1.) The Offshore Regulatory Environment Flashcards

Question

Define the acronym OGIS

Answer 1

The offshore group of insurance supervisors

Answer 2

The international association of insurance supervisors

Answer 3

Via the UK's membership and official declaration of the Island's association, dated 19 July 1990

Answer 4

The OECD examines the issues associated with tax havens and harmful tax practices

Answer 5

Set global tax standards Require all white listed financial centres to sign their commitment to cooperation with internal and external agencies to deter money laundering, tax evasion and fraud

Answer 6

A financial centre that accepts and actively encourages international investors and provides a variety of services that will provide income and/or capital gains, which disadvantages other financial centres International investors can take advantage of the tax regime that in most cases will result in income being received gross of tax (no tax taken off at source)

Answer 7

In the differentiation between the tax applicable to local people and resident companies, and that levied on foreign investors but unavailable to lcoals

Answer 8

In 1998, the OECD listed 35 countries as tax havens, reporting that they had harmful tax competition In order to not be blacklisted, or to be removed from the blacklist, the offshore finance centre (OFC ) had to agree to implement global tax standards The Channel Islands signed international cooperation agreements in July 2001. This and other measures meant that Jersey was removed from the blacklist in early 2002 Any country that is considered uncooperative will be blacklisted and may be subject to defensive measures

Answer 9

Set up in 1989 by the G7 countries An organisation specialising in the fight against money laundering (AML) The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. 33 member states, including: France Germany Italy Australia Ireland Iceland UK Switzerland

Answer 10

Identify money laundering methods with a view to developing counter measures The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Answer 11

Countries: X Countries should implement AML programmes, including the introduction of legislation to criminalise money laundering and enable confiscation of property associated with this financial crime X Mutual assistance and cooperation amongst governments for exchange of info on suspicious transactions, and also when investigations are taking place, and also action for a government to seize or freeze assets upon request from foreign countries Financial Institutions: X All financial institutions should properly identify their clients by reference to official documents, such as passports, and should not authorise the operation of anonymous accounts, known as the accounts of strangers. Where possible, the financial institution should make personal face-to-face contact with all customers X Financial institutions should also put in place appropriate systems so as to be able to detect suspicious transactions, such as unusually large transactions which are unusual for the customer, and not in line with expected business transactions X Financial institutions should also have procedures for reporting suspicions to the authorities X Employees and financial institutions should be immune from prosecution for disclosure of confidential facts, even if the parties didn't have knowledge of the underlying financial crime, or even if none had been committed

Answer 12

FATF member representatives The world bank The IMF Interpol

Answer 13

The EU The Caribbean financial action task force The Asia Pacific group The organisation of American states GIFCS

Answer 14

Note that the GIFCS is affiliated to FATF Bermuda Hong Kong Jersey Guernsey Isle of Man Malta Gibraltar Cyprus Barbados Bahrain

Answer 15

The leading offshore centres of Jersey, Guernsey and the Isle of Man have been assessed as category 1, the best category, on par with Hong Kong, Singapore and Switzerland FATF concluded in June 2000 that the above leading offshore finance centres (OFCs) were considered to be cooperative and have comprehensive AML systems in place to combat financial crime

Answer 16

The Jersey regulatory framework comprises the following: Primary legislation Secondary legislation Notices Policy statements Codes of practice Guidance notes

Answer 17

Sets legal obligations, and is adopted by the states of Jersey, sanctioned by the privy council (in the UK), registered in the royal court, then brought into force in one of two ways: On a date specified in the law OR On a date or dates determined by an appointed date act passed by the states of Jersey

Answer 18

Sets detailed legal obligations in specific areas, but can only be utilised when primary legislation provides for its use: In the form of a regulation which is made by the states of Jersey OR In the form of an order which is made by the relevant minister

Answer 19

Provide details on specific matters, as required by legislation, and are issued by the commission or other government agencies, e.g. notices issued in respect of fees

Answer 20

These are a STATEMENT of POLICY, setting the commission's policy regarding some areas of legislation

Answer 21

Establish sound principles for the conduct of financial services business and in some cases repeat a number of legislative requirements

Answer 22

These set out a methodology for complying with either a legislative or regulatory requirement

Answer 23

REMEMBER AS CAAFE Orders provide more detail or prescription to the high level provisions within the regulatory law itself. The type of matters covered by orders are: Client asset rules Accounts (requirement to submit audited financial statements) Advertising rules Fees Exemptions to regulation

Answer 24

Act with integrity Act in the customer's best interests Maintain adequate risk management systems Demonstrate transparency in their business arrangements Demonstrate the existence of adequate financial resources Deal with the JFSC and other statutory authorities in Jersey in an open and cooperative manner (including specific notification requirements such as if the regulated entity was subject to any disciplinary actions) Not make false or misleading statements (i.e. in relation to marketing materials and advertising)

Answer 25

Regulated entities must: Act with due skill, care and diligence Only exercise its powers or discretions for a proper purpose Avoid conflicts of interest Transact business in an expeditious manner Ensure that any delegations of power or duties are entered into for a proper purpose Ensure that regular reviews at appropriate intervals are conducts in relation to client business

Answer 26

Corporate governance Internal systems and controls Competence Continuing professional development Key persons Complaints Record keeping

Answer 27

Ensuring that the regulated entity: Has an adequate span of control Is adequately monitored and controlled at senior management and board level

Answer 28

AML systems to ensure compliance with all relevant AML and CFT legislation and guidance Disaster recovery arrangements Systems in place to ensure that due regard to the principles of the sensitive activity policy Systems in place to ensure compliance with the JFSC's policy on outsourcing

Answer 29

A regulated entity must ensure that its staff are fit and proper for their roles (In some Codes, a regulated entity must demonstrate that a percentage of its staff are professionally qualified)

Answer 30

Regulated entities must ensure that staff undertake a minimum number of hours a year of training or professional development (usually between 25 and 35)

Answer 31

Apart from principal persons, there are three specific roles within a financial services business that require separate authorisation by the JFSC. These are: Compliance officer Money-laundering reporting officer (MLRO) Money-laundering compliance officer As these roles are important to a regulated entity, the individuals performing these roles have specific responsibilities to comply with

Answer 32

A regulated entity must: Establish effective complaints-handling systems and procedures. Notify the commission If a complaint isn't resolved within 3 months Consider whether a complaint gives rise to any notification requirement under its professional indemnity insurance

Answer 33

A regulated entity must: Keep adequate accounting, business and transaction records Have a clearly documented policy for the retention of records for at least 10 years

Answer 34

A regulated entity must: Disclose on its stationery and advertising material it is regulated by the JFSC Be open and transparent about its charges and fees Accurately record the basis of any charges regarding time spent and disbursements

Answer 35

Financial resources cover three areas: A minimum share capital or minimum asset position Liquidity - generally to ensure that, on an ongoing basis, the regulated energy has sufficient liquid assets to cover operating expenses for a three month period Professional indemnity insurance

Answer 36

A breach of the codes may lead to the JFSC taking regulatory action, e.g. enhanced supervision, the issue of a condition of registration or the revocation of a registration In appropriate circumstances, the Commission may issue a public statement concerning the registered person Continued non-compliance or other failures to remedy the circumstances giving rise to the beach may be addressed by the issue of a written direction under Article 23 of the Law Such a direction may impose requirements on the registered person to do (or not do) things, remove principal persons, or to cease operations. In appropriate circumstances, that direction can be made public due to Article 25(a) of the Law

Answer 37

Failure to follow the codes doesn't render a person liable to legal proceedings or invalidate any transaction, but the Codes shall be admissible in evidence if it appears to the court conducting the proceedings to be relevant to any question arising (in the proceedings) and shall be taken into account in determining any such question

Answer 38

The banking business Jersey law 1991

Answer 39

Approved by the States of Jersey on 6 November 2009 Similar to schemes in UK, Guernsey and the Isle of Man Operated by the Jersey bank depositors compensation board, an incorporated body independent of Ministers and the States of Jersey Provides protection of up to £50,000 per person, per banking group, for local and international depositors, in line with international standards The depositor compensation scheme is operated by the Jersey bank depositors compensation board, an incorporated body independent of Ministers and the States of Jersey Its main features are: Should a Jersey bank fail, an interim payment of up to £5,000 will be made within 7 working days and the balance of compensation within three months The £50,000 limit will apply per person, so a £100,000 deposit held in a joint account by a couple will be completely covered The maximum liability of the DCS is capped at £100 million in any 5 year period

Answer 40

Applicants should be: Financial institutions of international stature and reputation - registrations under the banking law are therefore limited to entities which are, of which are owned by, members of the global top 500 banks by reference to capital base, or financial conglomerates of equivalent size Subject to satisfactory consolidated supervision by the supervisory body of its country of origin, in accordance with Basel committee principles. The home country supervisor will be asked to confirm its agreement to the applicant bank setting up in Jersey

Answer 41

Risk management controls Credit risk Country and transfer risk Market risk Operational risk Liquidity risk

Answer 42

Adequate risk management involves having processes, structures, resources, information systems and reporting arrangements in place to ensure that the adequate identification, evaluation, control, recording and reporting of all significant risks that a registered person incurs

Answer 43

Risk of loss due to a debtor's non-payment of a loan or other line of credit, either in terms of capital or interest

Answer 44

The risk of a country (political, economic, social, etc) that a bank will be exposed to if engaged in international lending

Answer 45

The risk that the value of an investment will decrease due to moves in the market The four standard market risk factors are: (REMEMBER as ICCE) Interest rate risk Currency risk Commodity risk Equity risk

Answer 46

Equity risk Interest rate risk Currency risk Commodity risk

Answer 47

The risk that a given risk or security asset cannot be traded quickly enough in the market to prevent a loss, or make the required profit

Answer 48

The financial services (Jersey) Law 1998 Became law on 1 July 1999

Answer 49

Deals in investments, that is, the person buys, sells, subscribes for or underwrites investments on behalf of a principal Undertakes discretionary investment management, that is, the person decides as agent to buy, sell, subscribe for or underwrites investments on behalf of a principal Gives investors advice, that is, the person gives to persons in their capacity as investors or potential investors advice on the merits of: X The purchase, sale, subscription for or underwriting of a particular investment OR X The exercise of a right conferred by an investment to acquire, dispose of, underwrite or convert the investment

Answer 50

Knowledge of client Suitability Switching and churning Front running Customer order priority Aggregation Fair and timely allocation Timely execution Best execution

Answer 51

Where a registered person is responsible for providing advice or exercising discretion for its clients, it must obtain, document and maintain any information about the circumstances (financial and otherwise) and investment objectives of the client that are relevant to the services to be provided Where a client declines to pricked information regarding their circumstances and investment objectives, a registered person mustn't provide advice to or exercise discretion on behalf of the client unless it's first been disclosed to the client that the lack of such information may adversely affect the service it can provide

Answer 52

FACTS/TERMS/OTHER FACTS Where a registered person is responsible for providing advice or exercising discretion for clients, it must demonstrate in writing that the services provided are suitable for the client, in relation to: X FACTS disclosed by the client X TERMS of any agreement with that client X Any OTHER relevant FACTS about the client of which the registered person is, or reasonably should be, aware Note that where a registered person is responsible for providing advice, it must make available to its client, in a comprehensible and timely manner, appropriate information so as to allow the client to make an informed investment decision A registered person must ensure that adequate procedures are implemented, to ensure that the investment services that it provides are regularly reviewed at appropriate intervals

Answer 53

A registered person mustn't advise a client to, nor in the exercise of its discretion, effect a switch of long-term insurance products or a switch within or between collective investment schemes unless it's in the client's interest to do so. Written evidence should retained in this regard A registered person mustn't advise a client, nor in the exercise of discretion, enter into transactions with unnecessary frequency having regard to the client's agreed investment objectives

Answer 54

Where a person or its associate, as defined in Article 1 of the law, intends to publish to clients a recommendation, or a piece of research or analysis, in relation to a particular investment, it must not deal: In the investment, or any related investment, on its own account In the investment, or any related investment, on behalf of an associate Ahead of the clients for whom the recommendation, research or analysis was intended if those clients ought to have priority

Answer 55

A registered person shall not be deemed to have breached the JFSC's additional requirements/codes on front running if they can demonstrate that: The publication couldn't reasonably be considered price sensitive The registered person is a market maker in the investment concerned, and the deal was executed or arranged in good faith The registered person was dealing in order to fulfil an unsolicited client's order The registered person has reasonable grounds for believing that it needs to deal if the investment concerned in order to fulfil client orders which are likely to result from the publication and that to do so won't cause the price of the investment to move against client's interests by a material amount

Answer 56

A registered person must deal with client and own account orders fairly and in due turn

Answer 57

A registered person may only aggregate an order of another client or of the registered person, where it's in the overall best interests of all the clients concerned, or any possible disadvantage has been disclosed to each client

Answer 58

When allocating orders, a registered person mustn't give unfair preference to itself or to any client for whom they have dealt Where a registered person has aggregated a client order with its own or other client's orders, it must allocate back to the client within 24 hours Where an aggregated order isn't completed in full (I.e. A partial fill), a registered person must give priority to the client's orders unless it can demonstrate that the transaction wouldn't have happened on such favourable terms without the registered person's involvement

Answer 59

Once a registered person has agreed with a client or decided in its discretion to effect or arrange a client order, it must effect or arrange the execution of the order as soon as possible in the circumstances, unless postponement is in the best interest of the client

Answer 60

For investments other than units in a collective investment fund, and long term insurance products, in dealing with or for a client, a registered person must take reasonable care to ascertain the price which is best available at the time for transactions of the kind and size concerned, and then, unless circumstances require it to do otherwise in the interests of a client, deal at a price no less advantageous to the client (excluding any of its disclosed charges) A registered person may rely on another person who executes the transaction to provide best execution, but only if they believe on reasonable grounds that the person will do so Where a registered person executes an order through the London stock exchange's stock exchange trading system (SETS), the best execution requirement will be deemed to have been satisfied Where a registered person has access to a variety of price sources, it should compare these sources, and give the client the best price

Answer 61

Stock exchange trading system

Answer 62

The insurance business (Jersey) law 1996 Became law 1 February 2001

Answer 63

If the permit holder is authorised by or under the law of a recognised jurisdiction outside the island, it will hold a category A permit Category A permits are granted to applicants to carry on business of the same description as that which they're authorised to carry out in their home country jurisdiction (subject to confirmation from the home country supervising authority) Any other permit holder will hold a category B permit (insurance companies incorporated in Jersey usually hold category B permits) Applicants for category B permits will be allowed to carry on long-term or general business, subject to meeting the JFSC's requirements

Answer 64

If the permit holder is authorised by or under the law of a recognised jurisdiction outside the island, it will hold a category A permit Category A permits are granted to applicants to carry on business of the same description as that which they're authorised to carry out in their home country jurisdiction (subject to confirmation from the home country supervising authority)

Answer 65

If a permit holder IS NOT authorised by or under the law of a recognised jurisdiction outside the island, it will hold a category B permit (insurance companies incorporated in Jersey usually hold category B permits) Applicants for category B permits will be allowed to carry on long-term or general business, subject to meeting the JFSC's requirements

Answer 66

REMEMBER AS CRIPES CAPITAL - the paid up share capital of the applicant and the level of free capital and reserves, as compared with premium income REINSURANCE arrangements made or to be made by the applicant INSURANCE - The nature of risks to be insured PERSONNEL - Whether fit and proper persons are employed by or associated with the applicant in the management, control and audit of its operations EXPERTISE and knowledge in insurance matters available to the applicant STANDING, reputation and nature of business of the owners and their combined level of free capital and reserves

Answer 67

Reduced insurance costs Increased cash flow Access to reinsurance markets Insurance of hard to place risks Improved control Centralised insurance management Possible tax benefits

Answer 68

Captive insurance of reinsurance programs should be cheaper to operate than paying premiums in the market. This will result in lower premiums for the same coverage, or greater profit being derived by maintaining the same premium levels, leading to a reduction in future reinsurance costs or the redeployment of profits for the benefit of the company's shareholders A captive avoids acquisition or sales costs and the marketing, advertising and administration costs of commercial insurance companies

Answer 69

Insurance premiums paid by a company to a commercial insurer are usually paid when the year of risk commences, and attract for the commercial insurer a significant amount of investment income A captive, however, has the use and enjoyment of the premiums paid by the parent. The captive holds these premiums and invests them The cash flow generated by these premiums benefits the owners rather than the commercial insurer Premiums paid to reinsurers are usually paid in arrears and therefore there may well be an immediate cash flow benefit switching fro the primary commercial market to the reinsurance market The creation of a captive therefore converts a cost into a profit centre

Answer 70

A captive has direct access to the reinsurance market, where companies tend to work on lower expense ratios than direct insurers. Therefore, reinsurance can be on gained at a lower cost conventional direct insurance. Access to the reinsurance markets opens up possibilities for financing risks which aren't otherwise available Reinsurance, ceding and profit commissions may also be earned, which may further reduce the net cost of insurance

Answer 71

Certain types of risk, e.g. Hazardous materials and selected professional indemnity are either impossible to place or only available at unacceptably high premiums. The captive insurance company may be the only way to absorb such risks, as it will have more favourable access to the reinsurance market

Answer 72

Greater control can be exercised on those activities which impinge on risk management, such as loss control, safety instructions, loss reporting procedures and claims settlement, to the overall benefit of the captive and its parent company

Answer 73

The captive, in addition to providing full insurance at reduced costs, serves as a central point to simplify, coordinate and control worldwide risk management. Insurance and reinsurance coverage can be tailored to solve the specific needs of the parent company. Insurance programs of captives may be designed precisely to meet the global insurance requirements of the group, and achieve continuity of insurance cover

Answer 74

The correct structure of a captive, and conduct of its business, may produce tax benefits to the parent company or group

Answer 75

A fund is a way of investing money with other people to participate in a wider range of investments than those feasible for most investors

Answer 76

A person carries on fund services business if by way of business the person is: X A manager, manager of a managed entity, administrator, registrar, investment manager or investment adviser X A distributor, subscription agent, redemption agent, premium receiving agent, policy proceeds paying agent, purchase or repurchase agent X A trustee, custodian or depositary X A member (except a limited partner) of a partnership, including a partnership constituted up under the law of a country outside Jersey

Answer 77

Any collective investment vehicle whose units are offered to more than 50 potential investors, or which is listed on the stock market

Answer 78

Regulation of the unclassified fund product is undertaken in accordance with the provisions of the collective investment funds (Jersey) law 1988 (CIF(J)L) However, the regulation of their Jersey-based functionaries (fund service providers) is undertaken in accordance with the provisions of the financial services (Jersey) law 1998 (FS(J)L)

Answer 79

Recognised funds are regulated through the granting, or refusal to grant, a certificate to the fund and permits to the functionaries of the fund Article 5 of the CIF Jersey law requires that a person must hold a permit granted by the JFSC if it wishes to be, or holds itself out as being a functionary of a recognised fund, unless it performs that function wholly outside Jersey If the person performing the role of functionary is a company incorporated in Jersey, it must apply for a permit to perform the functionary role, no matter where in the world it performs its activities

Answer 80

Group 1 - any company issuing units (so, where the collective investment fund is a company, the fund itself will also require a permit) Group 2 - manager/administrator/registrar/investment manager/investment advisor Group 3 - distributor, or a type of agent (subscription, redemption, premium receiving, policy proceeds paying, purchase, repurchase) Group 4 - trustee/custodian/depository Group 5 - membership of a partnership (except s limited partner)

Answer 81

A Jersey company issuing units or a company, issuing units that has an established place of business in Jersey that is an unclassified fund A trustee of a unit trust that is an unclassified fund, and that is a trust whose proper law is the law of Jersey, or managed from within Jersey A general manager of a Jersey limited partnership that is an unclassified fund managed from within Jersey

Answer 82

The JFSC is required to have regard for the protection of the public, as well as the economic interests and reputation of the island The JFSC is also required to consider: The function to be performed Whether the applicant and its principal persons are fit and proper The nature of the collective investment fund to which the function relates Any other fund service providers of the fund

Answer 83

For unclassified funds which aren't Jersey certified funds, e.g. where the fund is based in a another jurisdiction, the JFSC doesn't directly regulate the fund, however, it does regulate any Jersey-based fund service providers of the unclassified fund, as they're required to be registered to conduct fund service business under the FS Jersey law

Answer 84

The prospectus of all certified funds must comply with the provisions of the Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995, aka the UFPO.

Answer 85

Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995

Answer 86

The Jersey Expert Fund Guide

Answer 87

A certified fund established in Jersey and in which only expert investors may invest

Answer 88

Someone with a net worth greater than USD 1 million, OR who makes a minimum subscription of USD100,000 to the fund As defined in section 1.5 of the EFG (Jersey Expert Fund Guide)

Answer 89

To define an expert fund and to set out the characteristics that such a fund would usually be expected to have An expert fund meeting the criteria set out in the EFG may be established using a streamlined authorisation process, as described in section 4 of the EFG

Answer 90

The Jersey Listed Fund Guide

Answer 91

A certified fund that's incorporated as a company in Jersey. It must have a listing on a recognised stock exchange or market (as listed in appendix 1 of the LFG), and be a closed-ended fund

Answer 92

It must have a listing on a recognised stock exchange or market (as listed in appendix 1 of the LFG), and be a closed-ended fund

Answer 93

To define a listed fund, and to set out the characteristics that such a fund would be expected to have An expert fund meeting the criteria set out in the EFG may be established using a streamlined authorisation process, as described in section 3 of the LFG

Answer 94

Control of Borrowing (Jersey) Order 1958 Enacted under the Control of Borrowing (Jersey) law 1947, aka the CBJL

Answer 95

Certain funds, known locally as COBO only funds, which don't come within the definition of a collective investment fund under the CIF Jersey law (usually as they're offered to less than 50 people) will require a consent under COBO (Control of Borrowing (Jersey) Order 1958) This will usually be the limit of a COBO only fund's regulatory requirements in Jersey

Answer 96

A non Jersey company raising money in Jersey by issuing shares The issue of shares by a non Jersey company, if those shares are to be registered in the island (including the keeping of a duplicate register) The issue of units by a trust that's governed by the law of a jurisdiction other than Jersey, if those units are to be registered in the island (including the keeping of a duplicate register) A Jersey company issuing shares anywhere A Jersey unit trust issuing units anywhere The circulation in Jersey of an offer for subscription, sale or exchange of any securities of a non Jersey company Any unit trust raising money in Jersey by issuing shares The circulation in Jersey of an offer to the public for subscription, sale or exchange of any units issued by any trust that's governed by the law of a jurisdiction other than Jersey A limited partnership raising money in Jersey by creating partnership interests A Jersey limited partnership creating partnership interests anywhere The circulation in Jersey of p an offer to the public for subscription, sale or exchange of any partnership interests of a non-Jersey limited partnership

Answer 97

Certified funds, as well as any recognised funds that are exempt from the requirements of COBO

Answer 98

The unregulated funds order 19 February 2008

Answer 99

It establishes the requirements for two types of unregulated collective investment funds, aka unregulated funds: X An unregulated eligible investor fund X An unregulated exchange traded fund Note that any unregulated fund must be a Jersey entity. This means that if the fund is company, it must be incorporated in Jersey, and if it's a limited partnership or unit trust, the general partner/trustee must also be a Jersey company

Answer 100

(Note that the clue for both types of fund below is in their respective names) Unregulated eligible investor funds are only available to eligible investors, individuals who: x Make a minimum initial investment of USD 1 million x Are professional or financially sophisticated investors Note that unregulated exchange traded funds (the other kind of fund relating to the unregulated funds order), may be listed on a stock exchange recognised by the JFSC, provided they are closed ended

Answer 101

(Note that the clue is in the name) Unregulated exchange traded funds may be listed on a stock exchange recognised by the JFSC, provided they are closed ended

Answer 102

The financial services (Jersey) law 1998 1 February 2001

Answer 103

A person carries in trust company business if the person carries on a business that involves the provision of company administration services or trustee or fiduciary services, and in the course of providing these services provides any of the following specified services: Acting as a company or partnership formation agent Acting as or fulfilling the function of arranging for another person to act as or fulfil the function of director or alternate director of a company Acting as or fulfilling the function of arranging for another person to act as or fulfil the function of a partner of a partnership Acting as or arranging for another person to act a secretary, alternate, assistant or deputy secretary of a company Providing a registered office or business address for a company or partnership Providing an accommodation, correspondence or administrative address for a company, partnership or for any other person Acting as or fulfilling or arranging for another person to act as or fulfil the function of a trustee of an express trust Acting as or fulfilling or arranging for another to act as shareholder or unit holder as a nominee for another person

Answer 104

A bureau de change Providing cheque cashing services Transmitting or receiving funds by wire, or other electronic means Engaging in money transmission services

Answer 105

An exemption may be granted in cases where turnover during the last completed financial period of the money service business (usually 12 months) is less than £300,000. However, the person who intends to use the exemption must give the JFSC prior notification of the intention to carry on money service business

Answer 106

Turnover, in relation to money service business, is the cumulative total during a financial period of all or any of the following: Foreign currency that is, in the course of the person carrying on the business of a bureau de change, bought from or sold to customers of the bureau de change (counting one side of the transaction only) Funds transmitted or received by the person in the course of carrying on the business of transmitting or receiving funds by wire or other electronic means, or money transmission services Cheques cashed by the person in the course of carrying on the business of providing cheque cashing services

Answer 107

1) A transaction where a payment for goods or services is made in one currency, and the change is given in another currency. The main purpose of this exemption is to avoid shops that accept payment in one currency and give change in another from being treated as carrying on a a bureau de change service 2) A funds or money transfer made for the sole purpose of enabling a person to pay for goods or services, or enabling a person to access their own money. The main purpose of the exemption is to take outside of the money service business regime issuers of debit cards, credit cards or electronic money that are used solely as a means of payment for goods or services. This exemption will also take out of the regime for money service business those who provide cash-back facilities (e.g. supermarkets) and providers of cash machines (ATMs) 3) One where a person cashes a cheque drawn by another person in the latter's own bank account. The purpose of this exemption is to ensure that only persons in the business of cashing third party cheques come from within the regulatory regime for money service business

Answer 108

x Integrity, competence, financial standing, structure and organisation of the financial services business x Persons employed by or associated with the applicant for purposes of the applicant's business or principal persons in relation to the applicant x Description of the business which the applicant proposes to carry on In this regard, and in relation to principal persons, the JFSC will be able to ensure that those persons that have control, influence or management of the regulated entity are themselves fit and proper

Answer 109

Principal persons are defined in the various regulatory laws, and generally would include: X Shareholders that directly or indirectly own 10% or more of the entity X Directors of the regulated entity X Other controllers of the regulated entity In this regard, and in relation to factors the JFSC takes into account when assessing a prospective financial services business, the JFSC will be able to ensure that those persons that have control, influence or management of the regulated entity are themselves fit and proper

Answer 110

X To a large extent, the integrity of an applicant, especially where an applicant is a small or medium sized business, is a reflection of the people employed by or associated with the applicant X An applicant must be able to demonstrate that it intends to, and on an ongoing basis through compliance with the relevant codes of practice, will: Conduct its business with integrity Have due regard for the interests of its customers Provide appropriate supervision and training to those employed by or associated with it X In assessing the integrity of an applicant and those persons employed by or associated with it, it is the JFSC's policy to consider whether any of their past actions or conduct impact on their ability to meet the expected standard of integrity. Further information may be found in the application form relevant to the proposed regulated activity of the applicant

Answer 111

Competency, with regard to those employed by or associated with an applicant, may be evidenced by the attainment of relevant qualifications or by having sufficient relevant experience for the function they're performing An applicant must be able to demonstrate that it is, and will have procedures will assist it to remain, competent to undertake ifs regulated activities, including the ability to comply with the aspects of the regulatory framework relevant to the proposed regulated activities of the applicant An applicant must be able to demonstrate appropriate supervision and training of both entities and individuals charged with performing particular functions The JFSC has specific interest in the collective competence of those governing the entity, e.g. the board of the applicant. A board, or its equivalent, should be made up of people with a wide range of skills and competence In assessing the competence of an applicant, the JFSC will consider the particular regulated activities it proposes to undertake, particularly the volume and type of business and the jurisdictions in which it will be offering its services

Answer 112

An applicant will be expected to maintain, and be able to demonstrate the existence of, adequate financial resources in terms of capital adequacy, solvency and professional indemnity insurance It is the JFSC's policy that after taking account of contingent liabilities, a registered person must be, and be likely to remain, a going concern The JFSC considers that adequate financial standing isn't merely a matter of meeting liabilities as they fall due, but of maintaining adequate financial resources to enable a registered person to survive periods of business slowdown or market disruption Systems and controls associated with managing the financial risks of the applicant, including liquidity management and proper care of customer's money and assets, are also important considerations

Answer 113

The JFSC considers that the structuring and organisation of an applicant are essential elements of an applicant's ability to satisfy the JFSC that it is a fit and proper person to hold the license Structure and organisation is divided into 3 different areas: X Structure, including access to resources X Systems and controls X Transparency of ownership

Answer 114

An applicant is expected to restrict its activities to the regulated activities for which it holds licences and other activities which are wholly associated with/allied to the licensed business. When determining an application, it is the JFSC's policy to consider the activities of associated persons to assess whether they may negatively impact the applicant In terms of physical structure, it is the JFSC's policy that an applicant should have the resources, or access to the resources necessary to perform its regulated activities Additionally, the applicant must be structured and organised in such a way to enable the JFSC to fulfil its oversight function regarding the regulatory framework The JFSC considers that an applicant can demonstrate availability of resources in one of the following ways, via operating in Jersey: X Maintaining staff and business premises X As a managed entity utilising the services of a manager that's physically located in Jersey and, where relevant, has been licensed by the JFSC to act in the capacity of manager of another business X Through an organisation that is regulated and supervised in an equivalent jurisdiction to provide those services Whichever of the above options is used, an applicant must be able to demonstrate that it will have, and be able to maintain: X Sufficient management oversight and control of its regulated activities X Comprehensive financial information setting out its financial position, which must be readily accessible in Jersey. Further info on the form of the accounts/financial statements may be found in their respective accounts, audits and reports orders that, inter alia, determine the accounting records to be kept by a registered person Appropriate systems and controls relating to its regulated activities Relevantly qualified and experienced staff to competently deliver the financial services it offers, which may include using third party providers or resources from other entities within the same group Local management and control (heart and mind of management): This requirement should be read in conjunction with the specific requirements contained within section 310 of the relevant codes of practice. In most cases, an applicant will demonstrate local management and control if the balance of the board are resident in Jersey and the Jersey element of the board are actively engaged in the governance of the business

Answer 115

The JFSC considers that an applicant can demonstrate availability of resources in one of the following ways, via operating in Jersey: X Maintaining staff and business premises X As a managed entity utilising the services of a manager that is physically located in Jersey and, where relevant, has been licensed by the JFSC to act in the capacity of manager of another business X Through an organisation that is regulated and supervised in an equivalent jurisdiction for the provision of those services

Answer 116

It is the JFSC's policy that an applicant must be able to demonstrate the existence of: X Adequate risk management systems X Systems and controls designed to manage its affairs effectively for the proper performance of its regulated activities, including those that evidence transparency in its business arrangements The JFSC will look for evidence that the applicant will have adequate systems and controls in place and is adequately resourced, in terms of both staff and/or service providers and financial resources, to conduct the regulated activities. An applicant will also be expected to satisfy the JFSC that it will have in place, and will systematically apply, robust systems and controls to enable it to comply with the relevant codes of practice relating to the regulated activities it is proposing to undertake

Answer 117

In considering the ownership structure of an applicant, the JFSC must be able to identify the individuals who ultimately own the business and who exercise control over the appointment of the management team, as well as the management team and any individuals who will have significant powers and responsibilities in relation to he regulated activities The JFSC should be able to look through the ownership structure, and if an ownership structure is unduly complex and/or lacks transparency, it would expect the applicant to explain and justify the rationale for having such a structure, particularly when the proposed structure falls purist that described below The JFSC can require the removal of any principal person or key person in the event that it concludes that their continued presence in the structure is no longer compatible with the registered person being considered fit and proper Once a firm has been authorised, it becomes a regulated entity, and as such will be required to comply with the regulatory laws, orders, etc in order that it continues to be fit and proper, and ensure that its authorisation is retained Note that the fit and proper criteria, in terms of fundamental ongoing conduct, is contained within the codes of practice (codes). Codes have been published for each of the regulated financial activities listed earlier in the course, e.g. Trust and investment business

Answer 118

Statutory reporting requirements Onsite examinations Offsite supervision Formal investigations

Answer 119

Often in the form of annual returns, which monitor capital adequacy, the identity of controllers, business volumes, and any changes to principal activities which may affect the nature of the business undertaken

Answer 120

Usually carried out by specialist audit teams from the regulators, who will work through a checklist of compliance points with the purpose of ensuring that the procedures adopted by the firm are adequate, and conform to the requirements of the regulations and governing law

Answer 121

Discovery Focused Themed

Answer 122

When the JFSC lacks sufficient info about a regulated entity in one or more material ways, such that, for example, it is not able to properly complete the risk assessment for that firm (proactive) or because info is needed before authorisation can issue a license (reactive), then a discovery examination will be one of the means by which the gaps in knowledge can be filled. Thus, a discovery examination is to a large extent a fact-finding exercise from which conclusions can be drawn on the adequacy of systems, controls and procedures of a regulated entity

Answer 123

These are examinations undertaken to individual firms as a result of a specific issue or material risks that have been identified at the firm. For example, such issues/risks will arise from the risk model evaluation (proactive) or as a result of adverse info passed to us by enforcement, or another regulator (reactive). Thus, a focused examination designed to test systems, controls and procedures so that conclusions can be drawn and, if appropriate, recommendations made to improve systems, controls and procedures within a regulated entity

Answer 124

These are examinations targeted at an area of activity, rather than an individual firm. Such examinations are used when a common problem across the industry or specific sectors of the industry is identified. They are designed to assist the JFSC in determining the scale and/or nature of a problem, and thus be able to better determine the means by which to eliminate/mitigate a problem. For example, common themes arising from the risk model or international developments (proactive), or as a result of a major international event, such has the split capital event or 9/11 (reactive). Examples of recent themed examinations: AML procedures Conduct of business Corporate governance Financial resources

Answer 125

AML procedures Conduct of business Corporate governance Financial resources

Answer 126

Initial applications and ongoing changes, including changes in principal persons Review of audited financial statements, auditors management letter, declaration, etc Liquidity requirements Pre-vetting and approval of principal persons and key persons Review of suspicious activity reports (SARs) General correspondence Complaints Law reports Marketing material Particular attention to any proposals to change business plan (competency check) Info from other regulators or other sources

Answer 127

Usually when the regulators have the power to carry out formal investigations of a single firm, or all regulated firms within a specific sector of the industry These powers are usually invoked when the regulator is concerned that procedures being adopted by firms are exposing the island to risk, and may be the precursor to changes in the regulations

Answer 128

Investigations like these are usually not carried out by the regulators themselves, but by an appointed firm of reporting accountants, who will carry out the investigation and report their findings to the regulator Formal investigations are usually carried out under the provisions provided in the respective law governing the activity, rather than the codes of practice. As such, the investigators have legal powers of discovery and entry to premises for the examination of records and gathering of evidence The regulators also have powers of interview, with penalties applied for non-cooperation on the interviewee's part. The convention on human rights require that legislation which forces cooperation in this way be modified to prevent self-incrimination As such, any statements obtained under powers of compulsion may not now be used in a subsequent criminal prosecution, other than in the defence of the accused

Answer 129

The investigators (I.e. the firm of reporting accountants appointed by the regulator to conduct the investigation) have legal powers of discovery and entry to premises for the examination of records and gathering of evidence The investigators also have powers of interview, with penalties applied for non-cooperation on the interviewee's part. Note that the convention on human rights require that legislation which forces cooperation in this way be modified to prevent self-incrimination As such, any statements obtained under powers of compulsion may not now be used in a subsequent criminal prosecution, other than in the defence of the accused

Answer 130

Formal investigations are usually carried out under the provisions provided in the respective law governing the activity, rather than the codes of practice.

Answer 131

Authorisation Supervision Enforcement

Answer 132

When firms experience difficulties in complying with the regulatory requirements OR Where firms either consistently breach requirements or breach in relation to a substantial, one off matter Locally, the JFSC has to be satisfied that issues posing a risk to the public and the island's reputation are given due attention and resolved ASAP to reduce such risks Where such action is considered to be insufficient, or where cooperation is lacking, there may be a need for more formal enforcement action by the JFSC, involving the use of statutory powers Note that individuals within a firm may also give cause for the JFSC to use its enforcement powers. For example, where a person has contravened the regulatory laws or regulations, orders, codes of practice, directions or conditions made under these laws, or has committed other instances of misconduct, such as breaches of the AML legislation

Answer 133

The need for enforcement may arise where a person has contravened the regulatory laws or regulations, orders, codes of practice, directions or conditions made under these laws, or has committed other instances of misconduct, such as breaches of the AML legislation

Answer 134

Where such action is considered to be insufficient, or where cooperation is lacking, there may be a need for more formal enforcement action by the JFSC, involving the use of statutory powers Statutory powers = The powers assigned to the statutory authority (e.g. the JFSC) or body to implement the law

Answer 135

Warnings and statements Policy on the JFSC's use of public statements Public statement as a regulatory sanction Reduction of the period of notice Public statement with respect to a direction Directions and conditions Applications to the court Objections and revocation Criminal prosecution Rights of appeal

Answer 136

The issuing of a private warning to board directors and/or senior management of a firm or to individual principal persons setting out the JFSC's concerns as to the firm's conduct and/or individuals and the consequences of repeating this mistake The issuing of a public statement of misconduct is described in the document 'guidance on the Commission's use of public statements'

Answer 137

Under each of the regulatory laws, the JFSC has powers in certain circumstances to issue a public statement. There's a wide range of circumstances in which its appropriate to issue a public statement, the main ones being: X As a regulatory sanction, or part of a sanction, by promulgating the findings of the JFSC, and any action it has taken in relation to a failure of a business or person to comply with a requirement of any relevant law or codes of practice X To give warning of unauthorised business, or similar circumstances, where the best interests of the public could be adversely affected X To publicise a direction, or particular aspects of a direction, given by the JFSC. The specific aspects addressed by this policy statement are a decision to: Issue a public statement as a sanction, or part of a sanction Issue a public statement with respect to a direction Reduce the period between serving notice to anyone named in a public statement and the issue of the public statement

Answer 138

In deciding whether to issue a public statement as a form of regulatory sanction (I.e. To spread word on the findings of the JFSC and any action it has taken regarding the failure of a person or business to comply with a relevant law or code), the JFSC will have regard to the following considerations, among others, whether: The circumstances are sufficiently serious to warrant placing them in the public domain The non-compliance was committed intentionally or recklessly, rather than accidentally The JFSC has previously issued a specific warning relating to the type of non-compliance that has occurred There is a pattern of poor regulatory compliance There has been any attempt to conceal the non-compliance from the JFSC, or to mislead the JFSC about it The person concerned has been cooperative in admitting the noncompliance, and in taking remedial action In all the circumstances it is appropriate to draw attention to the non-compliance to demonstrate that regulatory standards are being upheld It is appropriate to advise the industry of poor practice and provide education on the standards of conduct expected of registered persons

Answer 139

To spread word on the findings of the JFSC and any action it has taken regarding the failure of a person or business to comply with a relevant law or code

Answer 140

The regulatory laws require that, if reasonably practicable, the JFSC must send a formal notice to any person to be named on a public statement, and may not issue the statement until one month before the notice, or later if an appeal is made to the royal court However, the regulatory laws also provide for the JFSC to be able to decide when the statutory criteria are met that allow the notice period to be reduced, even so much so that the public statement is issued on the same day as the notice

Answer 141

The JFSC is mindful of the additional consequences for anyone named in the public statement if the notice period is reduced. It therefore doesn't expect to use this power unless it's satisfied that its use is both necessary and proportionate. Each case is considered on its own merits, and the factors the JFSC takes into account include, but aren't limited to: The need for urgency in warning the public of unauthorised financial services business Whether or not a delay could result in members of the public incurring financial losses Whether or not a delay may result in significant risk of damage to the reputation of a registered financial services business or a person associated with that business. If the notice period is reduced, although an appeal to the court may still be made, the issue of the public statement is neither deferred nor suspended, pending that appeal being heard, unless the court so orders after considering a separate application: as a result, it may not be possible for the appeal to be heard before the public statement has been issued Whether or not a delay could cause unnecessary damage to the reputation, integrity or economic interests of the island in commercial and financial matters Whether or not reducing the notice period would counter, or assist in countering, financial crime in Jersey or elsewhere

Answer 142

Those that give warning of unauthorised business, or similar circumstances, where the best interests of the public could be adversely affected Whilst the JFSC doesn't expect it will be necessary to apply the provision to other kinds of public statement (I.e. those that spread word on the findings of the JFSC and any action it has taken regarding the failure of a person or business to comply with a relevant law or code), it will do so if it considers that circumstances dictate

Answer 143

A decision of whether or not to publish a public statement is likely to be based on the need to: X Protect the interests of: Any existing or potential clients or customers of the person to whom the direction was given The general public Other regulated businesses in the island's financial services industry X Protect the reputation of Jersey in commercial and financial matters X Counter financial crime in Jersey and elsewhere

Answer 144

The issuing of a direction or license condition to require a person to take (or not take) certain action. Failure to comply with the direction and condition could result in prosecution Directions may be used, for example, to require a regulated entity to provide certain info to the JFSC The power of direction is available in order to ban an individual from operating at a regulated entity or in the finance industry in general.

Answer 145

Application to the court for an injunction to restrain a person from committing or repeating a contravention, or in order to remedy a contravention Application to the court for a registered person's business to be subject to supervision, restraint or conditions, and for the registered person to make good losses suffered by third parties as a result of specified contraventions of the regulatory laws Application to the court for the appointment of a manager to take charge of a person's financial services business affairs

Answer 146

Objection to a principal person or changes in shareholding Revocation of a registered person's license

Answer 147

Referral of a contravention of the law to the attorney general for his decision on criminal prosecution. (The factors the JFSC would take into account would in making such a referral are set out in its statement on 'policy on referrals to the attorney general) The particular enforcement measures, or a combination of measures adopted, depend on factors such as: X The seriousness of the contravention or instance of misconduct X The degree of cooperation and openness displayed by the person concerned X Whether it is considered necessary or desirable for the matter to be brought into the public domain through the use of a public statement Taking account of these factors, the JFSC will consider each case carefully on its merits

Answer 148

All individuals and/or firms have the right to appeal to the JFSC and the court where they believe that they've been unfairly treated, e.g. if their license has been revoked, or they have been penalised and/or have been required to award compensation to investors

Answer 149

Technically, offshore means anywhere a person places property, other than their place of residence or domicile Offshore vs onshore Not necessarily an island Can be landlocked, and therefore onshore geographically, e.g. Switzerland Tax system advantages Tax haven - low or no tax jurisdictions Confidentiality Political stability Most OFCs are dependencies or colonies

Answer 150

Large number of financial institutions engaged primarily with non-residents Financial system with external assets or liabilities out of proportion to the domestic economy Centres which provide some or all of the following: X Low or no tax X Moderate or light regulation X Banking secrecy or anonymity

Answer 151

Reduced cost of insurance Increased cash flow Access to reinsurance market Insurance of hard to place risks Improved control Centralised insurance management Possible tax benefits

Answer 152

Processes Structures Resources Information systems Reporting arrangements

Answer 153

Control of borrowing (Jersey) law 1947

Answer 154

Remember the FALLOUT story The risk arising from execution of a company's business functions. As such, companies require appropriate policies/processes/procedures for managing operational risk in all material products/activities/processes/systems. These include: The courier laid out the EVALUATION AND DELIVERY of a plan to rob a shop with Dogmeat, as well as the DOCUMENTARY AND LEGAL RISK of doing so. This would be good PROCESS MANAGEMENT, especially in the event of SYSTEMS FAILURE. It was just him, reducing the risk of INTERNAL/EXTERNAL FRAUD. On their way in, the greeter-bot warned about IMPROPER ACTIVITIES in the toilets, and a sign was displayed at the entrance, about EMPLOYMENT PRACTICES AND WORKPLACE SAFETY. At each of the tills, there was a note on HANDLING OF CUSTOMER INFO. The manager's office had a lot of PHYSICAL DAMAGE, but they found the key to the safe behind a list of CLEARLY DEFINED EMPLOYEE DUTIES. Inside the safe, they found cash, as well as a nuka cola RISK ASSESSMENT OF NEW PRODUCTS PRE-LAUNCH. Upon leaving, the courier reflected that the plan had had a REGULAR REVIEW OF OPERATIONAL RISK PROFILES, as well as BUSINESS CONTINUITY PLANS.

1.) The Offshore Regulatory Environment Flashcards

(178 cards)