The Jersey Financial Services Commission (JFSC) from 23 June, 2015 will have the power to impose financial penalties on regulated businesses of up to £4 million, for significant and material breaches of the Codes of Practice, including contraventions of the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism.

The proceeds from the financial penalties will be used to reduce, or mitigate required increases in the fees for regulated businesses; effectively ensuring that in the future, those companies that invest in compliance with Jersey’s regulatory standards will no longer have to carry the financial burden of dealing with those companies that fail to comply with regulatory standards.

Director-General John Harris commented:

1. “The introduction of financial penalties strengthens the sanctions that the Jersey Financial Services Commission can impose to deal with significant and material breaches of our Codes of Practice. This will bring us in to line with similar powers exercised by counterpart regulators around the world. We will exercise such powers in a reasonable and proportionate manner with the aim of protecting consumers, the reputation of Jersey’s finance industry, and deterring and preventing financial crime. A credible regulator needs appropriate sanctions and the ability to impose financial penalties for serious misconduct, ensuring that Jersey will continue to be a well regulated finance centre.”

The enabling legislation

2. the Financial Services Commission ( Amendment No. 6) (Jersey) Law 2015 came into force as from the 20 March 2015 and
3. the Financial Services Commission (Financial Penalties) (Jersey) Order 2015, that sets the financial penalty tariff, will come into force as from the 23 June 2015.

JFSC civil liability for breaches of codes of practice

1. On February 20 2015 the Financial Services Commission (Amendment 6) (Jersey) Law 2015(1) was registered.
2. The amendment makes changes to the Financial Services Commission (Jersey) Law 1998 in order to include provisions that enable the Jersey Financial Services Commission (JFSC) to impose civil financial penalties for material contraventions of the codes of practice and the Anti-money Laundering and Counter-terrorist Financing Handbook.
3. The amendment came into force on March 20 2015.

Affected entities

4. All entities registered under the Banking Business (Jersey) Law 1991, the Insurance Business (Jersey) Law 1996 and the Financial Services (Jersey) Law 1998 must adhere to the JFSC’s relevant codes of practice.
5. Entities registered under the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 must adhere to the handbook.

Penalties

6. The JFSC’s consultation paper(2) on the level of civil penalties that can be imposed indicates that there will be three levels of penalty, and that penalties will be imposed depending on the seriousness and circumstances of the breach of the codes of practice.

7. The highest level of financial penalty will be up to 8% of relevant income. ‘Relevant income’ is proposed as income derived from licenced business activities.

8. The consultation period on the level of civil penalties ended on March 2 2015.

Consultation on processes and principles

9. The JFSC published a consultation paper (3) on its proposed statement regarding the principles and processes that it will adopt under the civil penalties regime.

10. The consultation paper indicates that the JFSC intends to amend its existing guidance on its decision-making process so that it can be used in the context of civil penalties.

11. The existing four-stage decision-making process will be retained.

12. A discounted penalty scheme will be included so that where a settlement agreement is entered into before stage four of the process, a discount will be available. The earlier that a settlement agreement is entered into, the larger the available discount.

13. The decision-making process will also be amended to include a statement of principles. It is proposed that these will include certain principles that the JFSC must consider under the amendment eg,

1. the seriousness of the contravention and
2. whether it was voluntarily reported,
3. as well as a list of aggravating and mitigating factors eg,
   1. a poor compliance record and
   2. cooperation with the JFSC

14. The consultation period on the JFSC’s statement regarding its principles and processes ended on March 16 2015.

The process that will be adopted by the JFSC in dealing with cases that may be subject to a financial penalty is published here –

• http://bit.ly/1FCHpLA

Preparing for civil liability

15. Registered persons may wish to confirm that they comply with the codes and handbook before civil penalties for breaches are implemented.
16. In particular, the codes were amended and further requirements were imposed with effect from July 1 2014.
17. The handbook was amended with effect from January 1 2015.

If they have not already done so, registered persons should conduct a thorough gapping analysis to ensure that they comply with the higher standards.