Feedback and further consultation on Investment Business regime
- Issued:23 November 2020
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Feedback and further consultation on Investment Business regime
This paper reports on responses received by the Jersey Financial Services Commission (JFSC) and Jersey Finance Limited (JFL) to Consultation Paper No.8 2019: a consultation on legislative proposals to enhance Jersey’s Investment Business regime; and then seeks further consultation on three amendments in response to the feedback. The further consultation period closes on 26th February 2021.
The JFSC contact is:
Matthew Clegg
Senior Manager, Policy
Jersey Financial Services Commission
PO Box 267
14-18 Castle Street
St Helier
Jersey
JE4 8TP
Telephone:+44 (0) 1534 822157
Email:m.clegg@jerseyfsc.org
Alternatively, Lisa Springate at Jersey Finance Limited (JFL) is coordinating an Industry response that will incorporate any matters raised by local businesses. Comments should be submitted to JFL by the 26th February 2021.
The JFL contact is:
Lisa Springate
Head of Legal and Technical
Jersey Finance Limited
4th Floor, Sir Walter Raleigh House
48-50 Esplanade
St Helier
Jersey
JE2 3QB
Telephone:+44 (0) 1534 836029
Email:lisa.springate@jerseyfinance.je
It is the policy of the JFSC to summarise or make the content of responses available for public inspection (unless specifically requested otherwise by the respondent).
It is the policy of JFL (unless otherwise requested or agreed) to collate all responses and share them verbatim with the JFSC on an anonymised basis (with reference made only to the type of respondent, e.g. individual, law firm, trust company etc.). This collated, anonymised response will, typically, be placed in JFL’s permanent electronic archive which is currently open to all JFL members.
Glossary of Terms
Defined terms are indicated throughout this document as follows:
Abbreviation |
Full Name |
CAO |
Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001 |
CP |
Consultation Paper |
FCA |
Financial Conduct Authority (UK) |
FSJL |
Financial Services (Jersey) Law 1998 |
IB |
Investment Business |
IB Code |
Code of Practice for Investment Business |
IOSCO |
International Organisation of Securities Commissions |
JFSC |
Jersey Financial Services Commission |
MiFID II |
Markets in Financial Instruments Directive (MIFID - 2014/65/EU) and the Markets in Financial Instruments Regulation (MiFIR - 600/2014/EU) |
registered person |
a person who is registered by the JFSC under Article 9 of the FSJL to carry on Investment Business as defined in Article 2 (2) of the FSJL |
1 Executive Summary
1.1 Overview
The JFSC is committed to enhancing the Investment Business (IB) regime; there have been a number of changes to regulation both at European and international level and the JFSC is committed to maintaining international standards where applicable and proportionate for Jersey.
Following prior consultations and feedback, the JFSC approved the conceptual legislative proposals in March 2019, and requested through Government the Law Drafters to prepare amended legislation accordingly.
A consultation paper (CP) was published in December 2019 in relation to that draft legislation with an extended response period due to Covid-19.
This paper provides feedback on the proposals set out in the CP and is also a further consultation on three amended legislative proposals as a consequence of the feedback and other factors. Rather than provide feedback and then consult again we worked with the Law Drafting Office to bring about the further consultation alongside the feedback.
1.2 Who would be affected?
The proposals in this feedback and consultation paper have the potential to affect:
- all registered persons licensed to carry on IB in accordance with the FSJL;
- all registered persons within the scope of the CAO;
- any business that arranges or brings about arrangements for another person to buy, sell, subscribe for or underwrite a particular investment; and
- any business carrying on exchange business.
1.3 Costs & Benefits
The JFSC recognises the potential costs to industry when amending legislation and has considered this in the scope and approach of the proposals. The proposals in this paper will, in aggregate, improve the clarity of the IB legislation for registered persons, enhance consumer protection and contribute towards the Island meeting international regulatory standards.
2 Consultation
2.1 Basis for consultation
2.1.1 The JFSC has issued this CP in accordance with Article 8(3) of the Financial Services Commission (Jersey) Law 1998, as amended (Commission Law) under which the JFSC “may, in connection with the carrying out of its functions …consult and seek the advice of such persons or bodies whether inside or outside Jersey as it considers appropriate”.
2.2 Responding to the consultation
2.2.1 The JFSC invites comments in writing from interested parties on the proposals included in this CP. Where comments are made by an industry body or association, that body or association should also provide a summary of the type of individuals and/or institutions that it represents.
2.2.2 A response form has been published alongside this consultation Response form
2.2.3 Respondents are requested to use this form when providing feedback, either directly or via JFL.
2.2.4 Comments should be received by the JFSC no later than 26th February 2021.
2.3 Next steps
2.3.1 The JFSC will seek to publish feedback in Q2 2021.
3 The JFSC
3.1 Overview
3.1.1 The JFSC is a statutory body corporate established under the Commission Law. It is responsible for the supervision and development of financial services provided in or from within Jersey.
3.2 The JFSC’s functions
3.2.1 Article 5 of the Commission Law prescribes that the JFSC shall be responsible for:
3.2.1.1 the supervision and development of financial services provided in or from within Jersey;
3.2.1.2 providing the States of Jersey, any Minister of any other public body with reports, advice, assistance and information in relation to any matter connected with financial services;
3.2.1.3 preparing and submitting to the Minister recommendations for the introduction, amendment or replacement of legislation appertaining to financial services, companies and other forms of business structure;
3.2.1.4 such functions in relation to financial services or such incidental or ancillary matters:
- as are required or authorised by or under any enactment, or
- as the States of Jersey may, by Regulations, transfer; and
3.2.1.5 such other functions as are conferred on the JFSC by any other Law or enactment.
3.3 Guiding principles
3.3.1 Article 7 of the Commission Law sets out the JFSC’s guiding principles which require the JFSC to have particular regard to:
3.3.1.1 the reduction of risk to the public of financial loss due to dishonesty, incompetence, malpractice, or the financial unsoundness of persons carrying on the business of financial services in or from within Jersey;
3.3.1.2 the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters;
3.3.1.3 the best economic interests of Jersey; and
3.3.1.4 the need to counter financial crime in both Jersey and elsewhere.
4 Summary of Amendments
FSJL Changes |
||
Include Hold |
Extend the provision of advice to include ‘hold’ as well as ‘buy’ and ‘sell’. |
Proposal will not be applied; legislation to remain unchanged. The current law captures the activity already. |
Derivative Definitions Further Consultation Question 1 |
Update the definition of investments to include all financial derivatives. |
The JFSC has worked with the Law Drafter’s Office to address the concerns raised. The new legislation proposal is included in this paper for consultation. We have created a clearer and tighter definition by:
|
Update the definition of ‘Futures’, when for commercial purposes. |
||
Update the definition of ‘Contracts for differences, etc’ to align with the ‘Financial derivatives’ and ‘Contracts for differences, etc’ changes. |
||
Arranging Further Consultation Question 2 |
Include the activity of arranging as an IB activity. |
The JFSC has worked with the Law Drafter’s Office to address the concerns raised. The new legislation proposal is included in this paper for consultation. We have addressed the concerns on scope by aligning the existing exemptions for dealing with arranging. |
Ban Products |
Powers to ban the sale of certain products to retail clients. |
The JFSC will work with the Law Drafter’s Office for an appropriate legislative proposal to achieve this. |
Exchange Business |
Prepare to include the oversight of exchange business in the FSJL. |
Legislation has now been drafted and consulted upon; the JFSC is now ready to apply the changes when required. |
Advice on Pension Transfers |
Include the oversight of advice on transfers from defined contribution schemes in the FSJL. |
The proposed legislation will not be implemented by the JFSC. It will be incorporated within the Government phase 1 pension project. |
CAO Changes |
||
3rd Party Due Diligence & Disclosure Further Consultation Question 3 |
Enhance client asset protection related to 3rd party due diligence and transparency on disclosure of protection in overseas regimes, in line with IOSCO recommendations. |
The JFSC has worked with the Law Drafter’s Office to address the concerns raised. The new legislation proposal is included in this paper for consultation. We have addressed the concerns on scope by proposing an amendment to “Approved Custodians”. |
5 Summary on feedback received
Below are two charts illustrating the feedback sentiment by type of respondent (Chart 1) and by proposal (Chart 2).
Overall, the charts illustrate conceptual support or neutrality regarding the majority of the proposals. Each of the proposals did raise concerns, more often in relation to application rather than the principle. It should also be noted that often the JFSC consults on proposals which would not be acceptable to all. Objections or concerns are not exclusively a reason for the JFSC to alter its position. That being said the concerns raised have been invaluable in helping us amend the proposals.
Chart 1: Respondents: Distribution and Sentiment
The majority of respondents held Investment Business licences and were largely supportive, with some concerns for how proposals were being applied and limited significant concerns.
Chart 2: Proposals: Respondent Sentiment
As expected, Arranging attracted a lot of feedback with concerns (mostly around application), whereas the amount of concern raised regarding advice on holding an investment was unexpected.
6 Feedback and Updated Proposals
6.1 FSJL
Requirement |
The class of IB which relates to the provision of advice be extended so that a registered person must also give advice on the merits of “holding” an investment in addition to providing advice on the purchase or sale of such an investment. |
Support Distribution |
|
Response Summarised |
|
JFSC Response |
The JFSC has considered the feedback and agrees that the change is not necessary as advising on the merits of “holding” an investment is already a regulated activity – holding a security derives from decisions as to whether or not to buy/subscribe, and, having bought/subscribed, whether or not to sell”. |
Outcome |
Proposal will not be applied; legislation to remain unchanged. |
6.1.4 Powers to Ban Products for Retail Clients |
|
Requirement |
Legislation for powers to ban the sale of certain products to retail clients. |
Support Distribution (Ban Provision) |
|
Response Summarised |
|
JFSC Response |
The JFSC welcomes the feedback on the powers to ban certain products for retail investors, and agrees that the scope of products to which this can be applied needs to be carefully considered, and that where possible prior consultation should occur. |
JFSC Comments & Next Steps |
The JFSC will work with the Law Drafter’s Office for an appropriate legislative proposal to achieve this. |
Requirement |
Legislation for a supervisory regime and powers to write codes of practice regarding exchange business. |
Support Distribution |
|
Response Summarised |
|
JFSC Response |
|
Outcome |
The legislation is made; a further Ministerial Order is required to bring this into force after the JFSC has recommended it is necessary to do so. In this eventuality we would undertake prior consultation on code of practice amendments. |
JFSC Comments |
Full details including transitional arrangements are available in the appendix. The effective date of the change is the date the regulation comes into force; a 6 month relief (plus additional provision for application purposes) is available only if a person was engaged in the activity at any time in the 6 months prior to the effective date. |
Next Steps (when required) |
|
Requirement |
The activity of advice on transfers from pension schemes to be expanded to include defined contribution schemes (in the same manner as for defined benefit schemes). |
Support Distribution |
|
Response Summarised |
|
JFSC Response |
In light of the consultation process, the JFSC has liaised with Government to clarify its plans with regards to changes to the regulation of pensions in Jersey. The Government intends to legislate with regard to all Investment Business activity under the FSJ Law involving pension products, not just investment advice. Given the substantial plans Government are developing for change in this area, the JFSC has drawn the conclusion that any initiative by the JFSC at this time would only apply for a short period and would require industry to adapt twice to two regulatory initiatives in quick succession. This would be disproportionate and disorderly. For that reason, notwithstanding the desirability of regulating the provision of investment advice with regard to DC pensions, the JFSC has decided not to take an initiative in that regard at this time. In the event that Government were to notify us that they were unable to progress their wider plans or it was to be unduly delayed, for whatever reason, we would then revisit the question of regulating pension advice using the feedback from this consultation now complete to proceed to put a regime as set out in our original consultation in place. |
Outcome |
This proposal will not be implemented by the JFSC. It will be incorporated within the Government phase 1 pension project. |
6.2 CAO
It is proposed that this Order be updated in response to IOSCO’s 2017 thematic review of client asset protection recommendations.
7 Summary of Further Questions
Question 1 |
Do you have any observations on, or concerns about, the amended proposed legislation to enhance the derivative definitions? If you do, please state in detail what your observation or concern is and the reason for it. |
Question 2 |
Do you have any observations on, or concerns about, the amended proposed legislation to introduce the activity of arranging within the activity of dealing? If you do, please state in detail what your observation or concern is and the reason for it. |
Question 3 |
Do you have any observations on, or concerns about, the amended proposed legislation to update the CAO? If you do, please state in detail what your observation or concern is and the reason for it. |
8 Appendices
Appendix A |
Financial Services (Amendment of Law) (No. 6) (Jersey) Regulations 202- |
Appendix B |
Financial Services (Amendment of Schedules to Law) (No. 2) (Jersey) Order 202- |
Appendix C |
Financial Services (Investment Business (Client Assets)) (Amendment No. 2) (Jersey) Order 202- |
Appendix D |
List of respondents The Royal Bank of Scotland International TISE The Association of Investment Companies (AIC) Afex Offshore Limited Barclays Bank PLC, Jersey branch SG Kleinwort Hambros Bank (CI) Limited Simon Howard Consulting Standard Chartered Bank, Jersey Branch Digital Assets Working Group APW Investors Limited LGT Vestra (Jersey) Limited Jersey Funds Association Rossborough Financial Services Ltd JFL: Bank JFL: Investment Business 3 Anonymous responses |
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