I couldn’t help but notice one of the more significant amendments proposed by the JFSC in Consultation Paper No. 10 (Amendments to the Codes of Practice) is the introduction of a requirement for registered persons to perform a regular review of their controls for client money. To be more precise, the JFSC is proposing the following amendment to the respective Codes for FSB, TCB, IB and GIMB:
“Where a registered person controls [Client, Customer or Fund money] it should implement an independent review of the controls over [such] money on, at least, an annual basis:
- The review shall verify the effectiveness of the registered person’s relevant controls over [such money] with particular regard to those controls that prevent the:
- Misuse; and
- Misappropriation of [such] money.
- The review should be performed by an appropriately qualified independent person who may be an internal or external party.
- Where an internal party performs such review they must be operationally independent from the individuals or functions within the registered person responsible for the operation of the controls under review.”
It is also proposed to update the Notifications section of the respective Codes (Section 6) such that the JFSC be notified of, “any deficiencies in the effectiveness of controls over client money identified during an independent review as required by paragraph…”.
My initial thought when considering the impact of these amendments was not to panic. The changes were mooted back in 2017 and are the result of an initiative of the Group of international Financial Centre Supervisors, a body of which Jersey is a member. Secondly, these new requirements will likely already form part of the annual cycle of your compliance monitoring programme; in which case, subject to a bit tweaking here and there, the amendments shouldn’t cause any increase in blood pressure.
Having said not to worry, it’s only fair that I also mention you shouldn’t rest on your laurels looking smug and do absolutely nothing. You’ve been put on notice the JFSC may, in the not too distant future, decide upon client money controls as one of their themes for an on-site examination. Consequently, it would be foolhardy to ignore this notice of intention.
As a bare minimum, you should use this opportunity to reacquaint yourselves with the legal requirements already in place for safeguarding client monies (or equivalent). In this regard, please refer to the following subordinate legislation:
- Financial Services (Trust Company Business (Assets – Customer Money)) (Jersey) Order 2000;
- Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001; and
- Financial Services (General Insurance Mediation Business (Client Assets)) (Jersey) Order 2005.
Conspicuous by its absence is a Funds money order. Notwithstanding this glaring omission, it would be a reasonable starting point to use the above orders as the basis for ensuring your controls for fund money are as robust as those in place under the TCB, GIMB and IB regimes.
In the event you have any questions please do contact me on 880659 or firstname.lastname@example.org