TRUST COMPANY BUSINESS
THE "SPAN OF CONTROL" OR "4 OR 6 EYES" PRINCIPLES
1.0 Introduction
1.1 For many years, through both regulatory practice and Regulation
of Undertakings guidelines, Jersey has sought to ensure that financial
services businesses have a management structure which ensures proper
checks and balances are in place.
1.2 The Financial Services (Jersey) Law 1998
("the Law")
includes in its scope (Article 2 of the Law) Investment Business,
General Insurance Mediation Business and Trust Company Business.
Accordingly, persons carrying on any of these activities are required
to demonstrate that the business is actively managed by at least
two or three skilled and experienced individuals. (Where those
persons handle client assets or customer assets, the business will
be required to meet the "six eyes" principle). Both
the four eyes and six eyes principles can be found in provision
3.2 of both the Investment Business Codes of Practice and Trust
Company Business Codes of Practice These Codes are issued pursuant
to powers given to the Commission under Article 19 of the Law.
Codes of Practice for General Insurance Mediation Business are
expected to be prepared for consultation with the industry that
will include similar provisions.
1.3 The purpose of these notes is to explain the Commission's requirements
as to adequate "span of control" and to provide guidance
as to the criteria which registered persons should consider when
determining how to demonstrate compliance with the respective Codes
of Practice.
2.0 The principle Top
2.1 The "four eyes" or "six eyes" are the
principal persons of the business, who must be able to exercise
executive powers on behalf of the registered person.
2.2 Article 8 of the Law requires a registered
person's application to be "accompanied by such information
and documents as the Commission may require, relating to the applicant
and his business, and
to persons who are principal persons in relation
to the applicant and verified in such manner as the Commission
may require."
2.3 Principal persons are defined in Article 1 of the Law as meaning:
"in relation to a person -
(a) being a sole trader, the proprietor;
(b) being a company -
(i) a person who, either alone or with any associate or
associates -
(A) directly or indirectly holds ten per cent or more
of the share capital issued by the company;
(B) is entitled to exercise or control the exercise
of not less than ten per cent of the voting power in general
meeting of the company or of any other company of which
it is a subsidiary; or
(C) has a holding in the company directly or indirectly
which makes it possible to exercise significant influence
over the management of the company;
(ii) a director;
(iii) a person in accordance with whose directions, whether
given directly or indirectly, any director of the company,
or director of any other company of which the company is
a subsidiary, is accustomed to act (but disregarding advice
given in a professional capacity);
(c) being a partnership -
(i) a partner;
(ii) where a partner is a company, any person who, in
relation to that company, falls within sub-paragraphs (i),
(ii) or (iii) of paragraph (b); and
in relation to a person whose registered office and principal
place of business is outside the Island, includes a person
who, either alone or jointly with one or more other persons,
is responsible for the conduct of the person's financial service
business in the Island; and
in relation to a person who has become bankrupt, includes
a person who has been appointed as liquidator or administrator
of the person's affairs."
2.4 For purposes of demonstrating adequate span of control, the "four
or six eyes" (2 or 3 specific individuals) will usually
be drawn from principal persons who must be actively involved
in the day to day management of the business and be able to
exercise executive powers on behalf of the registered person. Normally,
such persons will be directors, or partners of the registered
person. However, senior (Category A) staff below director appointment
may be included, particularly if they in turn are supported
by principal persons off Island and the latter are employees
of substantial regulated businesses.
2.5 The persons making up the " four or six eyes" must
form, or be an influential part of, the overall management team;
must be able to demonstrate independence, competence and have relevant
experience and integrity and must be able to effectively exercise
management control over the authorised entity. This does not require
day-to-day involvement in the execution of policy. It does, however,
require the day-to-day involvement in general management, as well
as a knowledge of, and influence on, the way in which strategy
is being implemented through day-to-day policy.
3.0 Independence Top
3.1 Close family relationships need normally to be discounted.
It is not reasonable to assume that close family (i.e. spouses,
children, parents, brothers, sisters etc.) can exercise properly
independent management. Therefore, only one family member should
be counted in the evaluation and care should be taken, where more
than one family member is a principal person, to ensure that the
combined influence of family members does not override that of
the other independent principal persons.
3.2 Where existing businesses have difficulty in complying with
the requirements of paragraph 3.1, they should be aware that (a)
the Commission has discretion in certain cases and (b) transitional
periods will apply.
4.0 Competence - qualifications
and experience Top
4.1 The persons making up the "four or six eyes" management
team must be suitably qualified and experienced.
4.2 It is essential that the persons making up the "four or
six eyes" are able to demonstrate a balance of appropriate
qualifications, skills and experience. These need not all be qualifications
from the Codes of Practice, but must recognise the needs of the
business.
4.3 All principal persons must submit a personal questionnaire,
on which checks may be made by the Commission and references taken
up as appropriate.
21st January 2005
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