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Consultation on proposals to revise the JFSC's statement of principles and processes for civil financial penalties
Consultation on proposals to revise the JFSC's statement of principles and processes for civil financial penaltiesConsultation on proposals to revise the JFSC’s statement of Principles and Processes for civil financial penalties
(Incorporated within its published Decision-Making Process document)
Issued: January 2019
No. 1 2019
Glossary of Terms
Defined terms are indicated throughout this document as follows:
|
Amendment Law |
Financial Services Commission (Amendment No. 7) (Jersey) Law 2018 |
|
Codes of Practice |
One or more of the JFSC Codes of Practice for:
and
|
|
Commission Law |
Financial Services Commission (Jersey) Law 1998 |
|
DMP |
The JFSC’s Decision-Making Process document |
|
JFL |
Jersey Finance Limited |
|
JFSC |
Jersey Financial Services Commission |
|
principal person |
Has the meaning (as inserted by the Amendment Law) in Article 1 of the Commission Law, namely: with respect to a contravention of a Code of Practice issued by the JFSC under – (a) Article 19A of the Banking Business (Jersey) Law 1991, means a director, controller or manager (within the meaning given by Article 1 of that Law); (b) Article 42 of the Insurance Business (Jersey) Law 1996, means a chief executive or shareholder controller (within the meaning given by Article 1(1) of the Law) or any individual acting as a director of a permit holder (within the meaning given by Article 1(1) of that Law); (c) Article 19 of the Financial Services (Jersey) Law 1998, has the same meaning as in Article 1(1) of that Law; (d) Article 22 of the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008, has the same meaning as in Article 1(1) of that Law; (e) Regulation 22 of the Alternative Investment Funds (Jersey) Regulations 2012, has the same meaning as in Regulation 2 of those Regulations, and includes a person who was a principal person within the meaning given by sub-paragraph (a), (b), (c), (d) or (e). |
|
registered person |
Has the meaning in Article 1 of the Commission Law, namely:
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1 Executive Summary
1.1 Overview
1.1.1 Since March 2015, the Commission Law has provided the JFSC with the power to impose a civil financial penalty on a registered person where the JFSC is satisfied that the registered person has, to a significant and material extent, contravened a Code of Practice.
1.1.2 On 26 October 2018, the Amendment Law came into force. That law amended the Commission Law to provide the JFSC with the power to also impose a civil financial penalty on a principal person where the JFSC is satisfied that a registered person has, to a significant and material extent, contravened a Code of Practice and that the contravention by the registered person was:
1.1.2.1 Committed with the consent or connivance of, or is attributable to neglect on the part of a principal person, or
1.1.2.2 Aided, abetted, counselled or procured by a principal person.
1.1.3 Under the civil financial penalties regime provided for by the Commission Law, the JFSC is required to publish a statement setting out:
1.1.3.1 The principles it will apply in determining the imposition and amount of a financial penalty; and
1.1.3.2 The processes it will follow when exercising the power to impose a financial penalty
1.1.4 The JFSC’s statement of principles and processes for civil financial penalties is incorporated within its published DMP.
1.2 What is proposed and why?
1.2.1 Currently, the JFSC’s statement of principles and processes in the DMP covers the imposition of civil financial penalties on registered persons. As a consequence of the widening of the civil financial penalties regime to principal persons, the statement needs to be consequentially amended
1.2.2 As well as those consequential amendments, a number of other minor amendments to the statement of principles and processes, unrelated to the widening of the civil financial penalties regime, are proposed: the details are set out in section 4.3 of this paper
1.2.3 This consultation paper seeks feedback on the proposed amendments as shown in the marked-up version of the DMP in Appendix B.
1.3 Who would be affected?
1.3.1 The proposals in this consultation paper have the potential to affect registered persons and principal persons.
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”; and
2.1.1.2 Article 21B(6) of the Commission Law, as amended, which requires the JFSC to consult on proposed revisions to its statement of principles and processes under the civil financial penalties regime.
2.2 Responding to the consultation
2.2.1 The JFSC invites comments in writing from interested parties on the proposals set out 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 Comments should be received by the JFSC or JFL no later than Friday 12 April 2019.
2.3 Next steps
2.3.1 Following this consultation, the JFSC will publish feedback to this Consultation Paper and publish a revised DMP.
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 Chief Minister 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 Proposals
4.1 Introduction
4.1.1 With the coming into force of the Amendment Law, Article 21A(1) of the Commission Law now provides that if the JFSC is satisfied that a registered person has, to a significant and material extent, contravened a Code of Practice and that the contravention by the registered person was:
4.1.1.1 Committed with the consent or connivance of, or is attributable to neglect on the part of a principal person, or
4.1.1.2 Aided, abetted, counselled or procured by a principal person,
The JFSC may impose on that principal person a financial penalty.
4.1.2 The maximum penalty that may be imposed on a principal person is set out in the Financial Services Commission (Financial Penalties) (Jersey) Order 2015, as amended by the Amendment Law. There are four penalty bands, which are summarised below:
|
Penalty |
Nature of the contravention by |
Maximum penalty that may be imposed on a principal person |
|
1 |
A failure to notify the JFSC of certain matters specified in a Code of Practice. |
£10,000 |
|
2 |
A contravention of a Code of Practice not falling into Band 2A or Band 3 below and not rectified to the satisfaction of the JFSC within the timeframe determined by the JFSC. |
£200,000 |
|
2A |
A contravention of a Code of Practice committed negligently. |
£300,000 |
|
3 |
A contravention of a Code of Practice committed either intentionally or recklessly. |
£400,000 |
4.1.3 As explained earlier, under the civil financial penalties regime provided for by the Commission Law, the JFSC is required to publish a statement setting out:
4.1.3.1 The principles it will apply in determining the imposition and amount of a financial penalty; and
4.1.3.2 The processes it will follow when exercising the power to impose a financial penalty.
4.1.4 The JFSC’s statement of principles and processes is incorporated within its published DMP. Currently, the JFSC’s statement of principles and processes in the DMP covers the imposition of financial penalties on registered persons. As a consequence of the widening of the civil financial penalties regime to principal persons, the statement needs to be consequentially amended.
4.2 The Statement of Principles
4.2.1 The Appendix to the DMP presently contains a statement of the principles that the JFSC will apply in determining the imposition and amount of a financial penalty on a registered person
4.2.2 A statement of the principles that the JFSC intends to apply in determining the imposition and amount of a financial penalty on a principal person has been inserted into the Appendix in the proposed revised DMP shown in Appendix 2.
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4.2.3 Question 1 Do you have any observations on, or concerns about, the proposed statement of principles that the JFSC will apply in determining the imposition and amount of a financial penalty on a principal person? If you do, please state in detail what your observation or concern is and the reason for it. |
4.3 The Statement of Processes
4.3.1 In essence, the body of the DMP (i.e. Sections 1, 2 and 3 thereof) incorporates the statement that the JFSC is statutorily required to publish setting out the processes that it will follow when exercising its statutory power to impose a civil financial penalty. Currently that statement only covers the imposition of a civil financial penalty on a registered person
4.3.2 The processes that the JFSC will follow when it is proposing to exercise its statutory power to impose a civil financial penalty on a principal person will not be any different to those that apply when the JFSC is proposing to impose a civil financial penalty on a registered person
4.3.3 The proposed revisions to the statement of processes in the DMP are shown as red-lined text in Appendix B. The majority of the revisions fall into two categories:
4.3.3.1 Firstly - consequential amendments that are needed to accommodate the widening of the scope of the civil financial penalty regime to principal persons; and
4.3.3.2 Secondly - as a result of experience gained in using the DMP over the past few years - amendments to enhance or make clearer the JFSC’s statement of processes for a person subject to the DMP. (The majority of the proposed revisions in this category are self-explanatory but where an explicit explanation has been thought necessary, a comment box has been inserted next to the amended text in the revised DMP shown in Appendix B.)
4.3.4 In addition, an amendment is proposed (new footnote 13 to the DMP) to provide for the delegation of decisions on the imposition of Band 1 civil financial penalties (where the maximum penalty is £10,000) to a committee of the Board of Commissioners. The present process for a Band 1 financial penalty – involving hearings by the full Board of Commissioners – is considered disproportionately bureaucratic for what is, in essence, an administrative pecuniary penalty for late or missing notifications required under a Code of Practice
4.3.5 Finally, one minor change is proposed to Part 4 of the DMP, which covers settlements i.e. cases where a regulatory contravention is admitted and agreement reached with the person concerned on the regulatory action to be taken by the JFSC.
4.3.6 Part 4 of the DMP provides that in cases where a person subject to the DMP acknowledges a significant and material contravention of a Code of Practice and is thus potentially liable to the imposition of a financial penalty under Article 21A of the Commission Law, the amount of the financial penalty to be imposed by the JFSC will incorporate a discount reflecting: (a) how early in the decision-making process the settlement agreement is signed; and (b) whether the contravention of the Code of Practice is remediated to the satisfaction of the JFSC before the settlement agreement is signed. The DMP states that the discount will be applied against the amount of the financial penalty that the JFSC would otherwise have expected to impose had the decision-making process been taken through to its conclusion (i.e. as a contested case).
4.3.7 A new footnote (number 15) to the DMP is proposed that will make it clear that the JFSC considers it inappropriate for the settlement discount to apply to any amount included in the financial penalty in application of:
4.3.7.1 The principle in Article 21B(3)(f) of the Commission Law (“the principle of ensuring that registered persons cannot expect to profit from contravention of the Codes”); or
4.3.7.2 The principle in Article 21B(3A)(c) of the Commission Law (“the principle of ensuring that principal persons cannot expect to profit from contravention of the Codes”).
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4.3.8 Question 2 Do you have any observations on, or concerns about, the proposed amendments to the statement of processes incorporated in the DMP? If you do, please state in detail what your observation or concern is and the reason for it. |
5 Summary of Questions
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Page |
Question |
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9 |
Question 1: Do you have any observations on, or concerns about, the proposed statement of principles that the JFSC will apply in determining the imposition and amount of a financial penalty on a principal person? If you do, please state in detail what your observation or concern is and the reason for it. |
|
10 |
Question 2: Do you have any observations on, or concerns about, the proposed amendments to the statement of processes incorporated in the DMP? If you do, please state in detail what your observation or concern is and the reason for it. |
Appendix A: List of representative bodies and other persons who have been sent this consultation paper:
› Association of English Solicitors Practising in Jersey
› Channel Islands Financial Ombudsman
› Chartered Institute for Securities & Investments
› Institute of Chartered Secretaries and Administrators, Jersey branch
› Institute of Directors, Jersey branch
› Insurance Institute of Jersey
› Jersey Association of Trust Companies
› Jersey Bankers’ Association
› Jersey Chamber of Commerce and Industry Incorporated
› Jersey’s Chief Minister
› Jersey Compliance Officers Association
› Jersey Consumer Council
› Jersey Finance Limited
› Jersey Funds Association
› Jersey International Insurance Association
› Jersey Society of Chartered and Certified Accountants
› Law Society of Jersey
› Personal Finance Society
› Society of Trust and Estate Practitioners (STEP), Jersey branch
› Chartered Financial Advisors (UK)
› Jersey Association of Directors and Officers
Click here to view the draft revised DMP https://www.jerseyfsc.org/media/2413/20190121-consultation-paper-dmp-update-for-pp-civil-penalties-appendix-b.pdf