The ‘jumbo’ directorships scandal in Cayman would not be repeated in Jersey, which enjoys robust regulation of non executive directors, writes Sarah Rayson, director of DCG Funds Services.
A good board of directors requires a mix of skills, experience and backgrounds. The need for independence is a given and non executive directors (NEDs) can play a vital role in getting this balance right.
One of the important themes of corporate governance in Jersey is the nature and extent of accountability of an individual acting as a director of a company and the internal controls, processes and procedures which are implemented to monitor compliance and performance.
NEDs in Jersey are subject to stringent regulatory requirements which applies to funds investing in all asset classes including private equity, hedge funds and other alternatives such as mezzanine funds. This makes it unlikely that Jersey could ever be accused of having a regime that encourages ‘jumbo’ directorships.
When regulated funds are established, there is a requirement to appoint a minimum of two Jersey resident directors to the manager, general partner or fund entity. Under the Financial Services Jersey Law 1998, and the more recent Guidance Note of 2010, NEDs would be expected to obtain a Class G licence through registration with the Jersey Financial Services Commission if any substantial number of business relationships are anticipated.
Class G qualified NEDs are regulated in their own right. They have to keep their records up to date, make an annual return and declare the number of directorships they hold and the fees they receive. Each new appointment to a regulated fund is subject to consent and the JFSC looks closely at the skills and experience of the applicant, the number of relationships the director has established and how many hours are devoted to each directorship. An excessive number of directorships held by one individual would be detected and questioned.
For transparency purposes, the process of appointing directors is monitored at all levels.
- Firstly when a NED is to be appointed, he or she will be asked to talk through their CV and current clients with the administrator or other professional advisor responsible for putting forward suitable candidates for the board of the fund to consider.
- Secondly, and also as part of the fund administrator’s role, on an ongoing basis they undertake quarterly compliance monitoring which involves considering the competence of the directors and whether they are fit for purpose.
- In the third instance, the JFSC commits to meeting regularly with NEDs and reviews their activity and there is also an onsite programme of visits by the commission in which the composition of boards are reviewed. Additionally all Glass G licence holders are themselves liable to audit by the Commission where there is an ongoing programme.
To be appointed to the board of a Jersey fund company requires a considerable commitment to continued professional development, as laid down by the commission relative to business taken on, as well as meeting the rules of the JFSC overall, so it is quite a challenging undertaking. A result of this focus on compliance is the mitigation of the risk of abuse of the board appointment process in Jersey.
But putting all of this in context, regulation is only part of the solution and our experience is that fund boards and directors in Jersey consider carefully the individual position and skills involved as well as time and commitment required and that Jersey fund boards are robust and well formed adhering to best practice.
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