securities investment business

Who is caught

In Jersey, securities investment business is regulated as investment business under the Financial Services (Jersey) Law 1998. That Law prohibits carrying on financial service business, including investment business, in or from within Jersey unless the person is registered with the Jersey Financial Services Commission or falls within an exemption.

Registrable activities

• Investment business classes: The Financial Services (Financial Service Business) (Jersey) Order 2009 groups investment business into Classes A to E, covering dealing in investments, managing investments, giving investment advice (with or without holding client assets), and business relating to certain non-public collective investment funds.
• Forward foreign exchange: JFSC guidance treats a forward FX transaction as regulated under the Law where it has a settlement date of seven days or more and is for speculative rather than commercial purposes; spot FX transactions are not caught.

Code of Practice population

The Investment Business Code of Practice, issued under Article 19 of the Financial Services (Jersey) Law 1998, applies to every person registered under Article 9 of that Law to conduct investment business.

Securities issues and offers

Separately from the investment business registration regime, the raising of money and issue of shares and securities in or from Jersey, and the circulation in Jersey of offers of foreign securities, require Commission consent under the Control of Borrowing (Jersey) Law 1947 and the Control of Borrowing (Jersey) Order 1958. JFSC guidance confirms that consent is needed for securities issues by Jersey companies and LLCs, and for offers of securities, unit trust, LP, LLP or LLC interests not formed under Jersey law circulated to retail investors in Jersey, unless an exemption applies.

Sources: Control of Borrowing (Jersey) Law 1947 · Control of Borrowing (Jersey) Order 1958 · Financial Services (Jersey) Law 1998 · Financial Services (Financial Service Business) (Jersey) Order 2009 · Investment Business Code of Practice · Circulation in Jersey of offers to retail investors by foreign domiciled persons · Guidance Note: Forward Foreign Exchange Transactions (2010-09-13) · Guidance Note: Securities Issues by Jersey Companies

Key duties

Registered investment businesses carry continuing obligations under the Financial Services (Jersey) Law 1998, the Investment Business Code of Practice, and subordinate Orders. The duties that recur or carry deadlines are set out below.

• Registration and notifications: A person must not carry on investment business without registration, must notify the Commission of changes of principal person, key person, shareholding or control, and must display its registration certificate and any conditions.
• Code of Practice compliance: Registered persons must comply with the Investment Business Code of Practice, including its seven core principles, client classification (Retail, per se Professional, Elective Professional), suitability assessment, a compliance function with a Compliance Officer, Money Laundering Reporting Officer and Money Laundering Compliance Officer, adequate financial resources and Professional Indemnity Insurance.
• Financial statements and audit: Under the Accounts, Audits and Reports Order 2007, registered persons must obtain Commission approval of accounting periods, engage only a Commission-approved auditor, provide financial statements (with declaration, directors' report and auditor's report) to the Commission within 4 months of the period end (extendable to up to 8 months with permission), and retain accounting records for at least 10 years; a terminated auditor must notify the Commission within 7 days.
• Financial resources (ANLA): Per JFSC guidance, registered persons must calculate Adjusted Net Liquid Assets at least quarterly, move to monthly where ANLA falls between 110% and 130% or after a materially adverse event, and calculate daily where the investment business has position, counterparty or foreign currency risk exposure (unless a variance is granted); where ANLA is below 110% of the Expenditure Requirement, a documented restoration plan is generally required within 30 days of notification.
• Client assets: Under the Investment Business (Client Assets) Order 2001, registered persons must pay client money into client bank accounts with an approved bank, keep it segregated, reconcile at least monthly within 10 business days, give clients 14 days' notice before withdrawing fees or commission, and retain records for at least 10 years. The 2022 amendment requires client protected property to be held in safe custody or as trustee, with due diligence on approved custodians and specified disclosures where overseas custodians or third parties are involved.
• Advertising: Under the Financial Services (Advertising) Order 2008, financial service advertisements must identify the issuer and provider, be clear, fair and not misleading, not claim Commission approval, and records of each advertisement must be retained for 10 years after the last date it was issued.
• Conduct guidance: JFSC guidance under the Code elaborates duties on suitability of advice (including Suitability Letters and transaction confirmation no later than one business day after the transaction), identifying and managing conflicts of interest, protecting vulnerable clients, and benchmarking client performance.
• Forward FX qualifications: Guidance requires speculative forward FX transactions to be executed by a suitably qualified individual and those advising on currency merits to be registered as investment employees holding at least the ACI Dealing Certificate with the specified experience.

Sources: Financial Services (Jersey) Law 1998 · Financial Services (Advertising) (Jersey) Order 2008 · Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001 · Financial Services (Trust Company and Investment Business (Accounts, Audits and Reports)) (Jersey) Order 2007 · Investment Business Code of Practice · Guidance Note: Definitions and Guidance on the Adjusted NET Liquid Assets (ANLA) Calculation · Benchmarking under the Code of Practice for Investment Business · Conflicts of Interests requirements under Principle 2 the Code of Practice for Investment Business · Guidance Note: Forward Foreign Exchange Transactions (2010-09-13) · Suitability of advice under the Code of Practice for Investment Business · Provision of Investment Services to Vulnerable Persons under the Code of Practice for Investment Business · Financial Services (Investment Business (Client Assets)) (Amendment No. 2) (Jersey) Order 2022

Exemptions and carve-outs

Schedule 2 of the Financial Services (Jersey) Law 1998 sets out categories of business and persons exempted from registration, and a series of Orders provide specific investment business carve-outs. The exemptions are generally conditional.

• Insurance permit holders: Under the Investment Business (Insurance Business - Exemption) Order 2001, a person holding an insurance business permit under the Insurance Business (Jersey) Law 1996 is exempt from Articles 13 to 18 of the 1998 Law for investment business arising from its permitted insurance business.
• Overseas persons: Under the Investment Business (Overseas Persons - Exemption) Order 2001, an overseas person with no Jersey place of business is exempt when carrying out a specified transaction that arose from an unsolicited approach by the Jersey person or a compliant investment advertisement; where the Jersey counterparty is a natural person acting as a member of the public, the overseas person must be supervised at home and deal to Commission Code standards.
• Qualifying segregated managed accounts: Under the Investment Business (Qualifying Segregated Managed Accounts - Exemption) Order 2014, operators of QSMAs are exempt from most of the 1998 Law for that activity, subject to conditions including a single operator, participants connected by family or employment, a minimum commitment of US$1 million, a written warning, notification to the Commission and quarterly reporting; certain enforcement and conduct articles continue to apply.
• Restricted investment business: Under the Investment Business (Restricted Investment Business - Exemption) Order 2001, functionaries of a professional investor regulated scheme carrying on only restricted investment business are exempt from Article 7 registration where each investor has signed the prescribed warning and (for non-grandfathered schemes) subscribed at least £250,000 or is a professional investor; Articles 12, 23 to 26, 28 and 32 to 39 and 41 still apply.
• Special purpose investment business: Under the Investment Business (Special Purpose Investment Business - Exemption) Order 2001, functionaries of a special purpose regulated scheme (principally securitisation or repackaging) whose securities are issued only to qualified professional investors are exempt from registration, with Articles 12, 23 to 26, 28, 32 to 39 and 41 continuing to apply.
• Advertising carve-outs: The Financial Services (Advertising) Order 2008 excludes certain fund prospectuses, business-name-only notices, sponsorship statements and specified overseas-person communications, and does not apply to money service business advertisements.

Sources: Financial Services (Jersey) Law 1998 · Financial Services (Advertising) (Jersey) Order 2008 · Financial Services (Investment Business (Insurance Business – Exemption)) (Jersey) Order 2001 · Financial Services (Investment Business (Overseas Persons – Exemption)) (Jersey) Order 2001 · Financial Services (Investment Business (Qualifying Segregated Managed Accounts – Exemption)) (Jersey) Order 2014 · Financial Services (Investment Business (Restricted Investment Business – Exemption)) (Jersey) Order 2001 · Financial Services (Investment Business (Special Purpose Investment Business – Exemption)) (Jersey) Order 2001

Enforcement and penalties

Enforcement powers over investment business sit in two main instruments: supervisory and intervention powers in the Financial Services (Jersey) Law 1998, and the civil financial penalty regime in the Financial Services Commission (Jersey) Law 1998.

• Commission powers: Under the Financial Services (Jersey) Law 1998, the Commission may issue directions, injunctions, remedial orders and public statements, exercise powers of intervention, investigate, enter and search premises, and require information and documents; supplying false information or failing to supply required information is an offence.
• Appointment of a manager: The Appointment of Manager Order 2008 operationalises the Commission's Article 12 power to apply to the Royal Court for a manager over a person's financial service business affairs in prescribed circumstances (Cases 1 to 8), including inadequate management, carrying on unregistered business, and the need to protect assets or implement a compensation scheme.
• Civil financial penalties: Articles 21A to 21G of the Financial Services Commission (Jersey) Law 1998 allow the Commission to impose civil penalties on registered persons, principal persons and key persons; maximum levels are set by the Financial Services Commission (Financial Penalties) (Jersey) Order 2015 in bands, rising in the top band (intentional or reckless contraventions) to 8% of average annual turnover for a registered person, £250,000 for a principal person and £200,000 for a key person, with lower caps for lesser bands.
• Market abuse offences: The Financial Services (Jersey) Law 1998 creates offences of insider dealing, market manipulation and providing misleading information in relation to securities.
• Investment fraud offence: The Investors (Prevention of Fraud) (Jersey) Law 1967 makes it a criminal offence to use misleading, false or deceptive statements, dishonest concealment or reckless misleading statements to induce investment, punishable by a fine, imprisonment for up to 7 years, or both.
• Code non-compliance: Non-compliance with the Investment Business Code of Practice is grounds for JFSC regulatory action, including written directions, public statements, financial penalties or revocation of registration, and the Code is admissible in evidence.

Sources: Financial Services (Jersey) Law 1998 · Financial Services (Appointment of Manager) (Jersey) Order 2008 · Financial Services Commission (Jersey) Law 1998 · Financial Services Commission (Financial Penalties) (Jersey) Order 2015 · Investors (Prevention of Fraud) (Jersey) Law 1967 · Investment Business Code of Practice