Industry update

Dear CEO: security issuers

This letter is for security issuers, including issuers in initial coin/token offerings, under the following laws:

  • Control of Borrowing (Jersey) Law 1947 (the COBO Law)
  • Control of Borrowing (Jersey) Order 1958 (the Order)

Overview:

To protect investors, the law requires security issuers to get consent from the JFSC before carrying out relevant activities. When we issue this consent, it comes with conditions that the security issuer must meet.

We have identified several instances where security issuers have not complied with the conditions of the consents we issued. There has also been an increase in issuers not having the necessary consent before undertaking relevant activity. This has the potential to put investors’ money at risk.

Background

We conduct our oversight of security issuers pre-launch according to the COBO Law and the Order. This includes referring issuers to published guidance notes, which set out our qualitative and governance-related expectations. We apply many of these expectations as conditions to the consents we issue, in accordance with the Order. We have noted an increase in security issuers not observing those conditions, including failure to:

  • file audited accounts with the Registrar in accordance with Article 108 of Companies (Jersey) Law 1991, irrespective of whether the company’s status is public or private
  • get our prior consent when certain key functionaries change

There has also been an increase in instances where the necessary consent was not obtained before the relevant activity took place, primarily due to lapses in corporate governance by directors. Instances have included:

  • unauthorised circulation in Jersey of prospectuses of foreign body corporates
  • unauthorised issue of securities

Expectations:

Historically, we have taken a sympathetic standpoint on those breaches when it has been satisfied that:

  • (i) they occurred because of administrative oversight
  • (ii) they were technical in nature
  • (iii) they posed no financial loss to the public
  • (iv) issuers immediately took steps to rectify the position

However, following recent incidents we will consider taking further action going forward.

We therefore wish to emphasise that:

  • (i) breaches of the Order constitute a criminal offence
  • (ii) we consider breaches of conditioned consents issued in accordance with the Order as a material occurrence
  • (iii) while we recognise that security issuers often engage the support of legal advisors as part of the application process, the responsibility to comply with the Order, and consents issued according to the Order, rest with the board
  • (iv) conditioned consents of security issuers will form an area of focus for the Registry’s Supervision team

Where breaches do not accord to the JFSC’s guiding principles of reducing risk to the public, these will be referred to HM Attorney General.