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A decision made 8 March 2016:

MINISTERIAL DECISION REFERENCE: MD-C-2016-0014
DECISION SUMMARY TITLE: Law drafting instructions to amend the Recognized Auditor regime
DECISION SUMMARY AUTHOR:	Director, Finance Industry Development, Financial Services Unit	IS THE DECISION SUMMARY PUBLIC OR EXEMPT?		Public
REPORT TITLE: Law Drafting Instructions
REPORT AUTHOR OR NAME OF PERSON GIVING REPORT: (if different from Decision Summary Author)	Director, Finance Industry Development, Financial Services Unit	IS THE REPORT PUBLIC OR EXEMPT		Public
DECISION AND REASON FOR THE DECISION: The Chief Minister approved the law drafting instructions to be submitted by the Jersey Financial Services Commission (“JFSC”) to the Law Draftsman to amend the Recognized Auditor regime under the Companies (Jersey) Law 1991. Part 16 of the Companies (Jersey) Law 1991 (the “CJL”) includes a regime for the oversight of “Recognized Auditors” – that is, auditors who audit the financial statements of “market traded companies”. A market traded company is defined in Article 102(1) of the CJL. In essence (and subject to some exceptions, which the law drafting instructions relate to) a market traded company is a Jersey company that has securities traded on a European Union (“EU”) regulated market (such as the London Stock Exchange). This oversight regime for Recognized Auditors has been deemed “equivalent” by the European Commission to the oversight regime for EU auditors established by the Statutory Audit Directive 2006/43/EC. The benefit of this EU “equivalence” for Recognized Auditors is that it may avoid the need for an auditor: to have to apply for registration in each EU Member State in which the relevant market traded company has its securities traded; and to be subject to the systems of oversight, quality assurance, investigation and penalties in each EU Member State in which it is registered. Currently, “a company that is an issuer exclusively of debt securities admitted to trading on a [EU] regulated market, the denomination per unit of which is at least €50,000 or, in the case of debt securities denominated in another currency, equivalent, at the date of issue, to at least €50,000” is not treated as a market traded company by virtue of paragraph (a) in the definition of “exempt company” in Article 102(1) of the CJL. The genesis for this Jersey legislative exception is the current wording of Article 45(1) of the Statutory Audit Directive. However, EU Directive 2014/56/EC will amend Article 45(1) of the Statutory Audit Directive with the current €50,000 denomination limit increasing to €100,000 (subject to certain transitional provisions). Member States have to transpose the provisions of Directive 2014/56 into domestic legislation by 17 June 2016. To ensure that the “equivalence” granted by the European Commission to the Recognized Auditor regime is not compromised, there is a need for the definition of “exempt company” in Article 102(1) of the CJL to be amended so that the exemption limit increases from €50,000 to €100,000 (subject to the same transitional provisions as in the EU legislation) with effect from 17 June 2016. In October 2015, the JFSC gave advance notice of the proposed change to every Recognized Auditor registered with it and to the Jersey Society of Chartered and Certified Accountants (“JSCCA”): no objections to the change were received.
RESOURCE IMPLICATIONS: There are no financial costs or manpower implication for the States as a result of this decision.
SIGNATURE:			POSITION: SENATOR P. F. C. OZOUF ASSISTANT CHIEF MINISTER OF JERSEY

DATE SIGNED			EFFECTIVE DATE OF THE DECISION

Companies (Jersey) Law 1991: Recognized Auditor Regime: Amendment: Law drafting instructions

LAW DRAFTING INSTRUCTIONS

IN THE MATTER OF -

AN AMENDMENT TO THE RECOGNIZED AUDITOR REGIME

THE INSTRUCTIONS COMPRISE AMENDMENTS TO THE COMPANIES (JERSEY) LAW 1991

Date: 8 February 2016

Drafting Instructions prepared by:

Stephen de Gruchy (Policy Division)

Tel: 01534 822110

Email: s.degruchy@jerseyfsc.org

Whilst further instructions may be provided by the JFSC on the matter during drafting without the requirement for further Ministerial Decision or confirmation of such instructions by CMD, all correspondence on the matter during drafting must be copied to James Mews of the Financial Services Unit, CMD who reserve the right to provide further input if necessary

CONTENTS

1 INTRODUCTION

2 DRAFTING INSTRUCTIONS

LAW DRAFTING INSTRUCTIONS

AMENDMENT TO THE RECOGNIZED AUDITOR REGIME

1 INTRODUCTION

1.1 Part 16 of the Companies (Jersey) Law 1991 (the “CJL”) includes a regime for the oversight of “Recognized Auditors” – that is, auditors who audit the financial statements of “market traded companies”.

1.2 A market traded company is defined in Article 102(1) of the CJL. In essence (and subject to some exceptions, which these instructions relate to) a market traded company is a Jersey company that has securities traded on a European Union (“EU”) regulated market (such as the London Stock Exchange).

1.3 This oversight regime for Recognized Auditors has been deemed “equivalent” by the European Commission to the oversight regime for EU auditors established by the Statutory Audit Directive 2006/43/EC.

1.4 The benefit of this EU “equivalence” for Recognized Auditors is that it may avoid the need for an auditor:

1.4.1 to have to apply for registration in each EU Member State in which the relevant market traded company has its securities traded; and

1.4.2 to be subject to the systems of oversight, quality assurance, investigation and penalties in each EU Member State in which it is registered.

1.5 Currently, “a company that is an issuer exclusively of debt securities admitted to trading on a regulated market, the denomination per unit of which is at least €50,000 or, in the case of debt securities denominated in another currency, equivalent, at the date of issue, to at least €50,000” is not treated as a market traded company by virtue of paragraph (a) in the definition of “exempt company” in Article 102(1) of the CJL.

1.6 The genesis for this Jersey legislative exception is the current wording of Article 45(1) of the Statutory Audit Directive (see Table 1 below).

Table 1

Article 45(1) of the Statutory Audit Directive

Registration and oversight of third-country auditors and audit entities

1. The competent authorities of a Member State shall, in accordance with Articles 15 to 17, register every third-country auditor and audit entity that provides an audit report concerning the annual or consolidated accounts of a company incorporated outwith the Community whose transferable securities are admitted to trading on a regulated market of that Member State within the meaning of point 14 of Article 4(1) of Directive 2004/39/EC, except when the company is an issuer exclusively of debt securities admitted to trading on a regulated market in a Member State within the meaning of Article 2(1)(b)[1] of Directive 2004/109/EC (1), the denomination per unit of which is at least EUR 50 000 or, in case of debt securities denominated in another currency, equivalent, at the date of issue, to at least EUR 50 000.

1.7 However, EU Directive 2014/56/EC will amend Article 45(1) of the Statutory Audit Directive as shown in Table 2 below, with the current €50,000 denomination limit increasing to €100,000. Member States have to transpose the provisions of Directive 2014/56 into domestic legislation by 17 June 2016.

Table 2

Forthcoming amendment to Article 45(1) of the Statutory Audit Directive

Article 45 is amended as follows:

paragraph 1 is replaced by the following:

‘1. The competent authorities of a Member State shall, in accordance with Articles 15, 16 and 17, register every third-country auditor and audit entity, where that third-country auditor or audit entity provides an audit report concerning the annual or consolidated financial statements of an undertaking incorporated outside the Union whose transferable securities are admitted to trading on a regulated market of that Member State within the meaning of point 14 of Article 4(1) of Directive 2004/39/EC, except when the undertaking in question is an issuer exclusively of outstanding debt securities for which one of the following applies:

(a) they have been admitted to trading on a regulated market in a Member State within the meaning of point (c) of Article 2(1) of Directive 2004/109/EC of the European Parliament and of the Council prior to 31 December 2010 and the denomination per unit of which is, at the date of issue, at least EUR 50 000 or, in the case of debt securities denominated in another currency, equivalent, at the date of issue, to at least EUR 50 000;

(b) they are admitted to trading on a regulated market in a Member State within the meaning of point (c) of Article 2(1) of Directive 2004/109/EC from 31 December 2010 and the denomination per unit of which is, at the date of issue, at least EUR 100 000 or, in case of debt securities denominated in another currency, equivalent, at the date of issue, to at least EUR 100 000.’

1.8 To ensure that the “equivalence” granted by the European Commission to the Recognized Auditor regime is not compromised, there is a need for the definition of “exempt company” in Article 102(1) of the CJL to be amended to match the change shown in Table 1, with effect from 17 June 2016.

1.9 Article 102(3) will allow the definition of exempt company to be amended by Order.

2 DRAFTING INSTRUCTIONS

2.1 Please prepare an Order to come into force on 17 June 2016 that will amend paragraph (a) of the definition of “exempt company” in Article 102(1) of the CJL so that it instead applies to:

2.1.1 a company that is an issuer exclusively of debt securities admitted to trading on a regulated market prior to 31 December 2010 and the denomination per unit of which is, at the date of issue, at least EUR 50,000 or, in the case of debt securities denominated in another currency, equivalent, at the date of issue, to at least EUR 50,000;

2.1.2 a company that is an issuer exclusively of debt securities admitted to trading on a regulated market after 31 December 2010 and the denomination per unit of which is, at the date of issue, at least EUR 100,000 or, in case of debt securities denominated in another currency, equivalent, at the date of issue, to at least EUR 100,000.

2.2 For the avoidance of doubt, please note that it is possible that the same company may have, at any one time, securities traded on an EU regulated market that fall into either or both of the above categories.

– End --

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[1] Note that this cross-reference should actually be to “Article 2(1)(c)”. This typographical error in the original Directive will be corrected by the amendment shown in Table 2 above.