Consultation on proposals to increase banking fees 2021

Banking Business (Jersey) Law 1991: Deposit-taking fees

We invite comments on this consultation via Jersey Finance Limited (JFL) or directly to our Finance team. If you require any assistance, clarification or wish to discuss any aspect of the proposals prior to formulating a response, it is of course appropriate to contact us.

Comments should reach JFL by 26 November 2021 and should be sent to:

Lisa Springate

Jersey Finance Limited

4th Floor

Sir Walter Raleigh House

48-50 Esplanade

St Helier

Jersey

JE2 3QB

Direct Line: +44 (0) 1534 836029

Office Line: +44 (0) 1534 836000

Email: [email protected]

Alternatively, responses may be sent directly to our Finance team at the Jersey Financial Services Commission (JFSC) by 26 November 2021.

JFSC Finance team

Jersey Financial Services Commission

PO Box 267

14-18 Castle Street

St Helier

Jersey

JE4 8TP

Telephone:  +44 (0) 1534 822000

Email: [email protected]

Our policy is to provide the content of responses for inspection unless specifically requested otherwise.

JFL’s policy (unless otherwise requested or agreed) to collate all responses and share them verbatim with us 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

BBJL	Banking Business (Jersey) Law 1991, as amended
Commission/JFSC	Jersey Financial Services Commission
Commission Law	Financial Services Commission (Jersey) Law 1998, as amended
JBA	Jersey Bankers Association
JFL	Jersey Finance Limited

1 Consultation

1.1 Basis for consultation

1.1.1   We are issuing this consultation paper in accordance with Article 8(3) of the Commission Law, 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”.

1.1.2   In addition, Article 15(3) of the Commission Law, requires that before the JFSC introduce and publish any fee

“[The JFSC] must first publish a report that must include:

(a)   details of the duty or power for or in respect of which the fee is to be determined;

(b)   details of the proposed fee;

(ba)details of the extent (if any) to which any penalties received have reduced the level of fee that would otherwise have been proposed;

(c) a request for comments on the level of the proposed fee; and

(d)   a date, that is at least 28 days after the publication of the report, before which those comments may be made to the Commission”.

1.1.3   Article 15(4) of the Commission Law provides that should the JFSC and a representative body be unable to agree a fee that we must request the Bailiff to appoint three Jurats to consider if the fee proposed is unreasonable.

1.1.4   We consider the Jersey Bankers Association (JBA) to be the representative body for the banking industry; that each of the proposals within this consultation is reasonable; and that this consultation constitutes such a report as required by the Commission Law.

1.2 Who is affected by the proposed changes

1.2.1   The amendments to fees will affect any person applying for, or having already been granted, a registration to undertake deposit-taking business under Article 9 of the BBJL.

1.3 Responding to the consultation

1.3.1   We invite comments from interested parties on the content of this consultation, which should be received by either JFL or the JFSC no later than 26 November 2021.

1.4 Next steps

1.4.1   Following this consultation, we will publish feedback. The final fees notice will take effect on or before 30 November. Fees will be administered via businesses’ myJFSC accounts. Businesses will receive an email prompt to notify them that an invoice is awaiting payment.

2 The JFSC

2.1 Overview

2.1.1   We are a statutory body corporate established under the Commission Law. We are responsible for the supervision and development of financial services provided in or from within Jersey.

2.1.2   Article 15(2) of the Commission Law provides that fees set by us are to be retained and must, together with any other income:

2.1.2.1 Raise sufficient income to meet the our liabilities;

2.1.2.2 Cover our expenses; and

2.1.2.3 Provide a reserve for such amount we consider as necessary.

2.2 The JFSC’s functions

2.2.1   Article 5 of the Commission Law prescribes that we are responsible for:

2.2.1.1 The supervision and development of financial services provided in or from within Jersey

2.2.1.2 Providing the Government of Jersey, any Minister for External Relations and Financial Services or any other public body with reports, advice, assistance and information in relation to any matter connected with financial services

2.2.1.3 Preparing and submitting to the Minister for External Relations and Financial Services recommendations for the introduction, amendment or replacement of legislation appertaining to financial services, companies and other forms of business structure

2.2.1.4 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 Government of Jersey may, by Regulations, transfer; and

2.2.1.5 Such other functions as are conferred on the JFSC by any other Law or enactment.

2.3 Guiding principles

2.3.1   Article 7 of the Commission Law provides that in exercising our functions we may take into account any appropriate matter, but that we will have particular regard to:

2.3.1.1 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

2.3.1.2 The protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters

2.3.1.3 The best economic interests of Jersey; and

2.3.1.4 The need to counter financial crime in both Jersey and elsewhere.

2.4 Jersey Resolution Authority

2.4.1   As outlined in Consultation No. 6 2019, the Bank (Recovery and Resolution) (Jersey) Law 2017 (BRRJL) was enacted in 2017, but has not been brought into force yet. The BRRJL provides a revised legal framework for dealing with bank failures. The aim is, in the event of a bank failure, to minimise the impact of such a failure. In order to achieve these aims, several resolution powers and stabilisation tools were created in the BRRJL. The task of determining how these should be used is assigned to the Jersey Resolution Authority (JRA) which will be formally established early in 2022.

2.4.2   With the establishment of the JRA, funding will need to be assessed and collected. No fees for the JRA have been included in this consultation.

2.4.3   We are supporting the JRA during its set-up stages and have been working with Mike Mitchell, the Chair Designate of the JRA, to help him produce a budget for its first year of operation.

2.4.4   Mike will be writing to all affected firms shortly with the details of the funding requirement for 2022.

3 Proposals

3.1 Proposed fees

3.1.1   In order for us to obtain sufficient funding to carry out our supervisory objectives and to ensure our ongoing financial resilience, we need to raise £2.21m in fees from the banking sector in 2021. This is broadly level with the 2020 funding target of £2.16m.

3.1.2   The budgeted income from the banking sector of £2.21m does not represent an increase in the overall fees levied, but rather a stable amount in fee income compared to that raised in 2020. However, there has been a reduction in the number of licence holders following consolidation in the market.  The level of banking activity has not decreased in line with this consolidation and hence regulatory effort remains the same. As our regulatory effort remains stable, the impact of fewer licence holders on our fee base means that we need to increase fee rates for individual licence holders.

3.1.3   As outlined in the feedback we published on Consultation No.7 2020, part of the 2020 planned increase was deferred due to the expected cessations not taking place on the anticipated timeframe. Due to the minimal impact on the effort and costs of supervision of these changes (as per section 3.2), this drove the 2021 forecast increase to be a minimum of 13%.

3.1.4   The fee that we propose to levy in 2021 is therefore composed of the following elements:

Fee Rate increase driven by changes in the number & structure of licenced entities	13%
RPI as prescribed by law	3.5%
One off reduction for 2021 relating to a civil financial penalty	(4.5%)
Net increase for 2021 Fee rates	12%

3.1.5   Our funding targets are designed to ensure that we can deliver on our strategic priorities. A critical component of our current work is our contribution to the Island’s success in the forthcoming MONEYVAL assessment, as well as ensuring we can demonstrate even more effective supervision, embed risk-focused choices throughout our work and strengthen our organisational resilience. As highlighted at 3.3, where banking entities also pay fees for other regulatory licences, this will be considered in those consultations.

3.1.6   One civil financial penalty has been levied on entities in the banking sector, which will reduce invoiced fees for individual banks. The amount of the reduction will be approximately 4.5%.

3.2 Supervisory effort and cost reduction

3.2.1   The volume of activity within the banking sector has remained broadly consistent, despite there being fewer banking licences (branches and subsidiaries) year-on-year. However, the supervisory effort required for the number of banking groups does not reduce in proportion if there are fewer licences. For example, a banking group may reduce the number of licences it holds without reducing its size or complexity in Jersey. Recent restructures of banking groups have demonstrated this. In line with our assessment of risk, banks generally receive enhanced supervision, compared to other types of licensed financial services firms, and are therefore subject to more intense engagement, including examinations. This has been particularly the case as we focused our efforts on financial crime supervision over the last two years.

3.2.2   Our enhanced supervision activities over the last two years for banks have required additional supervisory effort and continue to bear higher costs.

3.2.3   It is important to note that agile deployment of pooled teams assists us in managing costs, but coupled with the significant fluctuation in efforts by Policy and Enforcement teams between sectors on a year-on-year basis prevents accurate assessment of sector-by-sector costs.

3.2.4   However, we continue to review the fee structures for each sector to establish whether we can adopt a better and clearer model for how we levy fees and apportion them across individual organisations.

3.2.5   This is a complex process with no quick solution and we value the engagement we have had with Industry bodies as we continue to assess all potential alternative mechanisms.

3.2.6   Any change to our structures would seek to reduce the risk of sudden fluctuations, enhance our financial resilience and lead to mutually effective, transparent and fair fee apportionment.

3.3 Banks that pay other regulatory fees

3.3.1   This consultation is one of several regular consultations with fee payers who hold all types of regulatory licence. During these consultation, we continue to hold strategic discussions with representative bodies to explain our holistic funding requirements.

3.3.2   These discussions will include consideration of cross-sectoral fees paid by individual firms and we recognise that several banks also pay fees for other types of licence.

3.3.3   As for all fees, the amounts raised from the banking sector must be sufficient to meet our liabilities; cover our expenses; and provide a sufficient reserve. For banking fees, and the activities that these fees contribute to, the £2.21m budgeted income from the banking sector for 2021 and 2022 is that sufficient amount.

3.4 Increase fee rates within current mechanism

3.4.1   We are currently discussing alternative ways for us to cacluate our fees and seeking views from all financial services sectors. While these disucssion continue, we will maintain our current fee structure.

3.4.2   As detailed in section 3.1.4 it is proposed to increase the gross Fee rates by 13% above RPI (currently 3.5%).

The illustrative revised fee rates are (£, rounded to the nearest £50):

Fee/year and impact	2019	2020	2019-2020	2021	2020-2021	2019-2021
Application fee	19,250	21,200	10.1%	24,700	16.5%	25%
Branch/subsidiary fee	19,250	21,200	10.1%	24,700	16.5%	25%
£0-5m income	54,950	60,450	10.0%	70,400	16.5%	25%
£5-10m income	63,450	69,800	10.0%	81,300	16.5%	25%
£10-20m income	73,950	81,350	10.0%	92,400	16.5%	25%
£20+m income	91,800	101,000	10.0%	117,700	16.5%	25%

3.5 Question

3.5.1   Do you agree with the proposed fee increase of 16.5% ?

Appendix A - list of representative bodies who have been sent this consultation paper

• Jersey Bankers Association