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This article from
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Setting an appropriate regulatory regime
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HELEN HATTON
Deputy director general, Jersey Financial Services Commission
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The legislative and regulatory framework within which any financial services industry operates is an element vital to the success of a jurisdiction.
Along with a skilled workforce, reliable communication infrastructure, political stability, a good tax regime and sound legal system, an appropriate regulatory regime features as one of the top considerations for institutions or clients when choosing where to locate their business interests. The Jersey Financial Services Commission is the Island’s financial services regulatory authority. Created by the States of Jersey in 1998 as a statutory body independent from, but answerable to, government, it is charged with responsibility for supervising and developing the finance industry and advising government. The commission interprets its development role as development of the legislative framework and underling regulatory policies, as distinct from promotion of the industry, responsibility for which rests with Jersey Finance Limited.
The States of Jersey also set down the guiding principles by which the commission must fulfil its functions and these are:
- reducing risk to the public of financial loss due to dishonesty, incompetence, malpractice or the financial unsoundness of financial service providers;
- protecting and enhancing the Island’s reputation and integrity in commercial and financial matters; and
- safeguarding the Island’s best economic interests.
In pursuit of the above, the commission also contributes to the fight against financial crime.
The commission’s key purpose is to maintain Jersey’s position as an international finance centre with high regulatory standards. In support of this key purpose the Commission aims to ensure that:
- all entities it authorises meet fit and proper criteria;
- all entities it regulates operate within accepted standards of good practice;
- it meets international standards in respect of banking, securities, trust company business, and insurance regulation, together with anti money laundering and terrorist financing defences;
- it identifies and deters abuses and breaches of regulatory standards; and
- it operates effectively and efficiently.
Creating and maintaining an appropriate regulatory regime is a difficult task. What seems appropriate to one set of interests is not always seen as appropriate by another. Many conflicting or differing interests have to be taken into account. The question becomes one of balance. How does a regime offer clients the legitimate confidentiality they seek, and at the same time meet the transparency required by the Financial Action Task Force? How does a regulatory framework provide adequate safeguards which are sufficiently strong to protect retail savers without hampering the risk tolerant sophisticated investor? How does a regulatory body ensure its regime is strong enough to merit resounding endorsements by evaluating bodies such as the International Monetary Fund, while avoiding too heavy a burden on industry which needs flexibility in order to thrive?
These are issues which the commission must consider every day. As international standards change we must ask ourselves whether we wish to keep up with that change. Do we take a place with the leaders (if so, what does being a ‘leading jurisdiction’ mean?), or do we want to be a follower? The answer, of course, is that the position we choose to take depends on the issue at hand. The Island must choose its position taking into account the particular risks and benefits arising from the issue, carefully considering the arising implications and selecting the balance which seems right having taken the various competing factors into account.
In these deliberations the commission is not alone. Additional participants in the debate are the other stakeholders. Stakeholders include the industry, which itself is made up of banking, investment, trust, funds and insurance businesses, the Island’s government, the Jersey people, and the Island’s international client base. Jersey is fortunate in long being committed to a process of progress through consultation. By engaging all parties in careful debate, by listening to stakeholders explain their interests, the jurisdiction has progressed steadily over more than 30 years, to its position today as an established, leading international financial centre. All Jersey constituents are committed to sustainable growth through quality business and recognise that maintaining the reputation of the Island as a safe place for wealth management, is paramount. The statistics which the commission collects in respect of funds on deposit and under management evidence both stability and growth. In the year to 31 March 2004, bank deposits fluctuated between £149.3 million and £155.7 million, while the total value of funds under management increased by 29% to £35.8 billion.
As well as deposits and funds in the care of existing Jersey businesses, the commission is currently in discussion with a number of organisations keen to establish a presence in the Island. In addition, the commission is in the process of authorising a significant number of new funds.
Much interest has been shown in the recently launched Expert Fund Guide and it is hoped that this approach, involving a lighter regulatory touch, will prove to be attractive to those who wish to promote expert funds and, indeed, to the sophisticated investors themselves.
The commission will shortly be releasing a similar lighter touch approach to the regulation of Non Jersey Domiciled Funds and it is hoped that these new developments will provide an attractive regulatory framework to industry while retaining sufficient safeguards to protect the interests of investors.
It is all a matter of balance: keeping the Island near the leading edge, but avoiding the ‘bleeding’ edge. Jersey has a sound regulatory regime, one which has recently been endorsed by the IMF as meeting international standards. It has an established regulatory authority which, now approaching six years since inception, has a team of good staff operating to clear procedures and published policies, and it is committed to progress via consultation, a process involving the engagement of all stakeholders. It has a mature and vibrant industry hungry for innovation and committed to service. The Island has a skilled workforce.
These aspects of financial business in the Island have been hard won. Jersey is proud to be, and intends to remain, a leading financial centre with a regulatory regime to match.
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