TRUST COMPANY BUSINESS

Guidance on Auditing Persons Conducting Financial Services Business

1. Preface

1.1. Practice Note 21: The Audit of Investment Businesses in the United Kingdom, issued by the UK Auditing Practices Board, contains guidance intended to assist an auditor of persons conducting investment business in reporting on matters specified by UK regulators. Guidance is also given on the auditor's right and duty to report to regulators.

1.2. The Practice Note is supplementary to, and is to be read in conjunction with, Statements of Auditing Standards ("SASs") and other relevant Practice Notes. The scope of the audit of the financial statements of persons conducting investment, trust company or general insurance mediation business is no different from that of the generality of other companies in Jersey.

1.3. Whilst Practice Note 21 is intended to guide an auditor of persons conducting investment business in the UK, the Commission considers that the Practice Note also provides useful guidance to an auditor of persons conducting investment, trust company and general insurance mediation business, as defined in the Financial Services (Jersey) Law 1998 (the "Law") in Jersey.

1.4. Practice Note 21 provides guidance on:

1.4.1. Three types of assignment relating to investment business.

1.4.1.1. Only the assignment relating to the audit of financial statements (dealt with in paragraphs 57 to 109) is relevant to the audit of persons conducting investment, trust company and general insurance mediation business (hereafter referred to as persons conducting financial services business) in Jersey.

1.4.1.2. Guidance provided on direct reports to regulators (on the calculation of financial resources, records and systems of internal controls, and rules concerning the handling of client assets) and on interim profits in paragraphs 110 to 170 and 171 to 179 respectively are not relevant to the audit of persons conducting financial services business, on the basis that such assignments are not a requirement in Jersey. (However, note the "whistle blowing" obligations considered at 3.6).

1.4.1.3. An auditor's right and duty to report to regulators in certain circumstances. Such a right and duty to report are also features of Jersey's legislation. Guidance on ad hoc reporting is set out in paragraphs 180 to 218, which consider SAS 620: The auditors' right and duty to report to regulators in the financial sector. An auditor may wish to consider referring to these requirements in its terms of engagement.

2. Legislation overview Top

2.1. Financial services business carried on in or from within the Island or by a Jersey company in any part of the world is subject to the Law.

2.2. The conduct of persons undertaking financial services business is governed by Orders under the Law and Codes of Practice (the "Codes"). The following Orders are particularly relevant:

2.2.1. Financial Services (Trust Company Business (Accounts, Audit and Reports))(Jersey) Order 2000;

2.2.2. Financial Services (Trust Company Business (Assets-Customer Money)) (Jersey) Order 2000;

2.2.3. Financial Services (Investment Business (Accounts, Audit and Reports))(Jersey) Order 2001;

2.2.4. Financial Services (Investment Business (Client Assets))(Jersey) Order 2001;

2.2.5. Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency)) (Jersey) Order 2005; and

2.2.6. Financial Services (General Insurance Mediation Business (Client Assets)) (Jersey) Order 2005.

3. Reporting requirements

3.1. Annual reports and ad hoc reporting by auditors constitute an important part of the Commission's system of supervision.

3.2. All persons conducting financial services business are required to furnish the Commission with an opinion from their auditor as to whether the reporting entity's financial statements give a true and fair view .

3.3. On an annual basis, persons conducting trust company business and/or general insurance mediation business are also required to provide the Commission with :

3.3.1. A report from their auditor that, while conducting the audit for the purposes of preparing a "true and fair" opinion, it has become aware of nothing that could be taken as indicating that a statement in the declaration , as required under Article 6(1) of the Financial Services (Trust Company Business (Accounts, Audit and Reports))(Jersey) Order 2000 and Article 6(1) of the Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency)(Jersey) Order 2005 is incorrect, or details of the grounds for withholding that statement. No similar report is yet required from persons conducting investment business . When reporting, an auditor should have regard to those matters of material significance to the Commission.

3.3.2. Copies of any report prepared by internal or external auditors that are available to the business and which addresses material relevant matters, and brief details of any similar reports prepared by accountants or consultants.

3.4. Article 18 of the Law allows an auditor to communicate in good faith with the Commission (without contravening any duty, such as confidentiality, to which it may be subject) any matter which:

3.4.1. it becomes aware of ; and

3.4.2. is relevant to the functions of the Commission..

3.5. Under Article 18 of the Law, a right or duty to report information also arises directly in relation to holding and subsidiary companies of persons conducting a financial services business, where it is highlighted in work as auditor to a group.

3.6. The Financial Services (Trust Company Business (Accounts, Audit and Reports))(Jersey) Order 2000, Financial Services (Investment Business (Accounts, Audit and Reports))(Jersey) Order 2001 and Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency))(Jersey) Order 2005 (collectively the “applicable Accounts, Audits and Reports Orders”) establish those circumstances in which information that an auditor becomes aware of while conducting the audit for the purposes of preparing a "true and fair" opinion must be communicated to the Commission . Failure to comply with such a requirement is punishable by an unlimited fine, or up to 6 months imprisonment. The circumstances in which matters must be communicated to the Commission are those that give an auditor reasonable cause to believe that:

3.6.1. a ground for revoking a registration specified in Article 9(4) of the Law has occurred or may occur in respect of the registered person; or

3.6.2. as a result of a breach of a requirement of a Code of Practice or of a legal requirement, or of a breach of internal controls or procedures, or both, a customer of the registered person has incurred, or is at significant risk of incurring, a material loss.

3.7. An auditor may also be required to report on other areas of persons conducting financial services business under Article 32 of the Law.

4. Consideration of the Law, Orders, and Codes when conducting an audit for the purposes of preparing a "true and fair" opinion on the financial statements of persons conducting financial services business.

4.1. An auditor is expected to ensure that the staff involved in an audit of a person conducting financial services business has a general understanding of the applicable Orders and Codes of Practice issued under the Law, sufficient to enable it to be alert to possible breaches which come to its attention.

4.2. As part of the normal procedures undertaken for the purposes of an audit, an auditor is expected to gain an understanding of the business' operations, including the nature of the business carried out. It is also expected to obtain an understanding of the control environment that exists, including the business' higher level procedures for complying with applicable Orders and Codes of Practice.

4.3. Such an understanding will provide an indication of the extent to which the general atmosphere and controls in the business are conducive to compliance, for example through the consideration of:

4.3.1. the adequacy of procedures and training to inform staff of the requirements of the Orders and Codes to ensure that they meet those requirements;

4.3.2. adequacy of authorities and supervision;

4.3.3. the review of compliance by senior management;

4.3.4. procedures to ensure that possible breaches are investigated by an appropriate person and brought to the attention of senior management; and

4.3.5. the authority of, and resources available to, the compliance officer.

4.4. Where an apparent breach of applicable Orders and Codes comes to the auditor's attention, it is expected to ensure that its cause and implications for reporting responsibilities are correctly identified. This may require some further investigation to obtain sufficient information to determine the full circumstances.

4.5. An auditor is expected to enquire of management and staff whether any breaches have occurred and obtain appropriate representations from management, preferably in writing, addressing any possible breaches that have come to their attention.

4.6. The Commission recognises that an auditor of a person conducting financial services business has no direct responsibility for examining or reporting on a business' compliance with applicable legislation and Codes, and that an audit does not provide assurance that material breaches will be detected.

5. Judgement and materiality in reporting

5.1. In accordance with SAS 620, an auditor of persons conducting financial services business should bring information of which it has become aware while conducting the audit for the purposes of preparing a "true and fair" opinion to the attention of the Commission when:

5.1.1. it concludes that it is relevant to the regulator's function having regard to such matters as may be specified in statute; and

5.1.2. in its opinion there is reasonable cause to believe that it is or may be of material significance to the regulator.

5.2. Whilst failure to comply with a Code is a ground for revoking a registration (see 3.6.1), the Commission does not expect to be advised of every single instance of failure to follow a Code, and, instead, the principles established above should be followed.

5.3. Paragraphs 185 and 186 of the Practice Note provide guidance on what is meant by material. All references to the concept of materiality in the Accounts, Audit and Reports Orders, and in this guide, should be considered from the position of what is, or is likely to be, material to the Commission. This will inevitably require an auditor to exercise its judgement (as in the UK).

6. Money Laundering

6.1. When in the course of its work, an auditor becomes aware of evidence indicating the presence of the laundering of money, Jersey's anti-money laundering legislation places an obligation or de facto obligation to report its suspicions to the Joint Financial Crimes Unit. Under anti-money laundering legislation, it is an offence to disclose the reporting of such suspicions to any other party where this may prejudice a criminal investigation.

6.2. An auditor therefore needs to be aware that it is under a statutory obligation not to disclose the matter to the registered person where the latter may be implicated in the laundering and may wish to take legal advice in cases of doubt when reporting on the declaration referred to at 3.3.1, which, inter alia, refers to compliance with anti-money laundering legislation.

7. Review of reporting requirements

7.1. The Commission intends to regularly review the reporting scope of the Accounts, Audit and Reports Orders, to ensure that requirements are in line with international standards.

Issued September 2006 and revised in September 2007

Appendix 1

Declaration under Article 6(1) of the Financial Services (Trust Company Business (Accounts, Audit and Reports))(Jersey) Order 2000

Jersey Financial Services Commission
P O Box 267
14-18 Castle Street
St Helier
Jersey
JE4 8TP

Dear Sirs

Declaration under Article 6(1) of the Financial Services (Trust Company Business (Accounts, Audit and Reports))(Jersey) Order 2000

In accordance with Article 6(1) of the Financial Services (Trust Company Business (Accounts, Audit and Reports))(Jersey) Order 2000, I confirm that, throughout the year/period ended [relevant accounting period], [name of registered person] has complied with the requirements of:

• the Financial Services (Jersey) Law 1998, and with the requirements of the applicable Orders and Codes of Practice made or issued under that Law, and has maintained proper accounting records and adequate systems to enable [name of registered person] to comply with those requirements [except as set out below ]; and

• all legislation that relates to money laundering with which [name of registered person] is required to comply [except as set out below ].

[Or

Where there are exceptions, which are not material, then the above statement should be qualified to state that there has not been full compliance but that failures have not been material.]

[Or

[List material exceptions and action taken to ensure that failures are not repeated.]

Yours faithfully

Authorised signatory

Appendix 2

Report on declaration under Article 6(1) of the Financial Services (Trust Company Business (Accounts, Audits and Reports))(Jersey) Order 2000

[Addressee]
[Name of registered person]
[Address of registered person]

[Date]

Dear Sirs

Report on declaration under Article 6(1) of the Financial Services (Trust Company Business (Accounts, Audits and Reports))(Jersey) Order 2000

We have reviewed the attached declaration prepared by [name of registered person] under Article 6(1) of the Financial Services (Trust Company Business (Accounts, Audit and Reports))(Jersey) Order 2000. That declaration is the responsibility of, and has been approved by, the directors . It is our responsibility to report on that declaration, based on our audit of [name of registered person]'s financial statements.

We have audited the financial statements of [name of registered person] for the year/period ended [date] in accordance with United Kingdom Auditing Standards, and in our report to you dated [date], we set out the basis for our opinion. While conducting our audit for the purpose of reporting on the financial statements, we have become aware of:

• nothing that could be taken as indicating that a statement in the attached declaration is incorrect; or
  
  
• the following matters that prevent us from confirming that a statement in the attached declaration is correct .

Except for the requirements set out in Auditing Standards and in Articles 3(1), 5(3), 8(5) and 8(6) [for a single entity, or 9(4) for a group] of the Financial Services (Trust Company Business (Accounts, Audits and Reports)) (Jersey) Order 2000, our audit was not planned or conducted for the purpose of determining whether the [name of registered person] has complied with the requirements of the Financial Services (Jersey) Law 1998, (the "Law'), any Orders and Codes of Practice made or issued under the Law or any money laundering legislation. We accept no duty or responsibility to any third party including the Jersey Financial Services Commission (the “Commission’) in this regard.

We consent to a copy of this report being attached to the declaration, which has been initialled by us for identification purposes only, and being provided to the Jersey Financial Services Commission in its capacity as regulator under the Law . Our report should not be disclosed to any other party or otherwise quoted or referred to without our prior written consent; and we accept no responsibility to any third party in relation to it.

Yours faithfully

ABC Accountants

Appendix 3

Declaration under Article 6(1) of the Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency)) (Jersey) Order 2005

Jersey Financial Services Commission
PO Box 267
14-18 Castle Street
St Helier
Jersey, JE4 8TP
Channel Islands

Dear Sirs

Declaration under Article 6(1) of the Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency))(Jersey) Order 2005

In accordance with Article 6(1) of the Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency))(Jersey) Order 2005, I confirm that, throughout the year/period ended [relevant accounting period], [name of registered person] has complied with the requirements of:

• the Financial Services (Jersey) Law 1998, and with the requirements of the relevant Orders and Codes of Practice made or issued under that Law, and has maintained proper accounting records and adequate systems to enable [name of registered person] to comply with those requirements [except as set out below ]; and
  
  
• all legislation that relates to money laundering with which [name of registered person] is required to comply {except as set out below ].
  

[Or

Where there are exceptions, which are not material, then the above statement should be qualified to state that there has not been full compliance but that failures have not been material.]

[Or

List material exceptions and action taken to ensure that failures are not repeated.]

Yours faithfully

Authorised signatory

Appendix 4

Report by auditor on declaration under Article 6(1) of the Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency)) (Jersey) Order 2005

[Addressee]
[Name of registered person]
Any House
Any Place
St. Helier
JE4 XXX

Dear Sirs

Report on declaration under Article 6(1) of the Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency))(Jersey) Order 2005

We have reviewed the attached declaration prepared by [name of registered person] under Article 6(1) of the Financial Services (General Insurance Mediation Business (Accounts, Audits, Reports And Solvency))(Jersey) Order 2005. That declaration is the responsibility of, and has been approved by, the directors . It is our responsibility to report on that declaration, based on our audit of [name of registered person]'s financial statements.

We have audited the financial statements of [name of registered person] for the year/period ended [date] in accordance with United Kingdom Auditing Standards, and in our report to you dated [date], we set out the basis for our opinion. While conducting our audit for the purpose of reporting on the financial statements, we have become aware of:

• nothing that could be taken as indicating that a statement in the attached declaration is incorrect; or
  
  
• the following matters that prevent us from confirming that a statement in the attached declaration is correct .
  

Except for the requirements set out in Auditing Standards and in Articles 3(1), 5(3), 8(5) and 8(6) [for a single entity, or 9(4) for a group] of the Financial Services (Trust Company Business (Accounts, Audits and Reports)) (Jersey) Order 2000, our audit was not planned or conducted for the purpose of determining whether the [name of registered person] has complied with the requirements of the Financial Services (Jersey) Law 1998, (the "Law'), any Orders and Codes of Practice made or issued under the Law or any money laundering legislation. We accept no duty or responsibility to any third party including the Jersey Financial Services Commission (the "Commission') in this regard.

We consent to a copy of this report being attached to the declaration, which has been initialled by us for identification purposes only, and being provided to the Commission in its capacity as regulator under the Law. Our report should not be disclosed to any other party or otherwise quoted or referred to without our prior written consent; and we accept no responsibility to any third party in relation to it.

Yours faithfully

ABC Accountants

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