Breaches of the various Codes of Practice issued by the JFSC can clearly have serious implications for a regulated business and its employees.

With this in mind as we move closer to the introduction of civil penalties, financial practitioners should consider examples of good and poor practice in the conduct of financial services business.

Two recent cases can help

1. JFSC’s Horizon investigation that resulted in a number of public statements and
2. Nolan decision, the Royal Court

It is clear that regulatory requirements can be considered in determining whether or not a party in civil proceedings has met the requisite standards.  As seen in the Nolan case, codes of practice were used to support a finding that directors had dishonestly assisted in causing losses to their clients through the actions of a third party.

Public Statements

Public Statements issued in July in relation to the JFSC’s Horizon investigation, acknowledge that protecting the interests of certain customers was a significant factor in some of the decisions that ultimately led to substantial customer losses.

The Public Statements explain how, in spite of these good intentions, there was a failure to comply with all seven principles in the Codes of Practice.

The Public Statements underline the importance of having effective policies and procedures and effective monitoring and reporting.

Although there are a number of points to be learnt from the Public Statements, including in relation to managing conflicts of interest and the duties owed to customers, perhaps the most important lessons arise out of the JFSC’s conclusions that

(i)  a failure to document and raise concerns about the operation of a regulated business, could amount to incompetence by senior individuals and

(ii)  Wilful neglect of regulatory responsibilities or inaction in the face of serious regulatory failings, could represent a lack of integrity on the part of a compliance officer.

Nolan decision, the Royal Court

In the recently published Nolan decision, the Royal Court looked for assistance in determining the standard of care that should be exercised by, and the duties imposed on, regulated businesses in possession of customer money – they looked at

1. the Codes of Practice,
2. Financial Services (Trust Company Business (Assets – Customer Money))(Jersey) Order 2000 and
3. the Proceeds of Crime (Jersey) Law 1999,

Summary

Commentary by the Royal Court in the Nolan decision and by the JFSC in its Public Statements, as well as publications like the JFSC’s summary findings on the AML/CFT Themed Examination Programme (August 2014), provide invaluable guidance as to how Jersey’s regulatory requirements will be interpreted and enforced against businesses, directors and key staff.

Pay attention and avoid the mistakes of others!!!