for Investment Business - Jersey Financial Services Commission · Investment Business – Codes of...

Financial Services (Jersey) Law 1998

DRAFT Codes of Practice for

Investment Business

Investment Business – Codes of Practice

DRAFT – JULY 2007 1

Contents Page

Advisory note regarding the application of the Codes of Practice (the “Codes”)

3

Introduction 4 - 5

Principles

1. A registered person must conduct its business with integrity. 6

2. A registered person must have the highest regard for the interests of its clients.

7 - 9

3. A registered person must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems.

10 - 21

3.1 Corporate Governance 10 - 11

3.2 Internal systems and controls 12 - 13

3.3 Integrity and competence 14 - 15

3.4 Continuing Professional Development (CPD) 16

3.5 Compliance Officer, Money Laundering Reporting Officer and Money Laundering Compliance Officer

17 - 18

3.6 Complaints 19

3.7 Record Keeping 20 - 21

4. A registered person must be transparent in its business arrangements. 22 - 23

5. A registered person must maintain, and be able to demonstrate the existence of, both adequate financial resources and adequate insurance.

24 - 27

6. A registered person must deal with the Commission and other authorities in Jersey in an open and co-operative manner.

28 - 31

7. A registered person must not make statements that are misleading, false or deceptive.

32 - 35



Contents continued Page

Schedules:-

First The First Schedule (paragraphs 5.1 to 5.4) 36 - 49

Second The Second Schedule - Application of the Codes to persons registered to conduct Class E investment business

50 - 51

Third The Third Schedule – Table of notifications and consents 52 – 58

Fourth The Fourth Schedule - The Use of Subordinated Loans within the Adjusted Net Liquid Assets and Expenditure Requirement

59 – 60

APPENDIX 1 Subordinated Loan Agreement 61 – 73

APPENDIX 2 Subordinated Loan Consent Request Checklist 74



Advisory note regarding the application of the Codes of Practice (the “Codes”) These Codes apply to all persons registered by the Jersey Financial Services Commission (the “Commission”) under Article 9 of the Financial Services (Jersey) Law 1998 (the “Law”) to carry on investment business as defined under Article 2(2) of the Law. Persons registered to conduct Class E of investment business are permitted to enjoy amended requirements in respect of certain sections of the Codes as set out in the Second Schedule.



Introduction

The Codes are issued by the Commission under powers granted to it by Article 19 of the Law. The Codes have been prepared and issued for the purpose of establishing sound principles for the conduct of investment business. It is the responsibility of the registered person not only to comply with these principles, but also to implement such additional practices as it considers necessary. In exceptional circumstances, where strict adherence to the Codes would produce an anomalous result, a registered person may apply to the Commission for variance from the Codes.

The Codes are arranged under seven fundamental principles as described below:

1. A registered person must conduct its business with integrity.

2. A registered person must have the highest regard for the interests of its clients.

The definition of a “client” is provided under Article 1 of the Law as follows:

“client”, in relation to a registered person, means a person, whether resident on or off Jersey, with or for whom the registered person transacts or has transacted financial service business (other than trust company business) or gives or has given advice about financial service business (other than trust company business);”

3. A registered person must organise and control its affairs effectively for the proper performance of its business activities, and be able to demonstrate the existence of adequate risk management systems.

4. A registered person must be transparent in its business arrangements.

5. A registered person must maintain, and be able to demonstrate the existence of, both adequate financial resources and adequate insurance.

6. A registered person must deal with the Commission and other authorities in Jersey in an open and co-operative manner.


Each section of the Codes is designed to be understood by reference to its full text including any notes.

Failure by a registered person to follow these Codes represents grounds for the Commission to take enforcement action. Where the Commission has reason to believe that at any time there has been a failure on the part of a registered person to follow these Codes, it may consider making use of its regulatory powers which, in serious cases, could include the revocation of an investment business’ registration.

In addition, failure to comply with a Code may support a decision by the Commission that, for example, continued non-compliance or other failure to remedy the circumstances giving rise to the breach may be addressed by the issue of a written direction under Article 23 of the Law. Such a direction might impose requirements on a registered person to do or not to do things, remove persons, or cease operations. In appropriate circumstances that direction can be made public.



Where it appears to the Commission that a person has failed to comply with these Codes, it may issue a public statement under Article 25 of the Law.

Whilst failure to follow these Codes shall not of itself render any person liable to proceedings of any kind or invalidate any transaction, the Codes shall be admissible in evidence in any proceedings if it appears to the court conducting the proceedings to be relevant to any question arising in the proceedings and shall be taken into account in determining any such question.

A registered person is reminded that the conduct of investment business involves the carrying on of any of the activities listed in Article 2(2) of the Law, by way of business in or from within Jersey or, if by a company incorporated in Jersey, in any part of the world.

A registered person that has outsourced a material part of its regulated activities to a delegatee must do so in accordance with the Commission’s policy statement and guidance notes on outsourcing.

The Codes can be revised after consultation with such persons or bodies as appear to be representative of the interests concerned.

John Harris Director General [ ]2007



1 A registered person must conduct its business with integrity.

1.1 Failure to comply with the above principle will be considered a serious breach of the Codes.

1.2 Without limiting the scope of the above principle, a registered person must not:

1.2.1 act or refrain from acting, or

1.2.2 contract or have any other arrangement,

so as to avoid, or seek to avoid, any regulatory responsibilities it may have under the Codes and the full consequences of not following them unless the Codes expressly permit any such avoidance.



2 A registered person must have the highest regard for the interests of its clients.

2.1 A registered person must act with due skill, care and diligence to fulfil the responsibilities that it has undertaken.

2.2 In determining the means by which it will comply with the requirements under principles 2 and 4 of the Codes, a registered person must take into account any relevant guidance issued by the Commission.

Knowledge of Client

2.3 Where a registered person is responsible for providing advice to or exercising discretion for its clients, it must obtain, document and maintain any information about the circumstances (both financial and otherwise) and investment objectives of the client that are relevant to the services to be provided.

2.4 Where a client declines to provide information concerning their circumstances and investment objectives, a registered person must not provide advice to or exercise discretion on behalf of the client unless it has first disclosed to the client that the lack of such information may adversely affect the service that it can provide.

Suitability

2.5 Where a registered person is responsible for providing advice or exercising discretion for its clients, it must be able to demonstrate in writing that the advice or exercise of discretion is suitable for that client having regard to:

2.5.1 the facts disclosed by that client;

2.5.2 the terms of any agreement with that client; and

2.5.3 any other relevant facts about the client of which the registered person is, or reasonably should be, aware.

2.6 Where a registered person is responsible for providing advice it must make appropriate disclosure of such information to its client, in a comprehensible and timely manner, so as to allow the client to make an informed investment decision.

2.7 A registered person must ensure that adequate procedures are implemented to ensure that the investment services that it provides are regularly reviewed at appropriate intervals.

Conflicts of Interest

2.8 A registered person must endeavour to avoid any conflict of interest arising.

2.9 Where conflicts do arise, a registered person must have effective procedures so as to address such conflicts by:

2.9.1 disclosure;

2.9.2 applying internal rules of confidentiality;



2.9.3 declining to act; or,

2.9.4 otherwise as appropriate.

Switching & Churning

2.10 A registered person must not advise a client to, nor in the exercise of its discretion effect a switch of long term insurance products or a switch within or between collective investment schemes unless it is in the client’s interest to do so. Written evidence should be retained in this regard.

2.11 A registered person must not advise a client nor in the exercise of discretion, enter into transactions with unnecessary frequency having regard to the client’s agreed investment objectives.

Front Running

2.12 Where a registered person or its associate, as defined in Article 1 of the Law, intends to publish to clients a recommendation, or a piece of research or analysis, it must not:

2.12.1 deal in the investment, or any related investment, on its own account,; or

2.12.2 deal in the investment, or any related investment on behalf of an associate;

2.12.3 ahead of the clients for whom the recommendation, research or analysis was intended if those clients ought to have priority.

2.13 A registered person shall not be deemed to have breached 2.12 of the Codes if it can demonstrate that:

2.13.1 the publication could not reasonably be considered price sensitive;

2.13.2 the registered person is a market maker in the investment concerned and the deal was executed or arranged in good faith;

2.13.3 the registered person was dealing in order to fulfil an unsolicited client’s order; or

2.13.4 the registered person has reasonable grounds for believing that it needs to deal in the investment concerned in order to fulfil client orders which are likely to result from the publication and that to do so will not cause the price of the investment to move against clients interests by a material amount.

Customer Order Priority

2.14 A registered person must deal with client and own account orders fairly and in due turn.

Aggregation

2.15 A registered person may only aggregate an order of a client with the order of another client or of the registered person, where it is in the overall best interests of all the clients concerned, or any possible disadvantage has been disclosed to each client.



Fair and Timely Allocation

2.16 When allocating orders, a registered person must not give unfair preference to itself or to any client for whom they have dealt.

2.17 Where a registered person has aggregated a client order with its own or other clients’ orders it must allocate back to the client within 24 hours.

2.18 Where an aggregated order is not completed in full (i.e. a partial fill) a registered person must give priority to the clients’ orders unless it can demonstrate that the transaction would not have happened on such favourable terms without the registered person’s involvement.

Timely Execution

2.19 Once a registered person has agreed with a client or decided in its discretion to effect or arrange a client order, it must effect or arrange the execution of the order as soon as reasonably practicable in the circumstances, unless postponement is in the best interests of the client.

Best Execution

2.20 For investments other than units in a collective investment fund and long term insurance products, in dealing with or for a client, a registered person must take reasonable care to ascertain the price which is the best available at the time for transactions of the kind and size concerned and then, unless circumstances require it to do otherwise in the client’s interests, deal at a price no less advantageous to the client (excluding any of its disclosed charges).

2.21 A registered person may rely on another person who executes the transaction to provide best execution, but only if they believe on reasonable grounds that the person will do so.

2.22 Where a registered person executes an order through the Stock Exchange Electronic Trading Services (“SETS”) the “best execution” requirement will be deemed to have been satisfied.

2.23 Where a registered person has access to a variety of price sources, it should compare those sources and give the client the best price.



3 A registered person must organise and control its affairs effectively for the proper performance of its business activities, and be able to demonstrate the existence of adequate risk management systems.

3.1 Corporate Governance

3.1.1 Registered persons must operate an effective corporate governance system that must include the following key elements:

3.1.1.1 registered persons must satisfy the Commission they have an adequate span of control appropriate to the nature of their business;

3.1.1.2 responsibilities must be apportioned in such a way that individual responsibilities and accountabilities are clear and that there is separation of critical functions so as to guard against fraud and market abuse; and

3.1.1.3 the business and affairs of the registered person must be adequately monitored and controlled at senior management and board level, as appropriate.

3.1.2 Specifically with respect to 3.1.1.1:

3.1.2.1 registered persons that are not permitted to handle clients’ assets should effectively be directed by at least two appropriately qualified and experienced individuals (otherwise known as the ‘Four Eyes’ principle);

3.1.2.2 registered persons that are permitted to handle clients’ assets should effectively be directed by at least three appropriately qualified and experienced individuals (otherwise known as the ‘Six Eyes’ principle); and

3.1.2.3 the relationship between the individuals must be such as to ensure that they can all exercise independent judgement without duress or undue influence from one another;

3.1.3 Clearly defined procedures must be in place so that there is appropriate oversight by the board of directors and senior management in order to address the principles of risk management:

3.1.3.1 an assessment of the risks present in the registered person’s business must be made, and those risks must be documented, as must the ways in which they are to be monitored and controlled;

3.1.3.2 the registered person must maintain accurate and reliable information systems, and

3.1.3.3 the registered person must complete timely and appropriate management reporting.



Note 1: Corporate governance is the system by which an organisation is directed and controlled. A corporate governance framework specifies the distribution of rights and responsibilities among different participants in the organisation and sets out the rules and procedures for making decisions. Risk management is an integral part of the corporate governance framework.

Note 2: The requirements set out under paragraph 3.1.1 deal with both prudential and conduct of business issues referring as they do, to the direction of the business of the registered person itself. As such, this is not a provision that directly governs, for instance, appropriate signatory arrangements for the execution of a specific transaction or exercise of a particular discretion.

Note 3: The Commission has produced a guidance note in relation to span of control entitled the “Span of Control” or “Four or Six eyes” principles. This is located on the Commission’s website.



3.2 Internal systems and controls

3.2.1 A registered person must:

3.2.2 operate robust arrangements for meeting the standards and requirements of the regulatory framework, including:

3.2.2.1 maintaining, and testing adherence to, a policies and procedures manual covering the operation of the business;

3.2.2.2 establishing effective complaints handling systems;

3.2.2.3 ensuring adequate supervision of direct and indirect employees;

3.2.2.4 maintaining procedures governing sole, dual or multiple authorisations for handling client assets and for guarding against involvement in financial crime (including the detection and prevention of money laundering) ;and

3.2.2.5 ensuring that all transactions or decisions are appropriately authorised by persons with the requisite knowledge and experience to effect such transactions or make such decisions.

3.2.3 undertake a periodic review of the internal control systems to ensure that they continue to work effectively;

3.2.4 keep adequate and orderly records of its business transactions, its financial position, its internal organisation and its risk management systems;

3.2.5 ensure that adequate business resumption, disaster recovery and other contingency arrangements are in place and tested at appropriate intervals;

3.2.6 ensure that systems are in place to enable management to guard properly against involvement in financial crime including fraud, market abuse, money laundering and the financing of terrorism;

3.2.7 comply with all relevant legislation, requirements and guidance to counter financial crime including fraud, market abuse, money laundering and the financing of terrorism. Failure to follow legislation, requirements and guidance to counter financial crime including fraud, market abuse, money laundering and the financing of terrorism may form the basis for regulatory action by the Commission;

3.2.8 have due regard to the principles of the sensitive activities policy document issued by the Jersey Companies Registry, irrespective of the jurisdiction in which the entity that it is providing services to was incorporated;

3.2.9 comply with the Commission’s policy on outsourcing as may be updated from time to time;

3.2.10

3.2.11



3.2.12 Note 1: There is no specific requirement for a registered person to be subject to an internal audit review. However, the Commission will recognise and take comfort from those registered persons that have effective internal audit controls, or where such functions are provided from elsewhere within a group. The Commission requires access to internal audit reports and requires that such reports will be available to external auditors.



3.3 Integrity and Competence


3.3.2 ensure its directors, senior managers and all other staff are fit and proper for their roles. “Staff” as identified in this section includes not only employees, but also self-employed representatives;

3.3.3 retain any documentary evidence obtained in the staff vetting process e.g. employer references;

3.3.4 vet and monitor the working practices, competence and probity of its directors, partners, senior managers and other staff;

3.3.5 ensure that its staff comply with the following competency requirements:

3.3.5.1 all investment employees must have obtained a professional qualification appropriate to their role (an up to date table of employee role indicators and corresponding professional qualifications acceptable to the Commission is to be made available on the Commission’s website at www.jerseyfsc.org);

3.3.5.2 all investment employees must be sufficiently experienced to properly discharge their duties. In the event that an investment employee has less than two years experience in relation to their current role, the registered person must take steps to monitor their working practices over and above the ordinary staff monitoring requirements required by 3.3.2 of the Codes; and

3.3.5.3 directors and senior managers who do not meet the definition of an investment employee will be expected to possess professional qualifications and/or experience appropriate to their role.

3.3.6 obtain and retain copies of documentary evidence of qualifications held by investment employees, which are to be used by the registered person to assess the competence of those employees.

3.3.7 Where complex transactions are undertaken or complex investments are advised upon, more specialised qualifications, experience and other competencies may be required to ensure the registered person can demonstrate that employees are competent and adequately supervised.

3.3.8 On submission of a request by the registered person, the Commission will consider, on a case-by-case basis, the acceptability or otherwise of any other qualifications held by an investment employee. Such a request must include a written explanation as to why the registered person considers the alternative qualification to be appropriate for that employee and the Commission may request a copy of the syllabus studied or equivalent where practical.

3.3.9 The Commission will accept as relevant, qualifications it considers to be equal to or higher than, those listed on the respective Tables.



3.3.10 The Commission may, on application by the registered person, grant exemptions from the requirements to hold the qualifications set out in 3.3.5 of the Codes. In doing so, the Commission will pay regard to any previous exemption granted by the Commission in respect of the investment employee on whose behalf the exemption is being sought, as well as the nature of the role being performed and the registered person’s systems and controls.

Note 1: The definition of what constitutes an “investment business employee” is given in the Financial Services (Investment Business (Registration and Fees)) (Jersey) Order 2003.

Note 2: Paragraphs 3.3.2 and 3.3.4 above are subject to the restrictions imposed by the Rehabilitation of Offenders (Jersey) Law 2001. The exceptions in the Rehabilitation of Offenders (Exceptions) (Jersey) Regulations 2002 (“the Exceptions Regulations”) are available to registered persons, applicants and those intending to apply for registration under the Financial Services (Jersey) Law 1998. Exceptions cover principal persons and defined categories of employees of regulated financial services businesses.

Note 3: As a consequence of Regulation 21 of the Exceptions Regulations, the Rehabilitation of Offenders (Jersey) Law 2001 does not prohibit employers from asking principal persons and defined categories of employees about convictions for “relevant offences”, even though such convictions may have been obtained some time ago and would otherwise be regarded as “spent convictions” as defined by the Rehabilitation of Offenders (Jersey) Law 2001. To be consistent with the Codes, it is necessary for employers to make use of such exceptions when screening employees who are subject to these exceptions.

Note 4: “Employees” as identified in this section includes not only direct employees, but also indirect employees, such as temporary and contracted employees and other contracted service providers and, in the case of sole traders, the proprietor of the business.

Note 5: The table of role indicators and acceptable qualifications as set out in a Schedule to these Codes, and published on the Commission’s website forms an integral part of these Codes. So as to ensure that this table is properly maintained, the Commission, in conjunction with a qualification steering group, will review and update the table on a 6 monthly basis.



3.4 Continuing professional development (“CPD”)

3.4.1 CPD is a compulsory requirement for all investment employees and the compliance officer. A registered person is required to maintain CPD records for all such employees although it is permissible for a registered person to require its employees to keep their own records and account to a registered person on a regular basis.

3.4.2 A minimum of 35 hours per year of CPD must be undertaken, a maximum of 5 of which may be relevant reading (pro-rated for part-time employees).

3.4.3 A registered person is responsible for ensuring that CPD is appropriate for investment business employees and this consideration must take into account the employee’s job description and current duties and may include future development needs.

3.4.4 The onus is on each registered person to demonstrate the adequacy of its CPD regime.

Note 1 : It is expected that employees will achieve their CPD targets by adhering to the requirements of their own relevant professional body. However, where the relevant professional body does not prescribe how CPD should be achieved, there are a number of acceptable ways to attain the minimum CPD requirement, including, but not restricted to:-

(a) studying for further qualifications;

(b) in-house training, seminars, conferences and product presentations;

(c) computer-based training;

(d) one-to-one tuition;

(e) reading relevant professional and trade magazines;

(f) personal structured study; and

(g) attending external training courses.



3.5 Compliance Officer, Money Laundering Reporting Officer and Money Laundering Compliance Officer.

3.5.1 A registered person must designate an appropriately skilled and experienced person as its Compliance Officer.

3.5.2 The Compliance Officer is responsible for: -

3.5.2.1 ensuring the registered person has robust arrangements for compliance with the Law, Orders and Codes;

3.5.2.2 ensuring appropriate monitoring of operational performance and promptly instigating action to remedy any deficiencies in such arrangements; and

3.5.2.3 providing the principal point of contact with the Commission on regulatory matters.

3.5.3 The Compliance Officer must:

3.5.3.1 have appropriate independence and direct access to the registered person’s Jersey board of directors or equivalent;

3.5.3.2 have unfettered access to all business lines and support departments;

3.5.3.3 be based in Jersey;

3.5.3.4 have appropriate status within the registered person to ensure that directors and senior management react to and determine whether to act upon his or her recommendations; and

3.5.3.5 have sufficient resources to properly discharge the responsibilities of the position.

3.5.4 The Commission may, on application from the registered person, grant an exemption from the requirement under 3.5.3.3 of the Codes where, for example, the registered person is a branch of a non-Jersey business and therefore relies upon a Compliance Department based outside of Jersey. In considering such a request the Commission will pay particular regard to the extent to which the Jersey operation is subject to compliance monitoring and whether a Jersey based compliance contact has been nominated by the registered person.

3.5.5 A registered person must notify the Commission immediately of the appointment, resignation or change of its designated Compliance Officer and must arrange for a completed Personal Questionnaire or Key Person Updating Letter, to be sent to the Commission prior to the appointment of a Compliance Officer.

3.5.6 In the event that a Compliance Officer is temporarily unable to fulfil his or her responsibilities the board must notify the Commission and designate an appropriately skilled and experienced alternate. The Commission considers that a period of in excess of 4 weeks would constitute temporarily unable to fulfil their responsibilities.



3.5.7 The registered person must ensure that the individual submits to the Commission a completed Personal Questionnaire in respect of an applicantion for the Compliance Officer role. Registered persons must have the Commission’s confirmation that it has no objection before confirming the appointment.

3.5.8 It is a requirement of the Money Laundering (Jersey) Order 2007 (as amended or replaced) that a registered person must appoint a Money Laundering Reporting Officer and a Money Laundering Compliance Officer. The Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism (the “AML/CFT Handbook”) sets out additional requirements for registered persons.

3.5.9 Where operating volumes are at a level for it to be appropriate, the Compliance Officer, the Money Laundering Reporting Officer and the Money Laundering Compliance Officer may be the same person.

Note 1: Where the structure of a registered person’s business is such that procedures do not compel the Compliance Officer to report directly to the Jersey Board of Directors, or equivalent, but do compel the Compliance Officer to report to another party, then the Commission will consider, on application by a registered person, exemption from the requirement to comply with paragraph 3.5.3.1 above.



3.6 Complaints

3.6.1 A registered person must establish effective complaints handling systems and procedures and in particular must:-

3.6.1.1 maintain adequate records of complaints against the registered person, including a central register;

3.6.1.2 handle complaints transparently, fairly and, in so far as is possible, independently;

3.6.1.3 inform customers of how complaints may be made and how they may expect these to be responded to;

3.6.1.4 provide an acknowledgement and initial response in writing within 10 working days, unless expressly agreed by the client to the contrary; and

3.6.1.5 advise the client in writing when the complaint is considered closed.

3.6.2 A registered person must notify the Commission: -

3.6.2.1 if a complaint is not satisfactorily resolved within three months of the client having lodged a complaint;

3.6.2.2 if any complaint has resulted in the registered person making a claim on its Professional Indemnity Insurance Policy or having made any type of ex-gratia settlement;

3.6.2.3 if the registered person considers it to be in the interests of the public or the complainant;

3.6.2.4 of a complaint or series of complaints that suggest the registered person is failing to meet any of the requirements of the Codes; or

3.6.2.5 if any unresolved complaint results in litigation commencing.



3.7 Record Keeping

3.7.1 This section explains the minimum standards of record keeping that are required in respect of a registered person’s own business and the investment business services that it provides.

3.7.2 The registered person must ensure that it has appropriate record keeping arrangements for compliance with the applicable Laws, Orders and these Codes.


3.7.3.1 maintain an audit trail of the policies and procedures manual that covers the operation of the business;

3.7.3.2 keep adequate orderly and up to date records which must include, but are not necessarily limited to:

3.7.3.2.1 its financial affairs;

3.7.3.2.2 business transactions undertaken;

3.7.3.2.3 transactions effected for clients;

3.7.3.2.4 its internal organisation, including the apportionment of responsibilities among its employees;

3.7.3.2.5 directors’ and staff own account dealings;

3.7.3.2.6 risk management systems; and

3.7.3.2.7 board or management minutes.

3.7.4 Every registered person is expected to maintain such books and records so as to be able to readily retrieve them in Jersey and, if kept otherwise than in legible form, maintain them so as to be readable at a computer terminal in Jersey so that they may be produced in legible form within 5 working days.

3.7.5 Every registered person must ensure that the records prepared under section 3.7.3.2 are updated as required. When updates are made, the effective date of such updates must be recorded and the superseded records maintained.

3.7.6 Every registered person must have a clearly documented policy regarding record retention. The following minimum retention periods must be applied:

3.7.6.1 records relating to significant corporate governance matters, such as management meeting minutes and risk assessment matters – 10 years from the date of the record;

3.7.6.2 any other records relating to requirements established by these Codes – 10 years from the date of the record;



3.7.6.3 contractual documentation such as client account opening paperwork, mandates, agreements and know your customer documentation – 10 years from the closure of the account or from the end of a series of transactions; and

3.7.6.4 transaction vouchers, such as cheques – 10 years from the date of the transaction.

Note 1: Registered persons must be cognisant of the separate record retention requirements established by Jersey legislation, including anti-money laundering, proceeds of crime and company matters.



4 A registered person must be transparent in its business arrangements.

4.1 A registered person must disclose on its stationery and in advertising material that it is regulated by the Commission in the carrying on of investment business.

4.2 A registered person must communicate information to clients in a way that is adequate, fair and not misleading.

4.3 A registered person must provide to its clients confirmation, in writing, of the services that is providing as well as a contract, agreement or other written form setting out its general and specific terms of business. These terms of business must:

4.3.1 be distinguishable from marketing or promotional material;

4.3.2 be consistent with these Codes;

4.3.3 be clearly expressed in plain language that only uses technical or legal terms where absolutely necessary;

4.3.4 be provided prior to the provision of any investment business service, except when it is impractical to do so in which case the terms and conditions shall be provided at the earliest available opportunity; and

4.3.5 explain whether the registered person is acting as a principal or as the agent of the client or any other person.

4.4 A registered person must provide confirmation, in legible form, of any transaction effected for a client. Such confirmation must set out all relevant matters in relation to the transaction.

4.5 A registered person that provides advice about investments from a restricted range of the available providers of investments of the same type, must inform its clients of the nature and extent of that restriction in writing. The specific wording is at the discretion of individual businesses, but the onus will be on each registered person to demonstrate that the nature and extent of such restrictions have been communicated clearly to the client.

4.6 A registered person is required to demonstrate in writing that the client has been made aware of all associated fees and charges including commissions (both initial and recurring) and any payments to or from third parties (such as introductory fees or commission sharing arrangements) - effectively a “no surprises” policy. Any implications in relation to cancellation, failure to meet premiums and the ability and effect of making changes should also be made clear to the client.

4.7 A registered person must inform clients if it has a policy of recording telephone conversations with them. This may be achieved by including an appropriate statement in the registered person’s terms of business, marketing and promotional material and regular statements provided to customers, or by advising callers at the start of all telephone conversations.

4.8 A registered person must inform its clients of its investment strategy and past performance where relevant.



Note : Guidance on clear written communication can be obtained from the Plain English Campaign (http://www.plainenglish.co.uk).



5 A registered person must maintain, and be able to demonstrate the existence of, adequate financial resources and adequate insurance.

5.1 A registered person conducting Classes A, B or C of investment business must maintain:

5.1.1 a minimum of £25,000 paid up share capital (or evidenced net assets for non-incorporated entities) and a surplus of Adjusted Net Liquid Assets (“ANLA”) over the Expenditure Requirement in the ratio of 110% in accordance with the calculation set out in the First Schedule; and

5.1.2 a minimum net asset position of £25,000 in the registered person’s accounts at all times.

5.2 A registered person conducting Class D of investment business must maintain:

5.2.1 A minimum of £10,000 paid up share capital (or evidenced net assets for non-incorporated entities) and a surplus of Adjusted Net Liquid Assets (“ANLA”) over the Expenditure Requirement in the ratio of 110% in accordance with the calculation set out in the First Schedule; and

5.2.2 a minimum net asset position of £10,000 in the registered person’s accounts at all times.

5.3 A registered person is required to immediately notify the Commission (in addition to any notification obligation under the Law or these Codes):

5.3.1 if its ANLA falls below 130% of its Expenditure Requirement;

5.3.2 if its ANLA falls below 110% of its Expenditure Requirement;

5.3.3 of any single significant contingency, financial commitment or large exposure exceeding 25% of its Adjusted Net Liquid Assets;

5.3.4 of any instrument, transaction or situation that appears not to be catered for in, or where the application of, the First Schedule might give a misleading impression of the adequacy of the financial resources; and

5.3.5 if it no longer complies with the requirements of 5.1 or 5.2 of the Codes.

5.4 The Commission may, upon written application from a registered person, consider granting consent to exclude a long term subordinated loan as a liability within the ANLA calculation. Such consent is only likely to be granted where the loan is in a prescribed format as provided by the Commission, and where the loan is made by a lender that is acceptable to the Commission.

Note 1: “Net Assets” are defined as total assets less total liabilities.



Note 2: Where a registered person has issued share capital of less than £25,000 but a combined share capital and share premium exceeding £25,000, together with a surplus of ANLA over Expenditure Requirement, the Commission may deem a registered person to have satisfied 5.1.1 or 5.2.1 of the Codes. In such circumstances the registered person must give prior written notification to the Commission of any proposed reduction in share premium.



5.5 Insurance arrangements

5.5.1 A registered person is required to maintain adequate insurance cover at all times, commensurate with its business activities. Such cover must include Professional indemnity insurance (“PII”) cover and extensions must include negligence and errors and omissions by the registered person and employee dishonesty and must, where possible, extend to all territories in or from which the registered person conducts business.

5.5.2 Specifically, so far as lawful, extensions must include legal defence costs; retroactive cover in respect of claims arising from work carried out in the past by the registered person; loss of documents (liability and costs of replacement, restoration or reconstruction); self-employed or contract hire persons engaged in the registered person’s business; indemnity to employees, former employees and/or consultants.

5.5.3 A registered person must inform the Commission of any limitations in cover that may apply to any territory in or from which business may be conducted by the registered person.

5.5.4 The minimum aggregate cover must exceed the greater of:

5.5.4.1 three times relevant fees and commissions

5.5.4.2 10% of controlled assets; or

5.5.4.3 £1,000,000 (one million pounds)

but registered persons shall not be required by the above tests to have aggregate cover exceeding £5,000,000 (five million pounds)

5.5.5 The Commission may, on application by a registered person, consider a variance to the minimum insurance cover requirements stipulated under 5.5.4 above in exceptional circumstances.

5.5.6 Any excess per claim on the policy must not exceed the total of £5,000 or 3% of the registered person’s annual relevant fees and commissions, whichever is the greater. The full amount of any excess per claim must at all times be treated as an additional liability when performing the ANLA calculation as set out in the Second Schedule.

5.5.7 The Commission may, on application by a registered person, consider a variance to the maximum excess per claim stipulated under 5.5.6. If the Commission gives consent to a variance, the registered person must treat a multiple (x3) of the additional excess as a liability when performing the ANLA calculation as set out in the Second Schedule.

5.5.8 With the consent of the Commission, registered persons may self insure provided they are, or are owned by, an institution of stature.



5.5.9 A registered person that is ceasing to conduct investment business is required to arrange for appropriate “run off” PII cover in respect of claims arising from past acts or omissions. Such cover must be for a minimum period of twelve months and on terms considered to be appropriate by the Commission.

5.5.10 In the event that a registered person’s aggregate level of PII cover is depleted as a result of a claim on its policy, the registered person must obtain re-instated cover that meets the requirements set out under 5.5 of the Codes.

5.5.11 A registered person must have adequate procedures in place to ensure compliance with all the terms and conditions of its PII policy, particularly in relation to the timely notification of events that may lead to a claim on the policy by the registered person.

Note 1 : “Relevant fees and commissions” for PII purposes is gross income paid or payable to the firm, which is commission, brokerage, fees or other relevant income arising from professional business activities (regulated or not) covered under the PII policy. This applies for the last accounting year before the start or renewal of the policy, or as per the business plan for new applicants.



6 A registered person must deal with the Commission and other authorities in Jersey in an open and co-operative manner.

6.1 There is a need for candour and co-operation in a registered person’s relationship with the Commission. Registered persons are required to advise the Commission promptly of any matter that might reasonably be expected to affect their registration or be in the interests of investors to disclose. This principle extends to the provision of information and notification of events concerning non-regulated activities and other members of the corporate group, where appropriate, for example, in relation to money laundering issues and market abuse.

6.1.1 In addition to the requirements of the relevant law, a registered person must allow, and shall procure that any agent or subcontractor of the registered person also allows, inspections by or on behalf of the Commission of any part of the activities in relation to which the registered person has been granted registration under the Law. The registered person must provide all reasonable assistance in connection with any such inspection and shall procure that any such agents or subcontractors also provide all reasonable assistance.

6.2 When a registered person has failed to comply with other parts of the Codes, its observance or non-observance of this principle will be relevant to the question of mitigation or aggravation.

6.3 Notifications

6.3.1 This section sets out matters which must be brought to the attention of the Commission within the timescales specified.

6.3.2 In addition to obligations under the Law, and notwithstanding the generality of paragraph 6.1 above, certain notifications will always be expected from a registered person: -

6.3.3 A registered person must notify the Commission in writing not less than 28 days before the change is implemented, of a change in: –

6.3.3.1 the name of the registered person;

6.3.3.2 any business name under which the registered person carries on investment business;

6.3.3.3 the address of the principal office of the registered person;

6.3.3.4 the address of the registered office of the registered person; and

6.3.3.5 any address which is treated as the proper address of the registered person by paragraph 6 of Article 40 of the Law.

6.3.4 A registered person must notify the Commission in writing not less than 28 days before the summary winding up or voluntary dissolution of a registered person.



6.3.5 A registered person must notify the Commission of any decision to commence a new activity that is likely to have a material affect on the business or its profitability. Notification should be provided prior to commencement of the activity.

6.3.6 A registered person must notify the Commission immediately in writing of any of the following -

6.3.6.1 the presentation of any application to the court for désastre, or the winding up of the registered person or of a company which is a subsidiary or holding company of the registered person, or the summoning of any meeting to consider a resolution to wind-up a registered person, or a company which is a subsidiary, or holding company of the registered person;

6.3.6.2 the application by any person for the commencement of any insolvency proceedings, appointment of any receiver, administrator or provisional liquidator under the law of any country, in relation to the registered person;

6.3.6.3 the making or any proposals for the making of a composition or arrangement with creditors of the registered person;

6.3.6.4 where the registered person is a partnership, a limited partnership or a limited liability partnership (collectively known as a “partnership”) an application to wind up or dissolve the partnership;

6.3.6.5 the imposition of disciplinary measures or disciplinary sanctions on the registered person in relation to its investment business by any relevant supervisory authority or any investment exchange or clearing house;

6.3.6.6 the conviction of the registered person, or any of its principal persons or key employees, for any offence under legislation of any country relating to banking or other financial services, building societies, companies, credit unions, consumer credit, friendly societies, insolvency, insurance and industrial and provident societies, or for any offence involving fraud or dishonesty, or the imposition of any penalties for deliberate tax evasion;

6.3.6.7 the re-registration of a registered person incorporated with unlimited liability as a limited liability company;

6.3.6.8 a general partner in a registered person becoming a limited partner;

6.3.6.9 the granting or refusal of any application for, or revocation of, authorisation to carry on investment, banking or insurance business in any country or territory outside Jersey;

6.3.6.10 the granting, withdrawal or refusal of an application for, or revocation of, membership by the registered person of any investment exchange or clearing house;

6.3.6.11 the withdrawal of an application for, or revocation of, membership of any professional body by a principal person or employee, in any jurisdiction;



6.3.6.12 the appointment of inspectors (howsoever named) by a statutory or other regulatory authority to investigate the affairs of the registered person;

6.3.6.13 any other matter which the registered person considers would be material to the requirements placed on the registered person, any of its principal persons, or any of its investment employees to be fit and proper;

6.3.6.14 any litigation taken by the registered person or any subsidiary, or against them;

6.3.6.15 the breakdown of administrative or control procedures relevant to any part of the registered person’s business (including breakdowns of computer systems or other accounting problems) resulting, or likely to result, in failure to comply with one or more of the provisions of these Codes;

6.3.6.16 any event arising that makes it impracticable for the registered person to comply with one or more of the provisions of these Codes;

6.3.6.17 any event arising that makes it impractical for the registered person to comply with any conditions attaching to the registered person’s registration; and

6.3.6.18 any other matter which would be material to the Commission’s supervision of the registered person, any of its principal persons or any of its investment employees under the Law or these Codes.

6.3.7 A registered person must notify the Commission in writing within 7 days of becoming aware of, or having resolved to undertake, any of the following matters:

6.3.7.1 in relation to any principal person who is an individual, any change in his or her name, address and any information which might impact upon his or her good reputation or character;

6.3.7.2 where a registered person is a body corporate, the formation, acquisition, disposal or dissolution of a subsidiary specifying the subsidiary’s name and its principal business;

6.3.7.3 where a registered person is not a body corporate, when it acquires or disposes of a holding of more than half in nominal value of the equity share capital of a company, specifying the name of the company and its principal business; and

6.3.7.4 where a registered person wishes the Commission to revoke its registration in accordance with Article 9(4)(a) of the Law. The Commission will then require a registered person to complete a Cessation of Business Plan (“COBP”).

6.3.8 A registered person must submit a written report to the Commission within 7 days specifying any changes in the information originally submitted under the following headings:



6.3.8.1 branch offices anywhere in the world from which the registered person carries on investment business;

6.3.8.2 insurance arrangements; and

6.3.8.3 the countries outside Jersey in which the registered person on investment business indicating whether this is done through a branch office, a subsidiary or otherwise.

6.3.9 A registered person must provide the Commission with details of its investment employees upon request.

Note 1: An outline of the matters that should be addressed within the COBP is available from the Commission upon request.



7 A registered person must not make statements that are misleading, false or deceptive.

7.1 A registered person must take reasonable steps to ensure that its financial service advertisements (“advertisements”) are not misleading, false or deceptive. Words used in advertisements must be chosen carefully and certain words, such as “guarantee”, “assured”, “confidential” and “secret”, must be treated with great caution.

7.2 An advertisement must not contain: –

7.2.1 a statement, promise or forecast unless the registered person, at the time the advertisement is made has reasonable grounds for believing, is not misleading, false or deceptive;

7.2.2 a statement of opinion held by any person unless the registered person, at the time the advertisement is made has reasonable grounds for believing, to be the honestly held opinion of that person at that time;

7.2.3 a statement of fact unless the registered person, at the time the advertisement is made has reasonable grounds for believing will continue to be true for so long as the advertisement continues to be made in current publications;

7.2.4 a statement about the scale of activities of, or any of the activities of, or the resources of or available to, a registered person or that registered person’s group unless the registered person, at the time the advertisement is made has reasonable grounds for believing the statement, is not misleading, false or deceptive;

7.2.5 a statement relating to taxation benefits unless it is clearly illustrated by example to show what it means in practice and to whom such benefits apply;

7.2.6 a statement relating to customer confidentiality unless it is qualified to show the limits of any confidentiality assurance made;

7.2.7 a statement of comparison with other entities carrying on investment business unless the basis of comparison is clearly stated and the comparison is fair; or

7.2.8 a statement implying that the service is only available for a limited period or in limited form, if such is not the case.

7.3 An advertisement made in a permanent form must not contain –

7.3.1 a statement of fact which the registered person does not at the time the advertisement is made have reasonable grounds, supported by documentary evidence, for believing to be true.

7.3.2 a statement of opinion held by any person which the registered person does not at the time the advertisement is made, have reasonable grounds, supported by documentary evidence, for believing to be the honestly held opinion of that person at that time.

7.4 The content and format of any advertisement must not: -



7.4.1 be designed so as to be likely to be misunderstood;

7.4.2 be designed so as to disguise the significance of any warning statement or information, which is required to be included under these Codes; or

7.4.3 signify in any way that the advertisement is approved by the Commission.

7.5 An advertisement may include a quotation from a statement made by any person commending any investment or service provided that: -

7.5.1 where the person is an employee or associate of the registered person, that fact is disclosed in the advertisement;

7.5.2 the quotation is included with that person’s written consent;

7.5.3 the statement is relevant to the investment or service which is the subject of the advertisement;

7.5.4 where the whole of the statement is not quoted, what is quoted represents fairly the message contained in the whole of the statement; and

7.5.5 the statement has not become inaccurate or misleading subsequent to it being made.

7.6 The registered person must be able to demonstrate that adequate disclosure of the key risks and the relevant terms and conditions was made to the customer before commitment was made, so as to ensure the customer has made an informed decision.

7.6.1 An advertisement may only specify some of the terms and conditions which attach to an investment or service, and exclude others, providing:

7.6.1.1 those which are specified give a fair indication of the nature of the investment or service and the risks involved and the advertisement contains the terms and conditions; or

7.6.1.2 where no mention of terms and conditions is made, the advertisement must contain information as to how all the terms and conditions may be obtained.

7.7 Any advertisement shall disclose any special areas of risk relating to the investment or service, such as limited marketability, gearing, stabilisation, etc.

7.8 In the case of an investment the value of which may fluctuate or is not guaranteed (or both) and which may result in the investor not getting back the amount invested, the advertisement shall state that fact prominently.

7.9 In the case of an investment the value of which is guaranteed, protected, assured or similar, the advertisement shall state clearly the nature of the guarantee protection or assurance, etc. (the “guarantee”); the name of the guarantor; to what the guarantee relates and whether there are any matters which may affect the investor’s ability to benefit from it.



7.9.1 The word “Guarantee” is not permitted to be used in a financial service advertisement unless the advertisement clearly demonstrates that the Guarantor is independent of the promoter and the registered person can evidence to the Commission, should it to require, the financial basis of that guarantee. In using the word “guarantee” a registered person should be mindful that any person underwriting risks associated with an investment may give rise to a requirement to register under the relevant insurance laws of a particular jurisdiction.

7.9.2 Where the financial service advertisement otherwise meets the guidelines for use of the word “Guaranteed”, Assured”, “Protected” or similar, the registered person must:

7.9.2.1 consider whether the name of the product fairly represents the nature of the guarantee/assurance/protection/similar which is being offered; and

7.9.2.2 ensure the extent to which the guarantee applies is clearly stated. For example, if advertising a fund where the guarantee extends to certain sub-funds but not others, the different levels of guarantee must be explicit.

7.9.3 If the financial service advertisement states that the investment has “Capital Guaranteed”, the registered person must ensure that this is truly the case in respect of 100% Capital Return;

7.10 A general warning to prospective investors to seek independent taxation advice, as to their own position, must be made in any advertisement where reference to personal tax benefits is made.

7.11 An advertisement must not specify a rate of return without specifying how it is calculated, including any element which may involve a reduction of the investor’s capital.

7.12 If the income from an investment may fluctuate, the advertisement shall state clearly that this is the case.

7.13 Any advertisement inviting direct investment in futures, options, warrants and contracts for differences or any other higher risk product or instrument shall contain an appropriate and clear risk warning. For example, “The risks of loss from investing in commodity and financial futures, foreign Exchange contract securities, warrants and index contracts and options can be substantial”; or its equivalent as approved by the Commission.

Note 1: Under Article 30 of the Law, it is an offence for any person to knowingly or recklessly make a misleading, false or deceptive statement, promise or forecast for the purpose of inducing another person to enter into, or to refrain from entering into, an agreement for the provision of financial service business.

Note 2: Article 1 of the Law defines a “financial service advertisement” as an advertisement containing – (a) an invitation to transact financial service business; or (b) information which is intended or might reasonably be presumed to be intended to lead directly or indirectly to the transaction of financial service business, and includes any means of bringing such an invitation or such



information to the notice of any person, and a reference to an advertisement shall be construed accordingly.

Note 3: Other than advertisements that meet the criteria set out in 7.13 of the Codes, the Commission will generally decline to vet or approve advertisements before issue.

Note 4: The requirements of section 7 do not apply to advertisements which only contain a business name, trademark or logo.

Note 5: The requirements in section 7 are not intended to capture advertising or promotional literature forwarded by the registered person to its customers on behalf of third parties.

Note 6: It may not be possible or practicable to list within an advertisement all areas of risk that might apply to a particular product or service. Similarly, it may not be possible or practicable to specify all of the relevant terms and conditions. The necessary extent to which the risk warnings and the terms and conditions are specified in an advertisement will be dependent upon the nature of the products or services being advertised.

Note 7: Advertisements made in permanent form would comprise all forms of advertisements made in any way other than either verbally or orally.



THE FIRST SCHEDULE (Paragraphs 5.1 to 5.4) Table 1 (the Resource Requirement Table) sets out the methodology for calculating the Adjusted Net Liquid Assets and Total Requirement. Tables 2 – 6 and the accompanying notes set out the applicable calculations and definitions.

The calculation must be performed with a frequency that reflects the circumstances of the business and the risks that face it. Unless the Commission consents otherwise the following must apply:

• For entities with any Position, Counterparty or Foreign Currency Risk Requirements, the calculation must be undertaken every business day;

• Those entities not subject to these risks must complete the calculation on at least a quarterly basis. Where there is a significant risk that the entity might breach the requirement, the entity must conduct the calculation on a more regular basis, as appropriate.

The Commission may consider variances to the required frequency of calculations if an entity can demonstrate either enhanced capitalisation or if it regularly exceeds the requirement to a sufficient extent to suggest that the risk of breach is minimal. Such variances will be conditional on these circumstances being maintained.

The Commission may impose enhanced requirements on a registered person, based on its risk based supervision.



Table 1 - Resource Requirement Table

£ £ £ Note Adjusted Total Assets X Table 2 Adjusted Total Liabilities (X) Table 3 Adjusted Net Liquid Assets (ANLA) X Expenditure Requirement (ER) (X) Table 4 Position Risk Requirement (PRR) (X) Table 5 Counterparty Risk Requirement (CRR) (X) Table 6 Foreign Currency Risk Requirement (FCRR) (X) 27 Total Requirement (TR): (X) Ratio of ANLA to TR %

You must notify the Jersey Financial Services Commission immediately if the Ratio of ANLA to TR falls below 130%, and make a further notification if it falls below 110%.

Note: The ANLA/TR must be maintained at a level of more than 100% of the expenditure requirement

(either by increasing share capital or introducing subordinated loans).



Table 2 - Calculation of Adjusted Total Assets

Assets: £ £ £ Note Total Fixed Assets X Current assets: Work in progress X Debtors and prepayments X Amounts due from related parties X Cash at bank and in hand X Investments X Other X Total Current Assets X Total Assets X Illiquid Asset Adjustments: Fixed assets (X) 1 Debtors > 90 days (X) 2 Work in progress > 90 days (X) 3 Prepayments > 90 days (X) 4 Amounts due from related parties (X) 5 Any other relevant items1 (X) Total Illiquid Assets Adjustment (X) Adjusted Total Assets – take to Table 1 X

1 The registered person must exercise appropriate judgement to include any items here that may not be covered by the defined categories of illiquid asset adjustment but would be considered to be illiquid.



Table 3 – Calculation of Adjusted Total Liabilities

Liabilities: £ £ £ Note

Current Liabilities: Bank Overdraft X

Bank loans < 1 year X Lease obligations < 1 year X Provision for Clawback X 6 Taxation obligations < 1 year X

Deferred income X Amounts due to related parties <1 year X 5 Subordinated loan < 1 year to run X Any other relevant items X Total Current Liabilities X Long Term Liabilities: Bank loans > 1 year X Lease obligations > 1 year X Taxation obligations > 1 year X Amounts due to related parties > 1 year X 5 Subordinated loan > 1 year X Any other relevant items X Total Long Term Liabilities X Total Liabilities X

Adjustments to Total Liabilities: PII Excess X 7 Additional Excess on PII X 8 Guarantees and/or charges over assets X 9 Non refundable deferred income (X) 10 Allowable subordinated loan > 1 year (X) 11

Allowable undrawn credit facility (X) 12 Bank loans > 1 year (X) Lease obligations > 1 year (X) Taxation obligations > 1 year (X) Any other relevant items (X) Total Adjustment to Liabilities (X)

Adjusted Total Liabilities – take to Table 1 X



Table 4 – Calculation of Expenditure Requirements

Calculation of Expenditure Requirement (ER): £ £ £ Note

Administrative expenses X

Distribution costs X

Finance costs X

Tax expense X

Any other relevant expenses X Total expenditure X Compare to: Budget for the current year Y 13 Take the higher X or Y Adjustments to ER: Discretionary bonuses/profit share (X) 14

Bad debt expense (X)

Exceptional costs (X) 15

Other (X) Total adjustments to ER (X) Relevant Annual Expenditure (RAE) X Expenditure Requirement (ER) – take to Table 1 X RAE x 25%

Note: Registered persons must exercise care to ensure that any items deducted from the Expenditure Requirement (under “Adjustments to ER”) were originally included in either the “Total Expenditure” or “Budgeted Expenditure” figure.



Table 5 – Calculation of Position Risk Requirement

Registered persons which maintain positions in investments (either long or short) are exposed to the risk that the price of such investments may move against them in the future. A registered person shall calculate each of its position risk requirements in accordance with this table, and take the total position risk requirement, which is the sum of the requirements for each category, for entry in Table 1.

Calculation of Position Risk Requirement (PRR): £ £ Note

A. Debt: UK Government or local authority (X) 16

Issued or accepted by an approved bank2 (X) 16

Other marketable investments (X) 16

FRNs (X) 17 Total Debt PRR: (X)

B. Equities: Listed on a regulated investment exchange (X) 25% x MV Traded on a regulated investment exchange (X) 35% x MV Total Equity PRR: (X)

C. Futures, Options and Contracts for Difference:

Exchange traded futures (X) 4 x initial margin reqmt

OTC futures (X) 18

Purchased options (X) 18

Contracts for differences (X) 20% x MV of contract Total Futures, Options and Contracts for Difference PRR:

(X)

D. Other Investments:

Unit linked bonds and units in a regulated collective investment scheme3 unless covered below

(X) 25% of realisable value

Units in higher volatility4 and property funds (X) 50% of realisable value

With profit life policies (X) 20% of surrender value

Any other investments5 (X) 100% of amount of asset

Total Other Investments PRR: (X)

Total Position Risk Requirement – take to Table 1 (X)

2 Approved banks are those as defined in Article 1 of the Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001 3 Refer to the FSA definition of a collective investment scheme 4 Higher volatility funds would include geared futures and options fund or warrant funds, assuming they are regulated schemes. Where they are not regulated the 100% of realisable value must be taken as the CRR. 5 Any items subject to Position Risk that are not covered under the defined categories within parts A – D of this table



Table 6 – Counterparty Risk Requirement A registered person must calculate the net CRR under each of the category headings below. Categories in which there is no entry or the net CRR is negative are to be treated as nil. The overall CRR is the aggregate of all such sub-totals. The Commission may consent to these calculations being based on an internationally recognised standard.

Calculation of Counterparty Risk Requirement (CRR):

£ £ Note

Cash against document transactions: (X) 19 Free deliveries: (X) 20 Options purchased for a counterparty: (X) 21 Amounts owed in respect of exchange traded margined transactions:

(X) 22

Concentrated risk from one counterparty: (X) 23 Investments subject to repurchase, reverse repurchase, stock borrowing or stock lending transactions:

(X) 24

Over the Counter Derivatives: (X) 25 Other receivables and accrued income: (X) 26 Total Counterparty Risk Requirement – take to Table 1

(X)



Definitions used in the First Schedule – Adjusted Net Liquid Assets

Ref. Definitions Notes

1 Illiquid Fixed Assets

Fixed assets such as land, buildings or intangibles (goodwill, intellectual property etc) must be treated as illiquid.

2 Illiquid Debtors Debtors which are more than 90 days overdue must be treated as illiquid.

3 Illiquid Work in progress (WIP)

WIP not billable and collectable within 90 days must be treated as illiquid

For further guidance, refer to the Interpretation and application of principle 5 and of the first schedule of the Financial Services (Jersey) Law 1998 Investment Business Codes of Practice (“the guidance note”), which is available on the Commission’s website.

4 Illiquid Prepayments

Any prepayment relating to a period after 90 days must be treated as illiquid (see also the guidance note).

5 Illiquid Related Party Balances

All amounts due from related parties (including shareholders, directors and connected companies) are considered to be illiquid unless they are in the normal course of business and the outstanding balances are usually settled within 60 days.

All amounts due to related parties must be included within the total liabilities. No deduction to total liabilities must be made for these amounts unless they have been appropriately subordinated. (See 11 below)

6 Provision for Clawback on Commission

This figure must be an appropriate estimate of the anticipated clawback that the entity may suffer in year, based on available information such as persistency rates.

7 PII Excess The amount of the excess on a registered person’s PII policy must be treated as a liability within the calculation.

8 Additional excess on PII

In cases where the Commission has granted prior written consent to a PII excess higher than the level specified in the Codes, a registered person must treat a multiple (x3) of the additional excess as a liability within this calculation (see guidance note for additional detail).

9 Guarantees and/or charges over assets

Where a charge has been given over any asset or the registered person has entered into a guarantee arrangement related to any asset within Adjusted Total Assets, an appropriate adjustment must be made to reduce the ANLA.

10 Non-refundable deferred income

Where the registered person’s standard terms and conditions state that fees billed in advance are non-refundable, this amount of deferred income need not be included as a liability in the calculation (see guidance note for additional detail).




11 Subordinated loans

In cases where the Commission has granted prior written consent to the use of an eligible subordinated loan, the balance of the loan may be removed from liabilities. Such consent is conditional upon the loan being from an acceptable lender, the use of the proforma subordinated loan agreement issued by the Commission and full compliance with the notification requirements within the subordinated loan agreement. Failure to comply with any of these conditions renders the Commission’s consent void (see paragraph 5.4).

12 Allowable undrawn credit facility

Where the Commission has granted prior written consent to the use of a credit facility, the registered person may deduct the undrawn element of the facility from liabilities (see guidance note for additional detail).

Definitions used in the First Schedule – Expenditure Requirement


13 Budgeted expenditure

This figure must be based on the business plan budget for the year in question. During the year, the figure may be flexed for actual expenditure.

14 Discretionary bonuses /profit share

Where these items are payable under an employment contract or similar, they may not be treated as deductible. If the items are wholly discretionary, they may be deducted. (see guidance note for additional detail)

15 Exceptional costs With the Commission’s prior written consent, certain exceptional and non-recurring costs may be deducted. (see guidance note for additional detail)



Definitions used in the First Schedule – Position Risk Requirement


Debt < 90 days 90 days – 1 yr 1 – 5 yrs >5 years UK Government or local authority 2% x MV 2% x MV 5% x MV 10% x MV

Issued or accepted by an approved6 bank

2% x MV 5% x MV 10% x MV 15% x MV

16

Other marketable investments7 5% x MV 5% x MV 10% x MV 15% x MV

17 FRNs which are

marketable investments

Under 20 years – 5% x MV Over 20 years – 10% x MV

Futures, Options and Contracts for Difference: OTC futures The appropriate percentage in A and B of Table 5 must be

applied to the value of the underlying position

18

Purchased options The appropriate percentage in A and B of Table 5 must be applied to the value of the underlying position, but limited to the market value of the option

6 Approved banks are those as defined in Article 1 of the Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001 7 This includes commodities, which were previously separately categorised in the Codes of Practice



Definitions used in the First Schedule – Counterparty Risk Requirement

Cash against document transactions: Where a registered person has unsettled bargains in any securities it must calculate the price difference8 to which it is exposed and then multiply this by the appropriate percentage below to calculate the CRR for each separate unsettled bargain.

Business days after settlement Percentage

0 – 15 Nil

16 – 30 25%

31 – 45 50%

46 – 60 75%

19

Over 60 100%

20

Free Deliveries Where a registered person has either (a) made payment to a counterparty in respect of securities but not received the appropriate certificates, or (b) provided certificates in respect of securities to a counterparty but not received payment, and settlement is more than three business days overdue, the full value must be counted as part of the CRR.

Exceptions may be made where the registered person has appropriate guarantees or other controls in place to provide assurance that the settlement will occur, up to a maximum of 15 business days. However such an approach must be documented and where it is not met, the full value must be provided for. Where there is any doubt over appropriate treatment the registered person must discuss this with the Commission.

8 Where the registered person has purchased securities for or sold securities to another party (i.e. a securities debtor), the price difference is the excess of the contract value over the current mid-market price of the securities. The price difference is taken as nil if there is no excess. Where a registered person has sold securities for or purchased securities from another party (i.e. a securities creditor) , the price difference is the excess of the mid-market value of the security over the contract value. The price difference is taken as nil if there is no excess.



21

Options purchased for a counterparty: Where a registered person has purchased an option on behalf of a counterparty on terms which do not impose on the counterparty any actual or contingent margin requirement, or liability to make any payment other than the initial purchase price of the option, and the counterparty has not paid the price by three days after trade date, the CRR is the amount by which the purchase price exceeds the current realisable value of the option.

Where a registered person has purchased a traditional option for its own account or on behalf of a counterparty who has not paid the registered person, then, if the registered person has paid the option premium to the writer, it must calculate a CRR equal to the option premium.

22

Amounts owed in respect of exchange traded margined transactions: Where, as a result of an exchange traded margined transaction, a counterparty of the registered person has an initial margin and/or variation margin requirement and has not met it fully with cash, acceptable collateral or a positive equity balance not used to meet variation margin, and more than three business days have passed since the shortfall occurred, the full value must be counted as part of the CRR.

Exceptions may be made where the registered person has appropriate guarantees or other controls in place to provide assurance that the settlement will occur, up to a maximum of 15 days. However such an approach must be documented and where it is not met, the full value must be provided for. Where there is any doubt over appropriate treatment the registered person must discuss this with the Commission.

Concentrated risk from one counterparty: If the total amount due to a registered person for free deliveries or other debts attracting a CRR from a single counterparty (treating as one counterparty several counterparties grouped together by the firm for margin or credit treatment) exceeds 25% of the registered person’s ANLA9 it must calculate additional CRR by applying the appropriate percentage below:

Amount of ANLA Additional CRR

Up to 25% Nil

25% - 50% 15% (or the entire excess if less)

23

Over 50% 40% (or the entire excess if less)

9 Note that this is also a notification requirement under paragraph 5.3.4



24

Investments subject to repurchase, reverse repurchase, stock borrowing or stock lending transactions: After providing for PRR as appropriate, an additional provision in respect of CRR must also be made in respect of these items. The CRR deducted must equal the exposure of the items if that exposure is not in the firm’s favour.

Over the Counter Derivatives By attaching current market values to contracts (marking to market), obtain the current replacement cost of all contracts with positive values.

To obtain a figure for potential future credit exposure (except in the case of single currency “floating/floating interest rate swaps” in which only the current replacement costs will be calculated), multiply the notional principal amounts or values underlying the firm’s aggregate positions by the following percentages:

Residual Maturity Interest Rate Contracts Foreign Exchange Contracts

One year or less Nil 1%

25

More than 1 year 0.5% 5%

26 Other receivables and accrued income: Any item not covered in notes 1-12 or 19-25 above must attract 100% CRR from the time that they become due.



Note 27 – Foreign Currency Risk Requirement For each non-reporting currency (that is, each currency other than that in which the registered person’s books of accounts are maintained) in which the registered person has monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in that currency, the registered person must calculate the net open position (netting assets and liabilities). The net open position for each currency must be converted into the reporting currency. Where the price of an investment is quoted in more than one currency, a position in the investment shall be treated as an asset or liability in the currency of the country in which the main or principal market in the investment is based. The registered person must sum each of these net open positions in the reporting currency to give a balancing item for the reporting currency. The balancing item must be calculated such that the sum of net long positions in other currency currencies less the sum of net long positions in other currencies plus the balancing item in the reporting currency (which could be positive or negative) equals zero. (Note that all the positions will have been converted into the reporting currency). The net open foreign currency position is the sum of all the net long positions in foreign currencies and the balancing item in the reporting currency if it is positive. The Foreign Currency Risk requirement is 10% of the net open foreign currency position. This figure should be taken for inclusion in Table 1. Note: Options included in the position risk requirement are to be excluded from these calculations.



The Second Schedule - Application of the Codes to persons registered to conduct Class E investment business

Definition - Class E investment business is defined under Schedule 1 of the Financial Services (Investment Business (Registration & Fees))(Jersey) Order 2003 as follows: “Investment business carried on only with respect to funds which would be funds within the meaning of the Collective Investment Funds (Jersey) Law 1988 but for the fact that they do not, and do not intend to, acquire capital by means of an offer to the public of units for subscription, sale or exchange, as described in that Law.” Variance from the Codes – Persons registered to conduct only Class E of investment business are afforded variance from certain provisions of the Codes. Where a business is registered to conduct Class E as well as other classes of investment business, the full Codes will apply to the whole of that business. Application of the Codes – Persons registered to conduct only Class E of investment business must comply with the following high level principles: 1. A registered person must conduct its business with integrity. 2. A registered person must have the highest regard for the interests of its clients. 3. A registered person must organise and control its affairs effectively for the proper

performance of its business activities and be able to demonstrate the existence of adequate risk management systems.

4. A registered person must comply with the span of control principles set out under 3.1.1

and 3.1.2 of the Codes. 5. A registered person must comply with Compliance Officer, Money Laundering Reporting

Officer and Money Laundering Compliance Officer Requirements set out under section 3.5 of the Codes.

6. A registered person must maintain and adequately document policies and procedures that

cover the management of the business. 7. A registered person must keep adequate and orderly records which must include, but are

not necessarily limited to: • its financial affairs; • business transactions undertaken; • transactions effected for clients; • its internal organisation, including the apportionment of responsibilities among its

employees; • directors’ and staff own account dealings; • risk management systems; and • board or management minutes.



8. A registered person is expected to maintain such books and records so as to be able to readily retrieve them in Jersey and, if kept otherwise than in legible form, maintain them so as to be readable at a computer terminal in Jersey so that they may be produced in legible form within 5 working days.

9. A registered person must have a clearly documented policy regarding record retention.

The following minimum retention periods must be applied: 9.1 records relating to significant corporate governance matters, such as management

meeting minutes and risk assessment matters – 10 years from the date of the record; 9.2 any other records relating to requirements established by these Codes – 10 years from

the date of the record; 9.3 contractual documentation such as client account opening paperwork, mandates,

agreements and Fact Finds – 10 years from the closure of the account or from the end of a series of transactions; and

9.4 transaction vouchers, such as cheques – 10 years from the date of the transaction.

10. A registered person must maintain, and be able to demonstrate the existence of, adequate financial resources.

11. A registered person must deal with the Commission and other statutory authorities in

Jersey in an open and co-operative manner and comply with the notification requirements set out under section 6 of the Codes.




The Third Schedule – Table of notifications and consents The following table summarises those trigger events and circumstances which a registered person must bring to the attention of the Commission, as well as those requests for variances which require the Commission’s prior written consent.

CONTROL AND RISK MANAGEMENT

3.3.8 Consent On submission of a request by the registered person, the Commission will consider, on a case-by-case basis, the acceptability or otherwise of any other qualifications held by an investment employee. Such a request must include a written explanation as to why the registered person considers the alternative qualification to be appropriate for that employee and the Commission may request a copy of the syllabus studied or equivalent where practical.

3.3.10 Consent The Commission may, on application by the registered person, grant exemptions from the requirements to hold the qualifications set out in 3.3.5 of the Codes. In doing so, the Commission will pay regard to any previous exemption granted by the Commission in respect of the investment employee on whose behalf the exemption is being sought, as well as the nature of the role being performed and the registered person’s systems and controls.

3.5.4 Consent The Commission may, on application from the registered person, grant an exemption from the requirement under 3.5.3.3 of the Codes where, for example, the registered person is a branch of a non-Jersey business and therefore relies upon a Compliance Department based outside of Jersey. In considering such a request the Commission will pay particular regard to the extent to which the Jersey operation is subject to compliance monitoring and whether a Jersey based compliance contact has been nominated by the registered person.

3.5.5 Notification A registered person must notify the Commission immediately of the appointment, resignation or change of its designated Compliance Officer and must arrange for a completed Personal Questionnaire or Key Person Updating Letter, to be sent to the Commission prior to the appointment of a Compliance Officer.



3.5.6 Notification In the event that a Compliance Officer is temporarily unable to fulfil his or her responsibilities the board must notify the Commission and designate an appropriately skilled and experienced alternate. The Commission considers that a period of in excess of 4 weeks would constitute temporarily unable to fulfil their responsibilities.

3.6.2 Notification A registered person must notify the Commission: -

• if a complaint is not satisfactorily resolved within three months of the client having lodged a complaint;

• if any complaint has resulted in the registered person making a claim on its Professional Indemnity Insurance Policy or having made any type of ex-gratia settlement;

• if the registered person considers it to be in the interests of the public or the complainant;

• of a complaint or series of complaints that suggest the registered person is failing to meet any of the requirements of the Codes; or

• if any unresolved complaint results in litigation commencing.

FINANCIAL RESOURCES

5.3 Notification A registered person is required to immediately notify the Commission (in addition to any notification obligation under the Law or these codes):

• if its ANLA falls below 130% of its Expenditure Requirement;

• if its ANLA falls below 110% of its Expenditure Requirement;

• of any single significant contingency, financial commitment or large exposure exceeding 25% of its Adjusted Net Liquid Assets;

• of any instrument, transaction or situation that appears not to be catered for in, or where the application of, the First Schedule might give a misleading impression of the adequacy of the



financial resources; and

• if it no longer complies with the requirements of 5.1 or 5.2 of the Codes.

5.4 Consent The Commission may, upon written application from a registered person, consider granting consent to exclude a long term subordinated loan as a liability within the ANLA calculation. Such consent is only likely to be granted where the loan is in a prescribed format as provided by the Commission, and where the loan is made by a lender that is acceptable to the Commission.

5.4 Note 2 Notification Where a registered person has issued share capital of less than £25,000 but a combined share capital and share premium exceeding £25,000, together with a surplus of ANLA over Expenditure Requirement, the Commission may deem a registered person to have satisfied 5.1.1 or 5.2.1 of the Codes. In such circumstances the registered person must give prior written notification to the Commission of any proposed reduction in share premium.

First Schedule Consent The Commission may consider variances to the required frequency of calculations if a registered person can demonstrate either enhanced capitalisation of if it regularly exceeds the requirements to a sufficient extent that the risk of a breach is minimal. Such variances will be conditional on these circumstances being maintained.

INSURANCE ARRANGEMENTS

5.5.3 Notification A registered person must inform the Commission of any limitations in cover that may apply to any territory in or from within which business may be conducted by the registered person.

5.5.5 Consent The Commission may, on application by a registered person, consider a variance to the minimum insurance cover requirements stipulated under 5.5.4 above in exceptional circumstances.

5.5.7 Consent The Commission may, on application by a registered person, consider a variance to the maximum excess per claim stipulated under 5.5.6. If the Commission gives



consent to a variance, the registered person must treat a multiple (x3) of the additional excess as a liability when performing the ANLA calculation as set out in the Second Schedule.

5.5.8 Consent With the consent of the Commission, registered person’s may self insure provided that they are, or are owned by, an institution of stature.

CHANGES IN DETAILS

6.1 Notification Registered persons are required to advise the Commission promptly of any matter that might reasonably be expected to affect their registration or be in the interests of investors to disclose. This principle extends to the provision of information and notification of events concerning non-regulated activities and other members of the corporate group, where appropriate, for example, in relation to money laundering issues and market abuse.

6.3.3 Notification Notify the Commission in writing not less than 28 days before any change in:

• the name of the registered person;

• any business name under which the registered person carries on investment business;

• the address of the principal office of the registered person;

• the address of the registered office of the registered person; and

• any address which is treated as the proper address of the registered person by paragraph (6) of Article 40 of the Law; and

6.3.4 Notification A registered person must notify the Commission in writing not less than 28 days before the summary winding up or voluntary dissolution of a registered person.

GENERAL NOTIFICATIONS

6.3.5 Notification A registered person must notify the Commission of any decision to commence a new activity that is likely to have a



material affect on the business or its profitability. Notification should be provided prior to commencement of the activity.

6.3.6 Notification Notify the Commission immediately in writing of: • the presentation of any application to the court for

désastre, or the winding up of the registered person or of a company which is a subsidiary or holding company of the registered person, or the summoning of any meeting to consider a resolution to wind-up a registered person, or a company which is a subsidiary, or holding company of the registered person;

• the application by any person for the commencement of any insolvency proceedings, appointment of any receiver, administrator or provisional liquidator under the law of any country, in relation to the registered person;

• the making or any proposals for the making of a composition or arrangement with creditors of the registered person;

• where the registered person is a partnership, a limited partnership or a limited liability partnership (collectively known as a “partnership”) an application to wind up or dissolve the partnership;

• the imposition of disciplinary measures or disciplinary sanctions on the registered person in relation to its investment business by any relevant supervisory authority or any investment exchange or clearing house;

• the conviction of the registered person, or any of its principal persons or employees, for any offence under legislation of any country relating to banking or other financial services, building societies, companies, credit unions, consumer credit, friendly societies, insolvency, insurance and industrial and provident societies, or for any offence involving fraud or dishonesty, or the imposition of any penalties for deliberate tax evasion;

• the re-registration of a registered person incorporated with unlimited liability as a limited liability company;



6.3.6 (Cont) Notification • A general partner in a registered person becoming a

limited partner;

• the granting or refusal of any application for, or revocation of, authorisation to carry on investment, banking or insurance business in any country or territory outside Jersey;

• the granting, withdrawal or refusal of an application for, or revocation of, membership by the registered person of any investment exchange or clearing house;

• the withdrawal of an application for, or revocation of, membership of any professional body by a principal person or employee, in any jurisdiction;

• the appointment of inspectors (howsoever named) by a statutory or other regulatory authority to investigate the affairs of the registered person;

• any other matter which the registered person considers would be material to the requirements placed on the registered person, any of its principal persons, or any of its investment employees to be fit and proper;

• any litigation taken by the registered person or any subsidiary, or against them;

• the breakdown of administrative or control procedures relevant to any part of the registered person’s business (including breakdowns of computer systems or other accounting problems) resulting, or likely to result, in failure to comply with one or more of the provisions of these Codes;

• any event arising that makes it impracticable for the registered person to comply with one or more of the provisions of these Codes;

• any event arising that makes it impractical for the registered person to comply with any conditions attaching to the registered person’s registration; and

• any other matter which would be material to the Commission’s supervision of the registered person, any of its principal persons or any of its investment employees under the Law or these Codes.



6.3.7 Notification A registered person must notify the Commission in writing within 7 days of becoming aware, or having resolved to undertake, of any of the following matters:

• in relation to any principal person who is an individual, any change in his or her name, address and any information which might impact upon his or her good reputation or character;

• where a registered person is a body corporate, the formation, acquisition, disposal or dissolution of a subsidiary specifying the subsidiary’s name and its principal business;

• where a registered person is not a body corporate, when it acquires or disposes of a holding of more than half in nominal value of the equity share capital of a company, specifying the name of the company and its principal business; and

• where a registered person wishes the Commission to revoke its registration in accordance with Article 9(4)(a) of the Law. The Commission will then require a registered person to complete a Cessation of Business Plan (“COBP”).

6.3.8 Notification A registered person must submit a written report to the Commission within 7 days specifying any changes in the information originally submitted under the following headings: • branch offices anywhere in the world from which

the registered person carries on investment business;

• insurance arrangements; and

• the countries outside Jersey in which the registered person on investment business indicating whether this is done through a branch office, a subsidiary or otherwise.

6.3.9 Notification A registered person must provide the Commission with details of its investment employees upon request.

(Note: A full list of notifications and consents can be found on the Commission’s website.)



THE FOURTH SCHEDULE The Use of Subordinated Loans within the Adjusted Net Liquid Assets and Expenditure Requirement 1. Introduction

The Commission has, at times, been requested to grant consent to the exclusion of a long term Subordinated Loan as a liability within the ANLA calculation (as permitted under section 5.4).

The purpose of Schedule 4 is to provide clarification as to the expectations of the Commission with regard to the criteria that must be met prior to the Commission granting consent to the exclusion of a Subordinated Loan.

2. Criteria Required

For the Commission to consider an application for consent the loan should meet the following criteria:

(a) The Subordinated Loan must be drawn up in accordance with the Commission’s pro forma Subordinated Loan Agreement (see Appendix 1); and

(b) The Subordinated Loan should demonstrate the characteristics of an eligible Subordinated Loan; and

(c) The Subordinated Loan Agreement must be signed by authorised signatories of all the parties; and

(d) The Subordinated Loan should be from an approved lender; and

(e) A signed consent request checklist should be submitted with the application.

3. Characteristics of an eligible Subordinated Loan

(a) The Subordinated Loan should be for a fixed period greater than two years, or where it has no fixed term, it must be subject to a minimum notice period of repayment of two years.

(b) The registered person shall adhere to all notification requirements set out in the pro forma Subordinated Loan Agreement.

(c) A registered person must provide the Commission with prior written notice of any repayment, prepayment, or termination of a Subordinated Loan, otherwise than in accordance with the terms of the Subordinated Loan Agreement, except when a registered person’s ANLA percentage after payment would be less than 110%, in which case the registered person must not contractually, repay, prepay, or terminate any Subordinated Loan.

(d) A registered person must gain the Commission’s prior written consent before making any repayment, prepayment, or termination of a subordinated loan, otherwise than in accordance with the terms of the Subordinated Loan Agreement.



(e) A registered person may not treat a Subordinated Loan that is repayable within one year as a deduction from the total liabilities within the ANLA calculation. E.g. a Subordinated Loan taken out for a period of two years will only be a deduction from total liabilities for the first year of the Agreement. In year 1 to 2 the loan has less than one year to run and will be brought back into the total liabilities.

(f) Only that amount of the Subordinated Loan that has been drawn upon will be allowed as a deduction against total liabilities in the ANLA calculation.

(g) The total amount of an eligible Subordinated Loan, which a registered person may deduct from the total liabilities within the ANLA calculation, must not exceed four times their net asset figure per the latest set of audited financial statements.

4. Approved Lenders

A registered person may treat a Subordinated Loan as an eligible Subordinated Loan only if the lender is:

(a) A regulated financial institution; or

(b) A principal person, in relation to the borrower.

If a registered person wishes to add back a subordinated loan from another lender not within the above list, it must seek consent to a modification of this requirement.

a. Subordinated Loan Consent Request Checklist

A copy of the checklist to be completed is attached at Appendix 2.

b. Impact of a breach of the Subordinated Loan Agreement

In the event that the borrower or lender should breach the Subordinated Loan Agreement, the Commission’s consent to the use of the loan within the ANLA may be withdrawn from the date of the breach.

When granting consent to the use of a Subordinated Loan the Commission shall attach a condition to the registered person’s registration, under Article 10(2) of the Law. The purpose of such action is simply to reinforce the point that the Commission would expect the terms of the Subordinated Loan Agreement to be adhered to and that the Commission would be notified by the borrower in the event that they become aware of a breach of the terms of the Subordinated Loan Agreement either by themselves or by the lender.

Under Article 9(4)(e) of the Law a breach of a registration condition may be grounds for the revocation of a registered person’s licence.

Note 1: Net Assets is defined as total assets less total liabilities.

Note 2: Regulated Financial Institution is defined as financial services business in Jersey as defined under Article 2 of the Law or regulated by a “Relevant Supervisory Authority” as defined in the Law.



APPENDIX 1 SUBORDINATED LOAN AGREEMENT

DATED

SUBORDINATED LOAN AGREEMENT

BETWEEN

(1) [NAME OF LENDER]

(2) [NAME OF BORROWER]

and

(3) JERSEY FINANCIAL SERVICES COMMISSION



THIS SUBORDINATED LOAN AGREEMENT is made on 200- BETWEEN 1. [Insert Lender] (“the Lender”) 2. [Insert Borrower] (“the Borrower”) 3. JERSEY FINANCIAL SERVICES COMMISSION, (the “Commission”), a body

corporate established in Jersey by the Financial Services Commission (Jersey) Law 1998.

RECITALS

1. The Commission has registered the Borrower under Article 9 of the Financial Services (Jersey) Law 1998 (as amended) for the purpose of carrying on trust company business.

2. The Borrower wishes to use the Loan, or each Advance under the Facility (as those expressions are defined in Clause 1) in accordance with Principle 5 of the Financial Services (Jersey) Law 1998 Investment Business Codes Of Practice (“the Codes”) and any guidance notes and policy statements issued by the Commission in relation to Principle 5 from time to time. The Borrower has fully disclosed to the Commission the circumstances giving rise to the Loan or Facility and the effective subordination of the Loan and each Advance.

3. The Commission is a party to this Agreement solely for the purpose of consenting to the use of the Loan by the Borrower in calculating its adjusted net liquid assets and expenditure requirements pursuant to the Codes and to enable the Commission to enforce the terms of this Agreement.

IT IS AGREED THAT:

1. Definitions

(i) In this Agreement, unless context otherwise requires, the following expressions shall have the following meanings:-

“Advance” means, where this Agreement is for a Facility, an amount drawn or to be drawn down by the Borrower or otherwise made available by the Lender under this Agreement as that amount may be reduced from time to time by any repayment or prepayment permitted under this Agreement;



“Auditor” means the auditor or auditors of the time being of the Borrower;

“Facility” means the loan facility referred to in Clause 2;

“Insolvency” means and includes désastre, liquidation, winding up, bankruptcy and sequestration (whichever term may apply to the Borrower) or the equivalent in any other jurisdiction the laws of which the Borrower may be subject; and “insolvent” shall be construed accordingly;

“Liabilities” means all present and future sums, liabilities and obligations payable or owing by the Borrower whether actual or contingent, jointly or otherwise;

“Loan” means the indebtedness of the Borrower to the Lender referred to in Clause 2 as that indebtedness may be reduced from time to time by any repayment or prepayment permitted under this Agreement;

“Minimum Financial Resources” means the minimum financial resources required by the Borrower under Principle 5 of the Financial Services (Jersey) Law 1998 Investment Business Codes Of Practice;

“Non-Variable Terms” means the terms of this Agreement other than the Variable Terms;

“Partner” means, where the Borrower is a partnership, each and every partner of the Borrower as a partner and as an individual;

“Senior Liabilities” means all Liabilities except the Subordinated Liabilities;

“Subordinated Liabilities” means all Liabilities to the Lender in respect of the Loan or each Advance made under this Agreement and all interest payable thereon;

“Variable Terms” means the variable terms of this Agreement set out in the Schedule.

(ii) In this Agreement, any reference to:- (a) a Recital, Clause or a Schedule is, unless the context otherwise requires, a

reference to a recital or Clause of, or a schedule to, this Agreement and any reference to a sub-clause is, unless otherwise stated, a reference to the sub-clause of the Clause in which the reference appears;

(b) this Agreement or to any agreement or document referred to in this Agreement shall be construed as a reference to such agreement or document as amended, varied, modified, supplemented, restated, novated or replaced from time to time; and

any statute, statutory provision or codes of practice shall, unless the context otherwise requires, be construed as a reference to such statute, statutory provision, or codes of practice as the same may have been or may from time to time be amended, modified, extended, consolidated, re-enacted or replaced and shall include any subordinate legislation made thereunder including any guidance notes and policy statements.

(iii) In this Agreement, except where the context otherwise requires, words denoting the singular include the plural and vice versa, words denoting a gender include every gender and references to persons include bodies corporate and unincorporate.

(iv) The Recitals and Schedule form part of this Agreement and shall have the same force



and effect as if they were expressly set out in the body of this Agreement and any reference to this Agreement shall include the Recitals and the Schedule.

(v) Clause headings in this Agreement are inserted for convenience only and shall not affect the construction of this Agreement.

2. The Loan or Facility

(i) Where, as indicated in the Variable Terms, this Agreement is for a loan, the Borrower acknowledges its indebtedness to the Lender in the sum mentioned in the Variable Terms as an unsecured loan upon and subject to the terms and conditions of this Agreement.

(ii) Where, as indicated in the Variable Terms, this Agreement is for a loan facility - (a) the maximum aggregate principal amount of each Advance outstanding at any

time under the Facility shall not exceed the maximum amount specified in the Variable Terms or other such amount as may be agreed in writing between the Borrower and the Lender from time to time;

(b) the Facility will be available until the last available date specified in the Variable Terms; and

(c) any specific terms dealing with the mechanics of the drawdown are contained in the Variable Terms.

(iii) The Lender and the Borrower undertake to provide the Commission, immediately upon request, with details in writing of all principal and interest in respect of the Loan or each Advance outstanding for the time being and all payments of any amount made in the period specified by the Commission in the request.

3. Interest

Subject to the provisions in Clauses 4 and 5 of this Agreement, until repayment of the Loan in full or each Advance in full, the Borrower will pay to the Lender interest on the Loan or each Advance (or on any part or parts for the time being remaining outstanding) calculated and payable in the manner set out in the Variable Terms.

4. Repayment of the Loan or Advances

(i) The provisions of this Clause are subject in all respects to the provisions of Clause 5 of this Agreement;

(ii) The terms concerning repayment are set out in the Variable Terms but are subject to Clause 4(iii);



(iii) (a) Except where the Commission otherwise permits in writing, no repayment or

prepayment of the Loan or any Advance may be made, in whole or in part, before the relevant repayment date provided for in the Variable Terms;

(b) No repayment, early repayment or prepayment of the Loan or any Advance, in whole or in part, may be made unless immediately after such repayment or prepayment, the Borrower would have Minimum Financial Resources; and

(c) Payments of interest at a rate not exceeding the rate provided for in Clause 3 may be made without notice to or consent of the Commission, except that where -

(i) immediately after payment, the Borrower would not have Minimum Financial Resources, or

(ii) before payment, the Insolvency of the Borrower commences, no such payment may be made without prior written consent of the Commission.

(iv) If in respect of the Loan or any Advance, default is made for a period of – (a) seven days or more in the payment of any principal due, or (b) fourteen days or more in the payment of any interest due,

the Lender may, at its discretion and after taking such preliminary steps or action as may be necessary, enforce payment by instituting proceedings for the Insolvency of the Borrower after giving seven business days prior written notice to the Commission of its intention to do so.

(v) Subject to Clause 4((vi), the Lender may at its discretion, subject as provided in this Agreement, institute proceedings for the Insolvency of the Borrower to enforce any obligation, condition or provision binding on the Borrower under this Agreement (other than any obligation for the payment of principal monies or interest in respect of the Loan or any Advance) PROVIDED THAT the Borrower shall not by virtue of the institution of any such proceedings for the Insolvency of the Borrower be obliged to pay any sum or sums sooner than the same would otherwise have been payable by it.

(vi) The Lender may only institute proceedings for the Insolvency of the Borrower to enforce the obligations referred to in Clause 4(v) if - (a) a default under those obligations is not remedied to the satisfaction of the

Lender within 60 days after written notice of such default has been given to the Borrower by the Lender requiring such default to be remedied;

(b) the Lender has taken all preliminary steps or actions required to be taken by it prior to the institution of such proceedings; and

(c) the Lender has given seven business days prior written notice to the Commission of its intention to institute such proceedings.

(vii) No remedy against the Borrower other than as specifically provided by this Clause 4 shall be available to the Lender whether for the recovery of amounts owing under this Agreement or in respect of any breach by the Borrower of any of its obligations under this Agreement.



5. Subordination

(i) Notwithstanding the provisions of Clause 4, the rights of the Lender in respect of the Subordinated Liabilities are subordinated to the Senior Liabilities and accordingly payment of any amount (whether principal, interest or otherwise) of the Subordinated Liabilities is conditional upon:-

(a) (if the Borrower has not become insolvent) the Borrower having Minimum Financial Resources immediately after payment by the Borrower; and accordingly no such amount which would otherwise fall due for payment shall be payable except to the extent that, (i) Clause 4(iii) has been complied with; and (ii) the Borrower could make such payment and still have Minimum

Financial Resources immediately thereafter.

(b) the Borrower being solvent at the time of, and immediately after, the payment by the Borrower and accordingly no such amount which would otherwise fall due for payment shall be payable except to the extent that the Borrower could make such payment and still be solvent.

(ii) For the purposes of Clause 5(i)(a), the Borrower shall be solvent if it is able to pay its

Liabilities (other than the Subordinated Liabilities) in full disregarding - (a) obligations which are not payable or capable of being established or

determined in the Insolvency of the Borrower, and (b) the Excluded Liabilities.

(iii) Payment of interest at a rate not exceeding the rate provided in Clause 3 of this Agreement may be made to the extent permitted by Clause 5(i)(b) above without prior notification to the Commission.

(iv) For the purposes of Clause 5(i)(b) above a written report given at any relevant time as to the solvency of the Borrower by its Auditor, in a form and substance acceptable to the Commission, shall in the absence of proven error be treated and accepted by the Commission, the Lender and the Borrower as correct and sufficient evidence of such solvency.

(v) If the Lender shall receive from the Borrower payment of any sum in respect of the Subordinated Liabilities when any of the terms and conditions referred to in Clause 5(i) above is not satisfied, or where such payment is prohibited under Clause 4(iii), the payment of such sum shall be void for all purposes and such sums shall be received by the Lender upon trust to return the same to the Borrower. Any sums so returned shall then be treated for the purposes of the Borrower's obligations under this Agreement as if they had not been paid by the Borrower and its original



payment shall be deemed not to have discharged any of the obligations of the Borrower under this Agreement. A request to the Lender for the return of any sum under the foregoing provisions of this Clause 5(v) shall be in writing and shall be made by or on behalf of the Borrower or, as the case may be, its Auditor.

6. Representations and undertakings of Borrower

From and after the date of this Agreement the Borrower will not without the prior written consent of the Commission:

(i) secure all or any part of the Subordinated Liabilities;

(ii) redeem, purchase or otherwise acquire any of the Subordinated Liabilities;

(iii) amend any document evidencing or providing for the Subordinated Liabilities;

(iv) repay any of the Subordinated Liabilities otherwise than in accordance with the terms of this Agreement;

(v) take or omit to take any action whereby the subordination of the Subordinated Liabilities or any part thereof to the Senior Liabilities might be terminated, impaired or adversely affected; and

(vi) arrange or permit any contract of suretyship (or similar agreement) relating to its Liabilities under this Agreement to be entered into,

other than as disclosed in writing to the Commission, the Borrower represents that it has not taken any of the steps described before the date of the Agreement.

7. Representations and undertakings of Lender

From and after the date of this Agreement the Lender will not without the prior written consent of the Commission:

(i) assign, transfer, dispose of or encumber the whole or any part of the Subordinated Liabilities or purport to do so in favour of any person;

(ii) purport to retain or set-off at any time any amount payable by it to the Borrower against any amount of the Subordinated Liabilities except to the extent that payment of such amount of the Subordinated Liabilities would be permitted at such time by this Agreement, and the Lender shall immediately pay an amount equal to any retention or set off in breach of this provision to the Borrower and such retention or set off shall be deemed not to have occurred;



(iii) amend or waive any terms of any document evidencing or providing for the Subordinated Liabilities;

(iv) attempt to obtain repayment of any of the Subordinated Liabilities otherwise than in accordance with the terms of this Agreement;

(v) take or omit to take any action whereby the subordination of the Subordinated Liabilities or any part of them to the Senior Liabilities might be terminated, impaired or adversely affected; and

(vi) take or enforce any security, guarantee or indemnity from any person for all or any part of the Subordinated Liabilities, and the Lender shall, upon obtaining or enforcing any security, guarantee or indemnity notwithstanding this undertaking, hold the same (and any proceeds thereof) on trust for the Borrower,

other than as disclosed in writing to the Commission, the Lender represents that it has not done so before the date of the Agreement.

8. Consent

Without prejudice to any other remedies available to the Commission pursuant to this Agreement or otherwise, it is acknowledged by the Lender and the Borrower that in the event that either the Lender or the Borrower breach clause 6 or 7 of this Agreement, the Commission’s consent to the use of the Loan in the Borrower’s calculation of its adjusted net liquid assets and expenditure requirements pursuant to the Codes, shall be withdrawn with effect from the date of the breach.

9. Partial invalidity

If any of the provisions of this Agreement is or becomes invalid, illegal or unenforceable under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

10. Additional terms

Subject to Clause 11, additional terms may be agreed between the parties as set out in the Variable Terms provided that, if there is any inconsistency between the Variable Terms and the Non-Variable Terms, the Non-Variable Terms shall prevail.

11. Documentation

This Agreement forms the entire agreement as to the Subordinated Liabilities. If there are other terms relating to the Subordinated Liabilities existing at the date of this Agreement and not comprised in this Agreement such terms shall be of no further force and effect. No variation or amendment to this Agreement shall be of any effect unless it is in writing and signed by all the parties. Any amendment to this agreement made or purported to be made without the written consent of the Commission shall be void.



12. Indemnity

The Commission shall not, by virtue of being a party to this Agreement, be taken to be a trustee for, or have any obligations to any person, including for the avoidance of doubt, any person to whom some or all of the Senior Liabilities are owed. Each of the Lender and the Borrower jointly and severally indemnify the Commission against all claims, losses, costs and expenses and other liabilities made against or incurred by the Commission as a consequence of it having rights or taking action under this Agreement.

13. Notices (i) any communication to be given in connection with the matters contemplated by this

Agreement shall be in writing signed on behalf of the party giving it or by any means of electronic transmission in a legible form and addressed in the following manner, as appropriate:

If to the Lender: Attention: Address: Fax: E-mail: If to the Borrower:

Attention: Address: Fax: E-mail: If to the Commission: Attention: At its place of business as specified on its website from time to time

Fax: E-mail: (ii) A notice given to the Commission shall have no effect, and time shall not start to run

in connection with that notice, until the Commission has given to the sender written confirmation of its receipt.

(iii) In the absence of evidence of earlier receipt, any notice or other communication shall be deemed to have been duly given: (a) if delivered personally, when left at the registered office of the relevant party; (b) if sent by mail two days after posting it; (c) if transmitted by fax to a fax number referred to in this clause, when the

sending fax machine produces a print out which confirms that transmission has taken place; and

(d) if sent by e-mail, immediately.



14. Counterparts

This Agreement may be executed in any number of counterparts and by the parties on separate counterparts, but shall not be effective until each party has executed at least one counterpart. Each counterpart shall be deemed to be an original but all the counterparts together shall constitute one and the same agreement.

15. Borrower being a Partnership Where the Borrower is a partnership- (i) this Agreement shall subsist in full force and effect notwithstanding any change which

may take place from time to time in the constitution or title of the Borrower by the retirement of the present Partners or any of them or the assumption of new Partners or by a change of name PROVIDED THAT- (a) a retired Partner shall continue to be liable for the payment of all sums due

under this Agreement and implementation of all other obligations in this Agreement until the Lender and the remaining Partner(s) shall agree in writing to release a retired Partner from those obligations and the Commission has agreed in writing to the release; and

(b) in the event of a new Partner being assumed as a partner of the Borrower the other Partners shall procure that said assumed Partner shall become bound to the Lender as a party to this Agreement and shall execute such addendum hereto as the Lender and the Commission may consider necessary.

(iii) the obligations and undertakings of the Borrower under this Agreement shall bind the Borrower and the Partners jointly and severally.

16. Law

(i) This Agreement is governed by and shall be construed in accordance with the laws of Jersey and each party irrevocably submits to the jurisdiction of the courts of Jersey.

(ii) The Courts of Jersey shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning this Agreement and any matter arising therefrom.

(iii) Each party irrevocably waives any right that it may have to an action being brought in an inconvenient forum, or to claim that the Courts of Jersey do not have jurisdiction.

17. Service of Process [Clause required where Lender is not a Jersey entity]

Without prejudice to any other mode of service allowed under any relevant law, the Lender irrevocably appoints [●] of [Address] (the “Process Agent”) as its agent for Service of Process in relation to any proceedings before the Courts of Jersey in connection with this Agreement and will immediately appoint a new agent for Service of Process should the above agent resign or otherwise cease to be the agent for process or cease to maintain a registered office in Jersey; and The Lender and the Borrower agree that failure by their respective process agents to notify them of the process will not invalidate the proceedings concerned.



Schedule – Variable Terms

1. The Loan or Facility With reference to Clause 2 of the Agreement

2. Interest With reference to Clause 3 of the Agreement

3. Repayment With reference to Clause 4(ii) of the Agreement and subject always to Clauses 4(iii) (restrictions on repayment) and 5 (subordination) of the Agreement



Notes to 3 Repayment. 1. The repayment date for the Loan must be more than one of the following –

- a date not less than two years from the date of drawdown, provided in compliance with Clause 4(iii) of the Agreement, and

- a date not less that two years from the Lender giving notice in writing to the Borrower and the Commission, or

- a date not less than two years from the Borrower giving notice in writing to the Lender and the Commission.

2. Where the Agreement is for a loan facility each Advance must be treated separately and have a repayment date not less than two years from the date of drawdown, or be subject to not less than two years’ notice or have and be subject to both.

4. Additional terms

5. Jurisdiction The person(s) indicated is (are) appointed as agents for service of process –

(a) by the Lender -

Of

(b) by the Borrower -

Of



IN WITNESS WHEREOF the Lender, the Borrower and the Commission have signed this Agreement this day and year first before written. SIGNED for and on behalf of the Lender ……………………………………. In the presence of: Name: ……………………………………. Title: SIGNED for and on behalf of the Borrower ……………………………………. In the presence of: Name: ……………………………………. Title: SIGNED for and on behalf of the Commission ………………………………… Name: ……………………………………. Title: Name: ……………………………………. Title:



APPENDIX 2 SUBORDINATED LOAN CONSENT REQUEST CHECKLIST

1 Amount of Subordinated Loan/facility £ 2 Amount of Subordinated Loan to be drawn down £ 3 Does the Subordinated Loan exceed 4 times the net asset figure of the

latest audited signed financial statements? Yes/No

4 What is the rationale for the Subordinated Loan? 5 ANLA before consent

ANLA after consent

6 Was the Commission’s proforma Subordinated Loan Agreement used? Yes/No 7 What is the term of the Subordinated Loan? 8 Who has signed the Subordinated Loan Agreement? 9 Date signed

We confirm that the Subordinated Loan Agreement (“the Agreement”) has been drawn up in accordance with the Jersey Financial Service Commission’s current guidelines. In the event that we become aware of a breach of the terms of the Agreement by ourselves as borrower or by the lender, we confirm that we will immediately notify the Commission of such a breach in writing and where the breach is by the lender we shall, at the Commission’s request, take all steps necessary to enforce the lender’s obligations under the Agreement. If we receive notice from the lender pursuant to clause 4 of the Agreement or are asked for our consent pursuant to clause 7 of the Agreement we will immediately notify the Commission in writing and take such action in respect of the notice as the Commission directs. Signed for and on behalf of [Borrower] in his/her capacity as Director:

Director’s signature (1): -----------------------------------------

Print name -----------------------------------------

Director’s signature (2) -----------------------------------------

Print name -----------------------------------------

for Investment Business - Jersey Financial Services Commission · Investment Business – Codes of...

Documents

Transcript of for Investment Business - Jersey Financial Services Commission · Investment Business – Codes of...