Financial Services (Investment Business (Client Assets)) (Amendment No. 2) (Jersey) Order 2022

Summary

This Order amends Jersey's Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001, replacing the concept of safeguarding 'documents of title to investments' with a broader concept of safeguarding 'protected property' held for clients. It sets out revised and new rules on how registered persons (investment businesses) must hold, segregate, and account for client assets, and how they must deal with approved custodians and third parties to whom client property is lent, including where an overseas jurisdiction is involved.

• Safekeeping duties: Registered persons remain responsible as trustee for protected property until it is delivered to the client or dealt with under written client arrangements; property must be held so ownership is readily apparent and identifiable at all times, and certain property (e.g. held as loan security or margin security) must be identified and segregated where possible.
• Use of approved custodians: Before placing client protected property with an approved custodian who is not the registered person's own nominee, the registered person must act with due diligence in selecting, appointing and reviewing the custodian, and must have a written agreement covering trustee acknowledgment, no unauthorised transfer of title, clear non-ownership marking, and statements from the custodian at least every 6 months.
• Lien and overseas disclosures: Custodians must acknowledge they will not claim a lien or right of sale over client protected property except in limited circumstances; where a custodian or third party is subject to an overseas jurisdiction's laws, the registered person or custodian/third party must disclose the applicable asset protection or insolvency regime, insolvency risks, and any investor compensation scheme coverage.
• Lending to third parties: A registered person must apply due diligence when selecting, appointing and reviewing third parties to whom client protected property is lent, and must not lend protected property to an overseas third party without making the required risk and compensation-scheme disclosures to the client.
• Storage requirement: Where title to protected property passes by delivery, the registered person must store it so as to minimise risk of loss from theft, fire or flood.
• Transitional relief: A person is protected from committing an offence under Article 20(4) of the Financial Services (Jersey) Law 1998 for non-compliance caused solely by this Order's changes, for a 3-month period beginning on the commencement day.

The Order comes into force 7 days after it is made (the specific made/in-force dates were left blank in the version reviewed). It applies to registered persons conducting investment business under the Financial Services (Jersey) Law 1998, and to approved custodians and third parties who hold or receive client protected property on their behalf.

Key obligations

• Registered persons must hold client protected property in safe custody or as trustee, and must not part with or transfer it except on client instructions or per the client agreement
• Registered persons must identify and, where possible, segregate protected property held as loan security or margin-related security from other client property
• Before appointing an approved custodian, a registered person must exercise due diligence in selection, agreement of terms, and periodic performance review, and decide after each review whether to continue using the custodian
• Registered persons must have a written agreement with any approved custodian covering trustee acknowledgment, restrictions on transfer of title, clear marking of ownership, and delivery of a statement of holdings at least once every 6 months (and on request)
• Registered persons must obtain a written acknowledgment from the custodian that it will not claim a lien, right of retention, or right to sell client protected property except in specified circumstances
• Where a custodian or sub-custodian is subject to an overseas jurisdiction's laws, the registered person or custodian must disclose to the client the applicable asset protection/insolvency regime, insolvency risks, and investor compensation scheme coverage
• Registered persons must apply due diligence when selecting, appointing and reviewing third parties to whom client protected property is lent
• Registered persons must not lend client protected property to an overseas third party without disclosing the applicable overseas regime, insolvency risks, and compensation scheme coverage to the client
• Registered persons must store protected property whose title passes by delivery so as to minimise risk of loss from theft, fire or flood
• A registered person may not authorise a custodian to release or transfer title to protected property except per the client agreement or on the client's express instructions

Applies to

registered persons (investment business), approved custodians, third parties to whom client protected property is lent

Deadlines

• 7 days after it is made: The Order comes into force 7 days after the date it is made (exact made and in-force dates left blank in the reviewed text).
• 3 months beginning on the commencement day: Transitional relief period during which a person will not commit an offence under Article 20(4) of the Financial Services (Jersey) Law 1998 for non-compliance caused solely by the changes in this Order.
• not less than once every 6 months: Minimum frequency at which an approved custodian must prepare and deliver to the registered person a statement of protected property held.

Related documents

• This document is made under Financial Services (Jersey) Law 1998
• This document amends Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001