Principal Persons are for the first time now potentially personally liable for the acts of a regulated entity and could find themselves facing a financial penalty imposed by the JFSC.
In 2018 the JFSC completed the major restructuring of its supervisory operating model during which time supervision visits were suspended. For 2019 the JFSC has announced it is enhancing its risk-based approach and focussing on projects that mitigate the greatest perceived risks. Supervision visits have now restarted and we are advising a number of entities and individuals both before and after such visits.
The recent Guernsey judgment Carlyle Capital Corp (“CCC”) v Conway and Others  Guernsey Royal Court provides very useful guidance to directors as to what is expected of them by the courts.
It is common for a regulatory investigation to be launched when the JFSC becomes aware of potential serious breaches of the Island’s regulatory laws and codes. Your business may already be under the JFSC’s magnifying glass, with disclosure having been required and, possibly, directions in place regulating how business is conducted. With an investigation, your business, and all those principal and key persons operating in it, are about to come under the JFSC’s microscope.
The JFSC is obliged to give written notice of an investigation. That notice should set out, typically in the accompanying scoping document, the general background and purpose of the investigation and the areas of business of concern on which the investigation report is to make findings. Usually, the JFSC will require the entity to appoint, at its own financial cost, reporting professionals who will act as investigators. As an investigation proceeds, should its necessary focus change, the registered entity will be kept updated. The JFSC may require periodic reporting by the reporting professionals of the work to date and findings. The reporting professionals will collect all relevant documentation and conduct interviews of any officers or employees considered to hold relevant information.
When considering whether to exercise its statutory powers of sanction against an individual, the JFSC follows its published Decision-Making Process (the “DMP”). This is a detailed, multi-stage process outlined in its issued published guidance note entitled “Decision-Making Process”. The DMP has four distinct stages.
The Jersey Financial Services Commission (the “JFSC”) has wide statutory powers to compel the disclosure to it of otherwise confidential and private information, by both regulated and unregulated entities and individuals. Overseas regulators may also share such information with the JFSC.
Articles 37 and 38 of the Financial Services (Jersey) Law 1998 set out the “restricted information” regime that protects the confidentiality of an individual’s otherwise private information once disclosed to the JFSC. The unlawful disclosure of restricted information, in breach of Article 37, is a criminal offence, carrying up to two years’ imprisonment.
The Royal Court Judgment published 25 May, 2018 is a landmark case not only for the Jersey Financial Services Commission (JFSC) also but for the finance industry in Jersey.
The Royal Court has upheld the JFSC’s findings that Mr David Francis acted with the most serious lack of integrity and competence. The Court concluded that the issue of a public statement by the JFSC setting out his misconduct was a reasonable step to take.
All principals of regulated financial services businesses are required by Jersey's regulatory laws and Codes of Practice to ensure their business is conducted with integrity at all times.
In the recently-released landmark judgment in the appeal of Francis v The JFSC the Royal Court has fully endorsed the JFSC’s findings that Mr Francis, the former CEO and principal shareholder of the Horizon Group, had acted with a most serious lack of integrity and incompetence of a very serious kind. The Royal Court also agreed with the JFSC that a ban from working in the Island’s finance industry was a reasonable sanction.
In the recently-released landmark judgment in the appeal of Francis v The JFSC, Mr Francis’s legal team argued that the JFSC’s finding of lack of integrity was tantamount to a finding of dishonesty, albeit that the regulator had not made a separate finding of dishonesty. The Royal Court disagreed. It found the position under English law was that the majority of the authorities support the conclusion that:
“A lack of integrity does not require dishonesty (although a finding of dishonesty necessarily includes a lack of integrity).”
So no, honesty and integrity are not two sides of the same coin.