Consultation paper on bank financial reporting and audit

Consultation Paper

The Jersey Financial Services Commission (JFSC) invites comments on this consultation paper by 31 March 2021. 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 JFSC.

The JFSC contact is:

David Fisher

Senior Adviser

Jersey Financial Services Commission

PO Box 267

14-18 Castle Street

St Helier

Jersey

JE4 8TP

Telephone:+44 (0) 1534 822106

Email:[email protected]

Alternatively, Lisa Springate at Jersey Finance Limited (JFL) is coordinating an Industry response that will incorporate any matters raised by local businesses. Comments should be submitted to JFL by 31 March 2021.

The JFL contact is:

Lisa Springate

Head of Legal and Technical

Jersey Finance Limited

4th Floor, Sir Walter Raleigh House

48-50 Esplanade

St Helier

Jersey

JE2 3QB

Telephone:+44 (0) 1534 836029

Email:[email protected]

Content from responses will be used in feedback papers. Respondents will be listed in the feedback paper unless requested otherwise.

It is the policy of JFL (unless otherwise requested or agreed) to collate all responses and share them verbatim with the JFSC on an anonymised basis (with reference made only to the type of respondent, e.g. individual, law firm, trust company etc.). This collated, anonymised response will, typically, be placed in JFL’s permanent electronic archive which is currently open to all JFL members.

Glossary of Terms

Defined terms are indicated throughout this document as follows:

1 Executive Summary

1.1 Overview

1.1.1 This consultation paper seeks feedback on proposals to bring into force new and varied requirements relating to accounts, auditors and reports for persons registered under the Banking Business (Jersey) Law 1991 (Banking Law).

1.2 What is proposed and why?

1.2.1 It is proposed to enact new legislation – the Banking Business (Accounts, Auditors and Reports) (Jersey) Order (New Order) - that would establish new and varied requirements, with the key aspects addressed being:

1.2.1.1 The appointment of auditors (Section 5);

1.2.1.2 Financial Statements (Section 6);

1.2.1.3 Prudential Return (Section 7);

1.2.1.4 Declaration of Compliance (Section 8); and

1.2.1.5 Publication of Financial Statements (Section 9).

1.2.2 A draft of the New Order is provided as Appendix B.

1.2.3 This work is intended to:

1.2.3.1 bring together existing requirements and provide an appropriate statutory underpinning, in line with similar Orders issued for other classes of financial services business; and

1.2.3.2 ensure that depositors have access to audited financial statements through relevant websites.

1.2.4 By way of background, the JFSC has previously consulted on many of the relevant principles in year 2010, with the consultation being available at:

1.2.4.1 https://www.jerseyfsc.org/media/3980/consultation_paper_no_4_2010_banking_reporting_and_disclosures.pdf

1.2.5 Feedback at the time was broadly supportive, available at:

1.2.5.1 https://www.jerseyfsc.org/media/3977/feedback_to_cp_no_4_2010.pdf

1.2.6 However, progress on implementation has been limited to only certain deposit protection disclosure related changes being completed, though an Amendment has been enacted to the Banking Law Banking Business (Amendment No. 7)(Jersey) Law 2011 (Amendment 7) to create the necessary Order making powers (but is not in force).

1.2.7 This consultation therefore addresses both the principles and detailed implementation, so that familiarity with the earlier work is not necessary.

1.2.8 In addition to the New Order itself, it is intended to add to the the Code of Practice for Deposit-taking Business (Banking Code) new Code requirements regarding related processes that must be followed by persons registered under the Banking Law (Registered Persons).

1.2.9 Specifically, it is intended to revise the current Banking Code so that it provides the main body of the Banking Code (Banking Code: Main Body) (Appendix C) and issue four new parts of the Banking Code in separate documents to address the matters raised in this paper. These will provide: (1) a summary of the relevant legal requirements (i.e. the New Order) (2) the new Code requirements and (3) guidance on how Registered Persons can meet the requirements. These documents will be:

1.2.9.1 Banking Code: Appointment of auditors (AoA Code);

1.2.9.2 Banking Code: Financial statements (FS Code);

1.2.9.3 Banking Code: Prudential reporting (PR Code); and

1.2.9.4 Banking Code: Declaration of Compliance (DoC Code).

1.2.10 The Banking Code: Main Body amendments (vs the current Banking Code) are limited to the removal of superseded requirements (including Sections 6.4 to 6.6 and the Schedule concerning prudential reporting and the Declaration of Compliance), although the opportunity has been taken to make some minor formatting/layout changes.

1.2.11 Within each new document, there are separate sections for JIBs and OIBs. In each, legal requirements will be explained at the start, followed by the Codes requirements and then guidance, each within a separate sub-section.

1.2.12 Drafts of these four documents form Appendices D to G.

1.2.13 Most proposals are intended to reinforce current provisions in the Banking Code, either by providing a legal underpinning or through greater specificity of the requirements.

1.2.14 Perhaps the principal change is with respect to the publication of financial statements for the use of depositors, with the intention being to reflect the increased use of the internet both generally and by Registered Persons to solicit deposits.

1.2.15 A copy of Amendment 7 has been provided as Appendix H.

1.2.16 Consequential changes will be made to the Banking Business (General Provisions) (Jersey) Order 2002 (GPO). A draft of the changes to the GPO is provided as Appendix I.

1.3 Who would be affected?

1.3.1 The proposals in this consultation paper have the potential to affect:

1.3.1.1 Registered Persons, who will be directly impacted by the new requirements;

1.3.1.2 Auditors, who will be impacted directly and via Registered Persons’ compliance with the new requirements; and

1.3.1.3 Depositors, who may benefit from improved access to Registered Persons’ published Financial Statements.

2 Consultation

2.1 Basis for consultation

2.1.1 The JFSC has issued this consultation paper in accordance with:

2.1.1.1 Article 8(3) of the Commission Law, as amended, under which the JFSC may, in connection with the carrying out of its functions, consult and seek the advice of such persons or bodies whether inside or outside Jersey as it considers appropriate.

2.1.1.2 Article 19A(1) of the Banking Law that requires it, before revising any Banking Code, to, consult persons or bodies the JFSC considers are representative of the interests concerned.

2.2 Responding to the consultation

2.2.1 The JFSC 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.

2.2.2 A response form has been published alongside this consultation, available at:

2.2.2.1 https://www.jerseyfsc.org/media/3979/response-form-cp-no-13-bank-financial-reporting-and-audit.docx

2.2.3 Respondents are requested to use this form when providing feedback, either directly or via JFL. For the avoidance of doubt, all responses received, in whatever fashion, will be considered, with the response form intended only to ease processing by the JFSC.

2.2.4 Comments should be received by the JFSC no later than 28 February 2021.

2.3 Next steps

2.3.1 Following this consultation, the JFSC intends to publish feedback to this Consultation Paper before the end of H1 2021.

2.3.2 The JFSC will seek amendments where necessary to take into account feedback provided and will then proceed with the measures necessary to enact the New Order and issue the revised Banking Code documents.  It being anticipated that this work would be completed before the end of Q3 2021 and hence impact on reporting produced for year-end 2021.

3 The JFSC

3.1 Overview

3.1.1 The JFSC is a statutory body corporate established under the Commission Law. It is responsible for the supervision and development of financial services provided in or from within Jersey.

3.2 JFSC’s functions

3.2.1 The Commission Law prescribes that the JFSC shall be responsible for:

3.2.1.1 the supervision and development of financial services provided in or from within Jersey;

3.2.1.2 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;

3.2.1.3 preparing and submitting to the Minister for External Relations recommendations for the introduction, amendment or replacement of legislation appertaining to financial services, companies and other forms of business structure;

3.2.1.4 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

3.2.1.5 such other functions as are conferred on the JFSC by any other Law or enactment.

3.3 Guiding principles

3.3.1 The JFSC’s guiding principles require it to have particular regard to:

3.3.1.1 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;

3.3.1.2 the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters;

3.3.1.3 the best economic interests of Jersey; and

3.3.1.4 the need to counter financial crime in both Jersey and elsewhere.

4 General issues

4.1 Multiple Banking Code documents

4.1.1 The current Banking Code establishes a range of Financial Reporting and Audit Code requirements in the one document.

4.1.2 The new requirements are set out in the four Appendices D to G, with the existing Banking Code retained as the Banking Code: Main Body (Appendix C) but amended to remove superseded requirements and consequential amendments. It is intended that the financial reporting and audit Code requirements in the four new parts will be accessed through a link in the Code of Practice section of the JFSC’s website.

4.1.3 This is intended to make it easier to view the new financial reporting and audit Code requirements and also, where necessary, to amend them in the future, particularly as changes made may be needed to address matters or for consistency purposes across multiple financial services businesses’ licences.

4.2 Banks with multiple licences

4.2.1 Article 17 ‘Exemptions and variation’ of the New Order (Appendix B) and the Banking Code both allow a degree of flexibility in application.

4.2.2 Requests for variances will be looked on favourably where strict adherence would produce anomalous results or where there are legal or regulatory barriers.

4.2.3 The New Order addresses matters that are also the subject of Orders concerning accounts and auditing issued under other regulatory laws (Accounts Orders), which might impact Registered Persons that are registered to conduct other classes of financial services business.

4.2.4 The Accounts Orders are:

4.2.4.1 Three Accounts Orders issued under the Financial Services (Jersey) Law 1998 (FSJL Orders):

›   Financial Services (Fund Services Business (Accounts, Audits and Reports)) (Jersey) Order 2007 (FSB Order)

›   Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports and Solvency)) (Jersey) Order 2005 (GIMB Order)

›   Financial Services (Trust Company and Investment Business (Accounts, Audits and Reports)) (Jersey) Order 2007 (TCB/IB Order); and

4.2.4.2 The Collective Investment Funds (Recognized Funds) (Permit Conditions for Functionaries) (Jersey) Order 1988 (CIF Order)

4.2.5 The FSJL Orders contain provisions enabling variances to be granted.

4.2.6 The CIF Order creates conditions of registration which may be varied by the JFSC by establishing varied conditions on a case-by-case basis, which has a similar effect.

4.2.7 The legal requirements are broadly similar across the various Accounts Orders. Where differences are significant, it is proposed to establish standard procedures to vary the relevant requirements under the other Orders.

4.2.8 This would involve each Registered Person completing a single form to request the relevant variance in the circumstances contemplated for its use in order to secure approval for the relevant variances.

4.2.9 In each of the following Sections, the relevant areas are identified.

4.2.10 As noted in the JFSC’s consultation CP No. 10 2018 ‘Amendments to Codes of Practice’, available at https://www.jerseyfsc.org/media/2175/cp-code-amendments-no10-02-november-2018.pdf, it is intended to further align the Codes, which it is anticipated, over time, will reduce the need for variances in this respect but will also require alignment of the various Orders or even amalgamation of them, to the extent possible.

4.2.11 In the longer term, it is intended to address unnecessary differences in order to reduce the potential for confusion arising from overlapping similar requirements. This has not been done at this time in order to enable the immediate work to be progressed with respect to Registered Persons under the Banking Law without incurring further delay that would be entailed by carrying out this work.

4.2.12 Question 1: Are there any particular issues relating to multiple licences held by Registered Persons under the Banking Law that should be further addressed?

5 Appointment of auditors

5.1 Overview

5.1.1 The legal requirements are set out in Articles 2 to 4 and 6 of the New Order (Appendix B):

5.1.1.1 Article 2 ‘Appointment of auditor’

5.1.1.2 Article 3 ‘Objection to auditor or proposed auditor’

5.1.1.3 Article 4 ‘Offences relating to appointment and removal of an auditor’

5.1.1.4 Article 6 ‘Termination of appointment’

5.1.2 Article 17 ‘Exemptions and variation’ of the New Order allows the JFSC, on the request of a Registered Person, to waive or vary requirements, provided that no customer or client is likely to be prejudiced if the exemption is granted.

5.1.3 The AOA Code (Appendix D) will outline the legal requirements, as per the text below, specify all relevant Code requirements and provide associated guidance.

5.1.4 The current provisions in the Banking Law and the GPO concerning the appointment of auditors (including the appointment of a Branch Auditor) will be removed.

5.1.5 The requirements for JIBs are broadly similar to those applying under other Accounts Orders except that JFSC approval is not required, although the JFSC can object.

5.1.6 OIBs must appoint a Branch Auditor in respect of their business in Jersey, who will be responsible for reports on the prudential return (Section 7) and Declaration of Compliance (Section 8), in line with the process for JIBs. They are also required to notify the JFSC of changes to the auditor of their financial statements, though approval is not required.

5.1.7 These proposals draw on the existing Banking Law provisions (which will be removed once superseded by the New Order, see Appendix J) and those applying under other Accounts Orders. The New Order dis-applies certain requirements of other Accounts Orders governing the appointment of auditors of Registered Persons to reduce the opportunity for conflicting requirements.

5.2 New Order requirements

5.2.1 Every JIB must appoint an auditor in relation to its business (JIB Auditor) and notify the JFSC of the appointment; and

5.2.2 Every OIB must appoint (and notify the JFSC of the appointment of) both:

5.2.2.1 an auditor in respect of its entire business (OIB Auditor), i.e. of the company as a whole; and

5.2.2.2 a ‘Branch Auditor’ in respect of its Jersey business

5.2.3 In all three of the above cases with respect to 5.2.1, 5.2.2.1 and 5.2.2.2, it is required that the auditor (used herein to refer to any of the JIB Auditor, OIB Auditor or Branch Auditor) appointed has the skill, resources and experience to perform its functions.

5.2.4 The JFSC may:

5.2.4.1 object to the appointment, or proposed appointment, of a JIB Auditor or a Branch Auditor (but not OIB Auditor); and

5.2.4.2 require a proposed JIB Auditor or Branch Auditor to provide it with such information as the JFSC considers appropriate regarding its skill, resources and experience and that any information provided to the JFSC in this respect must also be provided to the relevant bank.

5.2.5 A Registered Person must notify the JFSC upon terminating an auditor’s appointment and the auditor is required to make a statement to the JFSC concerning the termination, including any matters that it considers should be brought to the attention of the JFSC.

5.2.6 Contravention of the above requirements under the New Order would be an offence and be subject to a fine.

5.2.7 The Banking Law (Article 22) makes it an offence to knowingly or recklessly provide information which is false or misleading in purported compliance with all requirements imposed under the New Order.

5.2.8 The New Order contains provisions that are intended to address the overlap with the TCB/IB Order and the FSB Order by exempting Registered Persons from the appointment of auditors provisions in those Orders, provided they have appointed an auditor under the New Order.

5.2.9 The superseded GPO requirement to appoint a Branch Auditor will be removed – see Appendix I, as will the Banking Law requirements regarding the appointment of auditors – see Appendix J.

5.3 AOA Code

5.3.1 The AOA Code would require each JIB to:

5.3.1.1 have a robust process for approving, or recommending for approval, the appointment, reappointment, removal and remuneration of the JIB Auditor;

5.3.1.2 monitor and assess the independence of its JIB Auditor;

5.3.1.3 monitor and assess the effectiveness of the JIB Auditor;

5.3.1.4 have effective communication with the JIB Auditor to enable the JIB to carry out its oversight responsibilities and to enhance the quality of the work carried out by the JIB Auditor;

5.3.1.5 require the JIB Auditor to report to it on all relevant matters to enable the JIB to carry out its oversight responsibilities; and

5.3.1.6 maintain records relating to the above as business records.

5.3.2 Guidance is provided on good practice, including involvement of the JIB’s audit committee, where this exists, principally through drawing a JIB’s attention to the paper published in March 2014 by the Basel Committee on Banking Supervision on ‘External audits of banks’(BCBS Audit Paper).

5.3.3 The AOA Code would require each OIB to:

5.3.3.1 have a robust process for approving, or recommending for approval, the appointment, reappointment, removal and remuneration of its Branch Auditor;

5.3.3.2 monitor and assess the independence of its Branch Auditor;

5.3.3.3 monitor and assess the effectiveness of its Branch Auditor;

5.3.3.4 have effective communication with its Branch Auditor to enable the OIB to carry out its oversight responsibilities and to enhance the quality of the work carried out by the Branch Auditor;

5.3.3.5 require its Branch Auditor to report to it on all relevant matters to enable the OIB to carry out its oversight responsibilities; and

5.3.3.6 maintain records relating to the above as business records.

5.3.4 Limited guidance (compared to that provided to JIBs) is provided to OIBs on good practice.

5.3.5 No Code requirements or guidance are proposed with respect to the appointment of an OIB Auditor – only the legal requirements apply.

5.3.6 Regulatory sanctions would apply in the case of any requirement not being met, which could include civil penalties in the case of a breach of a Code requirement. 

5.3.7 The AoA Code includes standard templates for seeking a waiver from the relevant GIMB Order and CIF Order requirements and outlines in guidance a general approach to addressing other situations where the Registered Person considers that a waiver or variance may be appropriate.

5.3.8 Question 2: Are the proposals clear regarding the appointment of auditors? Are there any other matters that you wish to raise in relation to the proposals?

6 Financial statements

6.1 Overview

6.1.1 The principal legal requirements are set out in Articles 10 to 14 of the New Order (Appendix B):

6.1.1.1 Article 10 ‘Directors’ report’

6.1.1.2 Article 11 ‘Registered person to provide certain documents to auditor’

6.1.1.3 Article 12 ‘Auditor’s reports’

6.1.1.4 Article 13 ‘Financial statements to be provided to Commission’

6.1.1.5 Article 14 ‘Declarations and reports to be provided to Commission at same time as financial statements’

6.1.2 Article 17 ‘Exemptions and variation’ of the New Order allows the JFSC, on the request of a Registered Person, to waive or vary requirements, provided that no customer or client is likely to be prejudiced if the exemption is granted.

6.1.3 The FS Code (Appendix E) will outline the legal requirements, as per the text below, specify all relevant code requirements and provide associated guidance.

6.1.4 In summary, Registered Persons will be required to submit audited financial statements to the JFSC within 3 months (JIBs) or 4 months (OIBs), as well as the accounts of parent companies within 4 months (in both cases), after the end of the relevant accounting period, broadly in line with current Banking Code requirements.

6.1.5 This is not significantly different to existing Banking Code requirements.

6.1.6 One consequential impact could be that late filing fees will apply, as set out in the Deposit-Taking Fees Notice. This would be a fee of £100 for each complete month or part thereof that a filing is late unless the person has given the JFSC prior written notice of the reasons for the delay and the JFSC has agreed in writing that the filing may be late.

6.2 New Order requirements

6.2.1 A Registered Person must prepare financial statements in respect of each accounting period.

6.2.2 A JIB’s financial statements must show a true and fair view of its state of affairs and profit or loss and must be prepared in accordance with either:

6.2.2.1 accounting standards issued by the (U.K.) Accounting Standards Board, except regarding related party disclosures; or

6.2.2.2 accounting standards issued by the International Accounting Standards Board (IFRS). 

6.2.3 Accounting standards require require a firm to disclose transactions with related parties but may exempt those with other members of its groups from this requirement. The New Order does not permit use of such exemptions, having the effect of requiring the disclosure of related party transactions to include those entered into with members of its group. 

6.2.4 A JIB’s financial statements must be signed by at least one director.

6.2.5 An OIB’s financial statements must be signed by as many persons as are required, under the laws of the country or territory in which the overseas incorporated bank is incorporated or established, to sign financial statements, but in any case not less than one such person. 

6.2.6 Every Registered Person must produce a directors’ report and the New Order describes what the report must contain.

6.2.7 The New Order sets out the documents that a Registered Person must provide to its auditor. With respect to financial statements, the documents are as follows:

6.2.7.1 a JIB must provide its JIB Auditor a copy of its financial statements and its directors’ report; and

6.2.7.2 an OIB must provide its OIB Auditor a copy of its financial statements and its directors’ report

6.2.8 The New Order would require:

6.2.8.1 the JIB Auditor to prepare reports on the JIB’s financial statements and directors’ reports 

6.2.8.2 the OIB Auditor to prepare reports on the OIB’s financial statements and directors’ reports,

after conducting an audit in accordance with either:

6.2.8.3 the Auditing Standards issued by the Financial Reporting Council;

6.2.8.4 the International Standards on Auditing issued by the International Federation of Accountants; or

6.2.8.5 such other generally recognized auditing standard that is agreed between the Registered Person and the JFSC. 

6.2.9 The New Order would require each report to be signed and a copy provided to the JIB or OIB, as the case may be. 

6.2.10 The financial statements must be provided to the JFSC:

6.2.13.1 in the case of a JIB, within 3 months of the end of the accounting period; and               

6.2.13.2 in the case of an OIB, within 4 months of the end of the accounting period. 

6.2.11 The financial statements provided to the JFSC must be accompanied by:

6.2.11.1 the directors’ report; and

6.2.11.2 the auditor’s reports in respect of the financial statements and the directors’ report.

6.2.12 A JIB must, at the same time the financial statements are provided to the JFSC, provide any other report that:

6.2.12.1 has been prepared during, or in relation to, the financial year by the JIB Auditor, any other person who conducts an audit for the JIB, an accountant or a consultant, 

6.2.12.2 addresses a relevant matter, and

6.2.12.3 is available to the JIB.

6.2.13 A Registered Person, must also (unless they are the ultimate parent in their Group) provide:

6.2.13.1 the audited unconsolidated financial statements of each of its parents; and 

6.2.13.2 the audited consolidated financial statements of its ultimate parent,

within 4 months of the end of the year to which the financial statements relate. 

6.2.14 Contravention of the above requirements under the New Order would be an offence and be subject to a fine, excepting those relating to the requirement for the production of (1) directors’ reports and (2) auditor's reports.

6.2.15 The Banking Law (Article 22) makes it an offence to knowingly or recklessly provide information which is false or misleading in purported compliance with all requirements imposed under the New Order.

6.3 FS Code

6.3.1 The proposed FS Code would require each JIB to:

6.3.1.1 have robust, documented processes for the production of its financial statements and its directors’ report

6.3.1.2 as part of those processes, establish responsibility for sign off and for oversight of the processes;

6.3.1.3 ensure that documentation is produced to enable its JIB Auditor to carry out its audit;

6.3.1.4 establish responsibility for addressing any issues arising from auditors reports or any other relevant reports received; and

6.3.1.5 maintain records relating to the above as business records.

6.3.2 Guidance is provided on good practice, principally through drawing JIB’s attention to the BCBS Audit Paper.

6.3.3 No Code requirements or guidance are proposed with respect to the auditing of OIB’s financial statements – only the legal requirements apply.

6.3.4 Regulatory sanctions would apply in the case of any requirement not being met, which could include civil penalties in the case of a breach of a Code requirement. 

6.3.5 Question 3: Are the proposals clear regarding the production and submission to the JFSC of financial statements? Are there any other matters that you wish to raise in relation to the proposals?

7 Prudential Return

7.1 Overview

7.1.1 The principal legal requirements are set out in Articles 11, 12, 14 and 16 of the New Order (Appendix B):

7.1.1.1 Article 11 ‘Registered person to provide certain documents to auditor’ 

7.1.1.2 Article 12 ‘Auditor’s reports’

7.1.1.3 Article 14 ‘Declarations and reports to be provided to Commission at same time as financial statements’

7.1.1.4 Article 16 ‘Prudential return’

7.1.2 Article 17 ‘Exemptions and variation’ of the New Order allows the JFSC, on the request of a Registered Person, to waive or vary requirements, provided that no customer or client is likely to be prejudiced if the exemption is granted.

7.1.3 The PR Code (Appendix F) will outline the legal requirements, as per the below text, specify all relevant Code requirements and provide associated guidance.

7.1.4 In summary, Registered Persons will be required to provide quarterly prudential returns and a year-end prudential return.  An auditor’s report on the year-end prudential return must be provided along with financial statements to the JFSC within 3 months (JIBs) or 4 months (OIBs) of the year-end.

7.1.5 This is not significantly different to existing Banking Code requirements, except that the current deadline for the provision of the auditor certified prudential return is 3 months from the year-end for both JIBs and OIBs. The relaxation for OIBs is intended to enable work to be combined with work on the Declaration of Compliance (Section 8) and with work on financial statements (Section 6).

7.1.6 One consequential impact could be that late filing fees will apply, as set out in the Deposit-Taking Fees Notice – see https://www.jerseyfsc.org/industry/fees/ . This would be a fee of £100 for each complete month or part thereof that a filing is late unless the person has given prior written notice of the reasons for the delay and the JFSC has agreed in writing that the filing may be late.

7.1.7 No material changes are proposed regarding the requirements in the existing Banking Code (sections 6.4 and 6.5 and the Schedule) or completion guidance in respect to the prudential return, save that they will be moved to the PR Code to the extent that they have not been superseded by the New Order.

7.2 New Order requirements

7.2.1 A Registered Person must complete –

7.2.1.1 Quarterly prudential returns in the form required by the Code (the PR Code) with respect to each of the following dates in each year:

›   30th March, 

›   30th June, 

›   30th September, and 

›   31st December; and

7.2.1.2 A year-end prudential return in the form required by the Code (specifically, the PR Code).

7.2.2 The prudential returns must be provided to the JFSC in the manner required by the PR Code within 20 working days of the date with respect to which the return was prepared.

7.2.3               A JIB must provide its JIB Auditor with a copy of year-end prudential return. 

7.2.4               An OIB must provide its Branch Auditor with a copy of its year-end prudential return.

7.2.5               The New Order would require:

7.2.5.1 the JIB Auditor to prepare reports on the JIB’s prudential return; and

7.2.5.2 the Branch Auditor to prepare reports on the OIB’s prudential return.

7.2.6 The report in respect of the prudential return must be prepared having regard to whether the return reflects the accounting records and transactions to which the records relate taking into account:

7.2.6.1 the accounting practices of the Registered Person; and

7.2.6.2 any advice given by the JFSC.

7.2.7 The report must include a statement that, in preparing the report –

7.2.7.1 the auditor became aware of nothing that could be taken to indicate that any  statement in the declaration or prudential return was incorrect or misleading; or

7.2.7.2 the auditor became aware of a matter that could be taken to indicate that a statement in the declaration or prudential return was incorrect or misleading and why the auditor is of that opinion.

7.2.8 Each report must be signed and a copy provided to the Registered Person.  

7.2.9 The report on the prudential return must be provided to the JFSC, together with financial statements, directors’ report and the auditor’s reports in respect of the financial statements and the directors’ report (see Section 6)

7.2.10 Contravention of the above requirements under the New Order would be an offence and be subject to a fine, excepting those relating to the requirement for the production of the auditor’s report.

7.2.11 The Banking Law (Article 22) makes it an offence to knowingly or recklessly provide information which is false or misleading in purported compliance with all requirements imposed under the New Order.

7.3 PR Code

7.3.1 In connection with the quarterly prudential return, the proposed PR Codewould require each Registered Person to:

7.3.1.1 have robust, documented processes for the production of its prudential return; and

7.3.1.2 as part of those processes, establish responsibility for sign off and for oversight of the processes.

7.3.2 The PR Code also contains requirements that maintain existing requirements regarding the prudential return process, consistant with the Sections 6.4 amd 6.5 and the Schedule to the BankingCode: MainBody (which will be removed).

7.3.3 In connection with the audited year-end prudential return, the proposed PR Code would require each Registered Person to:

7.3.3.1 Ensure that in respect of the year-end prudential return, full documentation is produced to enable its JIB Auditor / OIB Auditor (as applicable) to carry out the work necessary to produce its audit report; which should include:

›   working papers showing how the return was extracted from the Registered Person’s books and records

›   copies of relevant procedures for the production and sign-off of the prudential return;

›   changes made since the last year-end;

›   changes made to the JFSC’s prudential guidance since the last year-end;

›   any issues identified during the year concerning the prudential return process or in the prior year-end audit report, together with a description of how these have been addressed; and

›   in the case of a JIB only, a copy of its financial statements.

7.3.3.2 Instruct its JIB Auditor or Branch Auditor, as applicable, to address:

›   review of the adequacy and maintenance of the control framework relating to the production process of the prudential returns in order to prevent material mis-statement and ensure adherence to relevant JFSC guidance. 

›   consideration of the adequacy of knowledge and experience of staff involved in the production process, the submission process and the approval process.  Comment on what training on the revised forms and guidance was given.

›   description of, and comment on any identified shortcomings of, IT applications involved in the production process, for example manual workarounds and areas identified for future development, with expected timeframes.

›   overview, and sign off of the Report on the prudential return, to include completeness, accuracy and accessibility of key documentation which supports the process.

›   backups and contingencies – both systems and key person reliance in relation to the prudential reporting.

›   details of any audit, compliance monitoring and action plans that may have been produced following the changes detailed in the background section above.

7.3.3.3 In the case of a JIB, in addition to the above:

›   the scope should include daily liquidity calculations; and

›   the report must include a reconciliation of reporting within the prudential return to relevant material in the financial statements, including the balance sheet and profit and loss.

7.3.3.4 Establish responsibility for addressing any issues arising from relevant prior reports.

7.3.3.5 Maintain records relating to the above as business records.

7.3.4 Guidance is provided on good practice, which for JIBs includes guidance on the involvement of any audit committee.

7.3.5 Regulatory sanctions would apply in the case of any requirement not being met, which could include civil penalties in the case of a breach of a Code requirement. 

7.3.6 Question 4: Are the proposals clear regarding the production and submission to the JFSC of prudential returns? Are there any other matters that you wish to raise in relation to the proposals?

8 Declaration of compliance

8.1 Overview

8.1.1               The principal legal requirements are set out in Articles 9, 11, 12 and 14 of the New Order (Appendix B):

8.1.1.1 Article 9 ‘Declarations’

8.1.1.2 Article 11 ‘Registered person to provide certain documents to auditor’ 

8.1.1.3 Article 12 ‘Auditor’s reports’

8.1.1.4 Article 14 ‘Declarations and reports to be provided to Commission at same time as financial statements’

8.1.2 Article 17 ‘Exemptions and variation’ of the New Order allows the JFSC, on the request of a Registered Person, to waive or vary requirements, provided that no customer or client is likely to be prejudiced if the exemption is granted.

8.1.3 The DoC Code (Appendix G) will outline the legal requirements, as per the below text, specify all relevant Code requirements and provide associated guidance.

8.1.4 The Banking Code: Main Body will be amended to remove the existing requirements relating to the Declaration of Compliance (Section 6.6 in the current Banking Code).

8.2 New Order requirements

8.2.1 A JIB must prepare a Declaration of Compliance in relation to each accounting period signed by a director.

8.2.2 An OIB must prepare a Declaration of Compliance in relation to each accounting period signed by the principal manager of its Jersey Branch.

8.2.3 The Declaration of Compliance must state whether the JIB / Jersey Branch of the OIB (as applicable) has:

8.2.3.1 complied with the applicable requirements of the Banking Law and with the requirements of Orders and any codes of practice made or issued under the Banking Law (not being a requirement the JFSC has waived);

8.2.3.2 maintained proper accounting records and adequate systems to enable it to comply with the above; and

8.2.3.3 complied with the requirements of all relevant legislation and guidance to counter money laundering and the financing of terrorism.

8.2.4 If a Registered Person has failed to comply with a relevant requirement, the Declaration of Compliance must:

8.2.4.1 contain details of all material failures; and

8.2.4.2 specify any measures taken or to be taken to ensure that the failures are not repeated.

8.2.5 A JIB must provide its JIB Auditor with a copy of its Declaration of Compliance.

8.2.6 An OIB must provide its Branch Auditor with a copy of its Declaration of Compliance.

8.2.7 The New Order would require:

8.2.7.1 the JIB Auditor to prepare a report on the JIB’s Declaration of Compliance; and

8.2.7.2 the Branch Auditor to prepare a report on the OIB’s Declaration of Compliance.

8.2.8 The report on the Declaration of Compliance must take account of work carried out for the purpose of the report on the year-end prudential return and, in the case of a JIB, the audit of its financial statements and directors’ report.

8.2.9 A report must include a statement that, in preparing the report:

8.2.9.1 the auditor became aware of nothing that could be taken to indicate that any statement in the declaration or prudential return was incorrect or misleading; or

8.2.9.2 the auditor became aware of a matter that could be taken to indicate that a statement in the declaration or prudential return was incorrect or misleading and why the auditor is of that opinion.

8.2.10 Each report must be signed and a copy provided to the Registered Person.

8.2.11 The report on the prudential return must be provided to the JFSC, together with (1) the Registered Person’s financial statements (2) directors’ report and (3) the auditor’s reports in respect of the financial statements and the directors’ report (see Section 6)

8.2.12 Contravention of the above requirements would not be an offence directly under the New Order but the Banking Law (Article 22) makes it an offence to knowingly or recklessly provide information which is false or misleading in purported compliance with a requirement imposed under the New Order.

8.3 DoC Code

8.3.1 In connection with the Declaration of Compliance, the DoC Code would require each Registered Person to:

8.3.1.1 have robust, documented processes for the production of its Declaration of Compliance;

8.3.1.2 as part of those processes, establish responsibility for sign off and for oversight of the processes;

8.3.1.3 ensure that full documentation is produced to enable its JIB Auditor / Branch Auditor (as applicable) to carry out the work necessary to produce its report on the Declaration of Compliance; which should include:

›   working papers showing how the declaration was produced, including supporting compliance reports and/ or internal audit reports that have been relied upon;

›   copies of relevant procedures for the production and sign-off of the Declaration of Compliance;

›   changes in procedures since the last year-end;

›   changes made to the JFSC’s requirements and any other relevant regulations and law;  and

›   any issues identified during the year concerning compliance, whether identified by compliance, the JFSC and/ or internal audit together with a description of how these have been addressed.

8.3.1.4 instruct its auditor (JIB Auditor or Branch Auditor, as applicable) to address:

›   review of the adequacy and maintenance of the control framework relating to the production process of the Declaration of Compliance in order to prevent material mis-statement and ensure adherence to relevant JFSC requirements, taking into account relevant guidance; 

›   consideration of the adequacy of knowledge and experience of staff involved in the process;

›   overview, and sign off of the Report on the Declaration of Compliance to include completeness, accuracy and accessibility of key documentation which supports the process;

›   details of any compliance monitoring, internal audit and action plans that may have been produced following the changes detailed in the background section above.

8.3.1.5 establish responsibility for addressing any issues arising from auditors reports; and

8.3.1.6 maintain records relating to the above as business records.

8.3.2 Guidance is provided on good practice, which for JIBs includes guidance on the involvement of any audit committee.

8.3.3 More generally, guidance is provided on disclosure of issues that are not material, issues already identified to the JFSC (which must be included, where relevant) and an appropriate layout.

8.3.4 Regulatory sanctions would apply in the case of any requirement not being met, which could include civil penalties in the case of a breach of a Code requirement. 

8.3.5 Question 5: Are the proposals clear regarding the production and submission to the JFSC of the Declaration of Compliance? Are there any other matters that you wish to raise in relation to the proposals?

9 Publication of Financial Statements

9.1 Overview

9.1.1 The principal legal requirements are set out in Article 18 of the New Order (Appendix B) ‘Inspection and publication of accounts and financial statements’.

9.1.2 Compared to current requirements, the central proposed change is to require Registered Persons to publish financial statements on websites they use as part of their Banking business, being those of the Registered Person and its group.

9.1.3 This is intended to increase depositors’ access to such information, reflecting the increased use of electronic banking and decrease in branch activity.

9.1.4 It is proposed to retain existing requirements regarding making financial statements available in each office in Jersey.

9.1.5 The relevant current provisions in the GPO (those that relate to the publication and provision to the JFSC of financial statements) will be removed - see Appendix I - including those relating to publication of ‘summarized accounts’. The Banking Code: Main Body will be amended (new paragraph 7.16) to clarify that, where summarised financial information is distributed to depositors in any form, it must contain a disclosure that sets out how depositors may access the audited financial statements of the Registered Person.

9.2 New Order requirements

9.2.1 Registered Persons must, at each of its offices in Jersey at which it holds itself out as accepting deposits –

9.2.1.1 keep a copy of its most recent audited financial statements provided to the JFSC; and

9.2.1.2 during normal business hours make that copy available for inspection by any person on request.

9.2.2 In the case of a JIB, this include the auditors’ report.

9.2.3 Where a Registered Person solicits deposits through a website or any other means of electronic communication with the general public, which is either under its control or which is intended or likely to be used by depositors, or potential depositors, it must make available on those websites:

9.2.3.1 a copy of its most recent financial statements, as provided to the JFSC; and

9.2.3.2 a copy of the most recent audited consolidated financial statements of its ultimate parent.

9.2.4 A Registered Person must also make available these documents referred on a website or by any other means of electronic communication with the general public, that is intended or likely to be used by depositors, or potential depositors, to access information about the Registered Person’s financial status.

9.2.5 Contravention of the above requirements under the New Order would be an offence and be subject to a fine.

9.3 Code amendments

9.3.1 Section 7 of the Banking Code: Main Body will be amended to permit the provision to customers of information extracted from financial accounts in all other circumstances provided that the extract is not misleading, false or deceptive and that an appropriate disclosure is made. This would apply, for example, to the distribution by post of ‘summarized accounts’ but also to any use of extracted information within advertisements.

9.3.2 The proposed text is:

“7.1.6 Any advertisement or promotional literature that states it includes financial information extracted from the Registered Person’s financial statements (including, but not limited to, summarised financial statements) must also contain the following disclosure:

› The financial information given here is a summary extracted from [bank name]’s audited financial statement for the year ended [year]. This might not contain sufficient detail to allow for a full understanding of [bank name]’s financial affairs. The full annual financial statements, including the auditor’s report on those financial statements, can be obtained from [list of offices and relevant websites].

Note: Any document that is distributed to customers that sets out a summary of the registered person’s financial position is considered to be a form of financial promotion. As such, it must conform to the requirements set out in Section 7 and in the Banking Law, including not being false, misleading or deceptive, and must contain the disclosure set out in 7.16.”

9.3.3 Question 6: Are the proposals clear regarding the publication of financial statements? Are there any other matters that you wish to raise in relation to the proposals?

10 Other requirements

10.1  Overview

10.1.1 Several other elements of other Accounts Orders have been transposed with minor revision into the New Order.

10.2  Auditors Powers

10.2.1 Article 5 of the New Order (Appendix B) ‘Powers of auditors’ requires Registered Persons to provide access to the accounting and other records and all other documents relating to its business and to provide such information and explanation as an auditor thinks necessary for the performance of the auditor’s duties.

10.3  Accounting period

10.3.1 Article 7 of the New Order (Appendix B) ‘Accounting period’ sets out how accounting periods for a Registered Person must be set. This is relevant for a new registration or on a change of accounting period and in the case of a JIB requires JFSC approval.

10.4  Accounting Records

10.4.1 Article 8 of the New Order (Appendix B) ‘Accounting records’ describes the accounting records that must be kept by a Registered Person and describes how they are to be stored.

10.5  Consolidated financial statements, declarations and reports

10.5.1 Article 15 of the New Order (Appendix B)  ‘Consolidated financial statements, declarations and reports’ enables Registered Persons that are the parent of a group of companies and produce consolidated financial statements for that group under the relevant accounting standards to request permission from the JFSC to submit those rather than financial statements of the company only.

10.5.2 The JFSC may attach conditions to the granting of such a request and there are provisions for these to be varied or the consent revoked.

10.5.3 If such a request is granted, the Declaration of Compliance, directors’ reports and auditor’s reports must be prepared on a consolidated basis as well.

10.5.4 Conditions or refusal would be contemplated where the consolidated accounts or consolidated reports would not provide adequate information in respect of the Registered Person. A request might usefully suggest relevant conditions where the Registered Person considers that such concerns might exist.

10.6  Circumstances in which matters are to be reported directly to the JFSC

10.6.1 Article 19 of the New Order (Appendix B) ‘ Circumstances in which matters are to be reported directly to the Commission’ establishes a responsibility for ‘Reporting Persons’ (auditors or persons appointed under Article 26(7) of the Banking Law to make a report) to directly report matters to the JFSC, broadly in-line with current GPO provisions (Article 13) but expanded with the intention of providing additional clarity, particularly regarding the reporting of non-exceptional matters.

10.6.2 The Reporting Person must immediately report to the JFSC (without informing the Registered Person) if it becomes aware of the probable existence of ‘Exceptional Circumstances’ being those where the interests of depositors could be prejudiced if the management of the Registered Person was informed that the Reporting Person was aware of the existence of the circumstances.

10.6.3 Without limiting the generality of Exceptional Circumstances, these are defined to include where the Reporting Person has reason to believe:

10.6.3.1 that the directors or members of the senior management of a Registered Person have committed fraud or misappropriated property or intend to do so;

10.6.3.2 that the directors or members of the senior management are acting in an irresponsible or reckless manner with respect to the Registered Person’s affairs, or intend to do so; or

10.6.3.3 that there has been, or is likely to be, an occurrence of material significance for the exercise in relation to the Registered Person of the JFSC’s powers or functions under the Law.

10.6.4 A Reporting Person must also report non-exceptional circumstances directly to the JFSC if, having advised the Registered Person to inform the JFSC of those circumstances within a specified period, the Reporting Person:

10.6.4.1 is not satisfied that the circumstances have been reported or have not been reported fully or in an adequate manner, within the specified period; and

10.6.4.2 has reasonable cause to believe that:

›   a breach of a requirement of a code of practice or of a legal requirement, or a breach of internal controls or procedures has occurred; and, as a result,

›   a customer or client of the Registered Person has incurred, or is at significant risk of incurring, a material loss.

10.7  Transitional provisions and commencement

10.7.1 Article 20 the New Order (Appendix B) ‘Transitional provisions’ addresses two matters:

10.7.1.1 An auditor employed or engaged by a Registered Person immediately before the New Order comes into force is deemed to have been appointed in accordance with the New Order; and

10.7.1.2 If a Registered Person has been granted an exemption or variation from a Banking Code or GPO requirement that corresponds to a requirement of the New Order requirement, then that will continue provided it notifies the JFSC of that exemption or variation within 3 months of this provision coming into force.

10.7.2 Article 21 of the New Order (Appendix B) ‘Citation and commencement’ provides that most provisions come into force after one month. The principal exceptions are:

10.7.2.1 The requirement to notify the JFSC in respect of exemption and variations comes into force after one week; and

10.7.2.2 The requirement to publish financial statements on websites comes into force after 3 months.

10.8  Questions

11 Summary of Questions

Appendices

1. List of representative bodies and other persons who have been sent this consultation paper

›   Jersey Bankers’ Association

›   Jersey Finance

Appendices B to J

Nine documents have been published alongside this document.

2. Draft New Order
3. Draft Banking Code
4. Draft Banking Code: Appointment of auditors
5. Draft Banking Code: Financial statements
6. Draft Banking Code: Prudential reporting
7. Draft Banking Code: Declaration of Compliance
8. Amendment 7 to the Banking Law
9. Draft Changes to the Banking Business (General Provisions) (Jersey) Order 2002
10. Draft Changes to the Banking Law (Amendment 9)