A new regulatory body is to police Jersey's finance industry. Richard Syvret explains how it will work. Richard Syvret is director of Jersey's Financial Services Department.
Over the past 40 years, Jersey has become a leading international finance centre. Trustees, custodians, administrators, accountants and lawyers make up some of the 10,000 professionals employed by the industry.
Regulation of the finance industry is currently the responsibility of the Finance and Economics Committee of the States of Jersey (the States), which is drawn from and charged by the legislature to undertake various functions on its behalf.
Its civil service executive arm, the Financial Services Department, is made up of a team of regulators.
But 1998 will see a landmark change in the regulation, supervision and promotion of the finance industry with the introduction of the Jersey Financial Services Commission (FSC). Its aim is to ensure the quality of supervision in the island is maintained and it will do this partly by increasing the involvement of experienced industry practitioners at the highest regulatory level.
In October 1995 the States agreed in principle to the establishment of an independent commission to take over the functions currently carried out by the Finance and Economics Committee.
An organising committee was set up in July 1997 to oversee the preliminary functions of the FSC and provide input into the legislative process. The organising committee is also responsible for the development of the FSC's policies, its resourcing and its working arrangements.
The FSC will be incorporated under its own law. The draft of the law to establish the FSC was approved by the States in December 1997 and the FSC is expected to come into effect this summer.
Under Article 2 of the law the FSC will be a statutory body corporate with perpetual succession and a common seal. It will be similar, though not identical, to a limited liability company. It may sue and be sued, enter into contracts and undertake property transactions and, as far as is possible for a body corporate, has the rights, powers and privileges, liabilities and obligations of a person of full age and capacity.
With regard to financing, the FSC will be funded by fees and charges payable by financial services businesses for registration or similar functions. It will be able to receive grants from the States, borrow and invest its surplus funds and it will be required to pay an annual amount to the States each year.
The FSC will not have a share capital, but as a statutory body corporate it will be responsible to the Finance and Economics Committee and, as such, could be regarded as being in the ownership of the States of Jersey.
There is also a power under the law for the States to guarantee the liabilities of the FSC or lend it money within a defined borrowing limit. As a body corporate it will be exempt from income tax.
Under the changed structure, the FSC's governing body will be a board of commissioners, representing practitioners in the finance industry, those able to represent the interests of “users” of the industry and those representing the public interest. Article 3 requires the appointment of a proper balance of the various representatives.
Under Article 3 the board of the FSC is to be appointed by the States from persons nominated by the committee and such appointments shall be debated “in camera”. The chairman must for the time being be a member of the committee and there must be no fewer than six other members.
The FSC's powers are detailed under Article 8 of the law, giving powers which are reasonably necessary for carrying out its functions or reasonably necessary for their proper discharge.
While remaining ultimately accountable to the Finance and Economics Committee, its new structure will also ensure an even greater responsiveness on the part of the FSC to changing financial products and financial services developments.
The extent to which lawyers as professionals may engage in financial services business may be supervised and regulated by the commission.
For example, lawyers engaged in the provision of investment advice will in future need a licence under the new Investment Business Law, which is due to come into effect in 1998 under the FSC.
This law will strengthen the supervision of financial intermediaries and other professionals in fields such as securities, futures dealing and discretionary investment management.
However, the fsc is not simply a policeman; it is under an obligation to promote Jersey as an international finance centre, as well as regulating the industry.