1.) The Offshore Regulatory Environment

Question 1

Define a crown dependency’s relationship with the U.K

Answer 1

The crown dependencies recognise the queen as their head of state, but their governments and judicial systems are independent.

Whilst the dependencies aren’t subject to UK laws, they’ve usually introduced similar legislation to that on the mainland, regarding civil and criminal laws

The British government is responsible for managing the international interests of the dependencies in relation to their dealings with large international organisations, e.g. The UN or EU

The British government is also responsible for the defence of the crown dependencies

Other than militarily and internationally, the crown dependencies can be considered independent, self-governing countries

Question 2

Define the three possible avenues open to a foreign services provider under the U.K. Financial Services Act 1986 to provide investment services into the UK (Under Sections 86, 87 and 88 of the Act, respectively)

Answer 2

UCITS - Undertakings for Collective Investments in Transferrable Securities

Designated Territory status

Apply for authorisation

Question 3

Define the acronym UCITS

Answer 3

Undertaking for Collective Investments in Transferrable Securities

Question 4

Describe the JFSC’s key purpose and aims

Answer 4

REDUCING RISK/SAFEGUARDING/PROTECTING/COUNTERING

The JFSC’s key purpose is to maintain Jersey’s position as an international finance centre with high regulatory standards by:

X Reducing risk to the public of financial loss due to dishonesty, impotence, malpractice or the financial unsoundness of financial services providers

X Protecting and enhancing the Island’s reputation and integrity in commercial and financial matters

X Safeguarding the Island’s best economic interests

X Countering financial crime both in Jersey and elsewhere

Aims:

Ensure that all entities 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 security, trust company business, insurance regulation, anti-money laundering (AML) and terrorist financing defences (CFT)

Identify and deter abuse and breaches of regulator standards

Ensure that the JFSC operates effectively and efficiently, and is accountable to the States of Jersey

Question 5

What are regulated businesses, in relation to the JFSC?

Answer 5

Businesses that the JFSC has prudential oversight of, such as:

Banks (e.g. Via work in the areas of AML, CFT and sanctions)

Insurance companies

General insurance mediation businesses

Investment businesses (managers, dealers and advisers)

Trust company business (trust and company service providers)

Money service businesses (bureau de change and money transmitters)

Fund products

Question 6

Define the ‘4 regulatory laws’ that form the legal basis for the JFSC’s oversight of regulated businesses

Answer 6

REMEMBER BIFC

Banking (Jersey) Law 1991

Insurance Business (Jersey) Law 1996

Financial Services (Jersey) Law 1998 (FS(J)L)

Collective Investment Funds (Jersey) Law 1988

Question 7

What do the ‘4 regulatory laws’ that form the legal basis for the JFSC’s oversight of regulated businesses in Jersey allow the JFSC to do?

Answer 7

The four regulatory laws give the JFSC the power to:

(When combined with the Commission Law) Conduct off- and on-site supervision of regulated businesses

Various tools and powers to ensure it can carry out effective supervision.

Require the provision of information and documents

Conduct investigations

Enter and search premises (with a warrant)

Revoke a regulated business’ license

Refuse to license an applicant

Set conditions on a license

Issue directions requiring a regulated business to take (or not take) specific action

Appoint a manager to manage a regulated business

Issue public statements that warn the public and/or censure the regulated business

The four regulatory laws also provide for criminal offences to be committed where (inter alia) a person conducts a financial services business without the relevant license from the JFSC, or provides false/misleading info to the JFSC

The JFSC has used powers under the four regulatory laws to issue codes of practice that set standards regulated businesses must meet. E.g. the codes set conduct of business rules and financial resource requirements

Question 8

What is the purpose of the Jersey’s AML/CFT handbook, as issued and maintained by the JFSC?

Answer 8

Setting regulatory requirements on regulated businesses to support those set out in legislation (the Money Laundering (Jersey) Order 2008)

Question 9

What is the JFCU, the joint financial crimes unit

Answer 9

Jersey’s joint police/customs Financial Intelligence Unit

Question 10

The JFSC has entered into MoU’s on regulatory matters with numerous fellow regulatory authorities. What do these memoranda cover?

Answer 10

Regulatory assistance to be given in the context of:

New applications for licensing by financial institutions

Investigations into regulatory offences, e.g. insider dealing

General inquiries that are relevant to the fitness and properness of registered institutions

Question 11

List the various international organisations that the JFSC is either a member of or associated with

Answer 11

IOSCO - the international organisation of securities commissions (member)

OGIS - the offshore group of insurance supervisors, (member)

IAIS - the international association of insurance supervisors, (member)

GIFCS - the group of international finance centre supervisors. Via its membership of the GIFCS, the JFSC works with:

x BIS - the Basel committee on banking supervision

x FATF - the financial action task force (on money laundering)

OECD - the organisation for economic cooperation and development, via the UK’s membership and official declaration of the Island’s association, dated 19 July 1990

The United Nations global programme against money laundering (participant)

Question 12

How did the JFSC become an associate of the OECD?

Answer 12

Via the UK’s membership and official declaration of the Island’s association, dated 19 July 1990

Question 13

What’s the OECD’s purpose in relation to financial regulation?

Answer 13

The OECD examines the issues associated with tax havens and harmful tax practices

Question 14

What are the main objectives of the OECD?

Answer 14

Set global tax standards

Require all whitelisted financial centres to sign their commitment to cooperation with internal and external agencies to deter money laundering, tax evasion and fraud

Question 15

How does the OECD define a tax haven?

Answer 15

A financial centre that accepts and actively encourages international investors and provides a variety of services that will provide income and/or capital gains, which disadvantages other financial centres

International investors can take advantage of the tax regime that in most cases will result in income being received gross of tax (no tax taken off at source)

Question 16

How does the OECD define harmful tax practices?

Answer 16

In the differentiation between the tax applicable to local people and resident companies, and that levied on foreign investors but unavailable to locals

Question 17

How was Jersey removed from the OECD’s tax haven blacklist?

Answer 17

In 1998, the OECD listed 35 countries as tax havens, reporting that they had harmful tax competition

In order to not be blacklisted, or to be removed from the blacklist, the offshore finance centre (OFC ) had to agree to implement global tax standards

The Channel Islands signed international cooperation agreements in July 2001. This and other measures meant that Jersey was removed from the blacklist in early 2002

Any country that is considered uncooperative will be blacklisted and may be subject to defensive measures

Question 18

Describe the FATF and its purpose

Answer 18

Set up in 1989 by the G7 countries

An organisation specialising in the fight against money laundering (AML)

The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

33 member states, including:

France

Germany

Italy

Australia

Ireland

Iceland

UK

Switzerland

Question 19

Summarise the FATF’s recommendations

Answer 19

Countries:

X Countries should implement AML programmes, including the introduction of legislation to criminalise money laundering and enable confiscation of property associated with this financial crime

X Mutual assistance and cooperation amongst governments for exchange of info on suspicious transactions, and also when investigations are taking place, and also action for a government to seize or freeze assets upon request from foreign countries

Financial Institutions:

X All financial institutions should properly identify their clients by reference to official documents, such as passports, and should not authorise the operation of anonymous accounts, known as the accounts of strangers. Where possible, the financial institution should make personal face-to-face contact with all customers

X Financial institutions should also put in place appropriate systems so as to be able to detect suspicious transactions, such as unusually large transactions which are unusual for the customer, and not in line with expected business transactions

X Financial institutions should also have procedures for reporting suspicions to the authorities

X Employees and financial institutions should be immune from prosecution for disclosure of confidential facts, even if the parties didn’t have knowledge of the underlying financial crime, or even if none had been committed

Question 20

Name several of the experts involved in the fight against money laundering

Answer 20

FATF member representatives

The world bank

The IMF

Interpol

Question 21

Name several regional groups and countries or governments with specialist financial crime units

Answer 21

The EU

The Caribbean financial action task force

The Asia Pacific group

The organisation of American states

GIFCS

Question 22

List some of the countries included in the GIFCS

Answer 22

Note that the GIFCS is affiliated to FATF

Bermuda

Hong Kong

Jersey

Guernsey

Isle of Man

Malta

Gibraltar

Cyprus

Barbados

Bahrain

Question 23

Define the leading offshore finance centres according to FATF, and why they were chosen

Answer 23

The leading offshore centres of Jersey, Guernsey and the Isle of Man have been assessed as category 1, the best category, on par with Hong Kong, Singapore and Switzerland

FATF concluded in June 2000 that the above leading offshore finance centres (OFCs) were considered to be cooperative and have comprehensive AML systems in place to combat financial crime

Question 24

Describe the scope (what is covered by) The Financial Services (Jersey) Law 1998 (FS(J)L)

Answer 24

The Jersey regulatory framework comprises the following:

Primary legislation

Secondary legislation

Notices

Policy statements

Codes of practice

Guidance notes

Question 25

Describe primary legislation, one of the areas which make up the framework of the The Financial Services (Jersey) Law 1998 (FS(J)L), and how such legislation can be brought into force

Answer 25

Sets legal obligations, and is adopted by the states of Jersey, sanctioned by the privy council (in the UK), registered in the royal court, then brought into force in one of two ways:

On a date specified in the law

OR

On a date or dates determined by an appointed date act passed by the states of Jersey

Question 26

Describe secondary legislation, one of the areas which make up the framework of the The Financial Services (Jersey) Law 1998 (FS(J)L), and how such legislation can be brought into force

Answer 26

Sets detailed legal obligations in specific areas, but can only be utilised when primary legislation provides for its use:

In the form of a regulation which is made by the states of Jersey

OR

In the form of an order which is made by the relevant minister

Question 27

Describe notices, one of the areas which make up the framework of the The Financial Services (Jersey) Law 1998 (FS(J)L), and how they are issued

Answer 27

Provide details on specific matters, as required by legislation, and are issued by the commission or other government agencies, e.g. notices issued in respect of fees

Question 28

Describe policy statements, one of the areas which make up the framework of the The Financial Services (Jersey) Law 1998 (FS(J)L)

Answer 28

These are a STATEMENT of POLICY, setting the commission’s policy regarding some areas of legislation

Question 29

Describe codes of practice, one of the areas which make up the framework of the The Financial Services (Jersey) Law 1998 (FS(J)L)

Answer 29

Establish sound principles for the conduct of financial services business and in some cases repeat a number of legislative requirements

Question 30

Describe guidance notes, one of the areas which make up the framework of the The Financial Services (Jersey) Law 1998 (FS(J)L)

Answer 30

These set out a methodology for complying with either a legislative or regulatory requirement

Question 31

Define orders

Answer 31

REMEMBER AS CAAFE

Orders provide more detail or prescription to the high level provisions within the regulatory law itself. The type of matters covered by orders are:

Client asset rules

Accounts (requirement to submit audited financial statements)

Advertising rules

Fees

Exemptions to regulation

Question 32

Describe what the Codes (I.e. the JFSC codes of practice) require regulated firms to do (note that principles=codes in Jersey)

Answer 32

Act with integrity

Act in the customer’s best interests

Maintain adequate risk management systems

Demonstrate transparency in their business arrangements

Demonstrate the existence of adequate financial resources

Deal with the JFSC and other statutory authorities in Jersey in an open and cooperative manner (including specific notification requirements such as if the regulated entity was subject to any disciplinary actions)

Not make false or misleading statements (i.e. in relation to marketing materials and advertising)

Question 33

Describe how regulated firms must act in the customer’s best interests, one of the requirements of the Codes in relation to regulated firms

Answer 33

Regulated entities must:

Act with due skill, care and diligence

Only exercise its powers or discretions for a proper purpose

Avoid conflicts of interest

Transact business in an expeditious manner

Ensure that any delegations of power or duties are entered into for a proper purpose

Ensure that regular reviews at appropriate intervals are conducts in relation to client business

Question 34

Describe how regulated firms must maintain adequate risk management systems, one of the requirements of the Codes in relation to regulated firms

Answer 34

Corporate governance

Internal systems and controls

Competence

Continuing professional development

Key persons

Complaints

Record keeping

Question 35

Describe the consequences of breaching the Codes (I.e. The JFSC codes of practice)

Answer 35

A breach of the codes may lead to the JFSC taking regulatory action, e.g. enhanced supervision, the issue of a condition of registration or the revocation of a registration

In appropriate circumstances, the Commission may issue a public statement concerning the registered person

Continued non-compliance or other failures to remedy the circumstances giving rise to the beach may be addressed by the issue of a written direction under Article 23 of the Law

Such a direction may impose requirements on the registered person to do (or not do) things, remove principal persons, or to cease operations.

In appropriate circumstances, that direction can be made public due to Article 25(a) of the Law

Question 36

Describe the consequences of failing to follow the Codes

Answer 36

Failure to follow the codes doesn’t render a person liable to legal proceedings or invalidate any transaction, but the Codes shall be admissible in evidence if it appears to the court conducting the proceedings to be relevant to any question arising (in the proceedings) and shall be taken into account in determining any such question

Question 37

What the law that regulates banking business (I.e. Deposit-taking) in Jersey?

Answer 37

The banking business Jersey law 1991

Question 38

Describe the Jersey bank depositors compensation scheme (DCS)

Answer 38

Approved by the States of Jersey on 6 November 2009

Similar to schemes in UK, Guernsey and the Isle of Man

Operated by the Jersey bank depositors compensation board, an incorporated body independent of Ministers and the States of Jersey

Provides protection of up to £50,000 per person, per banking group, for local and international depositors, in line with international standards

The depositor compensation scheme is operated by the Jersey bank depositors compensation board, an incorporated body independent of Ministers and the States of Jersey

Its main features are:

Should a Jersey bank fail, an interim payment of up to £5,000 will be made within 7 working days and the balance of compensation within three months

The £50,000 limit will apply per person, so a £100,000 deposit held in a joint account by a couple will be completely covered

The maximum liability of the DCS is capped at £100 million in any 5 year period

Question 39

What is the JFSC’s position on new banks?

Answer 39

Applicants should be:

Financial institutions of international stature and reputation - registrations under the banking law are therefore limited to entities which are, of which are owned by, members of the global top 500 banks by reference to capital base, or financial conglomerates of equivalent size

Subject to satisfactory consolidated supervision by the supervisory body of its country of origin, in accordance with Basel committee principles. The home country supervisor will be asked to confirm its agreement to the applicant bank setting up in Jersey

Question 40

Define the additional requirements in place for regulated banks in Jersey, in addition to those set out in the JFSC’s codes of practice

Answer 40

Risk management controls

Credit risk

Country and transfer risk

Market risk

Operational risk

Liquidity risk

Question 41

Describe risk management controls, one of the additional requirements in place for regulated banks in Jersey, in addition to those set out in the JFSC’s codes of practice

Answer 41

Adequate risk management involves having processes, structures, resources, information systems and reporting arrangements in place to ensure that the adequate identification, evaluation, control, recording and reporting of all significant risks that a registered person incurs

Question 42

Describe market risk, one of the additional requirements in place for regulated banks in Jersey, in addition to those set out in the JFSC’s codes of practice

Answer 42

The risk that the value of an investment will decrease due to moves in the market

The four standard market risk factors are:

(REMEMBER as ICCE)

Interest rate risk

Currency risk

Commodity risk

Equity risk

Question 43

What are the four standard market risk factors?

Answer 43

Equity risk

Interest rate risk

Currency risk

Commodity risk

Question 44

Describe liquidity risk, one of the additional requirements in place for regulated banks in Jersey, in addition to those set out in the JFSC’s codes of practice

Answer 44

The risk that a given risk or security asset cannot be traded quickly enough in the market to prevent a loss, or make the required profit

Question 45

What is the law that regulates investment business in Jersey?

Answer 45

The financial services (Jersey) Law 1998

Became law on 1 July 1999

Question 46

According to the financial services (Jersey) Law 1998, a person carries on investment business if the person does what activities?

Answer 46

Deals in investments, that is, the person buys, sells, subscribes for or underwrites investments on behalf of a principal

Undertakes discretionary investment management, that is, the person decides as agent to buy, sell, subscribe for or underwrites investments on behalf of a principal

Gives investors advice, that is, the person gives to persons in their capacity as investors or potential investors advice on the merits of:

X The purchase, sale, subscription for or underwriting of a particular investment

OR

X The exercise of a right conferred by an investment to acquire, dispose of, underwrite or convert the investment

Question 47

Define the additional requirements in place for regulated investment businesses in Jersey

Answer 47

Knowledge of client

Suitability

Switching and churning

Front running

Customer order priority

Aggregation

Fair and timely allocation

Timely execution

Best execution

Question 48

Describe suitability, one of the additional requirements in place for regulated INVESTMENT businesses in Jersey

Answer 48

FACTS/TERMS/OTHER FACTS

Where a registered person is responsible for providing advice or exercising discretion for clients, it must demonstrate in writing that the services provided are suitable for the client, in relation to:

X FACTS disclosed by the client

X TERMS of any agreement with that client

X Any OTHER relevant FACTS about the client of which the registered person is, or reasonably should be, aware

Note that where a registered person is responsible for providing advice, it must make available to its client, in a comprehensible and timely manner, appropriate information so as to allow the client to make an informed investment decision

A registered person must ensure that adequate procedures are implemented, to ensure that the investment services that it provides are regularly reviewed at appropriate intervals

Question 49

Describe switching and churning, one of the additional requirements in place for regulated INVESTMENT businesses in Jersey

Answer 49

A registered person mustn’t advise a client to, nor in the exercise of its discretion, effect a switch of long-term insurance products or a switch within or between collective investment schemes unless it’s in the client’s interest to do so. Written evidence should retained in this regard

A registered person mustn’t advise a client, nor in the exercise of discretion, enter into transactions with unnecessary frequency having regard to the client’s agreed investment objectives

Question 50

Describe front running, one of the additional requirements in place for regulated INVESTMENT businesses in Jersey

Answer 50

Where a person or its associate, as defined in Article 1 of the law, intends to publish to clients a recommendation, or a piece of research or analysis, in relation to a particular investment, it must not deal:

In the investment, or any related investment, on its own account

In the investment, or any related investment, on behalf of an associate

Ahead of the clients for whom the recommendation, research or analysis was intended if those clients ought to have priority

Question 51

Describe how a registered person shall not be deemed to have breached the JFSC’s additional requirements/codes on front running, one of the additional requirements in place for regulated INVESTMENT businesses in Jersey

Answer 51

A registered person shall not be deemed to have breached the JFSC’s additional requirements/codes on front running if they can demonstrate that:

The publication couldn’t reasonably be considered price sensitive

The registered person is a market maker in the investment concerned, and the deal was executed or arranged in good faith

The registered person was dealing in order to fulfil an unsolicited client’s order

The registered person has reasonable grounds for believing that it needs to deal if the investment concerned in order to fulfil client orders which are likely to result from the publication and that to do so won’t cause the price of the investment to move against client’s interests by a material amount

Question 52

Define SETS

Answer 52

Stock exchange trading system

Question 53

What’s the law that regulates insurance business in Jersey?

Answer 53

The insurance business (Jersey) law 1996

Became law 1 February 2001

Question 54

What’s the criteria for gaining a category A permit to undertake INSURANCE business in Jersey?

Answer 54

If the permit holder is authorised by or under the law of a recognised jurisdiction outside the island, it will hold a category A permit

Category A permits are granted to applicants to carry on business of the same description as that which they’re authorised to carry out in their home country jurisdiction (subject to confirmation from the home country supervising authority)

Question 55

What’s the criteria for gaining a category B permit to undertake INSURANCE business in Jersey?

Answer 55

If a permit holder IS NOT authorised by or under the law of a recognised jurisdiction outside the island, it will hold a category B permit (insurance companies incorporated in Jersey usually hold category B permits)

Applicants for category B permits will be allowed to carry on long-term or general business, subject to meeting the JFSC’s requirements

Question 56

What items does the JFSC take into account when considering applications for category B permits?

Answer 56

REMEMBER AS CRIPES

CAPITAL - the paid up share capital of the applicant and the level of free capital and reserves, as compared with premium income

REINSURANCE arrangements made or to be made by the applicant

INSURANCE - The nature of risks to be insured

PERSONNEL - Whether fit and proper persons are employed by or associated with the applicant in the management, control and audit of its operations

EXPERTISE and knowledge in insurance matters available to the applicant

STANDING, reputation and nature of business of the owners and their combined level of free capital and reserves

Question 57

What are the main benefits of a company establishing an insurance company in an offshore location? (Think back to offshore finance industry module)

Answer 57

Reduced insurance costs

Increased cash flow

Access to reinsurance markets

Insurance of hard to place risks

Improved control

Centralised insurance management

Possible tax benefits

Question 58

What’s a benefit of investing in a fund, as opposed to another kind of investment option?

Answer 58

A fund is a way of investing money with other people to participate in a wider range of investments than those feasible for most investors

Question 59

By what criteria is a person who carries on fund services business defined?

Answer 59

A person carries on fund services business if by way of business the person is:

X A manager, manager of a managed entity, administrator, registrar, investment manager or investment adviser

X A distributor, subscription agent, redemption agent, premium receiving agent, policy proceeds paying agent, purchase or repurchase agent

X A trustee, custodian or depositary

X A member (except a limited partner) of a partnership, including a partnership constituted up under the law of a country outside Jersey

Question 60

How does the CIF(J)L define a collective investment scheme?

Answer 60

Any collective investment vehicle whose units are offered to more than 50 potential investors, or which is listed on the stock market

Question 61

In accordance with which laws does the JFSC regulate unclassified fund products and their functionaries?

Answer 61

Regulation of the unclassified fund product is undertaken in accordance with the provisions of the collective investment funds (Jersey) law 1988 (CIF(J)L)

However, the regulation of their Jersey-based functionaries (fund service providers) is undertaken in accordance with the provisions of the financial services (Jersey) law 1998 (FS(J)L)

Question 62

Describe how recognised funds are regulated by the JFSC

Answer 62

Recognised funds are regulated through the granting, or refusal to grant, a certificate to the fund and permits to the functionaries of the fund

Article 5 of the CIF Jersey law requires that a person must hold a permit granted by the JFSC if it wishes to be, or holds itself out as being a functionary of a recognised fund, unless it performs that function wholly outside Jersey

If the person performing the role of functionary is a company incorporated in Jersey, it must apply for a permit to perform the functionary role, no matter where in the world it performs its activities

Question 63

Describe the list of functions (and their respective groups), as set out in part 2 of the schedule to the CIF Jersey law, in respect of a collective investment fund (recognised and unclassified funds), which if undertaken defines a person as a functionary

Answer 63

Group 1 - any company issuing units (so, where the collective investment fund is a company, the fund itself will also require a permit)

Group 2 - manager/administrator/registrar/investment manager/investment advisor

Group 3 - distributor, or a type of agent (subscription, redemption, premium receiving, policy proceeds paying, purchase, repurchase)

Group 4 - trustee/custodian/depository

Group 5 - membership of a partnership (except s limited partner)

Question 64

Article 8 of the CIF Jersey law states that specific persons shall not carry on any business of an unclassified fund, unless a certificate has been granted under article 8B of the CIF Jersey law.

Which persons does this refer to?

Answer 64

A Jersey company issuing units or a company, issuing units that has an established place of business in Jersey that is an unclassified fund

A trustee of a unit trust that is an unclassified fund, and that is a trust whose proper law is the law of Jersey, or managed from within Jersey

A general manager of a Jersey limited partnership that is an unclassified fund managed from within Jersey

Question 65

As a result of article 8B of the CIF Jersey law, what is the JFSC required to take into consideration when deciding whether to grant a certificate to persons wishing to carry on the business of an unclassified fund in Jersey?

Answer 65

The JFSC is required to have regard for the protection of the public, as well as the economic interests and reputation of the island

The JFSC is also required to consider:

The function to be performed

Whether the applicant and its principal persons are fit and proper

The nature of the collective investment fund to which the function relates

Any other fund service providers of the fund

Question 66

Define an expert fund

Answer 66

A certified fund established in Jersey and in which only expert investors may invest

Question 67

Define an expert investor

Answer 67

Someone with a net worth greater than USD 1 million, OR who makes a minimum subscription of USD100,000 to the fund

As defined in section 1.5 of the EFG (Jersey Expert Fund Guide)

Question 68

What is the purpose of the EFG/Jersey Expert Fund Guide?

Answer 68

To define an expert fund and to set out the characteristics that such a fund would usually be expected to have

An expert fund meeting the criteria set out in the EFG may be established using a streamlined authorisation process, as described in section 4 of the EFG

Question 69

Define a listed fund

Answer 69

A certified fund that’s incorporated as a company in Jersey.

It must have a listing on a recognised stock exchange or market (as listed in appendix 1 of the LFG), and be a closed-ended fund

Question 70

What’s the requirements of creating a listed fund in Jersey?

Answer 70

It must have a listing on a recognised stock exchange or market (as listed in appendix 1 of the LFG), and be a closed-ended fund

Question 71

What is the purpose of the LFG?

Answer 71

The Jersey listed funds guide

To define a listed fund, and to set out the characteristics that such a fund would be expected to have

An expert fund meeting the criteria set out in the EFG may be established using a streamlined authorisation process, as described in section 3 of the LFG

Question 72

Define the acronym COBO

Answer 72

Control of Borrowing (Jersey) Order 1958

Enacted under the Control of Borrowing (Jersey) law 1947, aka the CBJL

Question 73

Define and describe COBO only funds

Answer 73

Certain funds, known locally as COBO only funds, which don’t come within the definition of a collective investment fund under the CIF Jersey law (usually as they’re offered to less than 50 people) will require a consent under COBO (Control of Borrowing (Jersey) Order 1958)

This will usually be the limit of a COBO only fund’s regulatory requirements in Jersey

Question 74

Which activities does COBO require the JFSC to give their consent to before they can be carried out?

Answer 74

A non Jersey company raising money in Jersey by issuing shares

The issue of shares by a non Jersey company, if those shares are to be registered in the island (including the keeping of a duplicate register)

The issue of units by a trust that’s governed by the law of a jurisdiction other than Jersey, if those units are to be registered in the island (including the keeping of a duplicate register)

A Jersey company issuing shares anywhere

A Jersey unit trust issuing units anywhere

The circulation in Jersey of an offer for subscription, sale or exchange of any securities of a non Jersey company

Any unit trust raising money in Jersey by issuing shares

The circulation in Jersey of an offer to the public for subscription, sale or exchange of any units issued by any trust that’s governed by the law of a jurisdiction other than Jersey

A limited partnership raising money in Jersey by creating partnership interests

A Jersey limited partnership creating partnership interests anywhere

The circulation in Jersey of an offer to the public for subscription, sale or exchange of any partnership interests of a non-Jersey limited partnership

Question 75

What types of funds are exempt from the requirements of COBO?

Answer 75

Certified funds, as well as any recognised funds that are exempt from the requirements of COBO

Question 76

What is the collective investment funds (unregulated funds) (Jersey) order 2008 also known as, and on what date was it brought into forde?

Answer 76

The unregulated funds order

19 February 2008

Question 77

What is the purpose of the collective investment funds (unregulated funds) (Jersey) order 2008, aka the unregulated funds order?

Answer 77

It establishes the requirements for two types of unregulated collective investment funds, aka unregulated funds:

X An unregulated eligible investor fund

X An unregulated exchange traded fund

Note that any unregulated fund must be a Jersey entity. This means that if the fund is company, it must be incorporated in Jersey, and if it’s a limited partnership or unit trust, the general partner/trustee must also be a Jersey company

Question 78

What is the law that regulates trust company business in Jersey, and when did it come into force?

Answer 78

The financial services (Jersey) law 1998

1 February 2001

Question 79

Which activities are included in the definition of trust company business, as per the financial services (Jersey) law 1998?

Answer 79

A person carries in trust company business if the person carries on a business that involves the provision of company administration services or trustee or fiduciary services, and in the course of providing these services provides any of the following specified services:

Acting as a company or partnership formation agent

Acting as or fulfilling the function of arranging for another person to act as or fulfil the function of director or alternate director of a company

Acting as or fulfilling the function of arranging for another person to act as or fulfil the function of a partner of a partnership

Acting as or arranging for another person to act a secretary, alternate, assistant or deputy secretary of a company

Providing a registered office or business address for a company or partnership

Providing an accommodation, correspondence or administrative address for a company, partnership or for any other person

Acting as or fulfilling or arranging for another person to act as or fulfil the function of a trustee of an express trust

Acting as or fulfilling or arranging for another to act as shareholder or unit holder as a nominee for another person

Question 80

A person carries on money service business if they carry on the business of which kinds of work?

Answer 80

A bureau de change

Providing cheque cashing services

Transmitting or receiving funds by wire, or other electronic means

Engaging in money transmission services

Question 81

What is the exemption from having to obtain the JFSC’s approval to carry on money service business?

Answer 81

An exemption may be granted in cases where turnover during the last completed financial period of the money service business (usually 12 months) is less than £300,000.

However, the person who intends to use the exemption must give the JFSC prior notification of the intention to carry on money service business

Question 82

Define and describe turnover, in relation to money service business

Answer 82

Turnover, in relation to money service business, is the cumulative total during a financial period of all or any of the following:

Foreign currency that is, in the course of the person carrying on the business of a bureau de change, bought from or sold to customers of the bureau de change (counting one side of the transaction only)

Funds transmitted or received by the person in the course of carrying on the business of transmitting or receiving funds by wire or other electronic means, or money transmission services

Cheques cashed by the person in the course of carrying on the business of providing cheque cashing services

Question 83

Define and describe the three types of money service business activity that are exempt and not subject to the financial services (Jersey) law 1998

Answer 83

1) A transaction where a payment for goods or services is made in one currency, and the change is given in another currency. The main purpose of this exemption is to avoid shops that accept payment in one currency and give change in another from being treated as carrying on a a bureau de change service
2) A funds or money transfer made for the sole purpose of enabling a person to pay for goods or services, or enabling a person to access their own money. The main purpose of the exemption is to take outside of the money service business regime issuers of debit cards, credit cards or electronic money that are used solely as a means of payment for goods or services. This exemption will also take out of the regime for money service business those who provide cash-back facilities (e.g. supermarkets) and providers of cash machines (ATMs)
3) One where a person cashes a cheque drawn by another person in the latter’s own bank account. The purpose of this exemption is to ensure that only persons in the business of cashing third party cheques come from within the regulatory regime for money service business

There’s also an exemption from a person having to obtain permission from the JFSC to carry on money services business, in relation to turnover. An exemption may be granted in cases where turnover during the last completed financial period of the money service business (usually 12 months) is less than £300,000.

However, the person who intends to use the exemption must give the JFSC prior notification of the intention to carry on money service business

Question 84

What factors will the JFSC take into account when assessing a prospective financial services business?

Answer 84

x Integrity, competence, financial standing, structure and organisation of the financial services business

x Persons employed by or associated with the applicant for purposes of the applicant’s business or principal persons in relation to the applicant

x Description of the business which the applicant proposes to carry on

In this regard, and in relation to principal persons, the JFSC will be able to ensure that those persons that have control, influence or management of the regulated entity are themselves fit and proper

Question 85

Define and describe principal persons

Answer 85

Principal persons are defined in the various regulatory laws, and generally would include:

X Shareholders that directly or indirectly own 10% or more of the entity

X Directors of the regulated entity

X Other controllers of the regulated entity

In this regard, and in relation to factors the JFSC takes into account when assessing a prospective financial services business, the JFSC will be able to ensure that those persons that have control, influence or management of the regulated entity are themselves fit and proper

Question 86

Describe structure, one of the areas of structure and organisation, a factor that the JFSC takes into account when assessing a prospective financial services business

Answer 86

An applicant is expected to restrict its activities to the regulated activities for which it holds licences and other activities which are wholly associated with/allied to the licensed business. When determining an application, it is the JFSC’s policy to consider the activities of associated persons to assess whether they may negatively impact the applicant

In terms of physical structure, it is the JFSC’s policy that an applicant should have the resources, or access to the resources necessary to perform its regulated activities

Additionally, the applicant must be structured and organised in such a way to enable the JFSC to fulfil its oversight function regarding the regulatory framework

The JFSC considers that an applicant can demonstrate availability of resources in one of the following ways, via operating in Jersey:

X Maintaining staff and business premises

X As a managed entity utilising the services of a manager that’s physically located in Jersey and, where relevant, has been licensed by the JFSC to act in the capacity of manager of another business

X Through an organisation that is regulated and supervised in an equivalent jurisdiction to provide those services

Whichever of the above options is used, an applicant must be able to demonstrate that it will have, and be able to maintain:

X Sufficient management oversight and control of its regulated activities

X Comprehensive financial information setting out its financial position, which must be readily accessible in Jersey. Further info on the form of the accounts/financial statements may be found in their respective accounts, audits and reports orders that, inter alia, determine the accounting records to be kept by a registered person

Appropriate systems and controls relating to its regulated activities

Relevantly qualified and experienced staff to competently deliver the financial services it offers, which may include using third party providers or resources from other entities within the same group

Local management and control (heart and mind of management): This requirement should be read in conjunction with the specific requirements contained within section 310 of the relevant codes of practice. In most cases, an applicant will demonstrate local management and control if the balance of the board are resident in Jersey and the Jersey element of the board are actively engaged in the governance of the business

Question 87

What are the ways that an applicant to the JFSC can demonstrate availability of resources?

Answer 87

The JFSC considers that an applicant can demonstrate availability of resources in one of the following ways, via operating in Jersey:

X Maintaining staff and business premises

X As a managed entity utilising the services of a manager that is physically located in Jersey and, where relevant, has been licensed by the JFSC to act in the capacity of manager of another business

X Through an organisation that is regulated and supervised in an equivalent jurisdiction for the provision of those services

Question 88

Describe systems and controls, one of the areas of structure and organisation, a factor that the JFSC takes into account when assessing a prospective financial services business

Answer 88

It is the JFSC’s policy that an applicant must be able to demonstrate the existence of:

X Adequate risk management systems

X Systems and controls designed to manage its affairs effectively for the proper performance of its regulated activities, including those that evidence transparency in its business arrangements

The JFSC will look for evidence that the applicant will have adequate systems and controls in place and is adequately resourced, in terms of both staff and/or service providers and financial resources, to conduct the regulated activities. An applicant will also be expected to satisfy the JFSC that it will have in place, and will systematically apply, robust systems and controls to enable it to comply with the relevant codes of practice relating to the regulated activities it is proposing to undertake

Question 89

What methods do regulators use to supervise the compliance of regulated firms with specific requirements of the legislation?

Answer 89

Statutory reporting requirements

Onsite examinations

Offsite supervision

Formal investigations

Question 90

Define and describe onsite examinations, one of the methods that regulators use to supervise the compliance of regulated firms with specific requirements of the legislation

Answer 90

Usually carried out by specialist audit teams from the regulators, who will work through a checklist of compliance points with the purpose of ensuring that the procedures adopted by the firm are adequate, and conform to the requirements of the regulations and governing law

Question 91

Define the three types of examination undertaken by each supervisory division, whether they are proactive or reactive

Answer 91

Discovery

Focused

Themed

Question 92

Describe discovery examinations, one of the three types of examination undertaken by each supervisory division, whether they are proactive or reactive

Answer 92

When the JFSC lacks sufficient info about a regulated entity in one or more material ways, such that, for example, it is not able to properly complete the risk assessment for that firm (proactive) or because info is needed before authorisation can issue a license (reactive), then a discovery examination will be one of the means by which the gaps in knowledge can be filled.

Thus, a discovery examination is to a large extent a fact-finding exercise from which conclusions can be drawn on the adequacy of systems, controls and procedures of a regulated entity

Question 93

Describe focused examinations, one of the three types of examination undertaken by each supervisory division, whether they are proactive or reactive

Answer 93

These are examinations undertaken to individual firms as a result of a specific issue or material risks that have been identified at the firm.

For example, such issues/risks will arise from the risk model evaluation (proactive) or as a result of adverse info passed to us by enforcement, or another regulator (reactive).

Thus, a focused examination designed to test systems, controls and procedures so that conclusions can be drawn and, if appropriate, recommendations made to improve systems, controls and procedures within a regulated entity

Question 94

Describe themed examinations, one of the three types of examination undertaken by each supervisory division, whether they are proactive or reactive

Answer 94

These are examinations targeted at an area of activity, rather than an individual firm. Such examinations are used when a common problem across the industry or specific sectors of the industry is identified.

They are designed to assist the JFSC in determining the scale and/or nature of a problem, and thus be able to better determine the means by which to eliminate/mitigate a problem.

For example, common themes arising from the risk model or international developments (proactive), or as a result of a major international event, such has the split capital event or 9/11 (reactive).

Examples of recent themed examinations:

AML procedures

Conduct of business

Corporate governance

Financial resources

Question 95

Give several examples of themed examinations, one of the three types of examination undertaken by each supervisory division, whether they are proactive or reactive

Answer 95

AML procedures

Conduct of business

Corporate governance

Financial resources

Question 96

What would be included in offsite supervision or desk based supervision by a regulator?

Answer 96

Initial applications and ongoing changes, including changes in principal persons

Review of audited financial statements, auditors management letter, declaration, etc

Liquidity requirements

Pre-vetting and approval of principal persons and key persons

Review of suspicious activity reports (SARs)

General correspondence

Complaints

Law reports

Marketing material

Particular attention to any proposals to change business plan (competency check)

Info from other regulators or other sources

Question 97

Who will carry out formal investigations of a firm, or all regulated firms within a specific sector of the industry?

Answer 97

Investigations like these are usually not carried out by the regulators themselves, but by an appointed firm of reporting accountants, who will carry out the investigation and report their findings to the regulator

Formal investigations are usually carried out under the provisions provided in the respective law governing the activity, rather than the codes of practice.

As such, the investigators have legal powers of discovery and entry to premises for the examination of records and gathering of evidence

The regulators also have powers of interview, with penalties applied for non-cooperation on the interviewee’s part.

The convention on human rights require that legislation which forces cooperation in this way be modified to prevent self-incrimination

As such, any statements obtained under powers of compulsion may not now be used in a subsequent criminal prosecution, other than in the defence of the accused

Question 98

What powers do the investigators conducting investigations into the activities of a firm, or all firms in a specific industry, have?

Answer 98

The investigators (I.e. the firm of reporting accountants appointed by the regulator to conduct the investigation) have legal powers of discovery and entry to premises for the examination of records and gathering of evidence

The investigators also have powers of interview, with penalties applied for non-cooperation on the interviewee’s part.

Note that the convention on human rights require that legislation which forces cooperation in this way be modified to prevent self-incrimination

As such, any statements obtained under powers of compulsion may not now be used in a subsequent criminal prosecution, other than in the defence of the accused

Question 99

What are the three regulatory processes?

Answer 99

Authorisation

Supervision

Enforcement

Question 100

In relation to firms, under what circumstances would a regulator use enforcement powers?

Answer 100

When firms experience difficulties in complying with the regulatory requirements

OR

Where firms either consistently breach requirements or breach in relation to a substantial, one off matter

Locally, the JFSC has to be satisfied that issues posing a risk to the public and the island’s reputation are given due attention and resolved ASAP to reduce such risks

Where such action is considered to be insufficient, or where cooperation is lacking, there may be a need for more formal enforcement action by the JFSC, involving the use of statutory powers

Note that individuals within a firm may also give cause for the JFSC to use its enforcement powers. For example, where a person has contravened the regulatory laws or regulations, orders, codes of practice, directions or conditions made under these laws, or has committed other instances of misconduct, such as breaches of the AML legislation

Question 101

Under what circumstances may the JFSC consider using its statutory powers?

Answer 101

Where such action is considered to be insufficient, or where cooperation is lacking, there may be a need for more formal enforcement action by the JFSC, involving the use of statutory powers

Statutory powers = The powers assigned to the statutory authority (e.g. the JFSC) or body to implement the law

Question 102

Describe the factors the JFSC will take into consideration before deciding whether or not to issue a public statement on a firm or individual as a form of regulatory sanction, one of the principal powers the JFSC has at its disposal, as part of its enforcement process

Answer 102

In deciding whether to issue a public statement as a form of regulatory sanction (I.e. To spread word on the findings of the JFSC and any action it has taken regarding the failure of a person or business to comply with a relevant law or code), the JFSC will have regard to the following considerations, among others, whether:

The circumstances are sufficiently serious to warrant placing them in the public domain

The non-compliance was committed intentionally or recklessly, rather than accidentally

The JFSC has previously issued a specific warning relating to the type of non-compliance that has occurred

There is a pattern of poor regulatory compliance

There has been any attempt to conceal the non-compliance from the JFSC, or to mislead the JFSC about it

The person concerned has been cooperative in admitting the noncompliance, and in taking remedial action

In all the circumstances it is appropriate to draw attention to the non-compliance to demonstrate that regulatory standards are being upheld

It is appropriate to advise the industry of poor practice and provide education on the standards of conduct expected of registered persons

Question 103

Describe the factors the JFSC will take into account before reducing the period of notice before a public statement is issued, one of the principal powers the JFSC has at its disposal, as part of its enforcement process

Answer 103

The JFSC is mindful of the additional consequences for anyone named in the public statement if the notice period is reduced. It therefore doesn’t expect to use this power unless it’s satisfied that its use is both necessary and proportionate. Each case is considered on its own merits, and the factors the JFSC takes into account include, but aren’t limited to:

The need for urgency in warning the public of unauthorised financial services business

Whether or not a delay could result in members of the public incurring financial losses

Whether or not a delay may result in significant risk of damage to the reputation of a registered financial services business or a person associated with that business. If the notice period is reduced, although an appeal to the court may still be made, the issue of the public statement is neither deferred nor suspended, pending that appeal being heard, unless the court so orders after considering a separate application: as a result, it may not be possible for the appeal to be heard before the public statement has been issued

Whether or not a delay could cause unnecessary damage to the reputation, integrity or economic interests of the island in commercial and financial matters

Whether or not reducing the notice period would counter, or assist in countering, financial crime in Jersey or elsewhere

Question 104

Describe ‘offshore’ jurisdictions

Answer 104

Technically, offshore means anywhere a person places property, other than their place of residence or domicile

Offshore vs onshore

Not necessarily an island

Can be landlocked, and therefore onshore geographically, e.g. Switzerland

Tax system advantages

Tax haven - low or no tax jurisdictions

Confidentiality

Political stability

Most OFCs are dependencies or colonies

Question 105

What’s the IMF definition of an offshore finance centre/OFC

Answer 105

Large number of financial institutions engaged primarily with non-residents

Financial system with external assets or liabilities out of proportion to the domestic economy

Centres which provide some or all of the following:

X Low or no tax

X Moderate or light regulation

X Banking secrecy or anonymity

Question 106

Describe risk management controls, one of the requirements for regulated banks in Jersey

Answer 106

Processes

Structures

Resources

Information systems

Reporting arrangements

Question 107

Describe operational risk, an additional requirement in place for regulated banks in Jersey

Answer 107

Remember the FALLOUT story

The risk arising from execution of a company’s business functions. As such, companies require appropriate policies/processes/procedures for managing operational risk in all material products/activities/processes/systems. These include:

The courier laid out the EVALUATION AND DELIVERY of a plan to rob a shop with Dogmeat, as well as the DOCUMENTARY AND LEGAL RISK of doing so. This would be good PROCESS MANAGEMENT, especially in the event of SYSTEMS FAILURE. It was just him, reducing the risk of INTERNAL/EXTERNAL FRAUD. On their way in, the greeter-bot warned about IMPROPER ACTIVITIES in the toilets, and a sign was displayed at the entrance, about EMPLOYMENT PRACTICES AND WORKPLACE SAFETY. At each of the tills, there was a note on HANDLING OF CUSTOMER INFO. The manager’s office had a lot of PHYSICAL DAMAGE, but they found the key to the safe behind a list of CLEARLY DEFINED EMPLOYEE DUTIES. Inside the safe, they found cash, as well as a nuka cola RISK ASSESSMENT OF NEW PRODUCTS PRE-LAUNCH. Upon leaving, the courier reflected that the plan had had a REGULAR REVIEW OF OPERATIONAL RISK PROFILES, as well as BUSINESS CONTINUITY PLANS.