Approval of the Financial Services Commission (Amendment No.4) (Jersey) Law 200-.

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A decision made (16/02/2007) regarding: Approval of the Financial Services Commission (Amendment No.4) (Jersey) Law 200-.

Subject:	Approval of the Financial Services Commission (Amendment No.4) (Jersey) Law 200-
Decision Reference:	MD-E-2007-0048		Exempt clause(s):
Type of Report: (oral or written)	Written		Person Giving Report (if oral):	N/A
Telephone or e-mail Meeting?	N/A		Report File ref:	N/A
Written report – Title	Financial Services Commission (Amendment No.4) (Jersey) Law 200- (the “Amendment”)
Written report – Author (name and job title)	Paul de Gruchy, Director, Finance Industry Development
Decision(s): The Minister approved the Amendment and directed that steps be taken to lodge the Amendment before the States for debate at the earliest opportunity.
Reason(s) for decision: The Amendment will give the Commission the ability to set its own fees and determine certain administrative matters that are currently prescribed by Orders made by the Minister. This is in accordance with IMF recommendations and supports the independence of the Commission generally. The Amendment also includes a number of provisions that better reflect the important role of the Commission in relation to combating financial crime and removing references to promoting the finance industry now that responsibility for this function has passed to Jersey Finance Limited.
Action required: PDG to request the Publications Editor to lodge the Amendment au greffe for debate at the earliest opportunity.
Signature: Senator P.F.C.Ozouf (Minister)		Date of Decision: 16 February 2007

Approval of the Financial Services Commission (Amendment No.4) (Jersey) Law 200-.

MINISTER FOR ECONOMIC DEVELOPMENT

FINANCIAL SERVICES COMMISSION (AMENDMENT No. 4)

(JERSEY) LAW 200- (the “Amendment”)

1 THE ISSUE

1.1 The Amendment, a copy of which is attached, is an important piece of legislation that reflects the growing maturity of the Jersey Financial Services Commission. When the Commission was established in 1998, it was an entirely new body created to replace functions previously carried out by States’ officers. It is now appropriate to update the Financial Services Commission Law (the “Law”) to better reflect the role of the Commission and to confirm its operational independence in certain key areas.

1.2 The Amendment has been the subject of a public consultation conducted through what was then the Policy & Resources department in spring 2004. This has been followed by lengthy discussions between a number of stakeholders in relation to the precise wording of the Amendment.

1.3 It is recommended that the Amendment be approved and lodged for debate by the States at the earliest opportunity.

2. BACKGROUND

2.1 International standards demand that there should be clear independence between regulatory bodies and government: in the case of Jersey, between the Commission and the States of Jersey. This principal was set out in the Edwards’ report and was repeated in the most recent IMF recommendations arising out of that body’s visit to the Commission in 2003. The IMF is due to revisit Jersey in spring 2008, and will no doubt be interested to ascertain whether any action has been taken in light of this recommendation.

2.2 Currently the Commission levies fees under both Regulatory Laws and laws administered by the Companies Registry. In this context, Regulatory Laws are the Banking Business (Jersey) Law, the Collective Investment Funds (Jersey) Law, the Financial Services (Jersey) Law and the Insurance Business (Jersey) Law, whereas those laws administered by the Companies Registry (Registry Laws) are the Companies (Jersey) Law, the Limited Liability Partnerships (Jersey) Law, the Limited Partnerships (Jersey) Law and the Registration of Business Names (Jersey) Law.

2.3 The fees under all such laws are currently fixed in Orders issued by the Minister. International bodies regard this arrangement as potentially compromising the independence of the Commission. Further, the current arrangement in relation to Registry Fees, whereby the Committee sets fees, the Companies Registry levies and collects fees, and the Commission then pays an annual contribution to the States from these proceeds, lacks transparency.

2.4 It is therefore proposed that the power to set the fees levied under both the Regulatory Laws and the Registry Laws should be transferred to the Commission. Fees levied under both the Regulatory and the Registry Laws will directly (and transparently) fund the administration of those laws, the Commission’s general expenditure and the creation of a reserve for the Commission. This will create a clear link between the costs of regulation and the payment of regulatory fees.

2.5 In the case of the Registry Laws, it is proposed that the fees be made up of two components: the first, fixed by the Commission on the basis explained above; the second, fixed by Regulations, to be paid to or to the order of the Treasurer of the States by way of general contribution. In effect, the second proportion will be a transparent tax, at a rate to be fixed by the States, which the Commission, acting through the mechanism of the Companies Registry, will be tasked with collecting on behalf of the States.

2.6 In addition, a number of minor amendments are proposed to both the Regulatory Laws and the Registry Laws, the effect of which will be to allow certain administrative functions in relation to those laws (such as, for example, the publication of forms and other documents in relation to the laws) to be performed by the Commission without reference to the Committee.

2.7 The result of consultation clearly showed that, on balance, industry supports the proposition that the Commission should be empowered to set its own fees. This support, however, was neither unanimous nor unconditional. There are two particular areas that concern industry:

· that the Commission should not be given an unfettered license to raise Regulatory Law fees – if the level of fees cannot be agreed consensually with industry there should be an mechanism for determining the level of increase; and

· the Registry Law fees should not be used as a “cash cow” by government and a component of such fees should be reinvested into industry development.

2.8 Article 15 of the Amendment reflects the first concern by setting out a mechanism for carrying out public consultation on any proposed increase in fees, and then, if an objection is raised to the proposal, referring the proposal for consideration by a panel of Jurats in order to determine whether the proposed rise is, having regard to all circumstances, reasonable.

2.9 The second objection has been largely addressed through a significant increase in the level of funding made available to Jersey Finance Limited in recent years. However, it is important to ensure that, going forward, Registry Fees are levied at a rate that brings the maximum sustainable benefit to the Island, and that the wider benefits accruing from an increased use of Jersey companies are fully factored into consideration of the fees levied upon such companies.

2.10 As well as granting the Commission the ability to set its own fees the Amendment includes a number of other provisions that confirm the role of the Commission. These are an amended article 7 that adds to the guiding principles of the Commission the need to counter financial crime both in Jersey and elsewhere and amended articles 8 and 12 that remove existing references to the promotion of financial services as being among the Commission’s functions (this responsibility having been assumed by JFL).

3. OPINION AND RECOMMENDATION

3.1 The Amendment, if approved, will grant the Commission powers that will better meet international standards and will bring a greater transparency to the manner in which the Commission and the States of Jersey gather revenue from entities regulated and/or registered in Jersey.

3.2 This amendment will reduce the administrative burden placed upon States officers and members by moving the responsibility for making a number of Orders from the Minister to the Commission. Any financial or manpower implications are therefore likely to be positive

3.3 It is recommended that the Minister approve the Amendment and that the Amendment be lodged for submission to the States of Jersey at the first opportunity.

PAUL DE GRUCHY

Director, Finance Industry Development

9 February 2007