Financial statements 2019
Income and expenditure account for the year ended 31 December 2019
|Regulatory fee income||4||14,428||13,815|
|Registry fee income||5||4,429||4,396|
|Total regulatory income||18,857||18,211|
|Investigation & Litigation||(215)||(373)|
|Other operating costs||(822)||(730)|
|Depreciation, amortisation and impairments||(1,356)||(887)|
|Staff learning and development||(275)||(247)|
|Surplus for the year||8||338||843|
Statement of financial position as at 31 December 2019
|Tangible fixed assets||10||844||621|
|Cash and bank balances||11||11,404||9,515|
|Creditors - Amounts falling due within one year|
|Fee income received in advance||6,583||5,903|
|Net current assets||7,058||6,681|
|Creditors - Amounts falling due after one year|
All the items dealt with in arriving at the net surplus/(deficit) relate to continuing operations.
There are no recognised gains and losses in the current and preceding year other than those included in the net surplus/(deficit) above, therefore no separate statement of other comprehensive income and expenditure has been presented.
The notes below form an integral part of the financial statements.
The financial statements were approved by the Board of Commissioners on 5 June 2020, and signed on its behalf by: Mark Hoban, Chair and Martin Moloney, Director General.
Statement of changes in accumulated reserves
|Balance at 1 January 2018||5,511|
|Surplus for the year||843|
|Balance at 31 December 2018||6,354|
|Balance at 1 January 2019||6,354|
|Surplus for the year||338|
|Balance at 31 December 2019||6,692|
Statement of cash flows for the year ended 31 December 2019
|Cash flows from operating activities|
|Net surplus for the year||338||843|
|Depreciation, amortisation and impairment charges||9,10||1,356||887|
|Utilisation of provision||(62)||(111)|
|Movements in provisions||75||108|
|Deferred rental incentive||(26)||6|
|(Increase)/decrease in debtors and prepayments||(7)||204|
|Increase in income received in advance||680||462|
|Increase in creditors||2,503||23|
|Net cash generated from operating activities||4,797||2,381|
|Cash flows from investing activities|
|Purchases of tangible and intangible fixed assets||9,10||(2,968)||(1,793)|
|Net cash used in investing activities||(2,908)||(1,752)|
|Net increase in cash and cash equivalents||1,889||629|
|Cash and cash equivalents at 1 January||9,515||8,886|
|Cash and cash equivalents at 31 December||11||11,404||9,515|
|Cash and cash equivalents consists of:|
|Cash at bank and in hand||297||283|
|Short term deposits||11,107||9,232|
|Cash and cash equivalents||11||11,404||9,515|
Notes to the Financial Statements for the year ending 31 December 2019
01 Significant accounting policies
Basis of preparation
The financial statements have been prepared in accordance with FRS 102, the Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland.
The financial statements are prepared on a going concern basis, under the historical cost convention. As set out in note 2(b) the board has given additional consideration to the use of the going concern basis given the impact of COVID 19.
The principal significant accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently applied to both accounting years presented.
The financial statements contain information about the JFSC as an individual entity, and do not include consolidated financial information as the parent of a group. The JFSC is exempt from the requirement to prepare consolidated financial statements because the inclusion of its subsidiary is not material for the purpose of giving a true and fair view.
Income is accounted for on an accruals basis. Regulatory and Registry annual fees received are recognised as income on a straight-line basis over the relevant period. Annual registry fees and revenue from the operation of Government of Jersey registers include only the share of that income attributable to the JFSC.
Annual return fees are deferred in the first instance where the JFSC has agreed with the Government of Jersey that amounts received are to be segregated and to be applied to specific Registry or MONEYVAL AML projects. Amounts deferred are released to income in the period in which the related costs are incurred or in the periods in which any related fixed asset is depreciated or impaired.
Revenue from the rendering of services, including the design, development and operation of the Government of Jersey Registers, is recognised based on the stage of completion method. Where uncertainty exists in relation to the stage of completion, revenue recognition is limited to the extent to which costs have been incurred.
Amounts received from the Government of Jersey in the form of grants and other financial assistance are recognised when the JFSC has satisfied all of the conditions necessary for the funds to be released. Amounts received are recognised as income in the period in which the related costs are incurred or in the periods in which any related fixed asset is depreciated or impaired.
Civil penalties are recognised when the penalty has been agreed with the regulated entity and where it has the ability to settle the amount involved. Income from civil penalties is deferred and is released to income in the year in which the amount of fees to be paid by Industry is reduced due to the penalty having been received.
Recoveries of enforcement costs are accounted for only when they have been agreed with the regulated entity or awarded by the Royal Court and it has become virtually certain that they will be received.
Interest received on bank deposits is accrued on a time basis by reference to the principal outstanding and the effective interest rate applicable. Sundry income is recognised on receipt.
All expenses are accounted for on an accruals basis.
Foreign currency balances are translated to Sterling at the rate of exchange ruling on the last business day in the financial period.
Foreign currency transactions are translated into Sterling at the rate of exchange ruling on the date of the transaction. Profits and losses on foreign exchange are included in the income and expenditure account.
Investigation and litigation costs
Investigation and litigation costs are recognised as incurred. No provision is made for the cost of completing current work unless a present obligation exists at the balance sheet date.
Cash and bank balances
Cash and bank balances comprise cash in hand, deposits and other short-term liquid investments that are readily convertible to a known amount of cash, are subject to an insignificant risk of changes in value, controlled by the organisation and to which the organisation attaches equitable ownership.
A financial asset is recognised in relation to the cost of design, development and operation of Government registers on an accruals basis, provided such costs are contractually recoverable.
Tangible fixed assets
Fixed assets are stated at historical cost less accumulated depreciation and any impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
Repairs and maintenance are charged to the income and expenditure account during the period in which they are incurred.
Depreciation of fixed assets is calculated so as to write off their cost less estimated residual value on a straight-line basis over their expected useful lives.
The estimated useful lives used for this purpose are:
- motor vehicles - 3 years
- office furniture, fittings and equipment - 3 to 5 years
- computer equipment - 3 to 5 years
- leasehold improvements - Over the lease period
Gains and losses on disposals of fixed assets are determined by comparing the proceeds with the carrying amount and are recognised in the income and expenditure account.
Intangible assets are stated at historical cost less accumulated amortisation and any impairment losses. Historical cost includes expenditure that is directly attributable to the development of the intangible asset. Subsequent maintenance and support costs are charged to the income and expenditure account during the period in which they are incurred.
Amortisation of intangible assets is calculated so as to write off their cost on a straight-line basis over their expected useful lives.
The estimated useful lives used for this purpose are:
- Computer software - Up to 7 years
The cost of computer software in respect of major systems is capitalised within intangible assets. All other computer software costs are expensed as incurred. Computer systems under development are not amortised until the system has been completed and is ready for use.
Gains and losses on disposal of intangible assets are determined by comparing any proceeds with their carrying amount and are recognised in the income and expenditure account.
In the requirements gathering phase of an internal systems development project, it is not possible to demonstrate that the project will generate future economic benefits and hence all expenditure is recognised as an expense when incurred. Systems developments are recognised as fixed assets from the development phase of a project if, and only if, certain specific criteria are met in order to demonstrate the system will generate probable future economic benefits and that its cost can be reliably measured. If it is not possible to distinguish between the requirements gathering phase and the development phase, the expenditure is treated as if it were all incurred in the requirements gathering phase only.
Assets that are subject to depreciation and amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. Where there is an indication that an asset may be impaired, the carrying value of the asset is tested for impairment. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Cash flows from registry and supervisory income are separately identifiable and assets are allocated between these cash flows based on their operational application.
Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased.
Rent payable under operating leases is charged to the income and expenditure account on a straight-line basis over the term of the lease.
The JFSC has taken advantage of the exemption available on transition to FRS 102, which allows lease incentives on leases entered into before the date of transition to continue to be released to the income and expenditure account on a straight-line basis over the period to the first lease break. For leases entered into after the date of adoption of FRS 102, lease incentives received to enter into operating lease agreements are released to the income and expenditure account over the full term of the lease.
The costs of defined contribution pension schemes are accounted for on an accruals basis. The costs of annual contributions payable to defined benefit schemes operated by the Government of Jersey are accounted for on an accruals basis because the JFSC is unable to obtain the information necessary to apply defined benefit scheme accounting (see note 16).
Annual leave pay accrual
A liability is recognised to the extent of any untaken annual leave entitlement which has accrued at the balance sheet date and can be carried forward to future periods. The liability is measured at the undiscounted cost of untaken annual leave that has accrued up to the balance sheet date.
Provision for long leave entitlements
Provision is made for the accrued entitlements to long leave as at the balance sheet date, even when such entitlements may not yet have vested. The provision is increased each year as additional entitlements are earned. The provision is decreased when long leave entitlements are taken and when such entitlements expire.
The provision represents management’s best estimate of the amounts expected to be paid out, taking into account long leave entitlements that may be lost when an employee leaves the employment of the JFSC. The provision is discounted if the effect would be material.
Provision for premises reinstatement
Provision is made for the expected costs of reinstating office premises to their original condition upon the termination of existing lease agreements. The balance represents management’s best estimate of amounts to be paid for reinstatement. The provision is assessed each year based on changes in the expected costs of reinstatement and discount rates where applicable. The provision will be reduced when related costs are incurred in future periods. Provisions for premises reinstatement costs are discounted if the effect would be material.
02 a) Critical accounting judgements and key sources of estimation uncertainty
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Key accounting estimates and assumptions
Management is required to make estimates and assumptions concerning the future. The resulting accounting estimates may not equal the actual outcomes. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined next.
Provision for long leave entitlements
The balance of the provision for long leave has been determined based on a range of estimates regarding the probability that the related leave entitlement will vest and be taken. This represents management’s best estimate regarding the expected future cash flows related to long leave entitlements.
Provision for premises reinstatement
The balance of the provision for premises reinstatement has been determined based on the applicable square footage of leased premises and the rate per square foot for such reinstatement works published by the Royal Institute of Chartered Surveyors. The provision is adjusted annually based on movements in the published rate per square foot. This represents management’s best estimate regarding the expected future cash flows related to these costs. The balance is discounted if the effect would be material.
Useful lives and residual values
Fixed assets are depreciated over their expected useful lives, taking into account residual values where appropriate. The actual lives and residual values are assessed annually and may vary depending on a number of factors. In re-assessing useful lives and residual values, a wide range of factors are taken into account. Changes in these assessments are accounted for prospectively and therefore only have a financial effect on current and future periods.
b) Going concern
Governments and corporates have been taking extraordinary measures to deal with the threat to life posed by COVID 19. Governments have found it necessary to provide finance for a wide range of businesses that have ceased trading or had their trading prospects significantly impaired. Many businesses have closed and may not be capable of being restarted leading to impairments and write offs. The JFSC has to keep operating, subject to constraints, including staff working from home.
The Board has reviewed in detail the plans put into place by the executive to manage current operations and revised forecasts for 2020 and 2021 using a base and a stressed case. Under the base case income for 2021 would be reduced on average by 10%, and under the stressed case by on average 20%, due to business and funds that may close together with further industry consolidation reducing the number of regulated entities.
Should such circumstances arise the revised forecast for 2020 and 2021 envisages a balanced budget can be achieved through a planned reduction in activity and deferral of projects. The Board has therefore concluded that the JFSC should be able to continue as a going concern and that it is appropriate to prepare the financial statements on that basis.
The JFSC is exempt from the provisions of the Income Tax (Jersey) Law 1961, as amended.
04 Regulatory fee income
|General insurance mediation||149||148|
|Designated non-financial businesses and professions||711||675|
|Money services business||20||21|
05 Registry fee income
Registry fees arise from the operation of the Companies Registry, the Business Names Registry, the Registry of Limited Partnerships, the Registry of Limited Liability Partnerships, and the Security Interests Register.
Registry fees include annual return fees. The amount of the annual return fees payable to the Registry includes amounts collected on behalf of and remitted to the Government of Jersey.
|Total annual return fee income||7,004||6,905|
|This is apportioned as follows:|
|Collected on behalf of the Government of Jersey||3,889||3,838|
|Collected by the JFSC||2,011||1,993|
|Segregated portion as agreed with the Government of Jersey *||1,104||1,074|
|Annual return fee income collected by the JFSC||2,011||1,993|
|Other Registry income||2,418||2,403|
|Total Registry income||4,429||4,396|
The number of annual returns received during the year was:
|Annual returns received||33,818||33,373|
06 Other income
|Investigation and litigation recoveries *||240||-|
|Financial contribution income||195||185|
* As part of its regulatory responsibilities, the JFSC carries out investigations and enters into legal actions from time to time, the costs of which may be significant. In a few cases, some or all of the JFSC’s costs may be recoverable.
07 Staff costs
|Social security contributions||503||447|
|Permanent health and medical insurance||422||360|
|Other staff costs||152||135|
|Long leave provision||32||57|
|Annual leave pay accrual||8||14|
Contributions to staff pension schemes are payable monthly to pension scheme administrators. No contributions (2018: £NIL) were payable to the schemes at year end. The average number of staff employed during the year was 144 (2018: 131).
08 Surplus for the year
Surplus for the year is stated after including the below:
|Depreciation of tangible fixed assets (note 10)||(272)||(273)|
|Amortisation of intangible assets (note 9)||(1,083)||(614)|
|Foreign exchange differences||(15)||7|
|Contributions to employee pension schemes (note 16)||(837)||(771)|
|Operating lease expenditure||(566)||(566)|
|Internal Audit fees*||(4)||-|
* Total fees paid to the JFSC’s auditors include Audit fees and Internal Audit fees only.
09 Intangible assets
|Computer systems under development||Computer systems||Total|
|Balance at 1 January 2019||1,193||7,424||8,617|
|Completed computer systems||(1,875)||1,875||-|
|Transfer to tangible fixed assets||-||(160)||(160)|
|At 31 December 2019||1,950||9,139||11,089|
|Balance at 1 January 2019||-||(3,920)||(3,920)|
|Charge for the year||-||(1,083)||(1,083)|
|At 31 December 2019||-||(5,003)||(5,003)|
|Net book value at 31 December 2019||1,950||4,136||6,086|
|Net book value at 31 December 2018||1,193||3,504||4,697|
The principal expenditure during the year related to core information systems replacements and upgrades and further development of the relationship management system related to risk based supervision and expansion of services which will become accessible through the JFSC portal.
10 Tangible fixed assets
|Office furniture, fittings & equipment||Leasehold improvements||Computer equipment||Motor vehicles||Total|
|Balance at 1 January 2019||607||311||1,375||13||2,306|
|Transfer from intangible assets||-||-||160||-||160|
|At 31 December 2019||640||311||1,838||13||2,802|
|Balance at 1 January 2019||(556)||(103)||(1,020)||(7)||(1,686)|
|Charge for the year||(25)||(60)||(183)||(4)||(272)|
|At 31 December 2019||(581)||(163)||(1,203)||(11)||(1,958)|
|Net book value at 31 December 2019||59||148||635||2||844|
|Net book value at 31 December 2018||51||209||355||6||621|
11 Cash and bank balances
|Cash and cash equivalents at bank||11,404||9,515|
The JFSC’s accumulated financial reserves less the funds invested in fixed assets and working capital are invested in bank deposit accounts. In order to mitigate the credit risk, these deposit accounts are maintained with five different banks.
Included in deposit account balances are funds amounting to £2,822,665 (2018: £1,718,565) which have been identified as relating to deferred registry fees (see note 12).
|Deferred rental incentive||62||88|
|Deferred registry fees *||2,823||1,719|
|Deferred industry fees **||381||-|
* It was agreed with the Government of Jersey that a portion of the additional registry fees charged, with effect from 1 January 2017, be segregated and used for certain current and future enhancements to the Registry and its systems.
If the amounts are not used for this purpose they are likely to become payable to the Government by way of adjustment to the Companies (Annual Returns – Additional Charge) (Jersey) Regulations 2008 or similar arrangements.
Subsequent to the year end, it was further agreed with the Government of Jersey that the amount segregated may be utilised for 2020 Registry projects and for start-up costs of the Financial Crime Examination Unit.
** Deferred Industry fees arise from civil penalties received during the year. The Law requires the amount to be credited to Industry by way of reductions in Industry fees that would otherwise be charged in future years.
|Provision for long leave||Reinstatement provision||Total|
|Balance at 1 January 2018||269||244||513|
|Amounts provided for during the year||71||37||108|
|Reversal of unused provision||-||-||-|
|Utilised during the year||(111)||-||(111)|
|Balance at 31 December 2018||229||281||510|
|Amounts provided for during the year||51||44||95|
|Reversal of unused provision||(20)||-||(20)|
|Utilised during the year||(62)||-||(62)|
|Balance at 31 December 2019||198||325||523|
|Falling due within one year||157||-||157|
|Falling due after one year||41||325||366|
Provision for long leave
The provision for long leave relates to the expected cost of long leave entitlements that have accrued up to the date of the statement of financial position. Long leave entitlements may continue to accrue up to June 2043 if all vesting conditions are satisfied up to that period.
Provision for premises reinstatement
The provision relates to the expected costs of reinstatement of office premises to their original condition on termination of premises leases. The balance at year end has been determined based on a guideline rate of £16 per square foot (2018: £13.80 per square foot) as determined by the Royal Institute of Chartered Surveyors. The provision is adjusted annually based on movements in the guideline rate.
14 Commitments under operating leases
The JFSC had minimum lease payments under non-cancellable operating leases as set out below:
|Not later than 1 year||592||592|
|Later than 1 year but not later than 5 years||834||1,422|
Rentals payable under this operating lease are subject to periodic review and are based on market rates. The most recent rent review was agreed during 2017 and the resulting rental increase was effective from May 2016. The next rent review is due to commence in 2020.
15 Financial instruments
Our financial instruments are analysed as follows:
|Financial assets measured at amortised cost||11,873||10,018|
|Financial liabilities measured at amortised cost||(2,080)||(891)|
Financial assets measured at amortised cost comprise cash at bank and in hand, trade debtors and other debtors.
Financial liabilities measured at amortised cost comprise trade creditors and other creditors.
16 Pension costs
JFSC 2012 Staff Pension Scheme
In 2012, the JFSC closed the JFSC’s Staff Pension Scheme and replaced it with a new defined contribution scheme, the JFSC 2012 Staff Pension Scheme. The new scheme is open to staff whose initial employment by the JFSC occurred after 1 January 1999. Members’ interests in the previous scheme were automatically transferred to the JFSC 2012 Staff Pension Scheme. All transfers of interests were completed in 2013.
The JFSC 2012 Staff Pension Scheme’s assets are held separately from those of the JFSC, under the care of an independent trustee.
Salaries and emoluments include pension contributions for staff to the schemes of £809,501 (2018: £746,070). Contribution rates have remained unchanged. Aggregate contributions increased due to changes in membership numbers, ages and employment grades.
Public Employees Contributory Retirement Scheme
Staff employed by the JFSC before 1 January 1999 are members of the Public Employees Contributory Retirement Scheme (PECRS) which is a final salary scheme. The assets are held separately from those of the Government of Jersey. Contribution rates are determined by an independent qualified actuary, so as to spread the costs of providing benefits over the members’ expected service lives.
Pension contributions for staff to this scheme amounted to £27,054 (2018: £24,807). The average contribution rate paid by the JFSC during the year was 14.4% (2018: 13.6%) of salary. The contribution rate has not been changed following the actuarial valuation because the valuation is within the funding parameters specified in the related regulations.
The JFSC is unable to identify its share of the underlying assets and liabilities of PECRS in accordance with FRS 102 (Section 28) and accordingly accounts for contributions to the scheme as contributions to a defined contribution scheme.
The most recent published actuarial valuation was as at 31 December 2018, which reported a deficit of £1.1 million. No account has been taken of the JFSC’s potential share of this deficit because the scheme is accounted for as if it is a defined contribution scheme.
Copies of the latest Annual Accounts for the scheme, and for the Government of Jersey, may be obtained from the Treasury and Exchequer,19-21 Broad Street, St Helier, JE2 3RR.
17 Related party transactions
Transactions and balances arising in the normal course of operations
The JFSC has been established in law as an independent financial services regulator and as such the Government of Jersey is not a related party.
Remuneration of key management personnel
Key management personnel includes the Commissioners, the Director General and Executive Directors who together have authority and responsibility for planning, directing and controlling the activities of the JFSC. Total remuneration paid to members of key management personnel during the year was £1.9 million (2018: £2.4 million).
Remuneration of Commissioners
Remuneration of the Commissioners and the Director General is set out on page 60 of this annual report. There were no other transactions with key management personnel other than reimbursement of expenses incurred for JFSC purposes.
18 Subsidiary undertakings
At 31 December 2019, the JFSC had an interest in one wholly owned subsidiary company. Further details are outlined below:
|Name||JFSC Property Holdings No.1 Limited|
|Country of incorporation||Jersey|
|% of shares held||100%|
|Principal activity||Property lease holding|
JFSC Property Holdings No.1 Limited entered into an agreement on behalf of the JFSC to lease the JFSC’s office premises. All expenditure incurred by the Company is borne by the JFSC. The Company has no assets or liabilities and therefore has not been consolidated in the financial statements.
19 Changes in estimates of useful lives of intangible assets
During the 2019 financial year, the useful lives of certain assets were assessed to be shorter than originally expected. A change in the useful lives of these intangible assets has therefore been accounted for prospectively by amortising their respective net book values to nil using the straight line method over the shorter remaining useful lives. The change in estimate has affected assets for which financial contributions were received. As such the financial contributions will be recognised prospectively as income over the revised remaining useful lives of the related assets.
The financial effect of these changes in accounting estimates on the financial statements is as follows:
|Effect on income and expenditure account||
|Increase in other income (recognised financial contribution income)||130|
|Increase in amortisation charges||(130)|
|Net effect on the surplus for the year||-|
|Effect on statement of financial position as at 31 December 2019||2019|
|Effect on assets|
|Increase in cumulative amortisation and net book value of intangible assets||(130)|
|Effect on liabilities|
|Decrease in balance of financial contributions||130|
|Net effect on accumulated reserves||-|