http://bit.ly/1PaKUkg

My last topic today is change at the Commission, and how it will affect the regulated community.

1. The Commission is currently going through a programme of change, with the aim of becoming a more effective and easier-to-deal-with regulator. Why are we doing this? Like many regulators, during the financial crisis we had to apply all hands to dealing with the day-to-day unfolding issues and how they affected Jersey. There was little time to deal with wider issues, or invest in improving our systems or processes. To take a very small but quite visible example, one thing that surprised me when I joined the Commission was being regularly asked to sign paper authorisation certificates. Why is this necessary, when we have a perfectly good register of entities on our website?
2. As well as becoming more efficient, we have an ongoing desire to become more effective as a regulator. Effectiveness can be considered in a number of ways, but to mention two drivers: first, we carried out a detailed review of some of the most serious cases we have dealt with, with the aim of drawing out lessons for us where doing things differently may have mitigated some of the outcomes; and secondly, as I mentioned previously, being able to prove our effectiveness to others – rather than that we just have the appropriate legal framework in place – is of increasing importance for the Commission and the Island. More is expected of regulators than ever before.
3. Just as an aside, we recognise there is something of a tension here. How do you demonstrate the direct link between an action taken by the Commission now, and the prevention of something ‘bad’ happening in a later period? While logically it must be the case that the most effective regulator is one that stops bad things happening very early on, the most visible regulator would be one handing out the fines like confetti once the harm had occurred. We don’t want to take that route; we want to ‘pick important problems and fix them’(1 1 Malcolm K. Sparrow, ‘The Regulatory Craft’.)
4. Finally, and not least, we need to change because our staff deserve it. We need to be able to offer interesting and rewarding careers that encourage talented, thoughtful, people to come to work at the Commission.

So what does this mean in tangible terms?

1. First, we are investing in overhauling our key IT infrastructure.
2. We will be doing this in an iterative way, so that we can test and prove changes to ensure they deliver defined improvements internally and externally. The benefits for you? An easier to deal with Commission, where your firm has an electronic gateway to do business with us. Less paper, electronic payment options, quicker processing times as less need to re-key information.

Enabling us to move to a ‘tell us once’ culture with regard to information, and to be more efficient at accessing the information we hold. We aim on this front to reduce your indirect costs of dealing with the Commission.

JFSC supervision the way forward.

1. Second, we will be changing the way that we supervise.
2. On an organisational front, we will be moving from supervising firms on a ‘per licence’ to a ‘per entity’ basis.
3. Where your firm currently holds multiple registrations – for trust company business and fund services business for example – this will affect you.
4. Supervising on a ‘per licence’ basis allowed areas of specialism to develop within supervision; but it also meant that your firm was potentially subject to multiple examination visits which overlapped in some cases, and multiple points of contact at the Commission.
5. Ironically, it also meant on occasion that issues fell between the cracks of separate supervisory teams or there were unclear areas of responsibility.
6. Supervision at an entity level will avoid these problems; and we intend to maintain specialists within the separate entity teams, who will co-operate across the Commission to ensure knowledge is shared and maintained.
7. The teams themselves will be based on what we see as the predominant business models on the Island:
   1. Banking firms;
   2. Combined fund and trust company businesses;
   3. Standalone trust company businesses and designated non-financial businesses and professions; and
   4. Standalone fund managers/advisers and investment businesses (as well as our relatively small insurance population).

Focused risk team.

1. The other supervision development is that we will be creating a small but focused risk team, who will have a remit to consider issues on a ‘macro’ as well as an individual firm basis.
2. This will work as a feedback loop:
   1. The team will be able to consider whether an issue found in an individual firm is indicative of a broader sector-wide risk that needs investigation.
   2. It will also be able to provide aggregated risk data which will help answer the type of question such as ‘What is the level of risk of terrorist financing in Jersey?’

International assessments.

1. Increasingly, these sorts of questions are the starting point for the international assessments to which we are subject, and the inability to easily present a convincing answer will put a  jurisdiction on the back foot. Of course the answers to these sorts of questions are also of importance to all the stakeholders to whom we are accountable.
2. Apart from structural improvements, we want to alter the nature of some of the conversations we have with firms. Over my career I’ve seen changes in the way that regulation ‘operates’ – rules-based, principles-based, governance-focused, outcomes focused, culture-focused – but what we are trying to understand are the key risks in a business, and whether they are recognised, understood and mitigated. How a firm makes its money is often a good question to start with in this regard.
3. Policies and procedures have their place, but a little like assessments of the regulatory framework, it’s what actually happens in practice that is important. We hope that our developing approach will have a positive secondary effect in reinforcing compliance officers’ comfort in taking a sensible and robust, but risk-based approach, to business.
4. So we will also be looking to re-develop the risk model that we use to assess firms. Parts of the current version date back to the late 1990’s and the model isn’t sufficiently responsive to new risks or appropriate for the kind of learning organisation that we want to be. As part of this, we need to review the data we currently ask you for. We will robustly assess both our existing data requests and any proposed new items to see whether they will genuinely assist in risk identification or mitigation. We have no interest in collecting data just for the sake of it.

So – better systems giving you an easier-to-deal -with Commission.

1. Better conversations with you about your business and a better targeting of regulatory resource to areas where risks aren’t adequately mitigated, helping to protect your firm from the reputational risk to Jersey as a whole that arises from wrong-doing.
2. These things in themselves mean working at the Commission will be more interesting, but over and above that, investment in our systems needs to be matched by investment in our people, whether that be training – technical or soft skills – or wider use of flexible working, the removal of ‘boring’ bureaucratic tasks or the myriad of other aspects those joining a modern organisation now expect as routine.

JFSC employee turnover.

1. To continue on an HR theme for a moment, recently the Commission has experienced a material level of turnover in its supervisory divisions. Our staff are in demand, in particular for compliance and risk roles. Occasionally the comment is made that the movement of regulatory staff to the industry should be viewed as flattering by the regulator, and will help the spread of good compliance practice within the industry; potentially all true, but I hope you agree that everything I’ve said up to now indicates the need for the Commission to have a base of skilled staff to operate effectively.
2. Now, to be clear, what this doesn’t mean. The regulator will not match industry salary levels, nor should it. But it can’t afford to fall so far behind, and particularly in some sectors the differences have become material. Neither are our proposed changes about increasing headcount: we plan to achieve our supervisory reform with the same number of people as the Commission has had to date. The investment in upskilling those people is necessary for the change to succeed. I also need to point out that all this change will not happen overnight! You should expect to see incremental improvements, and we are committed to industry outreach as we go through these developments.

JFSC fees.

1. I’ve started to talk about costs, and the eagle-eyed amongst you may well have already looked at the Commission’s recent consultation about how we raise our fees. Rather than being about the amount of fees per se, that document is more about creating a more rational and efficient framework of how we go about collecting them. But I would ask you to reflect on these three points:
   1. between 2010 and 2014, the Commission’s fee income rose 9%; in the same period the UK regulators’ fees rose by more than 40%;
   2. if you think that a direct comparison between the UK and Jersey is probably not the most instructive, in 2014, Guernsey’s regulator charged its regulated community in excess of £2m more than the Commission; and
   3. the Commission’s 2014 fee income was actually lower than in 2013.
2. I’m not going to labour this point further today, because I think I can just detect the sound of the world’s smallest violin playing somewhere in the background. But there is a serious point here about the need for the regulator to be adequately resourced, given its key role in ensuring market access for the industry, and this will be a developing subject next year.
3. To conclude, I just want to reflect on the very human element to all our work.

Whistleblowers.

1. I mentioned whistleblowers earlier, and I’ve described the Commission’s change programme. I’m sure that many of you have worked in organisations undergoing change or restructuring, and know the importance of people in making that change happen successfully.
2. Equally, when talking about supervision findings, we are wont to refer to ‘firms’ or ‘entities’ having done things. But what sometimes gets forgotten is that every supervisory issue we have to deal with results from action or inaction – choices and decisions – by individuals.
3. It is the individuals that make up the firm that cause the action or inaction to happen.

STEP describes its vision to be the pre-eminent worldwide professional association for those advising families across generations. One of the main ways it does this is by supporting you – the individual members – with professional and ethical development and training. Your individual decisions have a key effect on the outcomes for clients and the regulatory health of the industry. We gain confidence from the fact you have chosen to develop with STEP.

Thank you.

http://bit.ly/1PaKUkg