy or any type of settlement is reached with the complainant The format of notification to the Commission is unspecified with the exception of the Banking Codes, which require that notifications should be made on a specific reporting template, provided on the Commission Website Similarly, it is only the Banking Codes which specify a frequency of notification monthly. In all other cases the Codes require that the notification is undertaken promptly Do you agree that the notification requirements established in respect of complaints are set at an appropriate level for each financial sector? If not, please explain. 8 Some Codes carry a monetary value below which this notification is not triggered: IB Codes and GIMB Codes 1,000; and Banking Codes 2, of 90 ISSUED APRIL 2011

35 9 Record Keeping 9.1 Overview Each set of Codes, as part of Principle 3, establishes requirements in respect of record keeping. The current requirements range from being very high level through to the establishment of detailed requirements, including the establishment of specific records The Commission recognises that a registered person is required to keep records for a multitude of reasons, some based in legislation and others not. Record keeping requirements are established for both the registered person as a business and the products/services provided by the registered person business records and customer records Each registered person will maintain a single set of business records and customer records that may span a number of products and services offered to a single customer. It is imperative that the Commission should not set, through the Codes, record keeping requirements which are in conflict with existing legislative requirements For example, a Jersey company carrying on investment business, trust company business, general insurance mediation business or fund services business is subject to the accounting record requirements of the Companies (Jersey) Law 1991, and the relevant accounts, audits and reports Order(s) issued under the FS(J)L With respect to customer records, a registered person is required to comply with the requirements established by the Money Laundering Order. Record keeping requirements of the Money Laundering Order are explained further in the AML/CFT Handbook and are quite specific covering the following areas: customer due diligence information (AML/CFT Handbook section 8.2); transactional data (AML/CFT Handbook section 8.3); compliance monitoring and procedures (AML/CFT Handbook section 8.4.1); suspicious activity reports (AML/CFT Handbook section 8.4.2); records relating to higher risk activity and transactions (AML/CFT Handbook section 8.4.3); training and awareness (AML/CFT Handbook section 8.4.4); and access and retrieval of records (AML/CFT Handbook section 8.5). PROPOSED AMENDMENTS TO CODES OF PRACTICE 35 of 90

36 Record Keeping Given the existing requirements in respect of record keeping, it is not unusual for the Commission to receive questions regarding the record keeping requirements of the Codes and how they should be understood both in relation to each other and also legislative requirements. The Commission also receives questions in respect of the type of records covered by the Codes and how the retention periods of the Codes should be understood against, for example, those established by the Money Laundering Order Consequently, the Commission is proposing amendments that, with the exception of the Banking Codes, align record keeping requirements across the Codes and do not conflict with requirements set elsewhere in the regulatory framework. 9.2 Proposed amendments It is proposed that, where necessary, the requirement to maintain records, and the detail of what those records must contain, will be specified in the individual sections of the Codes. The record keeping requirements section within Principle 3 will focus on the maintenance of such records (see 9.2.4) It is proposed that the record keeping section of Principle 3 in each set of Codes be divided into three distinct sections: All records; Business records and Customer records The record keeping requirements established by the Codes should be considered by a registered person to be minimum standards. Consequential amendments As a result of the proposal to limit the scope of the record keeping section, some of the detailed requirements in terms of records to be maintained have been relocated to the Internal systems and controls section of Principle 3. This includes provisions dealing with: All records the maintenance and adequate documentation of policies and procedures that cover the operation of the business; what is to be understood by the term adequate and orderly records ; and in some Codes, the production of management information The proposed text in the All records section sets the following requirements, many of which are already a feature of the AML/CFT Handbook: to have appropriate record keeping arrangements necessary to comply with applicable laws and regulatory requirements; 36 of 90 ISSUED APRIL 2011

37 Business records Record Keeping to maintain books and records in a language understood by the employees of the registered person, which must be translated into English at the request of the Commission, and must be capable of being produced in Jersey in legible form without delay; and to have a clearly documented policy and procedure regarding record retention which must include a requirement to periodically test the record retrieval procedures with a view to confirming the accessibility, and condition of, paper and electronic records The proposed text in the Business records section requires that the registered person maintain an audit trail of updates to its policies and procedures documentation, including the effective date of such updates and retention of the superseded records Additionally, the text clarifies the period for which business records must be kept as the later of: the period required for any particular record by any law; and where the records relate to significant corporate governance matters, such as management meeting minutes and risk assessment matters or are required by the Codes ten years from the date of the record. Customer records With the exception of the Banking Codes, the proposed text in the Customer records section aligns the record keeping requirements with those of the Money Laundering Order and clarifies that, for records which are required by the Codes and which are in addition to the records required by the Money Laundering Order, the records should be retained for at least five years from the date of the event to which the record relates Additionally, the Banking Codes retain the existing minimum retention periods for certain documents as follows: contractual documentation such as account opening paperwork, mandates and loan agreements - ten years from account closure or loan repayment; transactional vouchers, such as cheques six years from the date of the transaction; and other customer records established by the Banking Codes, including customer statements ten years from the date of the record Do you agree that the record keeping section should be restricted to the management of records and divided into three distinct sections, and the detailed requirements of which records are to be maintained be relocated to the internal control systems section of the Codes? If not, please explain. PROPOSED AMENDMENTS TO CODES OF PRACTICE 37 of 90

38 Record Keeping Do you agree that the setting of retention periods for business records and customer records by reference to other legislation aids clarity and is generally appropriate, including the exceptions as detailed in relation to the Banking Codes? If not, please explain. 38 of 90 ISSUED APRIL 2011

39 10 Financial Resources 10.1 Overview Principle 5 of the Codes, except the MSB Codes and Banking Codes, states: A registered person must maintain, and be able to demonstrate the existence of, adequate financial resources and adequate insurance To clarify, the MSB Codes do not set any requirements in respect of financial resources or adequate insurance and the Banking Codes only set requirements in respect of financial resources. Proposed amendments in respect of the Banking Codes are detailed in Chapter 14 on Sector Specific Amendments: Banking The Codes differ in the level of prescription that they provide with respect to financial resources and in the case of insurance business and GIMB must be read in conjunction with the margin of solvency requirements established by secondary legislation The FSB Codes, IB Codes and TCB Codes each require a registered person to hold a specified amount of share capital and perform a financial resources calculation (more commonly known as the ANLA 9 calculation ). Each of the relevant Codes sets out the format of the ANLA calculation as a Schedule to the Codes and provides definitions for the terms utilised For registered persons carrying on either insurance business or GIMB, secondary legislation prescribes that a margin of solvency calculation must be performed and the relevant Codes set additional requirements and provide guidance in the completion of this calculation As part of the Codes review the Commission is proposing: a generic amendment to the FSB Codes, GIMB Codes, IB Codes and TCB Codes designed to make Principle 5 easier to read; a specific amendment with respect to the frequency of the ANLA calculation; a reordering of the expenditure requirement proforma; and an amendment to be consulted on later this year Proposed generic amendment It is proposed that Principle 5 of the FSB Codes, GIMB Codes, IB Codes and TCB Codes be reorganised such that 5.1 addresses financial resource requirements and 5.2 addresses insurance arrangements. 9 Adjusted Net Liquid Assets PROPOSED AMENDMENTS TO CODES OF PRACTICE 39 of 90

40 Financial Resources 10.3 Proposed amendments to FSB Codes, IB Codes and TCB Codes Frequency Currently the frequency with which the ANLA calculation must be performed is documented in the Schedule to the Codes, which establishes the format of the ANLA calculation. Additionally, the IB Codes reflect the frequency of completion by way of a footnote Currently, the ANLA calculation must be undertaken as appropriate to the business of the registered person, but at least once every three months. The exception to this is an investment business that has one or more of a position risk, counterparty risk or foreign currency risk when the ANLA calculation must be undertaken on a daily basis The Commission is proposing to include text prescribing the frequency of the ANLA calculation in Principle 5 of the Codes. The proposed text clarifies what is meant by the current as appropriate text in that it requires that the frequency of completing the ANLA calculation must increase if either: a registered person s ANLA falls below 130% of its Expenditure Requirement 10 ; or an event occurs which has a material adverse effect on the registered person s financial resources Do you agree that the amendments proposed to Principle 5 of the FSB Codes, IB Codes and TCB Codes fulfil the objective of making the Codes easier to read and clarify the frequency with which the ANLA calculation must be undertaken? If not, please provide reasons for your answer. Reordering of expenditure requirement proforma As noted in , the Commission sets out the format of the ANLA calculation as a Schedule to each of the FSB Codes, IB Codes and TCB Codes. Consideration has been given to the proforma document used to calculate the expenditure requirement and the Commission is proposing amendments which it believes will assist with the calculation and reflect the current practice but will not alter the substance of the calculation The proposed amendments are as follows: Administrative expenses to be replaced with Operating expenses ; Distribution costs to be replaced with Depreciation ; Total expenditure to be replaced with Total actual expenditure ; 10 The FSB Codes and TCB Codes refer to the Expenditure Requirement whereas the IB Codes refer to the Total Requirement. 40 of 90 ISSUED APRIL 2011

41 Financial Resources Adjustments to ER to be replaced with Adjustments to actual expenditure ; Total adjustments to ER to be replaced with Total adjustments to actual expenditure ; and A new row inserted Adjusted actual expenditure Additionally, it is proposed to reorder the calculation such that the comparison of actual expenditure to the budget for the current year appears later in the table. This has the effect of clarifying that the comparison is between the adjusted actual expenditure and the budget for the current year, which is the intention of the calculation Do you believe that the proposed amendments to the proforma for the calculation of expenditure requirement better explain but do not alter the substance of the calculation? If you believe the proposed amendment substantively amends the calculation please provide details as part of your response Proposed amendment to be consulted on later this year The Commission recognises that some registered persons carry on more than one type of financial service business which necessitates the completion of an ANLA calculation and currently there is no guidance provided on the interaction of the calculations. They are very similar but not identical As referred to in , each of the FSB Codes, IB Codes and TCB Codes includes guidance on the definition of the terms used in the ANLA calculation In addition, there is currently some confusion as the Commission has published a separate Guidance Note on the ANLA calculation which is available from the Commission Website 11 and, whilst primarily aimed at the TCB sector, both the FSB Codes and the IB Codes include references to the guidance notes Given the significant commonality in the ANLA calculation methodologies it is proposed to issue a single Guidance Note which will comprise: the definitions text currently present in the relevant Schedule to the FSB Codes, IB Codes and TCB Codes; revised and augmented guidance on matters currently addressed in the separate Guidance Note (paragraph ); and guidance in respect of completing an ANLA calculation when a single registered person carries on both FSB and TCB. 11 The Guidance Note in question is the Interpretation and application of Principle 5 and the Second Schedule of the Financial Services (Jersey) Law 1998 Trust Company Business Codes of Practice. PROPOSED AMENDMENTS TO CODES OF PRACTICE 41 of 90

42 Financial Resources This Guidance Note will be published for consultation before the end of the period for commenting on the amendments proposed in this Consultation Paper If the proposed single Guidance Note is welcomed by Industry the Commission will look to make the amendments at the same time as the Codes are finalised following consideration of comments received to this Consultation Paper. 42 of 90 ISSUED APRIL 2011

43 11 Professional Indemnity Insurance 11.1 Overview Principle 5 of the Codes, except the MSB Codes and Banking Codes, states: A registered person must maintain, and be able to demonstrate the existence of, adequate financial resources and adequate insurance The FSB Codes, GIMB Codes, IB Codes and TCB Codes also require a registered person to maintain PII, which is liability insurance that covers a registered person in the event that a third party claims to have suffered a loss as a result of professional negligence on the part of the registered person To clarify, the Banking Codes, Insurance Codes and MSB Codes do not set any detailed requirements in respect of holding adequate insurance in respect of the business activities of the registered person The Commission recognises that, where a registered person purchases a single PII policy, the policy will cover all business activities, regulated and non-regulated, undertaken by the registered person Currently the PII requirements of the relevant Codes contain differences which are not explained by the characteristics of the particular sector of the Industry covered by those Codes. Consequently, the proposed text for the relevant Codes sets out to align the PII requirements as far as possible Proposed amendments The insurance arrangements, as proposed, require that adequate insurance cover is maintained at all times, of which PII is one element With respect to PII cover, the proposed requirement is that: the cover is written on a claims-made basis, and the Codes detail specific elements that must be included in the policy; with the exception of the FSB Codes, minimum levels of cover are established for any one claim and in the aggregate; where the aggregate limit of indemnity is depleted such that it is no longer sufficient to meet the requirements established by the Codes, the registered person must obtain re-instated cover; where the registered person is looking to cease business, appropriate run off cover is obtained in respect of past acts or omissions, the details of which are agreed with the Commission as part of a cessation of business plan; and the Commission be notified of any material limitations in the PII policy in matters such as: PROPOSED AMENDMENTS TO CODES OF PRACTICE 43 of 90

44 Professional Indemnity Insurance any territory in which business is or may reasonably be expected to be conducted; any exclusions applied by way of endorsements; and any retroactive date applied to the PII policy Whilst considering the proposed amendments to the relevant Codes, the Commission has considered the variances currently contained within them. It has concluded that the text relating to applying to the Commission for a variance should be removed from the Codes and a Guidance Note issued instead. A draft Guidance Note has been attached as Appendix D which provides guidance in the following areas: limitations applied to a PII policy which the Commission does not consider material; retroactive date; characteristics of an excess; and variances to the Codes PII requirements A consequence of the Commission s proposal to amend the PII requirements in the relevant Codes and provide variance details in a Guidance Note would be that any future PII variances granted by the Commission would be evidenced by way of a registration condition. The Commission considers that variance of an established PII requirement is a significant event which, going forward, should be formally recorded as a registration condition, non-compliance with which would provide the Commission with a range of possible regulatory actions Do you agree that the proposed text clarifies and aligns the requirements with respect to PII cover? If not, please explain Do you consider that the proposed Guidance Note assists and should be published in its current form? If not, please explain. 44 of 90 ISSUED APRIL 2011

45 12 Principle 6 Notifications 12.1 Overview The Commission undertakes its functions following the guiding principles as provided in the Commission Law, one of which is that it shall have particular regard to the reduction of the risk to the public of financial loss due to dishonesty, incompetence or malpractice by or the financial unsoundness of persons carrying on the business of financial services in or from within Jersey. Additionally, the Commission has the power to revoke the registration of a registered person if it considers that, based on the information available to it, the registered person is no longer fit and proper To assist the Commission in undertaking its functions each of the Codes, except for the MSB Codes (see ), currently describes certain events or prescribes circumstances which trigger a notification by a registered person to the Commission. The trigger events/circumstances are the same or very similar across the Codes and, in the main, the events giving rise to notifications are contained within a single principle Principle 6 (Principle 5 for MSB Codes) - which requires a registered person to deal with the Commission in an open and co-operative manner. In this Consultation Paper these notifications are referred to as the Principle 6 Notifications Events giving rise to notifications to the Commission are also contained in other Principles of the Codes, most notably Principles 3 and 5. Currently, the FSB Codes, IB Codes and TCB Codes include a Schedule which is a table detailing all consents and notifications contained within each of those Codes. The objective of the Schedule is to provide a single point of reference, in the Codes, where all notification requirements can be viewed. However, given the construct of the Codes the vast majority of the Schedule text is a direct copy of Principle The Commission has undertaken a review of the notification triggers and the timeframe in which notifications should be undertaken. This comparison has highlighted that the Commission has set different notification timeframes for the same event/circumstances As many of the events/circumstances giving rise to notifications are not sector specific, the Commission has proposed text which aligns both the notification trigger events/circumstances and the timeframe in which notifications must be undertaken An example of the situation noted in is the current notification requirements in respect of a change of name of a registered person: the Banking Codes, IB Codes and TCB Codes require notification in writing not less than 28 days before the change is implemented; the FSB Codes require prior notification but no timeframe is established; and PROPOSED AMENDMENTS TO CODES OF PRACTICE 45 of 90

46 Principle 6 Notifications the GIMB Codes and Insurance Codes require the Commission to give prior approval for the change With respect to Principle 6, the exact text of the Principle varies between Codes but the intent of each is the same. The current wording of the Principle in the various Codes is set out below: IB Codes; GIMB Codes; FSB Codes; Banking Codes; Insurance Codes - A registered person [permit holder] must deal with the Commission and other authorities in Jersey in an open and co-operative manner TCB Codes - A registered person must deal with the Commission and other statutory authorities in Jersey in an open and cooperative manner MSB Codes A registered person is expected to deal with the Commission, and other authorities in Jersey, in an open and cooperative manner The primary differences are: the TCB Codes refer to statutory authorities whilst all other Codes refer to authorities ; and the MSB Codes expect a registered person to deal with in an open and co-operative manner, whilst all other Codes state that a registered person must deal with in an open and co-operative manner In line with the Commission s current approach to the regulation of MSBs the MSB Codes have a different construction to other Codes and do not contain detailed trigger events/circumstances that establish a notification requirement to the Commission. Rather, the MSB Codes require that the Commission is advised of any matter that might reasonably be expected to affect its registration or be in the interests of its clients to disclose. See Chapter 18 for further discussion in respect of the content of the MSB Codes Proposed amendments The Commission has reviewed the Principle 6 Notifications of the current Codes and is proposing amendments to all Codes. The proposals include an amendment to the text of the Principle itself Whilst the Principle text refers to being open and co-operative with authorities, all detailed notification requirements set by the Codes relate to matters which must be advised to the Commission. As the Codes do not include any guidance on, or reference to, who the other authorities are, it is proposed to limit the scope of the Principle to the Commission and amend the relevant Principle, in all Codes, such that it reads: A registered person [permit holder] must deal with the Commission in an open and co-operative manner. 46 of 90 ISSUED APRIL 2011

47 Principle 6 Notifications The Commission has included proposed text which aims to provide clarification in three areas. The notes highlight: the relevant Article of the relevant Regulatory Law which provides that a registered person shall be guilty of an offence if it fails to provide the Commission with information in its possession which is relevant to the exercise of the Commission s functions, or a registered person withholds information which is likely to result in the Commission being misled; that where appropriate, significant events concerning non-regulated activities and other members of the corporate group should be notified to the Commission; and that notification to the Companies Registry does not constitute notification to the Commission for the purpose of complying with the Principle 6 Notifications Regarding the Schedule included in the FSB Codes, IB Codes and TCB Codes currently titled Table of Notifications and Consents, it is proposed that this table be revised and renamed as a Table of Consents. It is also proposed that Principle 6 Notifications include a new section: Notifications arising in other parts of the Codes. The addition of this new section has a number of consequences, as follows: the Schedule containing the Table of consents and notifications in the FSB Codes, IB Codes and TCB Codes will be amended to reflect only details of consents included in the Codes; there will continue to be a single point of reference in the Codes where all notification requirements can be viewed, but this will now be within Principle 6 rather than the Schedule; and from a maintenance point of view the Codes will be easier to maintain as Principle 6 Notifications will no longer be replicated in the Schedule Additionally, amendments are proposed to the Codes, with the exception of the MSB Codes, which: align, as far as possible, the trigger events/circumstances; align the timescales for notification to the Commission; and provide further structure to the notifications in that the Principle is subdivided into the following sections: General Notifications; Specific Notifications; and Notifications arising in other parts of these Codes. PROPOSED AMENDMENTS TO CODES OF PRACTICE 47 of 90

48 Principle 6 Notifications To assist in understanding the timeframe in which notifications must be undertaken, the Specific Notifications have been grouped as those that must be made: not less than 28 days before a matter; as soon as a registered person becomes aware of a matter - guidance is provided, by way of a note in the Codes, as to the Commission s expectation regarding as soon as it becomes aware ; and within seven days of becoming aware of a matter or, or having done something To clarify, the Principle 6 Notifications continue to reflect specific requirements of individual financial sectors; for example, the Banking Codes continue to include requirements regarding provision of financial information and an annual declaration Do you consider that the restructure of the Principle 6 Notifications has clarified the trigger events/circumstances and the timeframe for notifications? If not, please explain Do you consider that the amendments proposed to the Table of Notifications and Consents as described in will cause any operational difficulties? If so, please explain Should any of the notification periods be changed? If so, please explain. 48 of 90 ISSUED APRIL 2011

49 13 Subordinated Loan Agreement 13.1 Overview The Commission has established financial resources 12 calculations which a registered person carrying on one or more of the following is required to complete, unless the registered person also holds a deposit-taking registration: fund services business, investment business or trust company business The FSB Codes, IB Codes and TCB Codes detail the specific treatment which must be applied to assets and liabilities when a registered person completes its financial resources calculation. Additionally, the relevant Codes provide that a registered person may make an application to the Commission for a variance to the treatment of a subordinated loan. Such a variance request may only be made to the Commission when the subordinated loan meets certain established criteria The Commission s stated criteria include a requirement that the registered person must utilise the proforma subordinated loan agreement provided as Appendix 1 to the FSB Codes, IB Codes and TCB Codes. Whilst each of the relevant Codes include an identical proforma agreement, as a registered person will enter into a subordinated loan agreement as part of the financial management of the registered person as a whole, its usage is not restricted to a particular financial sector. The relevant Codes also include an identical checklist (Appendix 2: Subordinated Loan Consent Request Checklist) and a Schedule on the use of the subordinated loan including details relating to a variance request As part of the current review of the Codes, the Commission has concluded that the inclusion of a proforma agreement, checklist and Schedule in each of the relevant Codes is unnecessary Currently, the proforma agreement is only provided as a non-interactive pdf and the Commission has been asked on a number of occasions for a Word or interactive pdf version such that a registered person can complete the required fields without having to replicate the text of the whole document With respect to insurance business and GIMB, the current Insurance Codes and GIMB Codes do not include any text relating to subordinated loans and the format they should take to be afforded special treatment within the margin of solvency calculation. Article 20 of the Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports and Solvency)) (Jersey) Order 2005 provides that it is a condition of registration that the prior approval of the Commission be obtained before a registered person enters into a subordinated loan agreement. 12 Often referred to as the Adjusted Net Liquid Assets ( ANLA ) calculation PROPOSED AMENDMENTS TO CODES OF PRACTICE 49 of 90

50 Subordinated Loan Agreement As a result the Commission is proposing to amend the Insurance Codes and GIMB Codes such that requirements are set with respect to subordinated loans in a manner similar to that proposed for the FSB Codes, IB Codes and TCB Codes Proposed amendment to FSB Codes, IB Codes and TCB Codes If agreed, the Commission s proposed amendments will result in: the removal of the proforma agreement, checklist and Schedule on the usage of subordinated loans from the FSB Codes, IB Codes and TCB Codes; the publication, on the Commission s Website, of two proforma subordinated loan agreements Jersey and non-jersey lender - and a checklist as Word Forms (this will facilitate electronic completion of the relevant fields and maintain the integrity of the document text); and the existing Schedule text will be incorporated in Principle 5 of the relevant Codes The proposed amendment to Principle 5 will reflect the existing Schedule text and require a registered person to: submit a signed Subordinated Loan Consent Request Checklist with any variance application; draw up the subordinated loan agreement in accordance with the relevant Commission proforma agreement; effect the subordinated loan with an approved lender (guidance on who is an approved lender is provided as a note in the Codes); ensure that the subordinated loan agreement is: signed by authorised signatories of all parties to the agreement; and for a fixed period greater than two years; or where no fixed term is cited, subject to a minimum notice period of repayment of two years Additionally, it is proposed that Principle 5 will clarify that, once granted, a variance in respect of the treatment of a subordinated loan will automatically fall away if either: the registered person fails to comply with any of the requirements of the subordinated loan agreement, including the notification requirements; or 50 of 90 ISSUED APRIL 2011

51 Subordinated Loan Agreement repayment of the subordinated loan falls due within one year Do you consider that the proposed amendments regarding the treatment of subordinated loans in the financial resources calculations of the FSB Codes, IB Codes and TCB Codes are substantially in line with current requirements, including the criteria for applying for a variance? If not, please provide details of the substantive amendment Proposed amendment to Insurance Codes and GIMB Codes Proposed text has been included in Principle 5 of both the Insurance Codes and the GIMB Codes to set requirements in respect of a subordinated loan agreement which reflect The Commission will consider favourably any request from a registered person to issue a subordinated loan, which is in accordance with the requirements. It may also grant a variance to the treatment required of the subordinated loan in the margin of solvency calculation Additionally, amendments are proposed to the checklist to facilitate subordinated loans being requested from a registered person undertaking insurance business or GIMB The Commission has created and proposes to publish on its website proforma subordinated loan agreements as Word Forms for both insurance business and GIMB to cover Jersey and non-jersey lenders four proforma in total Appendix F contains links to each of the proforma subordinated loan agreements and the consent checklist Do you consider that the proposed text in Principle 5 of the Insurance Codes and GIMB Codes provides for the issuance of a subordinated loan by a person carrying on either insurance business or GIMB? If not, please provide details to support your response. PROPOSED AMENDMENTS TO CODES OF PRACTICE 51 of 90

52 14 Sector Specific Amendments: Banking 14.1 Overview In addition to the amendments discussed in Chapters 5 to 13 of this Consultation Paper, the Commission is proposing amendments which are specific to the Banking Codes The proposed amendments have arisen as a result of: consideration of the construction of the Banking Codes; and the detailed assessment report, issued by the International Monetary Fund (the IMF ) in September 2009, which resulted from consideration of the Island s compliance with the international standards applicable to banking the Basel Core Principles, issued by the BCBS The Commission has also considered the regulatory requirements in the Banking Codes relating to large exposures. This consideration has been driven by changes in international regulatory requirements and recommendations from the IMF in their 2009 report on Jersey s regulatory framework. The Commission has elected to consult separately on the proposed amendments with respect to large exposures 13 therefore section 5.4 and Appendix II of the Banking Codes have been removed from the Banking Codes attached to this Consultation Paper as part of Appendix E Jersey Banks and Jersey Branches As referred to in Chapter 5 of this Consultation Paper (paragraph 5.2.4) the Commission has considered the scope of the Codes and has sought to clarify the position in respect of how the Codes should be applied dependent upon whether a registered person is a Jersey incorporated company, or equivalent, or not With respect to the Banking Codes, the Commission is proposing that: a registered person that is a Jersey incorporated company will be referred to as a Jersey Bank ; and the Jersey branch of a registered person that is not incorporated in Jersey will be referred to as a Jersey Branch Do you agree that the use of the terms Jersey Bank and Jersey Branch has clarified the application of the Banking Codes? If not, please provide details to support your response. 13 Consultation Paper No. 2, 2011 on Changes in Large Exposure Requirements, issued 18 March of 90 ISSUED APRIL 2011

53 14.3 Principle 3: Risk management Sector Specific Amendments: Banking Currently, Principle 3 specifies requirements in respect of risk management as part of the section on corporate governance. However, risk management is seen as an increasingly important aspect of the corporate governance of a deposit-taker and the IMF made a number of risk management recommendations in their detailed assessment As a consequence, to provide greater prominence to the risk management aspect of corporate governance, the Commission is proposing to introduce a specific section to Principle Risk Management the objective of which is to: bring together many of the detailed requirements relating to risk management that are currently presented as part of the corporate governance requirements (section 3.1 of the Banking Codes); implement some of the IMF recommendations in respect of liquidity and the internal capital adequacy assessment process; incorporate into the Banking Codes risk management requirements which previously have been included in other Commission documents; and clarify the relationship between the Principle 3 text and the additional risk management guidance set out in Appendix I of the Banking Codes Specifically, amendments are proposed to Principle 3 and Appendix I which incorporate references to recently issued guidance papers of the Commission and the BCBS. The relevant documents are: Commission issued documents: Basel II Prudential Reporting and Pillar II guidance; Guidance regarding the Commission s rules relating to Trading Books; and Liquidity Management and Reporting Guidance Notes BCBS documents covering: Corporate Governance: governance, October 2010; Principles for enhancing corporate Liquidity Risk Management: Principles for Sound Liquidity Risk management and Supervision, September 2008; Revised Pillar II: Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version, issued June 2006; and Enhancements to the Basel II framework, issued July 2009; and PROPOSED AMENDMENTS TO CODES OF PRACTICE 53 of 90

54 Sector Specific Amendments: Banking Stress Testing: Principles for sound stress testing practices and supervision, May Do you agree that a new section 3.9, Risk Management, in conjunction with the amendments to Appendix I, has clarified the Commission s risk management requirements? If not, please provide details of areas where you consider clarity is still required Do you agree that section 3.9 is consistent with the risk management requirements that the Commission has operated in practice for registered persons carrying on deposit-taking business? If not, please identify those requirements which are not reflected in section Principle 5: Financial resources Principle 5 of the Banking Codes sets regulatory requirements in respect of financial resources and amendments are proposed in two respects: section 5.2: risk asset ratio and section 5.3: letter of comfort In section 5.2 of the Banking Codes, the Commission requires a Jersey Bank to calculate its capital requirement using the methodology agreed with the Commission and it is proposed to amend this section such that: greater clarity is provided regarding the basis on which the risk asset ratio must be calculated (e.g. solo or solo consolidated); and it clarifies that changes to a Jersey Bank s methodology for calculating the credit, operational and market risk components of its risk asset ratio must be approved by the Commission It is proposed to amend section 5.3 dealing with the letter of comfort to clarify: what is an acceptable parent bank for the purpose of providing a letter of comfort; that a letter of comfort must be re-issued annually; and where a change of owner of a Jersey Bank is proposed and the change would lead to the current letter of comfort falling away, that a new letter must be provided to the Commission as part of the application for a new shareholder controller Do you consider that the proposed amendments in respect of the risk asset ratio section of the Banking Codes will present any issues? If so, please provide details of your concerns Do you consider that the proposed amendments in respect of the letter of comfort section of the Banking Codes will present any issues? If so, please provide details of your concerns. 54 of 90 ISSUED APRIL 2011

55 Sector Specific Amendments: Banking 14.5 Principle 6: Filing annual financial statements The Commission recognises that the current filing requirements for Jersey Branches are not always achievable, currently requiring all Jersey Branches to provide copies of: the registered person s annual audited financial statements to the Commission within three months of its financial year end; and the annual audited financial statements of its ultimate parent and any intermediate parent within four months of the relevant financial year end It is proposed to amend these requirements such that a Jersey Branch will be required to provide copies of the registered person s annual audited financial statements and those of its ultimate, and intermediary parent, within four months of the relevant financial year end Do you consider that the proposed amendments set requirements which are more achievable for Jersey Branches? 14.6 Principle 7: Mandatory wording in respect of the Jersey Bank Depositors Compensation Scheme ( DCS ) The Banking Codes include mandatory wording which must be included on all written deposit advertisements and bank statements. It is proposed to amend this mandatory wording, to highlight to current and potential depositors, the DCS website: rather than the States of Jersey website The Commission also proposes to correct the name of the scheme, in the mandatory wording, to the Jersey Bank Depositors Compensation Scheme It is proposed that deposit advertisements and bank statements issued before 1 February 2012 may instead use the existing wording in order to manage the associated costs Does the proposed date of 1 February 2012 for full implementation of this proposed amendment provide sufficient transition time? If not, please provide a reasoned alternative transition period. PROPOSED AMENDMENTS TO CODES OF PRACTICE 55 of 90

56 15 Sector Specific Amendments: Trust Company Business 15.1 Overview In addition to the amendments discussed in Chapters 5 to 13 of this Consultation Paper, the Commission is proposing amendments which are specific to the TCB Codes Principle 2: Delegation of duties or powers Principle 2, section 2.6 of the TCB Codes, currently includes a requirement that Any delegation of duties or powers, whether by power of attorney or otherwise, must only be entered into for a proper purpose, and be limited and monitored as appropriate It is proposed that the above text be amended to clarify that: the delegation (power of attorney or otherwise) must be for a specific purpose and have an expiry date; where the delegation is by way of power of attorney, its application must be monitored; and appropriate due diligence must be undertaken on the delegate It is proposed that a note be included which provides an indication of the duties that may be delegated. These are investment management and property management Do you foresee any issue with the clarification text proposed in relation to the delegation of duties or powers? If so, please provide details of your concerns Principle 3: Various regulatory requirements Internal systems and controls In addition to the amendments proposed to section 3.2: internal systems and controls, which are consequential on the proposed amendments to the recordkeeping section, specific amendments are proposed which introduce new requirements, as follows: where a registered person undertakes Class M business, it must be able to evidence both the nature of the nominee agreement and the identity of the person for whom it acts; and where a registered person undertakes Class N business, it is required to ensure that the managed trust company complies with all aspects of the Jersey regulatory framework. 56 of 90 ISSUED APRIL 2011

57 Sector Specific Amendments: Trust Company Business An amendment is proposed which is designed to clarify that a registered person looking to satisfy itself that someone else is keeping accounting records sufficient to show and explain transactions and disclose with reasonable accuracy the financial position of the structures under administration must take into consideration the business record keeping requirements established by the TCB Codes when making its determination. This proposed amendment will only apply to a registered person that is registered to carry on Class H, L or OA business Do you foresee any issue with the proposed additional requirements in respect of internal systems and controls? If so, please provide details of your concerns. Integrity and competence As part of its consideration of the TCB Codes, the Commission has considered the current integrity and competency requirements and is proposing new text which is in line with the Commission s current expectations of Industry regarding the evidencing of checks undertaken when considering the competency of employees Additionally, in response to feedback from Industry the proposed text has been drafted to provide information in respect of suitable qualifications in a more efficient manner. The proposed amendments to paragraph 3.3 of the TCB Codes: require a registered person to obtain and retain documentary evidence which is utilised in the assessment of an individual s competency, both on an initial and ongoing basis; require a registered person to ensure that its trust company business employees collectively have a balance of qualifications necessary to fulfil their technical and non-technical functions; clarify that staff competency levels must be maintained at all times; and in respect of Category C employees, allow the 50% limit to be attained by a combination of qualified employees and those studying for a relevant qualification Regarding the provision of information in respect of suitable qualifications it is proposed to relocate Table 4 and Table 5 from the First Schedule of the TCB Codes into a separate Guidance Note. This approach has already been adopted by the Commission in respect of the IB professional qualification requirements If adopted, the professional qualifications Guidance Note will make the updating of Table 4 and Table 5, as and when new relevant qualifications are identified, an easier and faster process It is also proposed that the professional qualifications Guidance Note contain all information relating to variances in respect of professional qualifications. PROPOSED AMENDMENTS TO CODES OF PRACTICE 57 of 90

58 Sector Specific Amendments: Trust Company Business Appendix C of this Consultation Paper contains a draft professional qualifications Guidance Note for consideration and comment Do you agree with the Commission s proposal to present the TCB relevant professional qualifications and variance details in a separate Guidance Note rather than as a Schedule to the TCB Codes? If not, please provide details of why you disagree with the proposed approach Principle 4: Fees and charges It is proposed to amend section 4.2 of the TCB Codes to provide greater clarity in respect of the Commission s expectations regarding a registered person being open and transparent about its charges and the basis for their determination The proposed amendment highlights areas that a registered person must cover in respect of its fees and charges including: group related charges; commissions (both initial and recurring); and payments to and from third parties (such as introductory fees or commission sharing arrangements) Additionally, the proposed amendment highlights that: a registered person must agree and document the basis for charging fees in advance of taking an appointment; and in relation to the termination of services the registered person must be clear as to whether the fees which have been paid in advance are refundable to the customer Do you agree that the proposed amendments in respect of fees and charges provide clarification of the areas where the Commission considers a registered person must be open and transparent, and do you agree that the areas highlighted by the Commission are the correct areas? If not, please provide details in support of your answer Principle 6: Specific notifications A specific notification is being proposed such that a registered person must notify the Commission, in writing, not less than 28 days before: a change to its capital structure, including inter alia the issuance of preference shares and the buy back of ordinary shares; any outstanding balance on a loan which has been granted to a registered person is waived, such that the remaining balance is accounted for as a credit to reserves; and any outstanding balance on a loan is reinstated (either in full or in part) where the balance has previously been waived. 58 of 90 ISSUED APRIL 2011

59 Sector Specific Amendments: Trust Company Business 15.6 Third Schedule: Variance from the Codes in respect of registered persons conducting a single class of trust company business Amendments are proposed to the Third Schedule which are designed to: provide clarification in respect of the application of the Third Schedule; and to better present the general variances applicable to certain classes of trust company business Specifically with respect to the application of the Third Schedule: An amendment is proposed to include Class I trust company business (acting or arranging for another person to act as a secretary, alternate or deputy secretary of a company) within the scope of the Schedule as this was omitted from the current Schedule in error Additional text is proposed which clarifies that the Third Schedule does not apply to natural persons conducting a single class of trust company business (the regulatory requirements for such natural persons are contained in a Guidance Note entitled Natural Persons carrying on a single class of trust company business ) A note is proposed which clarifies that a registered person conducting any class of trust company business listed in the Third Schedule is prevented from holding or controlling customer assets To better present the general variances applicable for a single class of trust company business, it is proposed that the Third Schedule only include two tables: one which provides details for Classes F, I, J and K; and the other which provides the information for Class O trust company business Do you agree that the proposed amendments to the Third Schedule clarify the application of the variances and the revised format better presents the information? If not, please provide details to support your response. PROPOSED AMENDMENTS TO CODES OF PRACTICE 59 of 90

60 16 Sector Specific Amendments: Investment Business 16.1 Overview In addition to the amendments discussed in Chapters 5 to 13 of this Consultation Paper, the Commission is proposing amendments which are specific to the IB Codes Principle 2: Highest regard for the interests of clients Following the first Mystery Shopping exercise undertaken by the Commission in 2007, the results of which were provided to Industry on 20 May , the Commission is proposing amendments to text within Principle 2 of the IB Codes dealing with suitability of advice The following provides a high level summary of the proposed amendments: It is proposed to amend section 2.6 of the IB Codes such that a registered person must provide: an explanation to its clients regarding relevant risk warnings; and its clients with the details of any cooling-off periods that may be a feature of a recommended investment product A new section 2.8 is proposed that requires a registered person to have conducted due diligence and assessed all relevant products and/or product provider features in terms of their suitability for a client before a recommendation is made Under the sub-heading Switching & Churning, now section 2.11 of the IB Codes, the Commission is proposing text which requires a registered person to maintain a register detailing any policies that are cancelled mid-term which record and demonstrate suitability where a client has been recommended to switch policies A new section is proposed for Principle 2, Margin Payments which it is proposed will include the following requirements: where an investment features margin payments, a registered person must provide a client with a description of the nature and risks of margin payments: and 14 Findings of Mystery Shopping Research: Suitability of Advice and Sales Process of Regulated Investment Businesses available from the Commission Website ( 60 of 90 ISSUED APRIL 2011

61 Sector Specific Amendments: Investment Business where an investment has a contingent liability element, the consequences of failing to meet a margin call Do you foresee any problems with the amendments relating to Suitability, Switching & Churning and Margin Payments? If so, please provide details of your concerns Principle 3: Integrity and competence As part of its consideration of the IB Codes the Commission has considered the current integrity and competency requirements and is proposing new text for section 3.3 of the IB Codes. The proposed text is in line with the Commission s current expectations of Industry regarding the evidencing of checks undertaken when considering the competency of its employees The proposed text requires a registered person to obtain and retain documentary evidence utilised in the assessment of an individual s competency, both on an initial and ongoing basis, and stipulates that the evidence should include, but not be limited to employer references and copies of qualifications held by investment employees This proposed amendment is in line with that proposed for the TCB Codes, see Do you foresee any problems with the proposed text relating to the retention of documentary evidence obtained when assessing an employee s competency? If so, please provide details of your concerns Principle 4: Transparency of business arrangements fees and charges The Commission has considered its current requirements with respect to Principle 4, which require a registered person to be transparent in its business arrangements and is proposing to amend the IB Codes such that: the terms of business of an IB must include all appropriate information relevant to the service that will be provided; information in respect of fees and charges must: be disclosed prior to transactions being effected; and include either a monetary or percentage figure; and where information on fees and charges cannot be provided prior to a transaction being effected, any implications on fees and charges as a result of cancellation of a product, failure to meet premiums or making changes to a product must be made clear to the client The proposed text reflects the current expectations of the Commission and is in line with the recommendations contained in the Commission s feedback reports on the two Mystery Shopping exercises, undertaken in 2007 and PROPOSED AMENDMENTS TO CODES OF PRACTICE 61 of 90

62 Sector Specific Amendments: Investment Business Do you foresee any problems with the proposed text relating to the terms of business of an IB and disclosure arrangements relating to fees and charges? If so, please provide details of your concerns Retail Distribution Review ( RDR ) With respect to the investment business sector, many local businesses have strong links to the UK investment product market. Consequently, the ongoing work on the RDR of the UK FSA will have a direct impact on the Jersey investment businesses and their clients The UK FSA has stated that the four key strands of the RDR are to: increase the professional standards of all investment advisers; improve the clarity with which firms describe their services to consumers; address the potential for commission to distort consumer outcomes; and improve the sustainability of the market The Commission intends to issue a Position Paper later this year which will describe in detail the impact of RDR on the local investment market and the Commission s proposed response. 62 of 90 ISSUED APRIL 2011

63 17 Sector Specific Amendments: Fund Services Business 17.1 Overview In addition to the amendments discussed in Chapters 5 to 13 of this Consultation Paper, the Commission is proposing amendments which are specific to the FSB Codes Unregulated Funds Order Following the coming into force of the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008, amendments to the FSB Codes are being proposed. These amendments have been discussed in advance of this consultation with Jersey Finance It is proposed in Principle 5 of the FSB Codes to refer to Managed Entities providing services to Qualifying Funds in relation to financial resources, specifically paragraphs 5.1.3, 5.1.4, and As a consequence, it is proposed to amend the Third Schedule to the FSB Codes to include the following definitions: Materially Equivalent Fund Qualifying Funds means a Collective Investment Fund that pre-dates the Jersey Expert Fund regime and has been certified to the Commission as having the following characteristics: is clearly not aimed at retail investors and describes itself as being suitable for a specific class of investors (being expert, experienced, institutional, sophisticated or similar); imposes a minimum initial investment requirement of at least US$100,000 (or currency equivalent); and the Offer Document: contains a clear investment warning, indicating that the Fund is not suitable for all investors; is commensurate with the risks involved with investing in the Fund; and provides investors with a true understanding of the total potential loss. means, an Expert Fund or Materially Equivalent Fund and related Expert Funds or Materially Equivalent Funds; or an Unregulated Fund and related Unregulated Funds. In the context of Expert Funds, Materially Equivalent Funds and Unregulated Funds, related means two or more such funds established by the same promoter and sharing significant common attributes such as the same type of fund (Expert or Unregulated), reference to the promoter in the name of the fund, having the same investor market, and adopting the same style of marketing. PROPOSED AMENDMENTS TO CODES OF PRACTICE 63 of 90

64 Sector Specific Amendments: Fund Services Business Unregulated Fund means a fund that has filed a notice in accordance with Article 3 of Schedule 1 or Schedule 2 of the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008, as amended Do you have any problems with the proposed amendments in terms of Managed Entities providing services to Qualifying Funds? If so, please detail your concerns Principle 3: Corporate governance The FSB Codes set requirements in respect of corporate governance with reference to a registered person s ability to handle Fund Assets paragraphs and On a number of occasions the Commission has been asked to explain handle in connection with Fund Assets Consequently, the Commission is proposing to amend the FSB Codes such that they refer to the ability to control Fund Assets. This amendment is designed to both clarify the FSB Codes and align the text with that of other Codes issued by the Commission Does the proposed change clarify the corporate governance criteria? If not, please provide details of where further clarification is required Principle 6: Specific notifications In addition to the generic work undertaken on the Principle 6 Notifications, described in Chapter 12 of this Consultation Paper, the Commission is proposing specific notifications in section 6 of the FSB Codes regarding a collective investment fund that is not domiciled in Jersey (a non-domiciled fund ) The proposed text is designed to reflect, within the FSB Codes, the current Commission practice of requiring a registered person to notify the details of non-domiciled funds for which it acts using the Notification Form for a Non- Jersey Domiciled Collective Investment Fund available from the Commission Website The Commission collects information in respect of non-domiciled funds for which an FSB acts for the purpose of both statistical reporting and fee setting Specifically, it is proposed that the FSB Codes be amended to include the following requirement as specific notifications within Principle 6: a registered person that intends to accept an appointment to act for a non-domiciled fund for which a consent is required in accordance with the Control of Borrowing (Jersey) Order 1958, must notify the Commission of the details of the non-domiciled fund at least five working days prior to taking up its appointment; and 64 of 90 ISSUED APRIL 2011

65 Sector Specific Amendments: Fund Services Business where no consent is required under the Control of Borrowing (Jersey) Order 1958, a registered person must provide the Commission with details of the non-domiciled fund within 28 calendar days of accepting an appointment to act Are you content that the above requirements reflect in the FSB Codes the current Commission practice with respect to gathering information regarding non-domiciled funds? If not, please provide details of how the proposed amendments do not reflect the Commission s current practices. PROPOSED AMENDMENTS TO CODES OF PRACTICE 65 of 90

66 18 Sector Specific Amendments: Money Service Business 18.1 Overview The MSB Codes were first published in July 2007 to coincide with the coming into force of the Financial Services (Amendment of Law) (Jersey) Regulations 2007, which amended Article 2 of the FS(J)L and brought money service business within the definition of financial service business. The impact of the amendment was to make a number of persons subject to registration and regulatory oversight by the Commission that had not previously been within the perimeter of regulation Current scope and requirements Not all persons carrying on money service business are required to register with the Commission. The Financial Services (Money Service Business (Exemptions)) (Jersey) Order 2007 (the MSB Exemptions Order ) provides that a notification regime rather than a registration regime may apply in two specified circumstances One of the specified circumstances which requires notification rather than registration is provided by Article 5 of the MSB Exemptions Order, which provides that a person registered to carry on deposit-taking business under the Banking Business (Jersey) Law 1991 may notify the Commission that it undertakes money service business rather than formally register as a money service business (an Article 5 notification ) In accordance with the powers granted to the Commission by Article 19 of the FS(J)L, the Commission determined that the MSB Codes should be applicable to those persons that are either registered to carry on money service business or who have provided the Commission with an Article 5 notification. The MSB Codes do not apply to persons that meet the second specified circumstance giving rise to a notification requirement which is established by Article 4 of the MSB Exemptions Order a limited exemption if turnover is less than a specified amount Whilst each set of Codes issued by the Commission follows a similar format they also differ to take account of the characteristics of the particular financial sector to which they relate. In 2007, when the MSB Codes were first published the Commission assessed the nature of the money service business sector and as a result issued MSB Codes which differ from the Codes for other financial sectors in that they: contain five fundamental principles rather than seven 15 ; and 15 The MSB Codes do not prescribe requirements with respect to financial resources/insurance arrangements or statements made in financial services advertisements. 66 of 90 ISSUED APRIL 2011

67 Sector Specific Amendments: Money Service Business operate at a higher level with less prescriptive requirements Future requirements The Commission is now in the position of having the benefit of three plus years experience of registering and supervising the money service business sector and as part of the current review of the Codes the Commission is considering the construct of the MSB Codes. Specifically, whether the variances highlighted in continue to be applicable given the increasingly complex and changeable nature of money service business This Consultation Paper already highlights specific areas where the Commission is proposing to include greater detailed text in the MSB codes: corporate governance (span of control), record keeping and circumstances where notification to the Commission is required In light of the recent and continuing growth in size and complexity of money service business, the failure in 2010 of a UK MSB (where customers lost money), and a greater understanding of how other jurisdictions have implemented regulation of MSBs (Jersey was amongst the first to regulate MSBs using a prudential regulator), the Commission will continue to consider the construct of the MSB Codes and may propose further amendments when its current review process is completed To be clear, it is not the Commission s current intention to amend the scope of the MSB Codes (as set out ) Do you agree with the specific amendments proposed to the MSB Codes in other sections of this Consultation Paper? If not, please provide details to support your response Given the Commission s continued consideration of the MSB Codes are there any particular areas where you consider further alignment with other Codes or greater detail would be of benefit? Please provide further details to support your response. PROPOSED AMENDMENTS TO CODES OF PRACTICE 67 of 90

68 19 Sector Specific Amendments: Insurance Sectors 19.1 Overview In addition to the amendments discussed in Chapters 5 to 13 of this Consultation Paper, the Commission is proposing amendments which are specific to the Insurance Codes or GIMB Codes Insurance Codes Principle 2: A permit holder must have due regard for the interests of its policyholders Principle 2 of the Insurance Codes provides that a permit holder must have due regard for the interests of its policyholders Specifically, section 2.2 of the Insurance Codes currently states: 2.2 Where a permit holder is responsible for providing advice or exercising discretion for or in relation to its policyholders, it must: be able to demonstrate that it has provided the best advice, or exercised the necessary discretion, that is appropriate to the needs of its policyholders; and seek from them such information regarding their financial situation and objectives as may be appropriate with regard to the services requested. Documentary evidence must be maintained in this respect The Commission is proposing amendments to clarify the application of 2.2 so that the required action must be undertaken, at a minimum, when a contract of long term insurance is provided to the public either through a tied agent or direct sales force Clarification is also being provided by way of proposed amendments, which: provide details of minimum documentation that must be retained; set out the actions to be taken by a permit holder where an applicant does not wish to provide the information necessary to complete a full fact finding exercise; and set out the actions to be taken by a permit holder where an applicant provides only partial information. 68 of 90 ISSUED APRIL 2011

69 Sector Specific Amendments: Insurance Sectors Principle 3: Corporate governance A number of amendments are being proposed to Principle 3 of the Insurance Codes, which are aimed at clarifying the requirements in a number of areas. These areas are detailed in the following paragraphs Principle 3 of the Insurance Codes currently requires that a Category B permit holder provides the Commission with an annual declaration, signed by the Directors, confirming that they accept and understand their responsibilities for compliance with relevant legislation and that such legislation has been complied with or, if not, in what respect. Amendments are proposed to section of the Insurance Codes to clarify that: the Category B permit holder annual declaration must be delivered to the Commission with the permit holder s financial statements; and the annual declaration should be submitted utilising the template attached to the Insurance Codes as the First Schedule (currently the template sits as a separate document on the Commission Website) Amendments are proposed to sections and of the Insurance Codes to make it is clear that the requirements of the Money Laundering Order are restricted to long term insurance business, as per Schedule 2 of the Proceeds of Crime (Jersey) Law Currently the Insurance Codes are not specific and it could be understood that the Money Laundering Order applies also to general business Additionally, an amendment is proposed to section of the Insurance Codes which clarifies that Article 23 of the Insurance Business (Jersey) Law 1996 only applies to Category B permit holders. Currently the Insurance Codes could be interpreted as requiring Key Persons of all permit holders to follow the process of obtaining a letter of no objection prior to undertaking a Key Person role which is not the case. Principle 5: Financial resources An amendment is being considered to restrict the type of share capital that can be considered when assessing compliance with the requirement to hold a minimum 100,000 share capital; currently the Insurance Codes are silent on the type of capital that can be included. The amendment being considered will align the Insurance Codes with the Insurance Business Licensing Policy which states: The issue of preference shares or other forms of capital, such as a subordinated loan, will require the Commission s prior approval Do you agree that the amendments proposed to Principle 2, 3 and 5 of the Insurance Codes clarify the existing text? If not, please provide details for your response. PROPOSED AMENDMENTS TO CODES OF PRACTICE 69 of 90

70 Sector Specific Amendments: Insurance Sectors 19.3 GIMB Codes Minor amendments are being proposed to Principle 7 of the GIMB Codes to clarify that the registered person need only state that it is regulated by the Commission on any marketing and sales material that is prepared and issued solely for use by Jersey clients This amendment is being proposed following questions from registered persons that also operate in other jurisdictions and who need to comply with the conduct of business regulations of those other jurisdictions Do you consider that the proposed amendments satisfactorily clarify which documents must carry the text is regulated by the Jersey Financial Services Commission? If you do not agree please detail where you consider additional clarification is required. 70 of 90 ISSUED APRIL 2011

71 20 Cost Benefit Analysis 20.1 Costs to Industry Although amendments are being proposed to many areas of the Codes and, at first glance, the amendments may appear extensive, the Commission believes that, overall, the amendments are not controversial or contentious Whilst costs will vary between registered persons (driven in large part by the number of registrations held by any individual registered person) costs to Industry arising from proposals in this Consultation Paper should not be excessive Costs to the Commission The Commission does not envisage any significant costs accruing to itself as a result of the amendments proposed by this Consultation Paper Benefits The Commission considers that both Industry and the Commission will benefit if the amendments proposed by this Consultation Paper are implemented If accepted as proposed, the amendments should better align requirements between Codes and provide clarification in areas which have often been the subject of discussion between Industry and the Commission. This alignment and clarification will save resources for both parties The Commission also believes that, where a registered person is registered to carry on more than one type of financial services business under the Regulatory Laws, the amendments may save a registered person time if adopted as proposed. PROPOSED AMENDMENTS TO CODES OF PRACTICE 71 of 90

72 21 Summary of Questions No. REFERENCE QUESTION Future Format of the Codes Would you prefer a consolidated set of Codes, augmented by sector specific regulatory requirements, or would you prefer to maintain separate Codes applicable to single financial services sectors? As part of your response please provide a rationale for your preference Do you consider that the inclusion of a Glossary in each set of Codes improves the readability of the Codes? If not, please provide a rationale for your response. Introduction to the Codes Do you agree that the application of Codes to branches, particularly with respect to the Banking sector, is now more clearly set out? Is any further clarification needed? Is any other information needed in the Introduction to the Codes? Do you consider that the scope of the Codes has been adequately clarified, both in the Introduction to the Codes and also within each section of the Codes? If not, please identify those areas where clarity has not been achieved After considering the amendments proposed by this Consultation Paper, are there any specific amendments that you believe require a transitional period in order to allow registered persons time to comply with proposed requirements? If so, please identify those areas, highlighting why you believe a transitional period is required and indicating the length of transitional period you believe is required. Corporate Governance: Span of Control Do you agree that the 2005 span of control document should be withdrawn, and that Appendix B highlights all documents where a consequential amendment will be required if the document is withdrawn? If not, please provide an explanation or provide detail of additional consequential amendments Do you agree that the span of control text proposed for each set of Codes is relevant for that financial sector? If not, please explain Will the introduction of span of control provisions for MSBs cause any particular difficulty? If so, please explain. Compliance Function Do you agree with the inclusion of the proposed text which introduces the requirement to maintain a compliance function and redefines the responsibilities of the Compliance Officer? If not, please explain. 72 of 90 ISSUED APRIL 2011

73 No. REFERENCE QUESTION Summary of Questions Do you agree that key persons should be bought within the scope of the CPD requirements? If not, please provide details of why you disagree Do you consider that the withdrawal of the ability to pro-rate the CPD requirement for part time employees is unreasonable? If yes, please provide details of why you consider the proposed amendment unreasonable Do you foresee any problems with the amendments proposed to reduce the minimum/recommended CPD hours in the GIMB Codes, Insurance Codes and TCB Codes? Please provide details of any problems you foresee. Complaints Do you agree that the regulatory requirements for complaints handling that have been applied to the Codes are relevant and in line with the Commission s Guidance Note? If not, please explain Do you agree that the notification requirements established in respect of complaints are set at an appropriate level for each financial sector? If not, please explain Record Keeping Do you agree that the record keeping section should be restricted to the management of records and divided into three distinct sections, and the detailed requirements of which records are to be maintained be relocated to the internal control systems section of the Codes? If not, please explain Do you agree that the setting of retention periods for business records and customer records by reference to other legislation aids clarity and is generally appropriate, including the exceptions as detailed in relation to the Banking Codes? If not, please explain. Financial Resources Do you agree that the amendments proposed to Principle 5 of the FSB Codes, IB Codes and TCB Codes fulfil the objective of making the Codes easier to read and clarify the frequency with which the ANLA calculation must be undertaken? If not, please provide reasons for your answer Do you believe that the proposed amendments to the proforma for the calculation of expenditure requirement better explain but do not alter the substance of the calculation? If you believe the proposed amendment substantively amends the calculation please provide details as part of your response. Professional Indemnity Insurance Do you agree that the proposed text clarifies and aligns the requirements with respect to PII cover? If not, please explain. PROPOSED AMENDMENTS TO CODES OF PRACTICE 73 of 90

74 Summary of Questions No. REFERENCE QUESTION Do you consider that the proposed Guidance Note assists and should be published in its current form? If not, please explain. Principle 6 Notifications Do you consider that the restructure of the Principle 6 Notifications has clarified the trigger events/circumstances and the timeframe for notifications? If not, please explain Do you consider that the amendments proposed to the Table of Notifications and Consents as described in will cause any operational difficulties? If so, please explain Should any of the notification periods be changed? Subordinated Loan Agreement Do you consider that the proposed amendments regarding the treatment of subordinated loans in the financial resources calculations of the FSB Codes, IB Codes and TCB Codes are substantially in line with current requirements, including the criteria for applying for a variance? If not, please provide details of the substantive amendment Do you consider that the proposed text in Principle 5 of the Insurance Codes and GIMB Codes provides for the issuance of a subordinated loan by a person carrying on either insurance business or GIMB? If not, please provide details to support your response. Sector Specific Amendments: Banking Do you agree that the use of the terms Jersey Bank and Jersey Branch has clarified the application of the Banking Codes? If not, please provide details to support your response Do you agree that a new section 3.9, Risk Management, in conjunction with the amendments to Appendix I, has clarified the Commission s risk management requirements? If not, please provide details of areas where you consider clarity is still required Do you agree that section 3.9 is consistent with the risk management requirements that the Commission has operated in practice for registered persons carrying on deposit-taking business? If not, please identify those requirements which are not reflected in section Do you consider that the proposed amendments in respect of the risk asset ratio section of the Banking Codes will present any issues? If so, please provide details of your concerns Do you consider that the proposed amendments in respect of the letter of comfort section of the Banking Codes will present any issues? If so, please provide details of your concerns Does the proposed date of 1 February 2012 for full implementation of this proposed amendment provide sufficient transition time? If not, please provide a reasoned alternative transition period. 74 of 90 ISSUED APRIL 2011

75 Summary of Questions No. REFERENCE QUESTION Sector Specific Amendments: Trust Company Business Do you foresee any issue with the clarification text proposed in relation to the delegation of duties or powers? If so, please provide details of your concerns Do you foresee any issue with the proposed additional requirements in respect of internal systems and controls? If so, please provide details of your concerns Do you agree with the Commission s proposal to present the TCB relevant professional qualifications and variance details in a separate Guidance Note rather than as a Schedule to the TCB Codes? If not, please provide details of why you disagree with the proposed approach Do you agree that the proposed amendments in respect of fees and charges provide clarification of the areas where the Commission considers a registered person must be open and transparent, and do you agree that the areas highlighted by the Commission are the correct areas? If not, please provide details in support of your answer Do you agree that the proposed amendments to the Third Schedule clarify the application of the variances and the revised format better presents the information? If not, please provide details to support your response. Sector Specific Amendments: Investment Business Do you foresee any problems with the amendments relating to Suitability, Switching & Churning and Margin Payments? If so, please provide details of your concerns Do you foresee any problems with the proposed text relating to the retention of documentary evidence obtained when assessing an employee s competency? If so, please provide details of your concerns Do you foresee any problems with the proposed text relating to the terms of business of an IB and disclosure arrangements relating to fees and charges? If so, please provide details of your concerns. Sector Specific Amendments: Fund Services Business Do you have any problems with the proposed amendments in terms of Managed Entities providing services to Qualifying Funds? If so, please detail your concerns Does the proposed change clarify the corporate governance criteria? If not, please provide details of where further clarification is required Are you content that the above requirements reflect in the FSB Codes the current Commission practice with respect to gathering information regarding non-domiciled funds? If not, please provide details of how the proposed amendments do not reflect the Commission s current practices. PROPOSED AMENDMENTS TO CODES OF PRACTICE 75 of 90

76 Summary of Questions No. REFERENCE QUESTION Sector Specific Amendments: Money Service Business Do you agree with the specific amendments proposed to the MSB Codes in other sections of this Consultation Paper? If not, please provide details to support your response Given the Commission s continued consideration of the MSB Codes are there any particular areas where you consider further alignment with other Codes or greater detail would be of benefit? Please provide further details to support your response. Sector Specific Amendments: Insurance Sectors Do you agree that the amendments proposed to Principle 2, 3 and 5 of the Insurance Codes clarify the existing text? If not, please provide details for your response Do you consider that the proposed amendments satisfactorily clarify which documents must carry the text is regulated by the Jersey Financial Services Commission? If you do not agree please detail where you consider additional clarification is required. 76 of 90 ISSUED APRIL 2011

77 Appendix A List of representative bodies who have been sent this Consultation Paper. Jersey Finance Limited Jersey Bankers Association Jersey Association of Trust Companies Jersey Funds Association Jersey Branch of the Personal Finance Society Jersey Branch of the Chartered Institute for Securities & Investment Jersey International Insurance Association PROPOSED AMENDMENTS TO CODES OF PRACTICE 77 of 90

78 Appendix B Span of Control list of Commission documents with a possible consequential amendment. Document Page No. Phrase FS(J)L Licensing Policy 3 Includes a link to the Span of Control Policy Statement/Guidance Note which will need to be removed. Jersey Expert Fund Guide Expert Fund Guide Key Features Summary November 2006 Jersey Listed Fund Guide Manager of a Managed Entity (MoME) and certain managed entities April Paragraph 2.7.6: includes details relating to the span of control requirements for an Investment Manager. The paragraph includes a reference to Appendix 1 (Span of Control Requirements) and specific span of control requirements. These need to be considered in light of the proposed amendments to the FSB Codes. 18 Appendix 1: includes a link to the Span of Control Policy Statement/Guidance Note which will need to be removed and the text of the Appendix considered in light of the proposed amendments to the FSB Codes. 2 Third paragraph makes reference to the span of control requirements for an Investment Manager which will need to be considered in light of the proposed amendments to the FSB Codes. 8 Paragraph 1.6: includes details relating to the span of control requirements for an Investment Manager. The paragraph includes a reference to Appendix 2 (Span of Control Requirements) and specific span of control requirements. These need to be considered in light of the proposed amendments to the FSB Codes. 19 Appendix 2: includes a link to the Span of Control Policy Statement/Guidance Note which will need to be removed and the text of the Appendix considered in light of the proposed amendments to the FSB Codes. 9 and 10 Paragraphs 4.6, 4.7 and 4.8.2: discuss span of control requirements, and include references to specific paragraphs of the FSB Codes. These paragraphs and references need to be considered in light of the proposed amendments to the FSB Codes. 78 of 90 ISSUED APRIL 2011

79 Appendix C Draft Guidance Note: (Trust Company Business) Professional Qualifications Guidance Note: Professional Qualifications (Trust Company Business) 1 Background 79 2 Variances from the TCB Codes requirements 80 3 Table 4 Qualifications 81 4 Table 5 Qualifications 83 1 Background 1.1 Section 3.3 of the Codes of Practice for Trust Company Business (the TCB Codes ) requires a registered person to assess and monitor the competence of its employees. 1.2 Specifically, paragraph of the Codes of Practice sets requirements in respect of the competency requirements for Category A and Category B trust company business employees by reference to the percentage of those which must be suitably qualified. 1.3 However in respect of Category C trust company business employees, the Codes of Practice do not include any prescribed percentage requirements regarding the number that must be suitably qualified. Rather, a registered person is required to notify the Commission should the percentage of Category C trust company business employees which either hold or are studying for a Table 4 or Table 5 qualification fall below 50%. 1.4 The assessment of whether an individual is suitably qualified includes consideration of both the professional qualifications held and also the individual s relevant experience. Specific requirements are established in Tables 1-3 of the First Schedule of the Codes of Practice. Issued: dd mmmm yyyy Page 79 of 90