Reforms

Thinking, agile, and inquisitive – all nice concepts, but what do they mean in practice? What are the practical changes you might expect in your relationship with the JFSC?

Some major reforms are underway already.

In September the Commission published a Policy Statement that began the process of significant revision of our Bank Licensing Policy.

The Executive Summary made clear that our approach will be far more flexible than in the past, particularly if risk to retail depositors can be mitigated. Our approach is a response to the new regulatory approach to “too big to fail” that I referred to earlier, and the empirical observation that since the crisis more banks have failed in the top 500 banks, than have failed in the group from 501 to 1,000!

So the Commission’s earlier approach that emphasised the need for a bank to be of systemic importance in its home jurisdiction is now a meaningless disincentive to doing business in Jersey, and is to be dropped.

Similarly, the longstanding requirement for the parental group to be in the global Top 500 has been altered for now to an expectation that it feature in the Top 1,000. Moreover, we have made clear that inability to meet this criterion should not deter an applicant from exploring options for licensing with the Commission.

And for similar reasons, the previously stated expectation that an applicant bank will have experience of operating beyond its home borders has been removed.

The Commission believes that the revised Licensing Policy reflects new realities and provides a workable and flexible framework for a wide variety of banks to operate within the robust regulatory framework to which the Island remains committed.
Further changes are likely in due course, in line with local strategies and international developments. This work is led by our Director of Banking and Insurance, Mark Sumner, who is here this evening.

With respect to Funds Business, the Commission, in conjunction with Industry and Government, is undertaking a fundamental review of the funds regime.

The overall aim is to streamline and simplify what has become overly complex. In particular we intend to speed up or in some cases even eliminate the process of authorisation.

Since this work has yet to go out to consultation I cannot fill in the details this evening. But our intention is obvious; to provide a clear, responsive and agile regulatory framework that enhances the competitive strength of the Industry. In return we will expect more rigorous compliance from the Industry, and our supervisory regime will be enhanced.

The work on the new funds regime is well advanced and will be published soon. At the Commission this work is led by our Policy and Strategy Division, but it will in time encompass a major operational component to be led by our new Director, Funds and Fiduciary, John Everett, who is also here this evening.
And we realise that the Commission’s internal working practices must also be updated to meet the challenges of the new era.

Accordingly, we have established a Programme Management Office, led by our new Chief Operating Officer, Mike Jeacock, yet another of the team who is here tonight.

The task of the new Office is to develop a blueprint for change and enhanced efficiency in all the Commission’s activities: from policy development to IT, from the growth of talent within the Commission to delivering value for money regulation to Jersey, from the implementation of more effective risk-based supervision to introducing new systems in the Registry.

We are taking a long, hard look at all aspects of what we do, ensure that we control costs and meet our ultimate goal which is to better serve the people of Jersey, and those who do business here.

The regulator and the industry

But we cannot achieve all this alone – we also need help from you. We need you to understand the work of the Commission, just as we need to understand you.

As far as you understanding the Commission is concerned we will be developing a range of new media initiatives – producing not just more information, but information that is well presented and with a clear rationale, all this facilitated by a new post of Head of Communications. This will mean more Discussion Papers (produced by the Policy and Strategy team led by its new Director, Charles Ilako, another who is here this evening). At the moment Charles is working on a Jersey/EU tour d’horizon.

There will also be broader guidance material, information on best practice experience, project updates, and so on.

In addition there will be more training events – not only our own regular seminars, but also wider ranging events such as the seminar held here with the United States Securities and Exchange Commission just a few weeks ago.

And we are making a new commitment to e-enablement, lowering costs and improving your access to the regulator.

All this we hope will improve your understanding of us. But we, as your regulator, must work hard to continually improve our understanding of you.

To begin let’s dispose of a couple of hoary old complaints about regulators.

1. First, how many times have you heard the complaint that “the regulator doesn’t understand my business as well as I do”? Ridiculous. If the regulator, an outsider spending a relatively short time examining your firm, did understand the business as well as you do, you shouldn’t be in business. You inevitably know your firm best. It’s your job to provide a transparent account of your activities to the regulator to ensure that he or she can do the supervisory job well.
2. Second, how many times have you heard it said that you shouldn’t adopt that transparent approach because it will only lead to the regulator picking on you in the future? Ridiculous and childish. Nothing warms a regulator’s heart more than a business that wants to work with the regulator to achieve the goal we are all pursuing, that Jersey should be known as the very best place to build well-regulated financial business.

To better understand you, we must be a listening regulator.

So we intend to develop new and faster approaches to consultation, using methods such as the Survey Monkey, the online survey tool that we have been trialling together with JFL in the consultation on managed accounts.

There must also be a closer partnership with the Jersey Compliance Officers Association. Compliance officers have a vital role to play, not only in the development of the businesses in which they work, but also as the professional conduit of information and advice from, and to the Commission.

And it is important that you should know your Commissioners. They are here tonight. You should talk to them, send them e-mails, advise, complain, even congratulate – whatever you do, communicate. That’s your responsibility.

Without your input, the JFSC will be a poorer regulator, and that’s not good for your business or good for Jersey.

This couldn’t be better illustrated than by a pressing matter that should be uppermost in the minds of all of us: the forthcoming MONEYVAL evaluation.

Make no mistake – this will be a tougher examination than any we as a regulator or you as an industry have undergone in the past.

The international community, particularly in AML/CFT terms, is focusing in a hard, demanding way on whether relevant standards are indeed being met by demonstrable effectiveness. When the MONEYVAL team visit Jersey next January they will challenge us to do this in a number of ways that, frankly, will be pretty tough. For example

• they will not want to know how many AML/CFT supervisory visits were done, but what were the concrete results, actions and documented themes emanating from those visits and they will want to see the evidence!

This is just one of a myriad of demanding tests we will face as the international community ramps up its AML/CFT oversight requirements.

How effective these requirements are in meeting the defined policy goals is a reasonable topic for debate on another day. But right now there is no hiding place and everyone should be aware that some of the stellar ratings we have enjoyed in the past may no longer be available.

This does not just affect Jersey. It is a worldwide phenomenon. So what we must do is demonstrate good performance relative to those jurisdictions with which we wish to be compared (the UK, EU, US and relevant IFCs). Working together we can do that.

My goals

I have laid out an ambitious programme for regulatory reform here in Jersey. I believe our goals can be achieved. But it won’t be easy.

The outstanding staff of the Commission, led so ably by John Harris, are fully stretched – and I am going to stretch them some more! And this is before additional demands are made on the Commission. For example today the JFSC has no powers to provide regulatory protection to consumers of retail financial services in Jersey. The Government has suggested that we should take on the regulation of pensions. We are certainly willing to comply with the request, but, as you will all understand, this will have resource implications.

I have been appointed Chairman of the Board of the JFSC for the next 5 years. It’s entirely reasonable for you to ask the traditional interview question: “what do you hope to achieve in that time?”

I suppose I could sum up my goals as these:

• That Jersey should have sustained and enhanced its reputation as a well regulated jurisdiction in which to do business. In particular, we must continue to demonstrate conscientious observance of international standards, albeit applying a carefully calibrated sense of proportionality and risk assessment.
• That the financial services industry in Jersey should have prospered in that well regulated environment.
• That the JFSC should have served the financial services industry and the people of Jersey well by managing change in international financial markets and change in international regulation in the best economic interests of the Island.
• And that the JFSC should be an accomplished regulator – thinking, agile, inquisitive and listening. Not necessarily popular, but respected as an institution working hard to promote the general good.

If we achieve those four goals, then that will do

Read The Full Speech – http://bit.ly/1r0kOS2