securities investment business

Who is caught

Securities investment business in Jersey is regulated primarily as a class of financial service business under the Financial Services (Jersey) Law 1998, which prohibits carrying on such business in or from Jersey without registration with the Jersey Financial Services Commission. A separate consent regime under the Control of Borrowing legislation governs the issue of securities and the circulation of securities offers.

Investment business as a regulated activity

• Registration trigger: A person must not carry on financial service business (which includes investment business) in or from Jersey unless registered under the Financial Services (Jersey) Law 1998.
• 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 where it has a settlement date of seven days or more and is for speculative (not commercial) purposes; spot FX is never caught.
• Who is caught: Persons carrying on investment business as registered persons, their principal persons and key persons (compliance officer, money laundering compliance officer and money laundering reporting officer), and investment employees dealing in or advising on investments.

Securities issues and offers

• Control of Borrowing regime: Under the Control of Borrowing (Jersey) Law 1947 and the Control of Borrowing (Jersey) Order 1958, Commission consent is required for a wide range of capital raising, including issuing shares or securities registered in Jersey and circulating offers of foreign securities in Jersey.
• Retail offers by foreign persons: JFSC guidance confirms that a foreign domiciled person must obtain prior JFSC consent under the Control of Borrowing (Jersey) Order 1958 before circulating an offer of securities, unit trust interests, or LP, LLP or LLC interests 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 · 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

The continuing obligations of investment business registered persons flow from the Financial Services (Jersey) Law 1998, the Investment Business Code of Practice issued under Article 19, and subordinate Orders on client assets, accounts and advertising. The duties that carry firm deadlines relate to accounts filing, reconciliations, financial resource calculations and annual reviews.

Registration and notification

• Register and display: Register with the JFSC in the appropriate class before carrying on investment business, and display the registration certificate and any conditions.
• Notify changes: Notify the Commission of any change of principal person, key person, shareholding or LLC interest under Article 14 of the Financial Services (Jersey) Law 1998.
• Code compliance: Comply with the Investment Business Code of Practice, including the seven core principles on integrity, client interests, systems and controls, financial resources, open dealing with the JFSC, and not making misleading statements.

Client assets

• Segregation: Under the Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001, pay all client money into a client bank account with an approved bank and keep it segregated from firm money and connected customers' money.
• Reconciliation: Reconcile client bank account balances at least monthly, completing the reconciliation within 10 business days, and correct or notify discrepancies promptly.
• Protected property: Safeguard client protected property as trustee, using approved custodians subject to due diligence and written agreements, with disclosures where an overseas jurisdiction applies, as revised by the Amendment No. 2 Order 2022.
• Records: Retain records required under the client assets Order for at least 10 years.

Accounts, audit and financial resources

• Accounting periods and auditor: Under the Financial Services (Trust Company and Investment Business (Accounts, Audits and Reports)) (Jersey) Order 2007, obtain Commission approval of accounting periods and engage only a Commission-approved auditor.
• Filing deadline: Provide financial statements, declaration, directors' report and auditor's report to the Commission within 4 months of the period end, extendable to up to 8 months with Commission permission; keep accounting records for at least 10 years.
• ANLA calculation: Calculate Adjusted Net Liquid Assets at least quarterly, moving to monthly where the position falls between 110% and 130% (or after a material adverse event), and daily for investment businesses with position, counterparty or foreign currency risk unless a variance is granted.
• Restoration plan: Where ANLA is notified as below 110% of the Expenditure Requirement, the JFSC generally expects a documented restoration plan within 30 days.

Conduct, advice and advertising

• Suitability: Conduct due diligence and assess suitability before recommending or investing, demonstrate suitability in writing, issue Suitability Letters, and review products and providers at least annually.
• Conflicts and vulnerable clients: Identify, prevent and manage conflicts of interest under Principle 2, and identify and protect vulnerable clients, maintaining policies and procedures for both.
• Benchmarking: Where providing advisory or discretionary services, report client performance against a relevant benchmark where one exists or is reasonably available.
• Advertising: Under the Financial Services (Advertising) (Jersey) Order 2008, ensure advertisements identify the issuer and provider, are clear, fair and not misleading, do not claim Commission approval, and retain advertisement records for 10 years.

Securities issuance consents

• Consent to issue: Obtain Commission consent under the Control of Borrowing (Jersey) Order 1958 before issuing shares or securities within scope, comply with any conditions, and pay prescribed fees.
• Ongoing consent conditions: JFSC guidance indicates standard COBO consents require notifying the JFSC of material changes and ownership changes, immediate notice of default, and an annual confirmation of no breaches alongside the Annual Return.

Sources: Control of Borrowing (Jersey) Order 1958 · 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: Securities Issues by Jersey Companies · 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

A series of Orders under the Financial Services (Jersey) Law 1998 carve specified persons and activities out of the investment business registration regime, though most preserve certain enforcement and conduct provisions of the Law as if the person were registered. The Control of Borrowing (Jersey) Order 1958 provides separate de minimis and other exemptions from securities consent.

Investment business carve-outs

• Insurance permit holders: A person holding an insurance business permit under the Insurance Business (Jersey) Law 1996 is exempt from Articles 13 to 18 of the Financial Services (Jersey) Law 1998 for investment business arising from its permitted insurance business.
• Overseas persons: An overseas person with no Jersey place of business is exempt from investment business licensing for specified transactions arising from an unsolicited approach by the Jersey person or a compliant investment advertisement, subject to added conditions where the Jersey counterparty is a member of the public.
• Qualifying segregated managed accounts: Operators of QSMAs meeting the Schedule conditions are exempt from most of the Law for that activity, though certain enforcement, conduct and Commission-powers articles continue to apply.
• Professional investor regulated schemes: Functionaries of professional investor regulated schemes carrying on only restricted investment business are exempt from Article 7 registration, but Articles 12, 23 to 26, 28, and 32 to 39 and 41 continue to apply.
• Special purpose regulated schemes: Functionaries of special purpose (securitisation or repackaging) schemes serving only qualified professional investors are similarly exempt, with the same continuing articles preserved.

Securities consent exemptions

• De minimis and holder limits: Under the Control of Borrowing (Jersey) Order 1958, exemptions apply for amounts raised not exceeding £50,000 (or currency equivalent) in 12 months, for issues to 10 or fewer holders, and for securities solely securing ordinary-course bank borrowing.
• Employee options and non-public offers: Grants of options to bona fide employees can be exempt, and foreign offers may fall outside consent where they are not public offers, are valid in the UK or Guernsey, or the body or scheme has no relevant connection to Jersey.
• Advertising exemptions: The Financial Services (Advertising) (Jersey) Order 2008 excludes certain fund prospectuses, business-name-only notices, sponsorship statements and specified overseas-person communications from parts or all of the Order, and does not apply to money service business advertisements.

Sources: Control of Borrowing (Jersey) Order 1958 · 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 over investment business is exercised through the supervisory and enforcement powers of the Financial Services (Jersey) Law 1998 and the civil financial penalty regime of the Financial Services Commission (Jersey) Law 1998, with separate criminal offences under the securities and fraud statutes.

Supervisory and intervention powers

• Enforcement powers: Under the Financial Services (Jersey) Law 1998 the Commission may issue directions and injunctions, make public statements, exercise powers of intervention, require information and documents, and refuse or revoke registration; non-compliance with the Investment Business Code of Practice is grounds for such action.
• Appointment of manager: Under the Financial Services (Appointment of Manager) (Jersey) Order 2008, the Commission may apply to the Royal Court to appoint a manager over a firm's financial service business in prescribed circumstances, including inadequate management, unregistered activity, or the need to protect customer assets.

Civil financial penalties

• Statutory basis: Articles 21A to 21G of the Financial Services Commission (Jersey) Law 1998 allow the Commission to impose civil financial penalties on registered persons, principal persons and key persons for specified contraventions, subject to notification, surcharge and appeal provisions.
• Band 1: For repeated failure to make a required notification after written warning, the maximum is the lower of 4% of average annual turnover or £100,000 for a registered person, £5,000 for a principal person, and nil for a key person, as set by the Financial Services Commission (Financial Penalties) (Jersey) Order 2015.
• Band 2: For an unrectified contravention, the lower of 6% of average annual turnover or £4,000,000 for a registered person, £100,000 for a principal person, and nil for a key person.
• Band 2A: For a negligent contravention causing or risking specified harms, the lower of 7% of average annual turnover or £4,000,000 for a registered person, £150,000 for a principal person, and £100,000 for a key person.
• Band 3: For an intentional or reckless contravention causing or risking those harms, 8% of average annual turnover for a registered person, £250,000 for a principal person, and £200,000 for a key person.

Criminal offences

• Control of borrowing: Contravention of an Order made under the Control of Borrowing (Jersey) Law 1947 is an offence punishable by up to 5 years imprisonment, a fine, or both.
• Market abuse: Part 3A of the Financial Services (Jersey) Law 1998 creates offences of insider dealing, market manipulation and providing misleading information in relation to securities dealing.
• Investment fraud: Under the Investors (Prevention of Fraud) (Jersey) Law 1967, using fraudulent, false, deceptive or recklessly misleading statements to induce investment carries a fine, imprisonment for up to 7 years, or both.

Sources: Control of Borrowing (Jersey) Law 1947 · 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