Lessons for Jersey CIF directors and Fund administrators

In reading a Prospectus for a local regulated financial services business* official listing I note there are some key lessons for all those regulated in Jersey and in particular working with collective investment schemes (CIFs)

The following is extracted from the prospectus……..

Current regulatory risk

The JFSC is currently conducting an ongoing review in relation to Sanne’s role as the administrator of an entity (the “Fund Entity”) administered by Sanne Fiduciary Services Limited (“SFSL”) that formed part of a fund structure in relation to which there have been allegations of wrongdoing.

The allegations principally concern entities in the fund structure not administered by SFSL and certain people connected with those entities who are not and have never been Sanne employees.

However, as SFSL was and is responsible for administration of the Fund Entity (and provides certain principal and key persons to assist with management of the Fund Entity) the actions or omissions of SFSL and its relevant personnel as regulated persons fall within the ambit of activities regulated and supervised by the JFSC.

As such, any concerns the JFSC may have with either the Fund Entity or other entities in the fund structure or any regulated persons may result in the JFSC exercising its supervisory and oversight powers over SFSL and/or its personnel.

Following increasingly close oversight of the Fund Entity between 2012 and 2014, the JFSC concluded that there was potential cause for concern over:

the financial services business of SFSL;
the integrity, competence and organisation of SFSL and its principal and key persons; and
the compliance of those persons with the relevant regulatory laws and codes of practice.

Accordingly, in October 2014, the JFSC issued a statutory notice to SFSL, under applicable law, requiring SFSL to appoint an independent professional firm (selected by the JFSC) to perform a review of SFSL’s administration of the Fund Entity and produce a report evaluating its performance of its duties and obligations as administrator of the relevant company and as provider of principal and key persons to it.

The report was delivered on 13 February 2015.

Although it did not conclude that SFSL or any of its employees or directors had acted with a lack of integrity in the matter, it made a number of critical conclusions

relating to the competence with which certain issues were handled and identified certain failings in relation to the administration of the Fund Entity and
in relation to certain internal SFSL procedures and
SFSL personnel

where such conclusions, whilst related to the Fund Entity, were also of more general application.

The report also made a number of recommendations. All of these recommendations have been accepted by SFSL.

Certain of these recommendations had already been addressed when the report was delivered as the Group’s compliance function has developed over time since 2011, however the recommendations are now the subject of a remediation plan prepared by SFSL, which is with the JFSC for review.

Paragraph 17 of Part 8 (Additional Information) provides further information a follows.

The JFSC required the review to determine the manner in which SFSL fulfilled its duties and obligations, whether contractual or otherwise, in accordance with all relevant laws and codes of practice and to focus particularly on:

the duties of SFSL as set out in the contractual arrangements between it and the Fund Entity;
the relevant asset custody arrangements; and
the performance of the people provided by SFSL to fulfil the roles of principal and key persons of the Fund Entity.

Although it did not conclude that SFSL or any of its employees or directors had acted with a lack of integrity in the matter, it made a number of critical conclusions relating to

the competence with which certain issues were handled and
identified certain failings in relation to the administration of the Fund Entity and in relation to certain internal SFSL procedures and SFSL personnel. in particular,
1. two individuals involved with the administration of the Fund Entity were subject to criticism in the report
2. Only one of these individuals is still with the Group and is subject to further training and development as part of SFSL’s remediation and compliance development process.

The report made a number of recommendations, all of which have been accepted by SFSL, including that:

SFSL should provide further training to its managers and staff to recognise, and act upon, the warning signs of fraud;
that staff be encouraged, in a risk context, to think beyond narrow contractual and regulatory responsibilities;
SFSL should ensure that directors who are appointed to the board of funds administered by SFSL have sufficient expertise, support and time to discharge their responsibilities, without unduly relying on others, and that they should not regard themselves as non-executive directors;
in the case of fund promoters with no established track record, independent evidence should be sought of the promoter’s capabilities and its financial backing; and
the oversight process should be made more robust and that the compliance function be actively involved in the oversight process.

Certain elements of these recommendations had already been addressed when the report was delivered as the Group’s compliance function has developed over time since 2011, however, the recommendations, including those not yet addressed, are the subject of a remediation plan prepared by the Group which is currently with the JFSC for review.

The matter remains subject to the JFSC’s consideration and, following its review of the report and the remediation plan, it

may or may not determine that SFSL has breached applicable regulatory requirements and
may or may not decide to exercise its powers to take further steps or actions in connection with the matter.

To read all the facts go to http://bit.ly/1R1b4UM