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Financial Services Commission (Jersey) Law 1998: Amendment: Law drafting instructions

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A decision made 19 December 2017:

MINISTERIAL DECISION REFERENCE:    MD-C-2017- 156

DECISION SUMMARY TITLE:  JFSC civil financial penalties regime: law drafting instructions to expand the scope of the regime

DECISION SUMMARY AUTHOR:

Lead Policy Adviser: Financial Crime

IS THE DECISION SUMMARY PUBLIC OR EXEMPT?  

Public

 

REPORT TITLE:  Law drafting Instructions – amendments to the Commissions Civil Penalty Regime

REPORT AUTHOR OR NAME OF PERSON GIVING REPORT:  (if different from Decision  Summary Author)

Jersey Financial Services Commission

IS THE REPORT PUBLIC OR EXEMPT 

Exempt pursuant to Article 35 of the Freedom of Information (Jersey) Law 2011 (Formulation and development of policies)

DECISION AND REASON FOR THE DECISION:

The Chief Minister approved the instruction of the Law Draftsman to prepare an amendment to the JFSC civil financial penalties regime to expand the scope of the regime to - (i) enable penalties to be imposed in respect of negligent contraventions of the JFSC’s regulatory Codes of Practice; and (ii) enable penalties to be imposed on principal persons of regulated firms.

 

The Financial Services Commission (Jersey) Law 1998 provides a statutory framework under which the JFSC can impose a financial penalty on a regulated firm for a significant and material contravention of a JFSC Code of Practice (which set enforceable regulatory requirements).

 

The law drafting instructions would amend the statutory provisions to:

 

enable the Commission to impose financial penalties in respect of negligent contraventions of a Code of Practice; and

 

enable the Commission to impose financial penalties on “principal persons” (directors and controllers) of a regulated firm, in certain circumstances.

 

Taking each of these in turn:-

 

Financial penalties for negligent contraventions

 

Under the statutory framework there are presently three penalty bands, which cover, in summary, the following types of contraventions:

 

  • Band 1 – contraventions consisting of late or missed notifications (to the Commission) required under a Code of Practice provision;
  • Band 2 – contraventions (not falling into Band 3) that are not remediated within the timeframe determined by the Commission;
  • Band 3 – intentional or reckless contraventions.

 

The experience of the JFSC since the financial penalties regime came into force is that the threshold test currently in place of having to demonstrate that a contravention occurred intentionally or recklessly (Band 3) has resulted in the JFSC being unable to sanction, by the imposition of a financial penalty, serious misconduct committed through negligent behaviour.

 

A new Band 2A is proposed that will allow for a financial penalty to be imposed for a contravention of a Code of Practice that resulted from negligent behaviour by a regulated firm.

 

Imposing financial penalties on individuals

 

Whilst the present statutory framework allows the JFSC to impose a financial penalty on a regulated firm that contravenes a Code of Practice, the Government and the JFSC are of the view that behavioural change is more likely to be achieved when principal persons know that, potentially, they will bear a financial penalty personally for poor conduct that resulted in a contravention of a Code of Practice.

 

In addition, the imposition of penalties on regulated firms, rather than on principal persons, suffers from the problem that in many cases the regulated firm that has caused losses to its customers (as a result of contravening a Code of Practice provision) either has no remaining funds in any event; or where that is not the case, any money available would be better applied to compensating those who have lost money rather than the firm paying a civil financial penalty.

 

Extending the financial penalties regime to principal persons will also bring the Island into line with Guernsey and the United Kingdom (and many other major jurisdictions).

 

RESOURCE IMPLICATIONS:

Law drafting time will be required to draft these amendments.  There are no other resource implications for the States of Jersey as a result of this decision.

ACTION REQUIRED:

That law drafting instructions be sent by the Financial Services Unit to the Law Draftsman requesting that the amendment be drafted. 

SIGNATURE:

 

SENATOR IAN GORST

POSITION:

 

CHIEF MINISTER

 

 

DATE SIGNED

EFFECTIVE DATE OF THE DECISION

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