Guidance Note: Forward Foreign Exchange Transactions (2010-09-13)

Summary

This JFSC guidance note clarifies when forward foreign exchange dealing counts as a regulated activity under the Financial Services (Jersey) Law 1998, and sets out conduct and qualification expectations for staff who deal in or advise on such transactions.

• Scope test: A forward FX transaction is regulated under the Law if it has a proposed or actual settlement date of seven days or more and is for speculative (not commercial) purposes; spot FX transactions are never caught.
• Execution only business: A registered person handling execution only instructions must determine whether the transaction is commercial or speculative before proceeding.
• Qualified handling of speculative trades: If a transaction is found to be speculative, it must be executed by a suitably qualified individual.
• Dealer accountability: The person who deals is treated by the JFSC as the individual who commits the employing legal entity to counterparty risk.
• Advice on currency merits: Anyone advising on the merits of currencies with a settlement of seven days or more must be registered as an investment employee and hold the appropriate qualification.
• Qualification standards: Minimum standard is the ACI Dealing Certificate; new entrants must work under supervision and pass the ACI Dealing Certificate within their first year; execution only staff need the certificate plus two years active trading experience; those giving investment advice need the certificate plus five years experience.

The JFSC notes it follows UK FSA guidelines on foreign exchange activities and that its views are given without responsibility, with statutory interpretation ultimately a matter for the courts.

Key obligations

• A registered person handling execution only forward FX instructions must establish whether the transaction is for commercial or speculative purposes before execution.
• Speculative forward FX transactions (settlement of seven days or more) must be executed by a suitably qualified individual.
• Individuals advising on the merits of currency transactions with settlement of seven days or more must be registered as an investment employee and appropriately qualified.
• Staff whose main role involves forward FX dealing within the meaning of the Law must hold at least the ACI Dealing Certificate.
• New entrants to FX dealing must work under supervision of a properly qualified senior and pass the ACI Dealing Certificate during their first year of employment.
• Staff conducting execution only FX business must hold the ACI Dealing Certificate plus two years' experience in an active trading environment.
• Staff giving investment advice on currency transactions must hold the ACI Dealing Certificate plus five years' experience in an active trading environment.

Applies to

Jersey registered persons conducting foreign exchange business, investment employees engaged in foreign exchange dealing

Deadlines

• 1 January 2001: Date from which the stated qualification standards apply to staff whose main investment role involves forward foreign exchange activities caught within the Law.
• within their first year of employment: New entrants to forward FX dealing should pass the ACI Dealing Certificate within this period while working under supervision.