Senator P Ozouf Minister – Economic Development PO Box 843 Jubilee Wharf 24 Esplanade St Helier Jersey JE4 0UT | From the office of the Director General Telephone: + 44 (0) 1534 822011 E-mail: s.cadigan@jerseyfsc.org |
Your Ref.: | |
Our Ref.: | JH/jra |
| | 3 June 2008 |
Dear Minister
Recommendation of the Jersey Financial Services Commission in respect of the issue of the Financial Services (Advertising) (Jersey) Order 200-
under the Financial Services (Jersey) Law 1998 (“FSJL”)
Issue and Recommendation
The Minister is requested and recommended to issue the above Order (“the AO”) in the form shown in Appendix 1.
The issue of the AO will:
- Establish legal standards in respect of financial service advertisements (“FSAs”);
- Enable various remedial powers of the FSJL to be used in respect of unsatisfactory FSAs, which currently do not work without the reference point of an AO;
- Enable the Financial Services (Investment Business (Overseas Persons – Exemption)) (Jersey) Order 2001 to operate effectively, which it currently does not, as it depends upon the existence of an AO, to which it cross refers; and
- Address related recommendations of the 2003 IMF report, which identified the need for an AO.
Background
The issue of an AO was originally consulted upon in 2002. Whilst progress was made subsequently at industry steering group level, momentum has at times been lost in the interim. However, a second consultation exercise was launched in October 2007 and the proposed AO was the subject of a number of industry workshops held at that time.
Jersey Finance Ltd provided a formal response to the consultation paper in January 2008. This did not reflect significant issues and effectively concluded the consultation, albeit individual discussions continued for a period on specific items of detail.
Minor changes have been made to the draft Order subsequent to the consultation, and these have recently been advised to Jersey Finance Ltd, which has confirmed its agreement for the Order to be signed. These proposals are therefore fully accepted on the part of Industry.
The Advertising Order
Article 31 of the FSJL envisages that an Order will be made “relating to the issue, form and content of financial service advertisements”. The AO will become the key standard setting legislation for the conduct of sales communications with customers, or prospective customers, in respect of activities covered by the FSJL.
In the absence of an AO, the Commission’s capacity to fulfil its functions concerning client/investor protection and protecting the reputation of the Island in commercial and financial matters is inhibited. No legal trigger exists for alternatives to criminal sanction, such as the injunction and remedial powers under Article 24. In cases of mis-selling, for example, reliance would instead turn to Article 30, which relates to misleading statements and practices and which would potentially result in much more serious sanction. The establishment of an AO will provide for meaningful sanctions that fall short of imprisonment or criminal fines.
Currently, because criminal sanctions may not be proportionate to the circumstances, inaction on the part of the Commission may result from malpractice in this area, reducing the Island’s regulatory effectiveness. Jersey’s defences in this respect could therefore currently be considered to be behind international best practice, as reflected in the 2003 IMF report.
In accordance with the established light touch approach to Money Service Businesses (“MSB”) it is proposed that these be exempted from the requirements of the AO. In many countries, money service business is regulated for AML/CFT purposes only, as is the case in the UK. This though, will change in the EU as a result of the Payment Services Directive, which will apply a prudential regime to payment service providers. The Commission originally took the view that it was appropriate to regulate MSB through regulatory legislation – but to apply a lighter touch – so that our regime was not significantly more onerous than that applied elsewhere. In time we will wish to review our approach.
Recommendation
The Minister is duly recommended to issue the proposed enclosed Order.
Yours sincerely
John Harris
Director General
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