Feedback and Further Consultation on Enhancements to the Investment Business Regime (Feedback on CP No. 8 2019 / Further Consultation CP No. 12 2020)

Summary

This is a JFSC feedback and further consultation paper on proposed enhancements to Jersey's Investment Business regime, covering amendments to the Financial Services (Jersey) Law 1998 and the Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001 (the CAO). It reports on responses to earlier Consultation Paper No. 8 2019 and opens a further consultation on three revised legislative proposals arising from that feedback.

• Who it affects: All registered persons licensed to carry on Investment Business under the FSJL, all registered persons within scope of the CAO, businesses arranging or bringing about transactions in investments for others, and businesses carrying on exchange business.
• Hold advice: Proposal to extend advice regulation to cover advice on 'holding' an investment will not proceed; the JFSC considers this already captured by existing law.
• Derivative definitions (Further Consultation Question 1): Revised, tighter definitions of financial derivatives, futures, and contracts for differences are proposed, aligned more closely with FCA/MiFID concepts, and are open for further comment.
• Arranging (Further Consultation Question 2): A revised proposal would bring 'arranging' within the scope of dealing as an IB activity, with exemptions aligned to those for dealing; open for further comment.
• Ban on retail products: The JFSC will continue working with the Law Drafting Office on a proposal to give it powers to ban sale of certain products to retail clients.
• Exchange business: Legislation to bring oversight of exchange business within the FSJL has been drafted and consulted on; the JFSC is ready to apply it when required.
• Pension transfer advice: The proposal to bring advice on defined contribution pension transfers into the FSJL will not be implemented by the JFSC and will instead be handled under the Government's phase 1 pension project.
• Client asset protection (CAO) (Further Consultation Question 3): Revised proposals would require registered persons and custodians to carry out third party due diligence and disclose to clients the risks and differences in asset protection or insolvency regimes when client protected property is held or lent to a third party in a foreign jurisdiction.

The further consultation period on the three amended proposals (derivative definitions, arranging, and the CAO amendments) closes on 26 February 2021, with comments to be submitted to the JFSC or coordinated via Jersey Finance Limited. The JFSC intends to publish feedback in Q2 2021. The proposed changes are set out in draft legislation appended to the paper but have not yet been brought into force.

Key obligations

• Respondents wishing to comment on the further consultation questions (derivative definitions, arranging, and CAO amendments) must submit comments to the JFSC or via Jersey Finance Limited no later than 26 February 2021.
• Under the proposed (not yet in force) CAO amendments, a registered person or custodian would be required to disclose to the client the applicable asset protection/insolvency regime, associated risks, and regime differences before holding client protected property with a foreign custodian or lending it to a third party in a foreign jurisdiction.
• Under the proposed CAO amendments, a registered person must exercise all due skill, care and diligence when selecting, appointing or reviewing a third party to whom client protected property is lent, and must not lend such property to a third party without the client's written consent.

Applies to

registered persons licensed to carry on Investment Business under the FSJL, registered persons within scope of the CAO, businesses arranging or bringing about investment transactions for others, businesses carrying on exchange business

Deadlines

• 26th February 2021: Deadline for submitting comments on the further consultation (derivative definitions, arranging, and CAO proposals) to the JFSC or via Jersey Finance Limited.
• Q2 2021: JFSC's target timeframe for publishing feedback on the further consultation.