TRUST COMPANY BUSINESS CODES OF PRACTICE

Transcription

1 CONSULTATION PAPER NO TRUST COMPANY BUSINESS CODES OF PRACTICE A consultation paper on the proposed revision of the Codes of Practice for Trust Company Business ISSUED August 2006

2 CONSULTATION PAPER The Jersey Financial Services Commission (the Commission ) invites comments on this consultation paper. David Wild at Jersey Finance Limited ( Jersey Finance ) is co-ordinating an industry response that will incorporate any matters raised by local businesses. Comments should reach Jersey Finance by 15 November Responses should be sent to: David Wild Jersey Finance Limited 27 Hill Street St Helier Jersey JE2 4UA Telephone: +44 (0) Facsimile: +44 (0) David.Wild@jerseyfinance.je Alternatively, responses may be sent directly to Darren Boschat at the Commission by 15 November If you require any assistance, clarification or wish to discuss any aspect of the proposal prior to formulating a response, it is of course appropriate to contact the Commission. The Commission contact is: Darren Boschat Senior Manager Trust Company Business Jersey Financial Services Commission PO Box 267 Nelson House David Place St Helier Jersey JE4 8TP Telephone: +44 (0) Facsimile: +44 (0) d.boschat@jerseyfsc.org It is the policy of the Commission to make the content of all responses available for public inspection unless specifically requested otherwise. Trust Company Businesses Codes of Practice 1

3 CONSULTATION PAPER CONTENTS Pages 1 Executive summary 3 2 Consultation 5 3 The Commission 6 4 Codes of Practice 7 5 Cost benefit analysis 12 6 Summary of questions 13 APPENDICES A List of representative bodies who have been sent this consultation paper 14 B Summary of drafting changes 15 C Draft Codes of Practice 25 Trust Company Business Codes of Practice 2

4 1 - EECUTIVE SUMMARY OVERVIEW 1.1 This paper invites comments on proposed amendments to the Trust Company Business Codes of Practice (the Codes ). The existing Codes were introduced by the Commission in November 2000 and were subsequently amended in October The Commission is granted the power to revise Codes of Practice under Article 19 of the Financial Services (Jersey) Law 1998 (the Law ) and considers it prudent to do so where compelling reasons for such a change exist. In this case, the Commission has decided to review the Codes principally as a result of: Recommendations by the International Monetary Fund 1 ( IMF ) Findings from onsite and offsite supervision Industry feedback The intended repeal of Article 56 of the Trusts (Jersey) Law (the Trusts Law ) 1.2 The update also takes account of the revised structure adopted in more recent Codes issued by the Commission, for example, under the Insurance Business Codes of Practice and the proposed Codes of Practice for Deposit Taking. 1.3 All significant changes are detailed and commented upon in appendix B. WHO WOULD BE AFFECTED? 1.4 Jersey registered trust company businesses ( TCBs ) will be affected by the revision of the Codes. 1 The International Monetary Fund ( IMF ) assessed Jersey s regulatory regime in 2002 and certain recommendations for improvement were made. The proposed amendments to the existing Codes are considered necessary to address and satisfy a number of those recommendations. 2 The Minister for Economic Development has indicated his intention to progress the repeal of Article 56 of the Trusts Law which attaches personal liability to the directors of corporate trustees in the event of a breach of trust. The draft revision of the Codes has been undertaken with this development in mind. Trust Company Business Codes of Practice 3

5 BACKGROUND Jersey s Trust Company Business industry 1.5 Jersey is a leading international financial centre. The Island s financial services industry has well established banking, fund management, investment and trust company sectors, which have in more recent years been joined by a growing insurance sector. 1.6 The Law provides for the regulation of trust company business. There are currently in the region of 190 licensed TCB affiliation 3 leaders operating within the Island. 1.7 Confidence in, and demand for, trust company business services is maintained by the quality, reputation and expertise of individual institutions and the overall business and regulatory climate promoted by the Island s authorities. The Commission aims to maintain Jersey amongst the world s better regulated financial centres and is committed to supporting and implementing international regulatory standards. Jersey s financial services legislation 1.8 Jersey s financial sector is governed by four distinct regulatory laws. 4 The Law, as amended, governs persons carrying on trust company business in and from within Jersey, and Jersey incorporated companies carrying on trust company business anywhere in the world. 1.9 In addition, TCBs are required to comply with such legislation as is relevant to the particular customer structures that they administer: for example, the Trusts Law and Companies (Jersey) Law The Commission is granted the power to issue Codes of Practice for financial service business under Article 19 of the Law The Commission will look for registered TCBs to fully meet all requirements of the revised Codes within six months of their issue in final form. Until that time, the Codes issued by the Commission in October 2001 will remain in force. 3 Affiliation leader has the meaning given to that term by the Financial Services (Trust Company Business (Registration & Fees))(Jersey) Order The Collective Investment Funds (Jersey) Law 1988, the Banking Business (Jersey) Law 1991, the Insurance Business (Jersey) Law 1996, and the Financial Services (Jersey) Law Trust Company Business Codes of Practice 4

6 2 - CONSULTATION 2.1 The Commission has issued this consultation paper in accordance with Article 8(2) of the Financial Services Commission (Jersey) Law 1998, as amended, under which the Commission may, in connection with the carrying out of its functions.consult and seek the advice of such persons or bodies whether inside or outside the Island as it considers appropriate. 2.2 The Commission invites comments in writing from interested parties on the proposals set out in this consultation paper. These are particularly sought in respect of: the specific questions posed (which are summarised in section 6); and the latest draft of the proposed Codes (appendix C). 2.3 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. 2.4 To assist in analysing responses to the consultation paper, respondents are asked to: prioritise comments and to indicate their relative importance; and respond as specifically as possible and, where such responses relate to costs, to quantify those costs. 2.5 This paper will be submitted to Jersey Finance, who have agreed to distribute it to all relevant industry bodies and interested parties, to provide a discussion forum for stakeholders and to respond to the Commission on these proposals. 2.6 This paper will also be published on the Commission s web-site at for public access. This will be brought to the attention of the public through an appropriate media announcement. 2.7 Following this period of consultation, the Commission will review responses received and consider any consequent further amendments that might be appropriate. The extent of further consultation will be dependent on the materiality of such amendments. However, it is anticipated that this second consultative process will result in the Codes being finalised and issued. 2.8 A version of the Codes showing tracked changes is available from the Commission upon request. Trust Company Business Codes of Practice 5

7 3 - THE COMMISSION 3.1 The Commission is a statutory body corporate established under the Financial Services Commission (Jersey) Law 1998, as amended. It is responsible for the supervision of financial services provided in or from within Jersey. 3.2 The Commission s guiding principles require it to have regard to: the reduction of risk to the public of financial loss due to dishonesty, incompetence or malpractice by, or the financial unsoundness of, persons carrying on the business of financial services in or from within the Island; the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters; the best economic interests of the Island; and, in pursuit of the above, contributing to the fight against financial crime. Trust Company Business Codes of Practice 6

8 4 CODES OF PRACTICE 4.1 Format and content A current draft of the Codes, duly amended as a result of the factors outlined under 1.1, is attached at appendix C The draft Codes retain six fundamental principles for trust company business: A registered person must conduct its business with integrity; A registered person must have due regard for the interests of its customers; A registered person must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems; A registered person must be transparent in its business arrangements; A registered person must maintain, and be able to demonstrate the existence of, adequate capital resources; and A registered person is expected to deal with the Commission and other authorities in the Bailiwick in an open and co-operative manner In addition, the following seventh principle has been added, under which will be structured codes relating to the advertising of products and services 5 : A registered person must not make statements that are misleading, false or deceptive So far as is possible, the Commission has sought to align the format and content of the Codes that it has issued in respect of other industry sectors What are your views in relation to the proposed new high level principle seven and the accompanying Codes in relation to advertising? 5 This change anticipates the adoption of a subordinate Order to the Law pertaining to advertising and serves to align the Codes with the Codes issued in respect of insurance business and the draft Codes issued in respect deposit-taking business. Trust Company Business Codes of Practice 7

9 4.2 Financial Resource Requirements An important requirement of the Codes, and the regulatory regime in general, is that registered persons have appropriate financial standing The financial failure of a registered person has the potential to severely prejudice customers and damage the Island s reputation. Therefore it is important that the regulatory regime require that registered persons maintain adequate financial resources and insurance Whilst the Commission is of the view that the financial resource requirements remain broadly appropriate, issues arising during the course of regulatory supervision indicate that some amendments are necessary. In addition, the anticipated repeal of Article 56 of the Trusts Law has been considered in this context, as well as in connection with record keeping and the exercise of discretion Full details of the changes are set out in appendices B and C, however brief particulars are discussed below: Adjusted Net Liquid Assets ( ANLA ) calculations The provisions within the Second Schedule relating to the ANLA calculation have been made more prescriptive. This is intended to facilitate a more consistent interpretation of the solvency requirements by TCBs. It is proposed that registered persons be required to notify the Commission in the event that their ANLA calculation produces a ratio of less that 130%. The minimum permissible ratio will remain at 110% therefore a ratio of between 130% and 110%, whilst being notifiable, will not constitute a breach of the Codes Liens and Guarantees The previous option of satisfying the resource requirements by way of a deposit under lien or an irrevocable bank guarantee has been removed. This provision was very rarely utilised and would likely have presented practical difficulties in the event of the insolvency of a TCB Long Term Loans The Codes propose that, henceforth, all loans payable should be treated as liabilities for the purpose of the ANLA calculation unless they are: approved long term subordinated loans; or long-term bank loans. This provision is designed to ensure that liabilities excluded from the ANLA calculation are truly long term, appropriately documented, and, in the case of subordinated loans, subject to certain notification requirements. Trust Company Business Codes of Practice 8

10 Professional Indemnity Insurance ( PII ) The Commission has sought to remove ambiguous terms and has introduced a requirement that firms obtain appropriate run off PII 6 where a TCB is ceasing to conduct business. The maximum permissible PII excess has been moved from 20,000 plus 0.25% of cover over 5 Million to 3% of relevant fees and commissions. It is felt that this more appropriately reflects the levels of excess available in the insurance market and puts the Codes on a more equal footing with the requirements in the other Crown Dependencies Do you consider any of the changes proposed in terms of financial resources to be inappropriate and, if so, how? Are these changes likely to alter your ability to satisfy the ANLA requirements and, if so, how? Do you have loans that you will need to convert to a subordinated basis? Does your business rely upon a deposit under lien or guarantee to meet the financial resource requirements? 4.3 Record Keeping A new paragraph has been inserted at 2.8 of the Codes requiring that registered persons maintain, or ensure that another person is maintaining, adequate financial records in relation to structures under administration. The Codes were previously unclear as to the requirements in this area and the Commission s supervisory work has revealed a need for further prescription The minimum record keeping requirements set out under section 3.7 have also been amended to provide greater clarity Are the record keeping requirements clear and, if not, how could they be improved? 4.4 The Exercise of Discretion Section 2.3 of the Codes has been amended to require that, where a registered person is responsible for the exercise of discretion, such decisions must be appropriate and properly documented. Additional amendments have been made to sections and whereby registered persons acting as, or arranging for their officers or staff to act as, directors or trustees must ensure that the requirements of relevant laws are complied with. 6 Run off PII is insurance coverage for past acts or omissions once a business has ceased trading. Trust Company Business Codes of Practice 9

11 4.4.2 These changes will serve to better align the Codes with other Codes issued by the Commission. 4.5 Compliance Officers and Money Laundering Reporting Officers ( MLROs ) Changes have been made requiring that Compliance Officers are sufficiently independent and are afforded adequate access to the information and resources necessary for them to properly perform their role This change, together with an additional section relating to MLROs is designed to address deficiencies that have been identified during on-site examinations of TCBs. Again, these changes will also serve to better align the Codes with other Codes of Practice issued by the Commission. 4.6 The First Schedule Tables 4 and Tables 4 & 5 set out those qualifications that the Commission considers as being appropriate to satisfy the staff competency requirements when held in conjunction with relevant experience The name and structure of a number of qualifications has changed since the Codes were last updated and this has been reflected in the update to tables 4 and 5. Having taken relevant independent advice, the Commission also considers it appropriate to recognise a number of new qualifications for inclusion in tables 4 and Do you think that the qualifications included in tables 4 and 5 are appropriate? Do you believe that the Codes are appropriate in dealing with staff competency? 4.7 The Fourth Schedule Notification requirements and matters requiring the Commission s consent are currently found throughout the Codes. A new fourth schedule has been created so as to collate these items in a consolidated table. 4.8 Other changes Key changes made to the revised Codes are shown in the table at appendix B. Minor changes, or those involving largely only improvement in terminology, are not commented upon. However, a version of the draft Codes showing all track changes is available from the Commission upon request In light of the proposed changes noted, please consider the following questions: Do you consider any of the proposed changes made to the draft revised Codes to be inappropriate? If so, please provide an explanation How might the same result be achieved differently? Trust Company Business Codes of Practice 10

12 4.8.5 Can you identify any ways in which the revised Codes could be improved? Can you identify any issues that you feel should be addressed within the Codes that have not been addressed in the proposed draft? Trust Company Business Codes of Practice 11

13 5 COST BENEFIT ANALYSIS 5.1 The main benefits achievable from amending the Codes include: The removal of outdated provisions, in particular, the transitional provisions section, which is no longer applicable; Clearer, less ambiguous provisions; Greater consistency with other Codes issued by the Commission; Greater consumer protection through provisions dealing with advertising, record keeping, and the proper exercise of discretion; Clearer, less ambiguous, financial resource and PII requirements; The satisfaction of a number of recommendations made by the IMF in respect of Jersey s regulatory regime; and In doing so, contributing to the maintenance of confidence in the Island s trust company business industry and corresponding regulatory regime. 5.2 The minimum operating standards established by the Codes are considered to be widely in place and already applied by TCBs. The Commission recognises, though, that the size of individual operations and breadth of activities in Jersey vary significantly, with a proportionately greater financial impact falling on smaller entities. 5.3 The cost to industry, as a consequence of these changes to the Codes, is considered unlikely to be significant on the basis that the Codes are not seeking to introduce requirements which would not already be observed by the majority of TCBs as a matter of best practice. 5.4 The Commission already actively supervises TCBs and the amendment to the Codes is not expected to materially add to its operating costs. Trust Company Business Codes of Practice 12

14 6 - SUMMARY OF QUESTIONS Reference Question What are your views in relation to the proposed new high level principle seven and the accompanying Codes in relation to advertising? Do you consider any of the changes proposed in terms of financial resources to be inappropriate and, if so, how? Are these changes likely to alter your ability to satisfy the ANLA requirements and, if so, how? Do you have loans that you will need to convert to a subordinated basis? Does your business rely on a deposit under lien or guarantee to meet the financial resource requirements? Are the record keeping requirements clear and, if not, how could they be improved? Do you think that the qualifications included in tables 4 and 5 are appropriate? Do you believe that the Codes are appropriate in dealing with staff competency? Do you consider any of the proposed changes made to the draft revised Codes to be inappropriate? If so, please provide an explanation How might the same result be achieved differently? Can you identify any ways in which the revised Codes could be improved? Can you identify any issues that you feel should be addressed within the Codes that have not been addressed in the proposed draft? Trust Company Business Codes of Practice 13

15 APPENDI A LIST OF REPRESENTATIVE BODIES WHO HAVE BEEN SENT THIS CONSULTATION PAPER. Jersey Finance Jersey Association of Trust Companies Jersey Bankers Association Jersey Society of Chartered and Certified Accountants The Society of Trust & Estate Practitioners Jersey Branch The Law Society of Jersey Trust Company Business Codes of Practice 14

16 Appendix B SUMMARY OF DRAFTING CHANGES MADE TO THE TRUST COMPANY BUSINESS CODES OF PRACTICE Section Amendment details Comment Throughout Replacement of ambiguous terms eg. should. Explanatory sections re-captioned as Notes. Contents Various consequential amendments. Advisory Note on application Intro New insertion. Various consequential amendments. Amended paragraph dealing with consequences of failing to adhere to Codes. Replaces former section 8. Brings more into line with other Codes and addresses an IMF recommendation. 1. Reflects the recent renumbering of Articles in the Law. 2. Reflects replacement section 7 (as it was) and removal of section 8 of the Codes. 3. Reflects a change in wording of high level principle 6. Gives better clarification as to the status of the Codes. This change is consistent with IMF recommendations and with the approach being taken in the new Anti-Money Laundering Guidance Notes. 1.2 Replace may with must. Removes ambiguity and brings into line with other Codes. 2.1, , 2.6 Various minor amendments. Removes ambiguity and brings into line with other Codes. Trust Company Business Codes of Practice 15

17 2.3 Requirement to document exercise of discretion and that exercise of discretion must be appropriate. Considered a necessary amendment in light of supervisory findings and the repeal of Article 56 of the Trusts (Jersey) Law Replace should with must. Removes ambiguity and brings into line with other Codes. 2.8 Insertion of paragraph dealing with record keeping in relation to customer entities. 1. Extends Codes to include a formal requirement to maintain accurate financial records. 2. Complaints and on-site examinations have exposed this as an area requiring formal regulatory prescription. 3. Addresses an IMF recommendation Note 3 Insertion of Section dealing with Corporate Governance. Deals in more detail with risk management requirements. Requires a registered person to have due regard to the Commission s policy on outsourcing. 1. Brings into line with other Codes. 2. Examinations have exposed this an area requiring explicit coverage in the Codes. 3. Addresses an IMF recommendation. Brings into line with other Codes. Brings into line with other Codes. Trust Company Business Codes of Practice 16

18 Section addressing Internal Control Systems. Various renumbering. New provision dealing with business continuity. Amend anti-money laundering section. 1. Brings into line with other Codes. 2. Examinations have exposed this an area requiring explicit coverage in the Codes. 3. Based around pre-existing provisions. 4. Goes towards an IMF recommendation. Brings into line with other Codes. Brings into line with other Codes Requirement that registered persons comply with appropriate legislation where acting as a trustee. Considered necessary in light of supervisory findings and the intended repeal of Article 56 of the Trusts Law Provision dealing with acting as manager of managed trust company. Onsite examinations have exposed this an area requiring formal regulatory prescription. Note 3.3 Notes Registered Persons to pay due regard to Sensitive Activities Policy when administering non-jersey entities. Section addressing Integrity and Competence. Note setting out application of Rehabilitation of Offenders legislation. Amends application of in recognition of the potential reputational risk that arises, irrespective of jurisdiction in which an entity administered in the Island was incorporated. 1. Brings into line with other Codes. 2. Based around pre-existing provisions. 1. Aimed at providing guidance for industry in relation to satisfying the requirements of and Goes towards an IMF recommendation. Trust Company Business Codes of Practice 17

19 , , Provisions relating to access to information, independence and resourcing of the compliance function. Notification requirements in relation to Compliance Officers. 1. Brings into line with other Codes. 2. Onsite examinations have exposed this an area requiring coverage in the Codes. Brings into line with other Codes New provision requiring appointment of a designate in event that Compliance Officer is temporarily unable to fulfil his/her duties. Section relating to MLROs. Brings into line with other Codes. 4.1 Delete Subject to paragraph 7.3. Refers to, now defunct, transitional provisions. 4.3 New fee provision requiring that registered persons maintain accurate records in relate to time cost charges and disbursements and make such available to customers on request. Considered necessary as a result of customer complaints. 5.1, , and Previous option of satisfying the financial resource requirements by way of a deposit under lien or an irrevocable bank guarantee has been removed. Addition of the specific requirement for a registered person to maintain a net asset position. This option had only been taken up by a very few registered persons and it would be preferable to adopt a more consistent and straightforward approach. This has previously been an explicit requirement just for non-incorporated entities but now puts all registered persons on an equal footing. The majority of registered persons must maintain a net asset position in order to meet the ANLA Trust Company Business Codes of Practice 18

20 Note 1 terms of deposit Note 2 non- TCB activities Previous note removed. Previous note removed. requirement in any case. No longer applicable as the deposit option has been removed. No longer applicable as the deposit and guarantee options have been removed. 5.3 subordinated loans Additional provision on the treatment of subordinated loans. Requirement that a registered person notify the Commission if its ANLA ratio falls below 130%. Whilst it is still permissible for a registered person to have an ANLA of 110% the Commission considers it necessary to receive earlier warning that a registered person is approaching the permissible solvency margin. 5.4 Professional Indemnity Insurance. Insert at all times. Emphasises that registered persons must replace their cover in the event that it is depleted/fully expended. Delete for each and every claim. Addresses an industry perceived ambiguity and conflict with the requirements of Trust Company Business Codes of Practice 19

21 Maximum PII excess requirements -Replace 20,000 plus 0.25% of cover in excess of 5m with 3% of relevant fees and commissions. Requirement that full quantum of excess be treated as an additional liability when performing ANLA. 1. Response to industry comment that current PII excess requirement often unachievable in the market. 2. Brings requirements more into line with other Crown Dependencies. 3. Basis of calculation better reflects firm s ability to fund the excess. 4. Bringing full amount of excess into ANLA requires firm to balance its level of excess against its solvency margin Delete second sentence. Insert provision requiring run off PII in the event of cessation of business. Insert provision dealing with requirement to obtain a re-instatement if cover is depleted. Consequential amendment resulting from change to Recent licence revocations have exposed this an area requiring coverage in the Codes. Emphasises that registered persons must replace their cover in the event that it is depleted/fully expended per High level principle 6. Replace is expected to with must. Insertion of a requirement dealing with Commission inspections of agents and subcontractors. Insertion of requirement for prior notification of the summary winding up or voluntary dissolution of a registered person. Part of a general process of avoiding ambiguity. Brings into line with other Codes. Recent revocations have highlighted this an area requiring coverage in the Codes. Trust Company Business Codes of Practice 20

22 Require notification of a change in a registered person s address. Offsite supervision has revealed this as an area requiring an express provision. Note Insert note setting out Commission s requirements where a registered person is seeking to have its registration revoked. Aims to provide guidance for registered persons. Revocations have shown this as an area that needed to be addressed by the Codes. Trust Company Business Codes of Practice 21

23 7 Replace section on transitional applicants with a new section dealing with advertising standards. 1. Transitional provisions have now expired. 2. Brings into line with other Codes. First Schedule Tables 1,2, and 3 Tables 4 & 5 Staff Categories & Qualifications. Remove references to transitional arrangements. Greater clarification on circumstances in which a principal person can be exempted from competence requirements. Various changes and additions to acceptable qualifications. All transitional provisions have now expired. Onsite supervision has revealed this as an area requiring an express provision. Changes made in consultation with examining bodies and an independent consultant. Second Schedule - Resource requirement table Introduction Format Add statement that for affiliations, the calculation should incorporate all of the participating members as well as the affiliation leader. More detailed pro-forma calculation Addresses a common question raised by registered persons. Should result in more consistent interpretation and application of the requirements. Trust Company Business Codes of Practice 22

24 Illiquid assets adjustment Liabilities Related party liabilities Expanded to include work in progress, debtors and prepayments > 90 days, charges over assets and guarantee margins. Expanded to include deferred income. Now treated as a discrete category. Builds on guidance notes issued and moves charges over assets to a more prominent position. Builds on guidance notes issued. Builds on guidance notes issued and should hopefully encourage more accurate treatment of these balances. PII excess Nonrefundable deferred income Bad debt expense, discretionary bonuses and exceptional costs Ratio Liability added for basic PII excess. Addition of this adjustment on the face of the calculation. Additional detail added to the face of the calculation. Addition of reminder that registered persons are required to notify the Commission if the ratio falls below 130%. Corresponds with change in Builds on guidance notes issued. Builds on guidance notes issued. Another prompt for the registered person. Trust Company Business Codes of Practice 23

25 Definitions used in the Second Schedule Format Definitions Subordinated loans Third Schedule Note Fourth Schedule Again, greater detail has been added and balances split out. The definitions have also been referenced to the appropriate sections of the calculation. Changes in the definitions are in line with the changes in the calculation as noted above. Expanded to incorporate changes to the Commission s policy on subordinated loans. Exceptions from the Codes. Clarification note as to when exceptions are available. New section providing a summary of all notification requirements within the Codes. Purpose is to clarify and make the calculation more userfriendly. As above. Considered a useful reference for practitioners. Trust Company Business Codes of Practice 24

26 CODES OF PRACTICE TRUST COMPANY BUSINESS

27 Contents Advisory note regarding the application of the Codes of Practice Introduction Principles: - 1. A registered person must conduct its business with integrity. 2. A registered person must have the highest regard for the interests of its customers. 3. A registered person must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems. Corporate Governance (3.1). Internal Systems and Controls (3.2). Integrity and Competence (3.3). Continuing Professional Development (CPD) (3.4). Compliance Officer and Money Laundering Reporting Officer (3.5) Complaints (3.6). Record - Keeping (3.7). 4. A registered person must be transparent in its business arrangements. 5. A registered person must maintain, and be able to demonstrate the existence of, both adequate financial resources and adequate insurance. Financial Resources ( ). Insurance arrangements (5.4). 6. A registered person must deal with the Commission and other authorities in the Bailiwick in an open and co-operative manner. 7. A registered person must not make statements that are misleading, false or deceptive. Page

28 Contents continued Page Schedules: - First - Employee Category Tables and Qualification Tables Second - Resource requirement table Third - Exceptions for individual classes of business Fourth Table of notification requirements and matters requiring the Commission s consent

29 Advisory note regarding the application of the Codes of Practice (the Codes ) These Codes apply to all persons registered by the Jersey Financial Services Commission (the Commission ) under Article 9 of the Financial Services (Jersey) Law 1998 (the Law ) to carry on trust company business as defined under Article 2(3) and (4) of the Law. Persons registered to conduct Class F or Class O as a single class of trust company business and persons registered to conduct Classes J and K, whether jointly or as single classes of trust company business may, on application, be permitted to enjoy amended requirements in respect of certain sections of the Codes as set out in the Third Schedule. 3

30 Introduction The Codes are issued by the Commission under powers granted to it by Article 19 of the Law. The Codes have been prepared and issued for the purpose of establishing sound principles for the conduct of trust company business as defined in Article 2(3) and (4) of the Law. It is the responsibility of the registered person, however, not only to comply with these principles but also to implement such additional practices, as it considers necessary. In exceptional circumstances, where strict adherence to the Codes would produce an anomalous result, registered persons may apply to the Commission for variance from the Codes. The Codes are arranged under seven fundamental principles, which are further described, explained and delimited, as the case may be. Those fundamental principles are: - A registered person must conduct its business with integrity; A registered person must have the highest regard for the interests of its customers ; In this context, customer means any person(s) who has: - (a) entered into an agreement for the provision of services by the registered person when carrying on trust company business; or (b) received or may receive the benefit of services provided or arranged by the registered person when carrying on trust company business; A registered person must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems; A registered person must be transparent in its business arrangements; A registered person must maintain, and be able to demonstrate the existence of, both adequate financial resources and adequate insurance; A registered person must deal with the Commission and other authorities in the Bailiwick in an open and co-operative manner; and A registered person must not make statements that are misleading, false or deceptive. 4

31 Each section of the Codes is designed to be understood by reference to its full text including any notes. Failure by a registered person to follow these Codes represents grounds for the Commission to take enforcement action. Where the Commission has reason to believe that at any time there has been a failure on the part of a registered person or an applicant to follow these Codes, it may consider making use of its regulatory powers which, in serious cases, could include the revocation of a trust company business registration. In addition, failure to comply with a Code may support a decision by the Commission that, for example, continued non-compliance or other failure to remedy the circumstances giving rise to the breach may be addressed by the issue of a direction under Article 23 of the Law. Such a direction might impose requirements on the registered person to do or not to do things, remove persons, or cease operations. In appropriate circumstances that direction can be made public. Whilst failure to follow these Codes shall not of itself render any person liable to proceedings of any kind or invalidate any transaction, the Codes shall be admissible in evidence if it appears to the court, conducting the proceedings, to be relevant to any question arising in the proceedings and shall be taken into account in determining any such question. Where it appears to the Commission that a person has failed to comply with these Codes, it may issue a public statement under Article 25 of the Law. Registered persons are reminded that the conduct of trust company business involves the carrying on of business that involves the provision of company administration services or trustee or fiduciary services and, in the course of providing those services, provides any of the services listed in Article 2(4) of the Law, by way of business in or from within the Bailiwick or, if by a company incorporated in the Bailiwick, in any part of the world. The Codes can be revised after consultation with such persons or bodies as appear to be representative of the interests concerned. Director General [Insert Month]

32 The Principles 1. A registered person must conduct its business with integrity. 1.1 Failure to comply with the above principle will be considered amongst the most serious of breaches of the Codes. 1.2 Without limiting the width of the above principle, a registered person must not: act or refrain from acting, or contract or have any other arrangement, so as to avoid, or seek to avoid, any regulatory responsibilities it may have under the Codes and the full consequences at law of not following them unless the Codes expressly permit any such avoidance. 6

33 2. A registered person must have the highest regard for the interests of its customers. 2.1 A registered person must act with due skill, care and diligence to fulfil the responsibilities that it has undertaken. 2.2 Where a registered person is responsible for exercising discretion for or in relation to its customers, it must take all reasonable steps to obtain sufficient information in order to exercise its discretion or other powers in a proper manner. 2.3 A registered person must only exercise its power or discretion for a proper purpose and must be able to evidence, in writing, that its exercise of that power or discretion was appropriate. 2.4 A registered person must either avoid any conflict of interest arising or, where conflicts arise, must address such conflicts by: disclosure; applying internal rules of confidentiality; declining to act; or, otherwise as appropriate. 2.5 A registered person must transact its business (including the establishing, transfer or closing of business relationships with its customers) in an expeditious manner. 2.6 Any delegation of duties or powers, whether by Power of Attorney or otherwise, must only be entered into for a proper purpose, and be limited and monitored as appropriate. 2.7 A registered person must ensure that adequate procedures are implemented to ensure that regular reviews at appropriate intervals are conducted in respect of the trust company services, which it provides to its customers. 2.8 A registered person must keep, or satisfy itself that another person is keeping, accounting records that are sufficient to show and explain transactions and disclose, with reasonable accuracy, the financial position of structures under administration. NOTE: structures under administration means trusts, companies, partnerships, foundations or other vehicles not beneficially owned by the registered person, that the registered person is responsible for in accordance with the responsibilities that the registered person has accepted in the course of carrying on trust company business. 7

34 3. A registered person must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems. 3.1 Corporate Governance Introductory note Corporate governance is the system by which an organisation is directed and controlled. A corporate governance framework specifies the distribution of rights and responsibilities among different participants in the organisation and sets out the rules and procedures for making decisions. Risk management is an integral part of the corporate governance framework Registered persons must operate an effective corporate governance system that must include the following key elements: Registered persons must satisfy the Commission they have an adequate span of control appropriate to the nature of their business Where a registered person is entitled to control trust company business assets, its span of control must comprise at least three appropriately skilled and experienced individuals The relationship of the individuals must be such as to ensure they can all exercise independent judgement without duress or undue influence from one another in the best interests of customers and so as to secure compliance with the Law, any Orders made under it and these Codes Responsibilities must be apportioned among the registered person s senior managers, directors and partners in such a way that their individual responsibilities are clear; and the business and affairs of the registered person are adequately monitored and controlled at senior management and board level Clearly defined procedures must be in place so that there is appropriate oversight by the board of directors and senior management in order to address the principles of risk management: An assessment of the risks present in the registered person s business must be made, and those risks must be documented, as must the ways in which they are monitored and controlled The registered person must maintain accurate and reliable information systems and timely and appropriate management reporting. 8

35 3.1.3 Where the size of a registered person s business warrants it, a separate risk management committee must be established. Note 1 : The requirements set out under paragraph deal with prudential issues referring as they do, to the direction of the business of the registered person itself. As such, this is not a provision that directly governs, for instance, appropriate signatory arrangements for the execution of a specific transaction or exercise of a particular discretion. Note 2 :The Commission has produced guidance notes in relation to span of control and in relation to businesses that do not have the normal span of control in place, which may be of assistance. These are located on the Commission s website. Note 3 : Registered persons should have due regard to the Commission s Policy Statement and Guidance Notes on Outsourcing when considering any delegation of regulated functions. 9

36 3.2 Internal systems and controls A registered person must: operate robust arrangements for meeting the standards and requirements of the regulatory system, including the appointment of a Compliance Officer, establishing effective complaints handling systems, adequate supervision of direct and indirect employees, procedures governing sole, dual or multiple authorisations for handling trust company business assets and for guarding against involvement in financial crime (including the detection and prevention of money laundering) and ensuring that all transactions or decisions are appropriately authorised by persons with the requisite knowledge and experience to effect such transactions or make such decisions; keep adequate and orderly records of their business transactions, their financial position, their internal organisation and their risk management systems; ensure that adequate business resumption, disaster recovery and other contingency arrangements are in place and tested at appropriate intervals; comply with all relevant legislation and guidance to counter money laundering and the financing of terrorism; and have due regard to the principles of the sensitive activities policy document issued by the Jersey Companies Registry from time to time, irrespective of the jurisdiction in which the entity that it is providing services to was incorporated; if providing services defined in Article 2(4)(a) of the Law (namely acting as a company or partnership formation agent under a registration for Class F of trust company business), comply with relevant statutory obligations arising as a result of forming companies or partnerships in Jersey and other jurisdictions; if providing services defined in Article 2(4)(b) of the Law (namely acting or fulfilling the function of or arranging for another person to act as or fulfil the function of director or alternate director of a company under a registration for Class G of trust company business): - Or if providing services defined in Article 2(4)(c) of the Law (namely acting or fulfilling the function of or arranging for another person to act as or fulfil the function of a partner of a partnership under a registration for Class H of trust company business): where arranging for another to act, the registered person must take reasonable steps to ensure that those acting understand their obligations under the relevant law; or, where the registered person, its officers or employees are acting, the registered person must ensure 10

37 they are suitable, competent and understand their duties under, and comply with the requirements of, the relevant laws; be able to demonstrate that reasonable care has been taken to have knowledge of the activities of the companies or partnerships for which they act as or arrange for another to act as director or partner, and any material changes thereto; and have adequate procedures to ensure that, where appropriate, relevant documentation is subject to legal review if providing services defined Article 2(4)(d) of the Law (namely acting or arranging for another person to act as secretary, alternate, assistant or deputy secretary of a company under a registration for Class I of trust company business): where arranging for another to act, the registered person must take reasonable steps to ensure that those acting understand their obligations under the relevant law; or, where the registered person, its officers or employees are acting themselves, the registered person must ensure they are suitable, competent and understand their duties under, and comply with the requirements of, the relevant laws; and where acting as secretary, take reasonable steps to maintain adequate contact with the directors if providing services defined in Article 2(4)(e) of the Law (namely providing a registered office or business address for a company or partnership under a registration for Class J of trust company business) be suitable, competent and understand their duties under, and comply with the requirements of, the laws of the countries in which the companies or partnerships for which they are acting are established; where holding correspondence (whether postal packets, electronic data or otherwise) for collection or forwarding the registered person shall: - establish the reason for the service and agree written procedures and open and retain copies of relevant correspondence received and details of any forwarding addressor, if collected, the date collected, and the name and address of the person collecting the correspondence. 11

38 if providing services defined in Article 2(4)(f) of the Law (namely providing an accommodation, correspondence or administrative address for a company, a partnership or for any other person under a registration for Class K of trust company business): where holding correspondence (whether postal packets, electronic data or otherwise) for collection or forwarding the registered person shall: establish the reason for the service and agree written procedures; and open and retain copies of relevant correspondence received and details of: - (a) any forwarding address; or (b) if collected, the date collected, and the name and address of the person collecting the correspondence if providing services defined in Article 2(4)(g) of the Law (namely acting as or fulfilling or arranging for another person to act as or fulfil the function of trustee of an express trust under a registration for Class L of trust company business), where arranging for another to act, the registered person must take reasonable steps to ensure that those acting understand their obligations under the relevant law; or, where the registered person, its officers or employees are acting themselves, the registered person must ensure they are suitable, competent and understand their duties under, and comply with the requirements of, all relevant laws if providing services defined in Article 2(4)(h) of the Law (namely acting as or fulfilling or arranging for another person to act as shareholder or unitholder as a nominee for another person under a registration for Class M of trust company business ), where arranging for another to act, the registered person must take reasonable steps to ensure that those acting understand their obligations under the relevant law; or, where the registered person, its officers or employees are acting themselves, the registered person must ensure they are suitable, competent and understand their duties under, and comply with the requirements of, all relevant laws if acting as the manager of a managed trust company under a registration for Class N of trust company business, the manager must pay due regard to the risks that might arise from performing this role as part of its own corporate governance. 12