JFSC Knocking At the Door: The A to D of a Response
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.
An investigation will usually complete upon the finalisation of a report, in which the reporting professionals set out their findings and conclusions on the entity’s compliance with the law and codes and on individual conduct and culpability. If a conclusion is arrived at that, probably, a criminal offence has been committed, the JFSC may share the report with HM Attorney General and the States of Jersey Police.
If an individual becomes personally under investigation, the JFSC is required to give written notice at the earliest opportunity.
There are four vital matters for you to bear in mind before and during a regulatory investigation.
A. Act Always with Candour
A duty of candour in all dealings with the JFSC is required of all those in the island’s finance industry, regardless of whether there is an investigation underway.
Upon the launch of a regulatory investigation, more specific duties to co-operate, assist and answer questions apply to all:-
- principal and key persons;
- auditors and
- legal advisors.
Failure to co-operate may be a criminal offence. Similarly, interference with information or documentation, known or suspected to assist the JFSC’s investigation, may also be a criminal offence. Both offences can carry a sentence of imprisonment.
If given notice that you are personally under investigation, your general duties to co-operate continue but you would be wise to consider whether you should seek advice in your personal capacity from a lawyer. In particular, you may face questions in a formal interview by the investigating officers. It is possible that the regulator may move to recommend sanctions against not only the registered entity but also particular individuals who played key roles in respect of the failures identified.
B. Be Constructive for the Future
Fostering a constructive working relationship with the JFSC, as well as the reporting professionals appointed, is absolutely key when facing a regulatory investigation. Ensuring a clear understanding of your business’s obligations and the JFSC’s concerns and aims and an open dialogue should provide some comfort at this challenging time and will help to make the process as smooth as possible.
C. Co-Ordinate Approaches to the JFSC
It is vital that your organisation is co-ordinated and organised in its reporting and approach to the JFSC. Should breaches of the regulatory laws or codes be identified before or during the course of an investigation, ensure there is prompt reporting to the JFSC, with an action plan agreed to remedy the breach and to minimise any problems arising. Avoid ‘ad hoc’ reporting. Remember that employees and reporting professionals alike may ‘whistle blow’ findings to the JFSC. If a breach is identified, immediately check whether it is systemic or not, by reference to, say, the relationship manager or business introducer concerned. Take positive action in order not to appear disorganised and panicking in the eyes of the JFSC.
D. Do Ensure Lessons are Communicated and Learnt
Further to its consideration of the final investigation report, and any individual criticism papers, the JFSC will determine whether (i) to launch the Decision-Making Process with a view to regulatory sanction(s) being imposed, and/or (ii) the terms of a remediation plan. Two vital aspects of a remediation plan for an organisation to focus on are, typically, improved systems to prevent the same issues arising in the future and that all officers and staff are educated on all important lessons learned. On this latter aspect, ensure any training it is fully prepared and documented.