Jersey Financial Services Commission: Annual Report 2010.

ANNUAL REPORT2010

CONTENTS

THE ISLAND OF JERSEY  02 THE JERSEY FINANCIAL SERVICES COMMISSION  04 THE COMMISSIONERS  05 CHAIRMAN S STATEMENT  07 DIRECTOR GENERAL S REPORT  11 STRUCTURE CHART  18 INTERNATIONAL STANDARDS AND POLICY DEVELOPMENT  21 SUPERVISORY APPROACH  25 ENFORCEMENT  32 REGISTRY  35 THE SUPPORT DIVISIONS  37 STATISTICAL ANNEXE  40 FINANCIAL STATEMENTS  51 CORPORATE GOVERNANCE  64

THE ISLAND OF JERSEY

 Jersey enjoys a reputation   as a well-regulated  international finance centre.

THE ISLAND OF JERSEY

Jersey is situated off the north-west coast of France, 14 miles from Normandy and 85 miles from the south coast of England.

Within its 45 square miles the Island has a population of around 92,500 and enjoys a reputation as a well-regulated international finance centre.

Being a Crown Dependency, Jersey s allegiance is to the British Crown but it  is not part of the United Kingdom. The Island is not part of the European Union, being neither a separate Member State nor an Associate Member.

Jersey has its own legislative assembly, the States of Jersey, which comprises 53 elected members plus the President. Jersey has its own system of local administration, fiscal and legal systems, and courts of law.

Jersey has a ministerial system of government comprising a Council of Ministers led by a Chief Minister. Further information on the workings of government in Jersey can be found on the States of Jersey Website, www.gov.je

THE JERSEY FINANCIAL SERVICES COMMISSION

The Jersey Financial Services Commission (the  Commission ) is responsible for the regulation, supervision and, within its legal remit, the development of the financial services industry in the Island.

The Commission is a statutory body corporate, set up under the Financial Services Commission (Jersey) Law 1998 (the Commission Law ).The Commission Law provides for a Board of Commissioners to be the governing body of the Commission. The Commission Law established the Commission as an independent body, fully responsible for its own regulatory decisions.

The Commission is accountable for its overall performance to the States of Jersey through the Minister for Economic Development.

The Commission is also responsible, pursuant to powers granted to it under the Companies (Jersey) Law 1991, for appointing a person to exercise certain statutory responsibilities as the Registrar of Companies. The Commission has appointed the Director General of the Commission as the Registrar.

The Commission s key purpose is:

To maintain Jersey s position as an international finance centre with high regulatory standards by:

• reducing risk to the public of financial loss due

to dishonesty, incompetence, malpractice or the financial unsoundness of financial service providers;

• protecting and enhancing the reputation and integrity of Jersey in commercial and financial matters;

• safeguarding the best economic interests of Jersey; and

• countering financial crime both in Jersey and elsewhere.

In support of its key purpose, the Commission aims to:

• ensure that all entities that are authorised meet fit and proper criteria;

• ensure that all regulated entities are operating within accepted standards of good regulatory practice;

• match international standards in respect of banking, securities, trust company business and insurance regulation, and anti-money laundering and terrorist financing defences;

• identify and deter abuses and breaches of regulatory standards; and

• ensure that the Commission operates effectively and efficiently, and is properly accountable to the Minister for Economic Development.

THE COMMISSIONERS

Non-Executive Commissioners

Clive Jones - Chairman

Clive Jones joined the Board of Commissioners on 23 October 2007 and was appointed Chairman in September 2009. Clive retired in June 2007 from a career in international banking spanning 36 years.

Prior to his retirement, Clive had been the Citigroup Country Officer for the Channel Islands, which involved being Chairman  and Managing Director of Citibank (Channel Islands) Limited, as well as holding Directorships for all Citibank Companies within the Island.

He has previously held the posts of President of the Jersey Bankers Association, Chairman of the Jersey Finance Industry Association, and was one of the founding Board members of Jersey Finance Limited.

Clive is currently the Chairman of Governors for Highlands College.

Lord Eatwell of Stratton St. Margaret (from April 2010)

Lord Eatwell joined the Board of Commissioners on 22 April 2010.

Lord Eatwell is currently Professor of Financial Policy at the University of Cambridge and, for a number of years, his work has focussed on issues of financial regulation. He leads a work stream within the Centre for Financial Analysis and Policy (CFAP, a research centre he directs) on financial regulatory issues.

In 1998, Lord Eatwell played a pivotal role in analysing the problem of systemic risk in financial markets, which led in due course to the creation of the Financial Stability Forum (now the Financial Stability Board). Lord Eatwell has undertaken a number of roles with UK regulators and has acted as an adviser on regulatory matters to the Bank for International Settlements, the Banking Committee of the US Senate, the European Parliament and the Hong Kong Monetary Authority.

Jacqueline Richomme - Deputy Chairman (until May 2010)

Jacqueline Richomme was first appointed  

as a Commissioner on 1 October 2001 and became Deputy Chairman in June 2007.

She retired from the Board on 31 May 2010, having served three full terms as Commissioner.

She studied law at the University of Durham and then at the College of Law, Chester and qualified as an English Solicitor in 1982.

She joined the Jersey law firm, Mourant du Feu & Jeune , in 1985 and subsequently qualified as a solicitor of the Royal Court of Jersey in 1988, becoming a partner of Mourant du Feu & Jeune shortly thereafter.

Her legal practice has covered all aspects of Jersey company, trust and limited partnership law, and she specialises in the provision of Jersey legal advice to investment funds and international finance transactions.

Advocate Debbie Lang

Advocate Debbie Lang joined the Board of Commissioners on 30 November 2008. Debbie qualified as a Jersey Advocate in 1990 and is a member of the Jersey Law Society.

Debbie joined the law firm Bailhache Labesse (now Appleby) in 1984 where she was a partner from 1991 to 2005. She was appointed Managing Partner in 1998 and Managing Director of Bailhache Labesse Trustees Limited in 2000. Debbie previously held the position of chairman of the Jersey Child Care Trust and the States of Jersey Education Audit Committee, and was  

also a member of the States of Jersey  

Audit Commission and the Tourism Development Fund.

Debbie is currently a member of the Jersey Police Complaints Authority and the Jersey Youth Court Panel and holds a number of non-executive directorships.

John Averty - Deputy Chairman (from June 2010)

John Averty joined the Board of Commissioners in December 2005 and  was appointed Deputy Chairman on  

1 June 2010.

He was born in Jersey and educated at Victoria College.

John is the Chairman and Chief Executive  of the Guiton Group Limited. The Group publishes daily and weekly newspapers in  the Channel Islands. It also has a  technology division.

From 1969 to 1984, John served as a Member of the States of Jersey, initially as a Deputy and latterly on the Senatorial benches.

He is currently a non-executive director of a Jersey registered private bank.

John Mills, CBE

John Mills, CBE, joined the Board of Commissioners on 23 October 2009.

John s 33 year public service career, until his retirement in 2007, included appointments

as Director of Rural Policy, Department for the Environment, Food and Rural Affairs; as Chief Executive, Policy and Resources, States of Jersey; as Chief Executive, Cornwall County Council; as Director of Consumer Affairs at the Office of Fair Trading; as a member of the Prime Minister s Policy Unit; and as a Principal Assistant Secretary in the Hong Kong Civil Service.

In Jersey, John is a Member of the Shadow Harbours and Airport Board, and holds two honorary positions in Jersey, as a Member of the States Members Remuneration Review Body and as an Income Tax Commissioner of Appeal. In England, he is Vice-Chairman of the Port of London Authority, a Board Member of the Commission for Rural Communities and Chairman of the Governing Body of Highgate School, London.

THE COMMISSIONERS

Non-Executive Commissioners

Frederik Musch (until May 2010)

Frederik was appointed as a Commissioner on 18 July 2001 and retired from the Board on 31 May 2010, having served three full terms as Commissioner.

From 1986 to 1992, Frederik Musch held

the position in the Dutch Central Bank

of Deputy Executive Director in charge of banking supervision, and represented the Central Bank on the European Union s Banking Advisory Committee and the Basel Committee on Banking Supervision. He was a founding member of the Securities Board of the Netherlands.

From 1992 to 1998 he was Secretary General to the Basel Committee. In 1998 he became a founding Director with the Financial Stability Institute at the Bank for International Settlements in Basel, from which position he retired in 2001.

Crown Advocate Cyril Whelan (from June 2010)

Crown Advocate Whelan joined the Board of Commissioners on 1 June 2010.

Called to the English bar in 1979 and to the Jersey bar in 1982, he has spent 28 years

as senior legal adviser in the Law Officers Department in Jersey. He was appointed to the office of Crown Advocate immediately upon the creation of that office in 1987 and remains the Island s Senior Crown Advocate.

As head of the Section within the Law Officers Department responsible for Serious Crime  and International Mutual Legal Assistance,  he has advised on all aspects of public law, including serious crimes such as complex fraud and money laundering. He retired from the Law Officers Department in 2007 and is currently a Senior Consultant at the local law firm Baker & Partners and is also a Door Tenant of Chambers at Seven Bedford  

Row, London.

Markus Ruetimann (from September 2010)

Markus Ruetimann joined the Board of Commissioners on 13 September 2010.

Mr Ruetimann is Group Chief Operating Officer for Schroder Investment Management Limited, based in London. Mr Ruetimann s global responsibilities encompass portfolio services, fund services, information technology, group change and project management and corporate services. Mr Ruetimann joined Schroders in November 2004 and was appointed Chairman of Schroder Investment (Luxembourg) S.A. in January 2005.

Mr Ruetimann has been a member of  

Group Management Committee of Schroder plc. since June 2005 and was appointed as

a director of Schroder & Co. Bank AG, Zurich in September 2009.

Sir Nigel Wicks

Sir Nigel Wicks joined the Board of Commissioners in July 2007. He is currently the Chairman of Euroclear, having previously been non-executive Deputy Chairman, and

a director of the Edinburgh Investment Trust plc. He was a member of the British Civil Service for 32 years. He held the position of Second Permanent Secretary and Director of International Finance at HM Treasury from 1989 to 2000. He has held senior positions

in the offices of former British Prime Ministers. He served as Chair of the Committee on Standards in Public Life between 2001  

and 2004.

Philip Taylor , FCA

Philip Taylor , FCA, joined the Board of Commissioners on 23 October 2009.

He retired as the Global Leader of PwC Assurance Quality Review in September 2009 following a 40 year career with PwC and its predecessor companies. He was the Senior Partner of the Channel Islands firm from 1992 to 2007. During his career Philip worked in London and Johannesburg as well as in the Channel Islands.

Philip is a Member of the Accountancy and Actuarial Discipline Board of the Financial Reporting Council, a Member of the Financial Services Advisory Board and Chairman of the Board of Governors of Jersey College for Girls.

Executive Commissioner

John Harris - Director General

John was appointed the Director General of the Commission on 6 November 2006 and subsequently joined the Board of Commissioners on 1 March 2007. He is a fellow of the Chartered Institute of Bankers.

From 2002 to 2006, he held the position of Director - International Finance in the States of Jersey Chief Minister s Department where he had responsibility for all aspects of the Government s policy on the maintenance and enhancement of Jersey s position as  

an international finance centre.

John spent 22 years working internationally

for the NatWest Bank Group and from 1998

to 2002 he was Chief Executive Officer for NatWest Offshore with responsibility for offices in Jersey, Guernsey, Isle of Man, Gibraltar, Cayman, Bermuda and the Bahamas.

CHAIRMAN S STATEMENT

One of the Commission s aims is to identify and deter abuses and breaches of regulatory standards .

Last year I was able to report to you on the results of the International Monetary Fund s ( IMF ) evaluation of Jersey and on the publication of the Foot report in 2009. There were no similar high points in 2010 but, instead,

a lot of solid work which built on the achievements of the previous year.

One of the Commission s aims is to identify and deter abuses and breaches of regulatory standards . In that respect, the work in developing Settlement Agreements has greatly increased the effectiveness of the Enforcement Division and allowed quick conclusion of a number

of cases where the circumstances have been admitted

and the sanctions agreed. Whilst not all cases will be uncontested and nor will all cases be allowed to proceed to settlement, as a new tool settlements have proved effective. Further, during the year discussions have continued with the Law Officers Department on a regime for civil or administrative penalties for breaches of the Codes of Practice. It is expected the Commission will be in a position to consult on this proposed new regime in 2011. Taken as a whole these measures will broaden

the range of sanctions that the Commission is currently able to impose.

During the year, the Commission also published new guidance on the enhanced due diligence necessary when dealing with prospective clients from higher-risk jurisdictions. Precisely because Jersey is now well-regarded and highly-rated, it has become an attractive jurisdiction for business of all types. At a point in the economic cycle when new business may be harder to come by, it is important that registered persons give extra attention to their obligations under the Regulatory Laws1.

The Investment Business Team completed a further

 mystery shopping exercise in 2010 targeting independent financial advisers and retail banks. Although there were marked improvements evident when compared to the previous exercise in 2007, there was still room for improvement in the advice process. Mystery shopping will continue to be a valuable diagnostic tool.

These are but three individual examples of work in 2010. As always, on-site examinations continued to be the backbone of the Commission s efforts in assessing compliance, with 248 examinations being undertaken during the year. Work also continued in consulting on and implementing recommendations from the 2009 IMF visit, and the Funds Team, working with the ICT Division, implemented online filing of funds statistics in the fourth quarter of 2010.

As might be expected, simply maintaining and keeping the Regulatory Laws up to date also consumed effort in 2010.

The Commission must, of course, also be prepared to engage in respect of overseas regulation that impacts on Jersey-regulated businesses. In that regard, in 2010

much work was done with Jersey s finance industry (the

 Industry ) in relation to the EU s Directive on Alternative Investment Fund Managers, and this work will continue throughout 2011. The Financial Services Authority s (the  FSA ) new bank liquidity regime has also raised issues that affect the business models of some of the larger banks in the Island, and the Commission is seeking to work with all parties to develop a practical resolution. The FSA s Retail Distribution Review will similarly have an impact on the investment business community, and it

is expected that a position paper will be issued setting out the Commission s stance in the first half of 2011.

The Commission is fortunate that Jersey is of a size that permits regular interaction with large swathes of the regulatory community and therefore the maintenance of effective working relations is possible. Over and above that, however, the Commission does seek to reach out whenever it feels it can usefully do so. In that respect one day Industry seminars were held for Funds and Trust Company Business, and a half day seminar was held

on Anti-Money Laundering, each of which was attended by some 400 delegates. During the year,

the Commission also produced guidance for Industry on sanctions which was published on its Website at the beginning of 2011. In the light of subsequent events

this was a particularly timely action.

Outreach is not merely a local issue. It is important that the Commission be seen by its peers to be both active and effective: to punch above its weight in the international regulatory community. In 2010, officers from the Commission participated in banking regulatory colleges, were members of the Implementation Task Force of the International Organisation of Securities Commissions, the Financial Action Task Force Expert Group of the Offshore Group of Banking Supervisors, and the European Commission s Panel of Experts on Anti-Money Laundering and Countering the Financing of Terrorism. In addition, the Commission hosted in Jersey the annual training seminar of the Offshore Group of Insurance Supervisors and the annual conference of the Extended Contact Group of Securities Supervisors. All these activities were in addition to the normal duties of the Commission s staff and I would like to record my appreciation of this important extra effort.

1 The Regulatory Laws are:

- the Banking Business (Jersey) Law 1991;

- the Collective Investment Funds (Jersey) Law 1988;

- the Financial Services (Jersey) Law 1998; and

- the Insurance Business (Jersey) Law 1996.

During the year, the Commission also published new guidance on the enhanced due diligence necessary when dealing with prospective clients from higher-risk jurisdictions.

In a similar vein, further progress was made in respect of international co-operation in 2010. In April a Memorandum of Understanding was signed with the Reserve Bank of South Africa and in October a Multilateral Memorandum of Understanding with the International Association of Insurance Supervisors. By the end of the year work was underway on an agreement with the French AutoritØ de Contr le Prudentiel.

During 2010, a number of changes were made to the Board of Commissioners. In May Jacqueline Richomme, Deputy Chairman, and Frederik Musch both retired after nine years service. Their dedication and their wise counsel have been of enormous value to the Commission, and we are indebted to them.

During the year, the Director General and Commissioner Sir Nigel Wicks were both appointed to a second term, as was the Chairman. Commissioner Averty was appointed Deputy Chairman in June.

The Board was also strengthened by the appointment of three new Commissioners during the year: Lord Eatwell of Stratton St. Margaret in April, Crown Advocate Cyril Whelan in June and Markus Ruetimann in September. They bring enormous expertise to the Board s deliberations.

Taken together with the retirements and appointments in 2009, the Board has undergone considerable change over the past 18 months. In considering the effect of the current terms of office of Commissioners on the Board s corporate memory , when taken together with the Jersey Appointments Commission s ( JAC ) prescriptions on length of service, discussions took place in 2010

with the JAC and with the Minister for Economic Development on lengthening the term of appointment of Commissioners. It is expected a proposition will be brought to the States by the Minister in 2011.

During 2010, the Board conducted an appraisal of

its performance, which was administered and facilitated by the Institute of Directors, London. The exercise included members of the Executive and has led to a number of recommendations for improving the Board s method of working which are being implemented in 2011. The exercise was worthwhile and will be repeated in 2011.

The Board considers that it is subject to the Financial Reporting Council s (the  FRC ) Combined Code

on Corporate Governance (June 2008) and will be subject to the FRC s UK Corporate Governance Code (June 2010). A note on the Board s assessment of its compliance can be found in the Corporate Governance section of this Annual Report.

Contacts with the Board s counterparts in Guernsey and the Isle of Man continued in 2010 with a day s tripartite meeting taking place in early October. This was a productive day and is to be repeated in October 2011.

To be effective in what it does, the Commission needs to be both a thinking and a learning organisation. To achieve this, extensive resources are committed to training managers and staff, and during the year

the Commission was accredited as an Approved Development Provider by the Institute of Leadership and Management.

The Commission is conscious that its costs are paid by its licence holders and, amid a rising tide of international financial regulation, is constantly looking for ways to do more with its existing resources. Although the Board applauds the culture of frugality, it keeps a keen eye on the demands being placed on the Executive in order to avoid over-stretch occurring with a consequent risk

of underperformance.

In 2010, the Board began to invite three Directors in rotation to sit in on its meetings. It is hoped this has helped give a wider cross section of the Executive a fuller insight into all of the Board s work as opposed to just those pieces in which they may be directly involved.  At the same time it has given the Board a better opportunity to see the Directors and some of their senior managers in action. The Board is impressed with the intelligence, ability and enthusiasm of the Commission s staff and the leadership provided by the Director General. The Board is grateful to all of them.

DIRECTOR GENERAL S REPORT

A good deal of work is being done by the Commission  in consolidating the progress seen in the IMF report,  

in monitoring and evaluating significant changes in the international regulatory landscape in a world still suffering from the painful effects of the recent financial crisis and in generally assessing how the Commission and Jersey need to adapt to a rapidly changing world.

For the Commission, 2010 was an example of how the life of organisations can be somewhat tidal in nature. Following the watershed achievements of 2009 which saw the publication of the favourable IMF evaluation of Jersey, the positive outcome of the UK Treasury commissioned Foot Report and the OECD White List recognition of Jersey as a jurisdiction substantially complying with international taxation standards, it was always going to be difficult for 2010 to reach the same heights. Nonetheless the year was one of solid work and progress both for the Commission and for the Island in general in a somewhat weak but tentatively recovering economic environment. A good deal of work is being done by the Commission in consolidating the progress seen in the IMF report, in monitoring and evaluating significant changes in the international regulatory landscape in a world still suffering from the painful effects of the recent financial crisis and in generally assessing how the Commission and Jersey need to adapt to a rapidly changing world.

International Development

Notwithstanding the lack of benchmark events for Jersey such as those seen in 2009, the year was another busy one. During 2010 the Basel Committee of Banking Supervisors ( BCBS ) published new capital standards for banking institutions and the timetable for their implementation and the impact of this on Jersey

was assessed. Without wishing to sound in any way complacent, the particular business model of Jersey based banking institutions should ensure that these new requirements are met without great difficulty for those subsidiary organisations of large multi-national banks which operate in Jersey.

The other significant matter which has been closely followed throughout 2010 has been the development

of the European Union s ( EU ) Alternative Investment Fund Manager Directive ( AIFM Directive ) and the related development of revised Principles for Securities Regulation being worked on by the International Organisation of Securities Commissions ( IOSCO ), both of which have potentially significant impact on the Island s funds offerings. In both cases the picture at the end of 2010 was somewhat more positive than had appeared to be the case at the beginning of the year,

in that the requirements of the AIFM Directive appear overall to be capable of being fully met by the Island in its quest for equivalence recognition under the Directive and, therefore, its ability to continue to offer alternative fund products to the EU market. Much work remains to be done in 2011 to ensure that this is indeed the case and

a good deal of detail remains yet to be decided. In terms of work on the IOSCO Principles, the Commission was privileged to be part of the IOSCO working group considering the methodology for assessing compliance with IOSCO Principles 1 11, as well as involvement in some related working parties.

Again the Commission feels that the changes likely to be agreed are ones that Jersey will be able to embrace in full without significant overhaul of its own regulatory regime.

As a general matter of policy and priority, the Commission has continued to work on developing its international profile and international relations in a number of different ways during the past 12 months. This has taken many forms, including the signing of a new Memorandum of Understanding ( MoU ) with the South African Reserve Bank, which is of particular relevance given the fact that Jersey has four major South African owned financial services businesses operating in the Island. Significant co-operation was seen in terms of servicing requests for assistance and working with fellow regulators in a number of different domains, including cross-border  bank supervision and co-ordinating positions on the AIFM Directive and the IOSCO Principles. Multi-Lateral Memorandum of Understanding ( MMoU ) status in respect of the International Association of Insurance Supervisors ( IAIS ) was achieved and full participation in many international organisations including the Offshore Group of Banking Supervisors (OGBS), through which the Island continues to enjoy significant interface with major multi-lateral standard setting bodies such as the Financial Action Task Force (FATF) and the BCBS, was a feature of the Commission s continuing activities. To these initiatives can be added development work on behalf of the Island as a whole in bi-lateral interfaces with key regulatory bodies in markets of developing importance for the finance industry in Jersey (the  Industry ), such as India, China and the

Middle East.

During 2010, it is also worth recording that significant emphasis was placed on the need to build upon the Commission s existing good relationship with the UK s Financial Services Authority ( FSA ) despite, or perhaps because of, the forthcoming restructuring of the FSA into different successor organisations. To some extent this work has laid the basis for good existing relationships to continue once the FSA is split into those successor organisations, which is expected to be in early 2012,

but at the same time certain key areas of interface

which the Commission has developed in recent years with the FSA have also been consolidated during the past 12 months. Notably these include links which

allow the Commission to work with the FSA on matters of international securities development as well as with the FSA s own intelligence and enforcement communities, and through them the wider FIN-NET network that enables the Commission to access a number of regulatory and law enforcement agencies to assist

in the all important joint effort of combating

financial crime.

Regulatory and Supervisory Developments

As is developed in the main body of this report,

2010 saw something of a recovery in the numbers of entities seeking authorisation from the Commission to conduct various financial services activities in the Island. Notable has been an increase in applications for different classes of funds which suggest the first tentative signs of a recovery in this critical market for Jersey. In addition, there has been a certain level of new activity in respect of trust company business applications, both in corporate form and in respect of individuals registering under the revised requirements for directorships that apply since the introduction by the Commission of a new de minimis exemption for individuals. Rather quieter have been the sectors of investment business, insurance and banking.

In fact, during 2010 and likely to continue into 2011,

a number of banking registrations in the Island have

been surrendered by smaller banks, which have found

it difficult to continue with their previous business model in the wake of the recent financial crisis at a time when banking groups generally have been reviewing their international footprint on grounds of economic necessity. This does not mean that Jersey s banking sector has

been substantially reduced in size as many of these previous registrations were held by institutions with only a very small presence in the Island. Nonetheless,

the trend towards lower numbers of banking registrations is necessarily still of concern, not least in terms of the Commission s own resourcing requirements with virtually the same overall sector in terms of size and complexity but with a reduced number of fee payers. This trend will be carefully monitored in 2011 and the extent of the Commission s resources devoted to the banking sector kept under close review.

Supervisory work remains the bedrock of the Commission s overall mission divided between

on-site examinations and off-site monitoring of financial services entities allied to other supervisory tools, such as intelligence information derived from customer complaints and other sources, which influence the

shape of the supervisory effort in any one given year. 2010 was no different in this respect and the later pages demonstrate that we have had to flex to some extent

the number of on-site examinations to accommodate emerging realities, particularly where greater supervisory effort was compelled by the need to monitor developments at a number of firms where adverse trends had been identified together with a need for remedial action. This is an ongoing issue for the Commission and it has given rise to a further focus on the distribution and effort within the overall supervisory regime which

I comment upon in terms of 2011 objectives below.

The main themes to emerge from the 2010 supervisory focus are again detailed in the ensuing pages.

In summary, across all sectors but particularly in the funds sector, a theme of sometimes inadequate overall governance, including a failure to demonstrate proper oversight by boards and appropriate accounting between legal entities, was uppermost. Within investment businesses, despite significant improvements being seen in the sector and validated by the latest mystery shopping exercise conducted in 2010 for which the results have recently been published, there remain a number of issues around disclosure of commissions, fees and charges, and in the relation of customer risk appetite to investment and product recommendations. All of this is relevant in a world which is moving towards a new model being pioneered by the UK FSA s Retail Distribution Review (RDR), which the Island served notice in 2010 that it intended to follow, at least in

broad terms, within its own investment business sector. A related initiative, which was first discussed in the 2009 Annual Report, is an Investor Education initiative aimed at the wider investing public in Jersey, with an intended clear guide to the dos and don ts of investing, and best practice in buying investment services from different providers. For a variety of reasons this initiative did not progress as quickly as was hoped during 2010 but these delays have now been dealt with and the initiative was launched in the first quarter of 2011, building on the development work of the preceding 12 months.

The trust company business sector in 2010 saw something of a repeat of the pattern in previous years, with many firms observing excellence in their working practices but with a number of key issues identified in a minority of firms requiring enhanced supervision and close monitoring by the Commission, including material breaches of the regulatory regime. New business take-on and subsequent due diligence, and know your client procedures have been particularly highlighted, thrown into further relief by the increasing propensity of Island firms to source business further and further afield, including on occasions from jurisdictions which are identified by the Commission as having the characteristics of higher risk. The theme of business from higher risk jurisdictions does not just arise within the trust company business sector but is one where it is important for Industry, Government and the Commission to forge a consensus to inform businesses expectations of what is and what is not required. This will be a continuing theme for the Commission and Industry during 2011.

ANNUAL REPORT 2010 | 13

As far as the banking sector is concerned, 2010 was something of a difficult year in supervisory terms.

It would be fair to say that the sector overall is under pressure both worldwide and in Jersey, and this has

been demonstrated by the need for heightened oversight of certain institutions against an international backdrop of new capital standards (albeit delayed in implementation terms). Compounding these challenges is the difficulty for banking institutions in a low interest rate scenario to sustain traditional returns, all the more so in Jersey s predominantly simple banking model of subsidiaries and branches of large multi-national groups collecting deposits in the Island and up-streaming them to the parent bank as the principal asset on their respective balance sheets. The concentration risk that this business model implies is already acknowledged and the challenges it presents further exacerbated during 2010 by certain unilateral measures enacted by other banking supervisors, notably the new FSA liquidity standards implemented during the year. Although the impact of this on Jersey based institutions has not been uniform, the Commission has engaged in dialogue both with Industry and with relevant supervisory authorities elsewhere to seek to manage this particular challenge.

In the insurance sector, which is a relatively small one for Jersey, it is clear that there is a certain amount of flux as can be seen from the authorisation numbers both new and surrendered, and the main event for 2010 was the granting to Jersey of the MMoU status by the IAIS following peer review, representing a successful outcome to the Island s application under this new international standard.

The Commission s Anti-Money Laundering Unit

(the AML Unit ), whose main area of activity is the oversight of Designated Non Financial Businesses and Professions ( DNFPBs ), comprising a number of sectors related to the core financial services market such as lawyers, accountants, estate agents etc., continued its activity in 2010 with both comprehensive on-site examination and outreach programmes. One particular concern during the year was to gain agreement from all stake holders in respect of this important work on the fee model which needs to be put in place in order for the Commission s DNFBP work to be funded. The outcome of this debate will be known in 2011 as the developed proposals for the fee model have now been submitted for third party adjudication in order to gain resolution on a much debated issue.

Enforcement

The last 12 months has seen a continuing high level

of Enforcement activity by the Commission, as is demonstrated by the figures for numbers of cases and requests for assistance processed. The Chairman has commented in his preceding remarks regarding the use

of settlement agreements, which came into full effect

in 2010, and were used to great advantage to enable

the early conclusion of cases and thus better use of Enforcement resources. Settlement agreements are certainly not peculiar to Jersey as they are used by many regulators world wide. Settlement agreements will not work in every case and the recourse of the concerned parties to the Commission s full Decision-Making Process in respect of restrictions on individuals working within Industry, and related matters such as public statements, will still at times be necessary. In whichever form,

the Commission has demonstrated in 2010 its determination to deal with cases where standards have not reached a level to which the Island aspires in terms

of conduct and observance of regulatory requirements.

Companies Registry

Registry work in 2010 continued against a backdrop of tentative recovery in the volumes of newly incorporated companies together with the enhancement of various capabilities in online search, monitoring and filing under the Easy Company Registry system. This represents solid ground work for the continuing development of a highly automated and technologically efficient registry services environment to which the Commission aspires. As this suggests, a good deal of further development work will be needed in this respect to build on the solid base

laid down in 2010, in addition to which the Registry continues to be very active internationally in profiling Jersey s capabilities and in participating in various international initiatives of relevance to all financial

and non-financial services users of the Registry.

2010 saw something of a recovery in the numbers of entities seeking authorisation from the Commission to conduct various financial services activities in the Island.

Support Services

Mention should also be made of two key support areas within the Commission, ICT and Human Resources

( HR ), which were again very active during 2010. Technology can never be taken for granted and the Commission is fortunate in benefiting from a robust infrastructure maintained by its ICT Division, to which can be added a number of support capabilities on which important areas of the Commission such as Registry and Supervision depend. ICT was also greatly involved in laying significant ground work for project development, which aims to increase both internal Commission efficiency and also allow regulated entities to interface electronically with the Commission in future years to

a greater degree than is the case at present. One such example was the online Funds Statistics project,

which came to fruition during the year and which has improved significantly the previously manual intensive collation of such statistics with benefits for many.

In HR terms, the year saw further development of the Commission s attempts to foster a climate of managerial and personal learning alongside its traditional areas

of technical excellence. It was particularly gratifying, therefore, to see the organisation accredited as an approved development provider by the Institute of Leadership and Management for the bespoke programmes that it had pursued in this area during

2010. As Director General, I am highly dependent

on the HR function for excellence in administrative infrastructure and learning and development initiatives. I have been particularly grateful for this sustained support over the past 12 months as we take the key theme of the development of the Commission staff to the next desired level.

Relations with Industry

In my statement of last year, I drew attention to the Commission s generally good relationship with the Industry in Jersey. This relationship is much influenced by the regular interactions that take place between Commission staff and various industry practitioners both individually and through the different representative bodies in the Island. If anything, this activity was even more intense during 2010 than in preceding years,

not least as a consequence of the challenges of the wider world to which the Island is exposed in developing its financial services offering and in confronting changing regulatory requirements globally. The Commission has been assisted in this endeavour via its good relationship with both Government and with Jersey Finance Limited, the Industry s umbrella representative body. Various tri-lateral discussions, involving all these parties, have been a feature of the landscape during the past year. These mechanisms certainly serve their purpose of facilitating regular constructive dialogue and will be further developed in due course.

During the year, work was undertaken to address some of the key findings which emerged from the 2009 Industry Survey undertaken by the Commission and a further feedback letter on the subject was issued to Industry during early 2011. It is the Commission s intention to undertake a follow up Survey in due course, probably towards the end of the current year.

Overall, the past 12 months have been extremely busy although perhaps lacking a core central theme such as we had in 2008 and 2009 with the all important IMF evaluation. Nonetheless, the sheer range of work and challenges in terms of both maintaining and developing the regulatory, supervisory and enforcement activities of the Commission, together with those of the Companies Registry, has placed significant demands during 2010, and much has been accomplished both in terms of completed initiatives and also in laying important foundations for the future.

Priorities for 2011

The Commission expects another very full year of events and developments in 2011. Internationally,

there will be a need to monitor developments in the area of international standards and regulatory requirements, with a particular emphasis on the EU implementing measures for the AIFM Directive and the conclusion of the IOSCO work on the development of its Principles and related methodology. Important areas of work will also be seen in the Single European Payments Area (SEPA) initiative and the conclusion of a project seeking equivalence recognition from the EU in respect of the oversight arrangements for Jersey auditors who act for companies admitted for trading on EU exchanges.

It should also be expected that a good deal of further effort will be expended in managing the relationship with the successor organisations to the FSA as well as continuing representation in a variety of international bodies and in bi-lateral endeavours such as, for example, colleges of Banking Supervisors.

In Supervisory work, a key area to be explored in 2011 will involve the Commission s intended review of its supervisory model to ensure that the relative distribution of effort between on-site and off-site activity is optimum. It will also seek to ensure, as far as possible, that Codes of Practice across the different sectors are streamlined and made as uniform as possible, which will be a significant benefit to multiple licence holders in Jersey. The second predominant theme in 2011 will be the continuing work to define the Island s desired approach to business emanating from higher risk jurisdictions . This will need to embrace take on procedures, ongoing due diligence and wider general best practice in dealing with the challenges thrown up by such business for licence holders. The Commission does not pretend that  it has a monopoly of wisdom in this area and is keen to engage in enhanced dialogue with all practitioners and stake-holders to ensure that the right balance is found between the Island being open for new business from various different geographical sources whilst at the same time being aware of and capable of managing the differential risks that may arise.

On the policy front the Commission will continue its work on developing the AML/ CFT regime, both in terms of addressing the remaining recommendations from the 2009 IMF evaluation as well as, where appropriate, tailoring the regime to emerging realities such as the

 higher risk jurisdictions agenda. A significant policy area for further development in 2011 will be that of civil penalties where dialogue continues about the Commission having the ability to add to its range of regulatory sanctions the possibility of levying a civil penalty in respect of a regulatory infraction. Important discussions in this respect are underway with the Island s Attorney General to determine the scope of such a civil penalties regime and its appropriate calibration.

In addition to managing the civil penalties agenda,

it is expected that Enforcement will continue to develop its international links with other supervisors, intelligence and law enforcement communities. Domestically, Enforcement will seek both a high level of case conclusion, by way of settlement agreements,

as well as the further development and streamlining of the Commission s Decision-Making Process for those cases which are not appropriate to be dealt

with in settlement form. Enhancing the Commission s capabilities in terms of the receipt, analysis and dissemination of intelligence both to inform its supervisory effort and to assist cross border co-operation, where necessary, will also be pursued.

For the Companies Registry, 2011 can be expected

to be another busy year consolidating recent progress, particularly in respect of greater automation but also with the expected development of further new registers from recent legislation in the Island such as the creation of a new Securities Interest Law and also supporting new structures such as Special Limited Partnerships (SLPs) and Incorporated Limited Partnerships (ILPs), all of which require registry capability for their full and effective implementation.

On the HR front, again we will be looking to build on the progress of recent years and develop a theme for the year of looking outwards towards the forging of greater links in the HR field with fellow supervisors world wide and the possibility of secondment programmes both outward and inward which provide great opportunities not only  for personal development and enrichment, but also the development of further good relations with our peers internationally. On the ICT front, 2011 will see a significant overall upgrading of the Commission s core ICT infrastructure, a project that is likely to dominate for the division over the next 12 months. Notwithstanding, there are some exciting and challenging projects operationally in both the Registry and Supervision areas which ICT will be expected to support, including an effort to streamline and improve the receipt and processing of personal questionnaires for senior and key employees of registered persons which require the Commission s review and agreement.

Finally, in terms of external activity, 2011 will

see a further Industry Survey commissioned and the further development of the consumer education initiative via the Commission s own dedicated website in this respect called Protect your Money which was launched in March.

I should like to conclude this year s Annual Report statement by thanking the Board of Commissioners for their unfailing wisdom and energy in support of the Executive s efforts during the past challenging 12 months, and by paying tribute to the Commission s Executive Directors and staff for their own extensive efforts in discharging the range of commitments and obligations of the Commission.

As in previous years, I should like to underline that the Commission believes it makes a significant contribution to Jersey s international profile and overall standing in financial and commercial matters and I am privileged, as Director General, to be supported in this endeavour by energetic, hard working and committed staff who help me address our multiple challenges with a good deal of success.

ANNUAL REPORT 2010 | 17

STRUCTURE CHART

Andrew Le Brun Director International

& Policy

Nick Troy Deputy Director AML Unit

Barry Faudemer Director Enforcement

Jamie Biddle Gail Chadwick Deputy Director   Deputy Director Enforcement Internal Audit

Mark Sumner

David Banks Director Banking

Director Securities and Insurance

Darren Boschat Deputy Director

Securities

David Hart Deputy Director Insurance

Roy Geddes Michael Jones Deputy Director   Deputy Director Securities Securities

Page 18 |  ANNUAL REPORT 2010

STRUCTURE CHART

John Harris Director General

Annette Cullen Shaun Roberts ChNieifgFeilnWanocoiadlroOffffiecer Director Human  Director I.C.T.

Resources

and Facilities

Management

Chris Renault Commission Secretary

Debbie Sebire Director Trust Company Business

Chris Cooke Eric Dolan Deputy Director   Deputy Director

TCB Supervisory Operations

Julian Lamb Director Registry

Sarah Kittleson Deputy Director Registry and Non-Supervisory Operations

ANNUAL REPORT 2010 | 19 Page

The Commission continued to take an active role in developing and administering the regulatory framework to counter money laundering and terrorist financing and promoting the understanding of sanctions legislation  within the Island.

INTERNATIONAL STANDARDS AND

POLICY DEVELOPMENT

One of the Commission s aims is to match international standards in respect

of banking, securities, trust company business and insurance regulation,

and anti-money laundering and terrorist financing defences . Within the Commission, the International and Policy Division, the Supervisory Divisions and the Registry all develop policies to ensure that this aim can be met.

Review of 2010

The International & Policy ( I&P ) Division has continued to promote, and assist other Divisions with, the development of the regulatory and supervisory framework in which the Commission functions. It has also continued to consider the scope of the Commission s current regulatory activities in light of developments in the UK and elsewhere in the European Union (the  EU ).

Scope of regulatory framework

In May 2010, I&P issued a consultation paper on options for regulating and supervising providers of payment services, with the aim of meeting criteria that have been set for non-European Economic Area ( EEA ) jurisdictions

- such as Jersey - to join the Single Euro Payments Area (the  SEPA ). As a result, I&P has requested law drafting time in 2011 to implement legislation in Jersey that is based on Titles III and IV of the Payment Services Directive the scope of which would be limited

to the regulation of SEPA payment instruments.

In July 2010, the Commission published a Feedback Paper which summarised the responses received to its November 2009 Consultation Paper on options for the future regulation of electronic money ( e-money ). The responses supported the Commission s view that the Island should introduce a regulatory framework for e-money issuers based on the recently updated EU model. Law drafting time to achieve this has been requested.

Legislation

Work resumed in the year on proposals to introduce a consistent approach under all the Regulatory Laws1 for the Commission s involvement in the appointment of an auditor by a regulated business. I&P expects to consult on draft legislation in 2011. In addition, I&P has coordinated the preparation and delivery of law drafting instructions to generally maintain the Regulatory Laws and also the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 (the  Supervisory Bodies Law ), and expects to consult on draft legislation in 2011. General liaison with the Law Draftsman s Office has continued, including co-ordination of the delivery of specific law drafting bids.

I&P supported the Enforcement Division as it sought to amend existing legislation to provide for the Commission to be able to recover some or all of its costs and disbursements incurred due to enforcement action and investigations undertaken. Whilst the necessary legislation was drafted, further work was put on hold pending separate discussions on whether the Commission should have a power to impose civil penalties, where a regulated business had failed to comply with a principle or rule that was set in the Codes of Practice (the  Codes ) that have been issued by the Commission2.

During 2010, I&P continued to develop, and contribute to the development of, legislation that sets out how companies and other legal persons are to be constituted, administered and audited.

• The Companies (Amendment No. 4) (Jersey) Regulations 2009 (the  Companies Regulations ) came into force on 5 April 2010. The Companies Regulations amended Part 16 of the Companies (Jersey) Law 1991 (the  Companies Law ) and introduced a mechanism for registering and overseeing the work of auditors of market traded companies. The Companies Law refers to such auditors as Recognized Auditors and, to date, 19 firms have been registered with a further 4 currently at the application stage. Between them, the firms audit approximately 110 market traded companies.

• I&P contributed to discussions that have led to the delivery of law drafting instructions to amend the Limited Liability Partnerships (Jersey) Law 1997. I&P s interest has been to understand who it is proposed may act as secretary to a limited liability partnership and what accounting records are to be held in, or accessible from, Jersey by the secretary.

• I&P completed a detailed assessment of the Separate Limited Partnerships (Jersey) Law 201- and the Incorporated Limited Partnerships (Jersey) Law 201 . A number of consequential amendments will be required to the Regulatory Laws and it has been agreed that the Commission should instruct the Law Draftsman s Office in due course.

1 The Regulatory Laws are:  2 With respect to the imposition of civil penalties Codes is

- the Banking Business (Jersey) Law 1991; to be read as including the AML/CFT Handbooks.

- the Collective Investment Funds (Jersey) Law 1988;

- the Financial Services (Jersey) Law 1998; and

- the Insurance Business (Jersey) Law 1996.  ANNUAL REPORT 2010 | 21

POLICY DEVELOPMENT

A significant amount of Division time has been spent co-ordinating changes that are proposed to the Codes. The changes that are proposed may be grouped into

one of two categories: those that are proposed to bring the wording of the current seven Codes closer together, and those that are specific to a particular set of Codes.

It is also proposed to amend the introduction to the Codes to clarify the legal basis upon which they are set, and how they apply to overseas branches of Jersey incorporated companies, and companies incorporated overseas that carry on business in Jersey. Linked to this work, consideration has been given to how the Commission s statutory Codes-making power may be amended to better reflect the binding nature of principles and rules set in Codes. Work will continue in this respect in 2011.

Policy statements and guidance notes

I&P co-ordinated changes to the documentation associated with principal and key persons, and a revised package of documents was published in May 2010, which included:

• a new guidance note;

• a revision to the questionnaire that the Commission requires all principal and key persons to submit before appointment; and

• new forms to be used where an existing principal or key person wishes to take on additional appointments or ceases to hold one or more appointments.

Work has also started on revising the Commission s sensitive activities policy for applications that are made under the Control of Borrowing (Jersey) Order 1958 ( COBO ).

Assistance has also been provided to the Enforcement Division on redrafting the guidance note on the decision-making process. In particular, work started on updating the guidance note to set out the process that

is to be followed where it is possible to agree with the subject of a decision: (i) that there has been wrongdoing; and (ii) on the sanction that is to be applied, including the circumstances when delegated powers may be

used to conclude the agreement and when it must be referred to the Board. The revised guidance note will be published in 2011.

Anti-money laundering and countering the financing of terrorism ( AML/CFT )

I&P continued to take an active role in developing and administering the regulatory framework to counter money laundering and terrorist financing and promoting the understanding of sanctions legislation within the Island. This work has included:

• Supporting the Anti-Money Laundering Unit

( AML Unit ) with its consultation on fees to be paid by persons carrying on business activities that are listed in Schedule 2 of the Proceeds of Crime (Jersey) Law 1999 (the  Proceeds of Crime Law ). Unfortunately, the Commission has been unable to agree with those persons an appropriate fee to be paid, and the Bailiff has appointed three Jurats to set a fee that is to be paid under the provisions set out in Article 21(7) of the Supervisory Bodies Law.

• Following consultation with the Commission s AML/ CFT Steering Group, the AML/CFT Handbook has been revised to take account of a group of countries that have been identified by the Financial Action Task Force (the  FATF ) as having strategic AML deficiencies, but which are taking positive action to deal with those deficiencies. The result of this is that Appendix D of the Handbook refers now to three separate groups of countries and territories.

• Preparing a bid for law drafting time to update and/or amalgamate the Proceeds of Crime Law, the Drug Trafficking Offences (Jersey) Law 1988 (the  Drug Trafficking Law ) and the Terrorism (Jersey) Law 2002 (the  Terrorism Law ) to meet developing international standards and resolve practical difficulties experienced by the prosecuting authorities. This work is being undertaken by I&P on behalf of the Chief Minister s Department, with input from the Law Officers Department and the Joint Financial Crimes Unit.

• Work was undertaken to produce Industry guidance on sanctions during the latter part of 2010, which was published on the Commission s website during January 2011.

I&P devoted a substantial amount of time to assisting the Island s authorities with the development of two separate pieces of legislation which will allow the Chief Minister to:

• apply countermeasures to a person who is suspected of money laundering, terrorist financing or assisting with the proliferation of weapons; and

• freeze the property of persons who are suspected of being connected to terrorism.

INTERNATIONAL STANDARDS AND

POLICY DEVELOPMENT

International focus

I&P continued to support the Commission by representing it at meetings of international standard setters.

In particular, I&P actively participated in the work of:

• the Implementation Task Force of the International Organisation of Securities Commissions ( IOSCO ) and, in particular, the group considering the methodology for assessing compliance with IOSCO Principles 1 to 11 - Regulator and Self-Regulation (including systemic risk and conflicts of interest); and

• the Offshore Group of Banking Supervisors by providing representation at a number of meetings of FATF Expert Group A, which, inter alia, is considering revisions to Recommendations 5 (customer due diligence), 9 (reliance on third parties),

33 (transparency of legal persons) and 34 (transparency of legal arrangements).

I&P has also met with the European Commission to discuss auditor oversight provisions in place in the Crown Dependencies (the  CDs ) and arrangements for

assessing the equivalence of those provisions under the EU s Statutory Audit Directive. It seems unlikely that such an assessment will be undertaken before 2012 and,

in the meantime, Jersey will continue to be covered by transitional arrangements.

I&P s responsibilities also extend to co-ordinating and assisting assessments of Jersey s compliance with international standards in a number of areas.

• Following publication of the final assessment reports of the International Monetary Fund (the  IMF ) in 2009, publishing four action plans in February 2010. The action plan to further enhance Jersey s framework for countering money laundering and terrorist financing was updated in November 2010.

• Participating in a peer review by the OECD Global Forum of implementation in Jersey of international standards for transparency and exchange of information for tax purposes. In particular, the review focused on the information on beneficial ownership that is held in Jersey (and by whom) and accounting records that are held in, or can be accessed from, Jersey (and by whom). The Global Forum s report has yet to be published.

I&P also has responsibility for co-ordinating and assisting with the agreement of memoranda of understanding between the Commission and overseas regulators.

As a result, work continues on an agreement with the French AutoritØ de Contr le Prudentiel, whilst a memorandum with the South African Reserve Bank was signed in April 2010.

Domestic focus

I&P took an active role in a number of developments in the domestic environment in which the Commission functions.

• Submitting comments to the Privileges and

Procedures Committee (the  PPC ) on a revised draft of the Freedom of Information (Jersey) Law 201- (the  draft FOI Law ). The principal concern with the draft FOI Law was that, in the Commission s view, the proposed exemptions were not wide enough and might require the Commission to supply information that it considered to be prejudicial to the exercise of its statutory functions. Following written and oral representations to the PPC, the Committee agreed to lodge an amendment to the draft law to widen the type of information held by the Commission that would be exempt from disclosure (subject to a

 public interest test against disclosure being met).

• Raising a number of concerns surrounding the proposed introduction of the Jersey Vetting Bureau with respect to persons employed in the finance sector. Most of these concerns have still to be addressed.

• Finally, negotiations have been concluded on the content of a memorandum of understanding with the Jersey Bank Depositors Compensation Board.

POLICY DEVELOPMENT

KEY TASKS FOR 2011:

• Prepare and deliver instructions to the Law  •  Consult on proposals to introduce a consistent Draftsman s Office to replicate in Jersey legislation  regime that will allow it to object to the

Titles III and IV of the EU s Payment Services  appointment (and continued appointment) of Directive. However, the scope of legislation will  auditors of persons that are supervised under  be limited (at least to start with) to the regulation  the Regulatory Laws, if it is not satisfied that  of SEPA payment instruments.  the auditor has the requisite qualifications, skill,

resources or experience for a particular audit,  

• Develop proposals for the Commission to have  or if it would not be in the best interests of  statutory powers to impose civil penalties in  clients/customers of a registered person. relation to breaches of the Codes that are  

issued by the Commission. •  Contribute to the development of legislation that sets out how companies and other legal persons

• Promote an amendment to Codes-making   are to be constituted, administered and audited. powers in the Regulatory Laws and the

Supervisory Bodies Law to better reflect the  •  Publish a funds sector specific section for the

 binding nature of principles and rules that   AML/CFT Handbook.

are currently set in the Codes.

• Continue to monitor the development of the  

• Co-ordinate publication of revised Codes following  draft FOI Law.

consultation on each set.

SUPERVISORY APPROACH

The Supervisory Divisions are responsible for two of the Commission s five aims. These are to ensure all entities that are authorised meet fit and proper criteria

and to ensure that all regulated entities are operating within accepted standards of good regulatory practice.

Authorisations

Work continued with authorising new funds and fund services businesses ( FSB ), in addition to approving changes to existing fund arrangements. Liaison was maintained with the Funds Authorisation User Group. Compared to 2009, there were six times as many unclassified funds, a 20% increase in Expert Funds,

a 75% increase in Very Private COBO structures,  and a 60 % increase in FSB applications / amendments. However, new Sub-funds were  down by 50% on last years figures with sub-fund revocations being 140% higher.

The number of licensed investment businesses has remained broadly stable for the year. A reduction  

in the number of banks and some consolidation

in the IFA sector had resulted in some revocations,  but these have been balanced by some more specialist investment business offerings setting up in the Island.

2010 was a busy year for the Insurance Division, with 24 applications approved and 23 licences surrendered, which resulted in the overall total of regulated persons increasing by just one.

2010 was unusually quiet in respect of bank registration applications, with just two received.  Whilst both were ultimately authorised, neither case  has yet progressed to a new registration.

There were 38 new trust company business applications successfully determined during 2010, comprising two affiliation leaders, five individuals  who were registered to provide directorship services  and 31 participating member companies. The two affiliation leaders represented new start up businesses to the Island with the participating member applications representing additions to existing businesses.  

The Commission introduced a new de minimis exemption whereby an individual can now undertake  up to six directorships (that would otherwise not be exempt), before the need to register is triggered.  

Five individuals providing directorship services were successfully granted registration. This population of registered persons has continued to see steady growth in the Island, where the specialism of providing, typically, non-executive oversight to the boards of both private and fund type arrangements is in high demand.

During 2010, the Anti-Money Laundering Unit  (the  AML Unit ) registered 48 persons who were carrying on a business specified in Schedule 2 of the Proceeds of Crime (Jersey) Law 1999, where that person was not carrying on a business already regulated by the Commission under one or more of  the Regulatory Laws 1.

Examinations

The Commission has continued its focus on  

risk-based supervision through on-site examinations  and following up any necessary action arising out  

of those examinations. The themes arising from the examinations have also been fed back to Industry  

in various ways - through seminars, presentations,  dialogue with Industry associations, letters to chief executive officers ( Dear CEO letters ), the Quarterly eNewsletter and the Website. The Commission completed 248 examinations during 2010 against a target of 251. There were 249 examinations during 2009.

Total Examinations 2010

Examination activity was a significant feature of  2010. The main issues that have arisen from the on-site examination programme during 2010 are summarised below by each Industry sector.

1 The Regulatory Laws are:

- the Banking Business (Jersey) Law 1991;

- the Collective Investment Funds (Jersey) Law 1988;

- the Financial Services (Jersey) Law 1998; and

- the Insurance Business (Jersey) Law 1996.

SUPERVISORY APPROACH

Banking

All supervisory activities were completed as planned, including overseas examinations in Guernsey and

the Middle-East. Themed on-site examination efforts focused on completing programmes previously started in the risk areas surrounding anti-money laundering

and countering the financing of terrorism ( AML/CFT ), and credit provisioning. Additionally, an examination programme was run looking at conduct (largely advertising and the handling of customer complaints). In each case, summary findings have been published

on the Commission s website for Industry guidance.

Overall, the Commission found that the banking sector was in large part operating in accordance

with its obligations under the respective Laws, Orders, and Codes of Practice (including the AML/CFT Handbook). However, it also identified some areas for improvement which have been addressed by way of the published findings and with the individual banks.

In terms of the AML/CFT programme, key findings concerned the overall business risk assessment conducted by the bank and the potential risks of dealing with higher risk jurisdictions. The credit provisioning examinations identified areas for improvement in management information and oversight. The conduct of business programme highlighted the importance of tailoring procedures to local regulatory requirements and ensuring that the bank reflected upon the lessons learnt from complaints, and then identified areas

for improvement.

Insurance

The planned number of on-site examinations was duly completed, including examinations in the Middle-East and the United Kingdom. Themed on-site examination efforts focused on the sale of payment protection insurance by credit providers and the provision of travel insurance by travel agents. Summarised findings have been published on the Commission s Website for Industry guidance.

Key findings arising from the 2010 on-site examination programme included inadequate systems and controls for insurance money remitted to insurance counterparties outside Jersey, the late reconciliation of insurance broking accounts and insurance cover having been arranged with insurers that did not have an insurance business permit under the Insurance Business (Jersey) Law 1996. Other findings included the poor maintenance of customer files and inadequate compliance monitoring and reporting to the board.

Investment Business

The Investment Business Team (the  IB Team ) was bolstered by the recruitment of two additional staff during 2010. The IB Team has used this resource to undertake a significantly higher number of on-site examinations and to continue work on the investor education initiative which was launched in Q1 of 2011.

The key themes that emerged from the 2010 on-site examination programme were recommendations to switch from one product to an alternative product

not being sufficiently comprehensive or balanced, inadequate or insufficiently independent compliance arrangements, inadequate disclosure of commissions, fees and underlying charges, and AML/CFT risk ratings not being completed for some clients.

A number of investigations have been referred to the Enforcement Division, and the IB Team has dealt with an increase in investment employee suspensions or dismissals for gross misconduct.

A mystery shopping exercise[2] on the suitability of the advice and sales processes provided to customers by regulated investment businesses was completed at the end of 2010 and the results published on the Commission s Website. Based on the information collected from the mystery shopping interviews,

a potential area for improvement was in the advice and sales processes to aid customer understanding. The exercise also identified where the failure of such processes might result in inadequate or inappropriate advice for the customer.

Funds

The Funds Supervision Unit undertook 32 on-site examinations during 2010, three of which were themed examinations looking at all aspects concerning the valuation of fund assets. Common themes included a lack of appropriate due diligence on promoters and other parties in relation to new funds, a failure to demonstrate proper oversight by the board, a failure to separate governance and accounting appropriately between legal entities, and a failure to comply with all the requirements of the Island s AML/CFT regime.

The Funds Team continued to manage a number of forensic investigations in conjunction with the Enforcement Division.

Operationally, in Q4 2010 the Commission launched the facility to file funds statistics on-line in order to make the process of statistics reporting by Industry quicker and more straightforward.

Trust Company Business

A total of 39 on-site examinations were conducted during 2010, compared with 56 in 2009,

comprising 1 focused, 8 discovery and 30 themed, with the key theme of AML/CFT threading through the majority of examinations. Examination numbers were lower in 2010 due to the Examination Team not being at its full compliment for the year, which was coupled with the fact that there were a number of key issues identified with certain firms during 2010 that required close monitoring and hence resource allocation. Additionally, two trust company businesses were closed during the year in circumstances where management within those firms needed to work very closely with the Commission to achieve a satisfactory cessation of business, again having a resource implication.

The results of the on-site examinations have again been mixed, ranging from businesses demonstrating excellent working practices to the Commission finding material breaches of the regulatory regime. One of the main findings related to the take on of new business,

with examples identified of firms not following their own procedures designed to identify undesirable business. There were also instances where the procedures themselves had not kept pace with the growing need to undertake greater degrees of due diligence both initially and on an ongoing basis in respect of higher risk business.

AML Unit

The AML Unit conducted 108 on-site examinations, against its target of 100 for 2010. Business risk assessments, sanctions and suspicious activity reporting issues continued to dominate the examination findings.

Regulatory Developments

2010 saw a period of consolidation following the changes made to the Island s regulatory framework during 2008 and 2009. Against a backdrop of the international regulatory response to the recent financial crises, the Commission monitored and, where possible, participated in those discussions. The 2011 Business Plan anticipates a number of consultations with Industry, some of which reflect international developments.

Banking

Changes in key personnel have been made without disruption to effort or performance, although the Division has been fortunate in the strength of available candidates, which eased the challenge considerably.

The Division has needed to apply significantly heightened supervisory oversight of the banking sector over the last two to three years, given the stressed circumstances seen globally across the financial sector during that period. Banking groups worldwide have contracted and restructured, this on occasion leading to bank departures from the Island.

Most essential project work will have been completed or is well under way, although international developments in areas such as regulatory capital requirements and liquidity management have been quite drawn out.

The Division continues to monitor both these and related implementation plans in the home jurisdictions of registered banks.

Early adoption by the UK s Financial Services Authority ( FSA ) of revised liquidity standards has created a significant challenge to the offshore banking model, which often involves upstreaming funds to group entities, many of which are UK based. The Commission engaged with Industry on this at an early stage and is also in dialogue with relevant jurisdictions.

A good level of progress has been achieved in addressing the recommendations contained in the 2009 International Monetary Fund ( IMF ) Report, which formed the bulk of the Division s project work. This has spanned revisions to large exposure requirements, financial and other disclosures by banks, a general update of the Codes of Practice for Deposit-taking Business (the  Deposit-taking Codes ), including the incorporation of the Basel Committee s recommendations in respect of the compliance function, an Accounts Order, and the publishing

of much broader Industry wide data.

The Commission has also been active in supporting the Government s initiative of introducing a depositor compensation scheme, which will require the ongoing provision of relevant Industry data to the newly formed Jersey Bank Depositors Compensation Board.

2010 saw a period of consolidation following the changes made to the Island s regulatory framework during 2008 and 2009. Against a backdrop of the international regulatory response to the recent financial crises, the Commission monitored and, where possible, participated in those discussions.

Securities

The Funds and Investment Business Teams have continued to review and update the regulatory environment in their sectors.

Funds Team

Changes to the Outsourcing Policy have been

agreed with Industry in respect of funds and have

been presented to the Board of Commissioners for approval. Work continues on the revised Certified Funds Prospectuses Order and the Codes for Funds although completion has been delayed pending finalisation of the AIFM Directive and the changes to the IOSCO principles referred to below.

Close liaison is being maintained with Jersey Finance and the Jersey Funds Association on a number of initiatives, including the EU Directive on Alternative Investment Fund Managers (the  AIFM Directive ). Consideration has been given to proposed changes to the recognized fund rules as well as the creation of new categories of recognized fund.

There has been active participation in the proposed changes to IOSCO s core principles of securities regulation and related methodology. The Commission is represented on the Implementation Task Force considering the changes and has attended a number

of key meetings.

The Division conducted an all day seminar for the funds sector.

Investment Business Team

The IB Team has been closely monitoring emerging proposals under the FSA s Retail Distribution Review (the  RDR ) and has continued working with

local trade associations on this topic. It is intended to participate in a local seminar in 2011 prior to issuing a position paper setting out the Commission s response to the proposals.

Trust Company Business

The introduction of the de minimis regime for directors was accompanied by an update of the Guidance Note

 Natural Persons Undertaking the Activity of Acting as a Director Under the Financial Services (Jersey) Law 1998 .

2010 also saw the updating of the Licensing Policy in respect of those activities that require registration under the Financial Services (Jersey) Law 1998. The Policy was updated to take account of the additional risks posed to the Island in respect of businesses owned by, associated with or undertaking work within higher risk jurisdictions.

Insurance

A new Guidance Note for licence applications under the Insurance Business (Jersey) Law 1996 was published on the Commission s website following the re-issue of the Insurance Licensing Policy in 2009.

Good progress has been made in addressing recommendations contained in the 2009 IMF Report. This work focused on applying the Commission s risk assessment model to the Jersey branch operations of Category A permit holders. The Division also developed an internal methodology for assessing whether regulation by home state regulators of Category

A insurers is equivalent to that of Jersey.

AML Unit

2010 was the third year that the AML Unit had conducted supervision of Designated Non Financial Businesses and Professions ( DNFBPs ). In September 2010, as part of its ongoing review process, the AML Unit published a report entitled Summary Findings - Themed On-Site Examination Programme 2008-2010 on the Commission website. The report summarised the supervision activities of the AML Unit to date and sought to provide assurance through the examination programme that entities were operating in compliance with the specified regulatory requirements and laws.

SUPERVISORY APPROACH

International Communication

The Commission continued its active involvement in international regulatory fora.

Improving and extending regulatory contacts has been a key aim during the international financial crisis, both for the Banking Division and banking regulators around the world. An increased number of regulatory colleges are being held in home jurisdictions, which the Division has attended where appropriate. Collaborative work with the other Crown Dependencies has also continued on a regular basis, with significant mutual benefit.

The Banking Division has continued to support the activities of the Offshore Group of Banking Supervisors and its contributions to international regulatory fora.

Memoranda of Understanding were signed with the Bank Supervision Department of the South African Reserve Bank; the UK s Professional Oversight Board; the Institute of Chartered Accountants in England and Wales; the States of Guernsey Commerce and Employment Department; and the Isle of Man Financial Supervision Commission.

The Insurance Division continued to support the efforts of the International Association of Insurance Supervisors ( IAIS ) and the Offshore Group of Insurance Supervisors ( OGIS ) to promote and develop international regulatory standards.

The Commission became an approved signatory to the IAIS Multilateral Memorandum of Understanding on Co-operation and Information Exchange ( MMoU ).

To achieve this, Jersey had to demonstrate to the IAIS that it has the necessary legislation, powers and practices for the Commission to effectively co-operate on information exchange with other regulatory jurisdictions worldwide and to ensure that information exchanged is properly controlled.

The Insurance Division hosted and led the annual OGIS training seminar for insurance regulators. Delegates from a wide range of international insurance regulatory authorities visited Jersey to attend the event that was based on the theme of practical supervision and was based upon the Insurance Core Principles of the IAIS.

The Securities Division maintained its international obligations by attending IOSCO meetings in Madrid, Washington and Rio de Janeiro, and dealing with inter-regulator enquiries. The Commission also hosted a meeting of securities regulators from across the world.

KEY TASKS FOR 2011:

• Consult on the results of the Commission-wide  •  The monitoring of developments in respect of  project conducted last year, with regard to the  the EU s Solvency II insurance regime and IAIS proposed amendments to the Codes of Practice to  risk-based solvency requirements. ensure greater alignment across all of the sectors.

• The monitoring of the proposed revisions to the

• The on-site examination programme will continue  EU s Insurance Mediation Business Directive to across all the Supervision Divisions to ensure the  assess any consequent need to change Jersey s effectiveness of the implementation of the legal  regulatory requirements for general insurance and regulatory frameworks, including the revised  mediation business. AML/CFT Handbook.

• Participating further in the review of IOSCO s

• A revision of the Bank Licensing Policy to better  core principles of securities regulation with a  reflect the criteria that may be applied by the  view to undertaking an assisted self-assessment  Commission and additional criteria in respect   in Q1 2012. of applicants from higher risk jurisdictions.

• Monitoring progress of the AIFM Directive and

• Completion of the drafting of an Accounts Order  responding accordingly. The Commission is likely for Banking Business. to continue spending a significant amount of time working with Industry on the Directive.

• Completion of drafting amendments to  

the General Provisions (Banking Business)  •  Publication of the revised Policy Statement and (Jersey) Order 2002 and related changes to  Guidance on Outsourcing (the  Outsourcing

the Deposit-taking Codes in respect of   Policy ), to include a section on delegation  required disclosures. by Jersey certified funds and fund services

businesses. A full review of the Outsourcing  

• An initial updating review of the Banking Business

Policy across all of the sectors will be  

(Jersey) Law 1991.

undertaken in 2011.

• Completion of amendments to requirements  

• Codes of Practice for Funds will be introduced,

in respect of large exposures, to include the

together with an amalgamated Prospectus Order withdrawal of the current blanket exemption  

giving equal treatment to funds constituted as for exposures to banks under twelve months,  

open-ended or closed-ended companies,  

and full incorporation of these within the  

limited partnerships and unit trusts. Deposit-taking Codes.

• Competency requirements will be reviewed within

• Increasing the level of data published on the

the investment business sector and, in March banking sector s financial performance.

2011, the Commission launched a new website

• Review all the TCB Exemption Orders and ensure  for consumer education, particularly in relation to that they remain fit for purpose, amend as  improvements required in the interface between necessary and consider combining all Exemption  investors and financial advisers, under the title Orders into one Order, with any resultant actions  Protect Your Money . being consulted upon with Industry.

• Guidance will be offered on the use of pension

• A revision of the Insurance Business Licensing  products. Whilst pensions are not subject to direct Policy in respect of applicants from higher   product regulation in Jersey, suitable advice must risk jurisdictions. be provided by regulated financial advisors in

• The issuance of a guidance note on insurance  relation to such products as an investment. business transfer schemes under Schedule 2  •  Consideration of changes to the Recognized  to the Insurance Business (Jersey) Law 1996. Funds Rules, revising the Guide to open-ended

• The completion of an updating review of the  unclassified collective investment funds offered to Codes of Practice for General Insurance   the general public (the OCIF Guide), and Mediation Business. producing a similar document for closed-ended funds. Consultation is planned on a Client Assets

• Completion of a self assessment against the  Order for fund services business and work will  proposed revised Insurance Core Principles of the  be undertaken with the International and Policy IAIS in order to identify any revisions required to  Division on a funds sector specific section of the the Island s related regulatory requirements needed  AML/CFT Handbook.

to continue to meet international standards.

ENFORCEMENT

The Enforcement Division is responsible for work relating to the aim of the Commission to identify and deter abuses and breaches of regulatory standards .

Deterring, detecting, and preventing regulatory breaches and striving to protect investors

The Commission s use of its enforcement powers not only serves the purpose of punishing wrongdoing and preventing future repetition, but also aims to act as a significant deterrent effect on certain sections of the regulated community where standards may not have reached the levels to which the Island aspires. It is however recognised that, in most cases, compliance

is achieved through the use of enhanced supervision. Although cases may have commenced as an enforcement investigation, the successful conclusion may result in the matter being addressed voluntarily by the regulated business through the use of enhanced supervision rather than an enforcement sanction.

The Enforcement Division investigated 80 cases in 2010 representing a slight increase on the figure of 78 undertaken in 2009 and an increase on the five year average of 68 cases per annum. Cases included processing 19 requests for assistance from overseas regulatory authorities with an average turn around time of 21 days, which compared favourably with a five year average of 14 cases per annum and an average turn around time of 29 days. The requests for assistance were predominantly focused on cases of market manipulation and insider dealing where the proceeds

of the conduct had been transferred to Jersey.

14 public statements were issued during the year compared to a five year average of 18 per annum. The aim of issuing a public statement is primarily to warn members of the public, but also to inform and educate the finance industry.

Following detailed investigations, four individuals were considered a risk to the finance industry and were issued with directions preventing them from obtaining employment in the finance industry without securing prior consent of the Commission.

Where the Commission issues a public statement to warn of a scam using a Jersey address and purporting to be a regulated business, Enforcement often receives contact from members of the public from around the world who have fallen victim to the scam. In such circumstances Enforcement will offer advice to the victims, advise regulators in the jurisdiction receiving the payment and encourage reporting to the victim s local Police Service. In many cases the release of such public statements helps to inform the public before they make an investment, and during the year several

members of the public contacted Enforcement to report that the public statement helped them to conclude that they should not invest in what appeared to be a scam.

In 2010, Enforcement issued 73 notices requiring the production of information to the Commission, together with 25 notices requiring the attendance at the Commission of senior members of regulated businesses to answer questions relating to suspected regulatory breaches.

Following the introduction of a whistleblowing line  in April 2010, the Commission received 11 calls reporting a wide range of issues and regulatory concerns, which were all followed up.

Enforcement developed the use of settlement agreements in 2010, which resulted in eight cases being concluded by way of a settlement agreement enabling the early completion of cases and better use

of Enforcement resources. The Division aims to publish guidance on the use of settlement agreements in 2011.

During 2009, Enforcement carried forward 41 cases into 2010 compared to only 19 cases from 2010 into 2011. The reduction in the carry forward of cases is attributable to the more efficient completion of cases through the introduction of a computerised case management system, effective use of settlement agreements and more focused investigations.

KEY TASKS FOR 2011:

• Enforcement, in conjunction with International & Policy and the Law Officers Department, will be researching civil penalty regimes in other jurisdictions and bringing forward proposals for the introduction of civil penalties for breaches of the Commission s Codes of Practice.

• Provide a briefing seminar (or, subject to demand, seminars) on the generic Industry failings observed by the Division and  provide the Industry with general advice  on best practice.

• Enforcement operates a financial intelligence function within the Commission and during the year will seek to strengthen the intelligence function as part of the move towards becoming more of an intelligence led regulator.

Following detailed investigations, four individuals  were considered a risk to the finance industry and were issued with directions preventing them from obtaining employment in the finance industry without securing  prior consent of the Commission.

ENFORCEMENT

Enforcement case statistics

Percentage breakdown of Enforcement Division activity during the year ended 2010

Financial Services (J) Law - Investment Business - Non Reg 14.9%

Financial Services (J) Law - Investment Business - Reg 7.4%

Financial Services (J) Law - Trust Company Business - Non Regulated 11.6% Financial Services (J) Law - Trust Company Business - Regulated 8.3% Financial Services (J) Law - Money Service Business - Non Reg 1.7% Financial Services (J) Law - Fund Services Business - Non Reg 2.5% Financial Services (J) Law - Fund Services Business - Reg 7.4%

Financial Services (J) Law - Insider Dealing 7.4%

Financial Services (J) Law - Market Manipulation 2.5%

Financial Services (J) Law - Misleading Statements and Practices 5.0% Banking Business (J) Law - Non Reg 3.3%

Companies (Jersey) Law 1.7%

Proceeds of Crime (Jersey) Law 19.0%

Insurance Business (J) Law - Reg 1.7%

Collective Investment Funds (J) Law 3.3%

Investigation of Fraud Law 0.8%

No Specific 1.7%

Total Enforcement Cases during the period from 1 January to 31 December 2010

REGISTRY

The Commission operates Jersey s Companies Registry (the  Registry ).

Under the Registry banner are registers for companies, limited liability partnerships, limited partnerships, business names and foundations. The Registry s primary function on an ongoing basis is to maintain these registers and to provide an efficient and effective service. The Registry s work complements the Commission s aim to ensure that all entities that it authorises meet fit and proper criteria .

Registry

The Registry incorporated 2,484 companies in 2010, an increase of 6.7% compared with the previous year. The increase shows the change in business activity as the global economy progressed further out of recession. However, the number of companies on the Register at 31 December 2010 was 32,722, a fall of just over one per cent on the previous year.

Limited partnership formations during the year were 102 compared to 94 during 2009.

Nearly all other Registry registrations and processing, such as special resolutions and searches, have significantly increased, particularly where supplied online. The filing of public company accounts was in line with the previous year. This is a result of the Registry s continued drive to improve public company filings.

The Registry adheres to published response time-scales, all of which were met in 2010, as shown in the table on page 40.

In February 2010, the Registry User Group met and discussed a number of issues such as the quality of service provided by the Registry, online services, business volumes flowing through the Registry, and new products and fees.

During 2010, the revised Business Names Law was progressed. Work continued on the development of the automated disputes resolution system, which is a fundamental part of the new Business Names Law. The legislation drafting was put on hold while wider aspects of the law were considered, such as the developing intellectual property rights legislation. Changes in the Companies (Jersey) Law 1991

and the Limited Partnerships (Jersey) Law 1994,

and the development of a Foundations Law were also progressed.

Automation and e-commerce projects

During 2010, the online search facility, online monitoring and the online filing system were enhanced. All systems continued to be embedded in the online environment known as Easy Company Registry ( ECR ).

Training

In 2008, the Registry unveiled an ambitious training programme to help launch ECR and this programme continued throughout 2010. The programme,

which is free and ongoing, is aimed at companies owners, directors and secretaries who would benefit from the filing, searching, and monitoring of Jersey company documents. The monitoring aspect of ECR is also a useful tool for others wishing to keep informed of changes to a Jersey company, such as investors or other stakeholders, including listing agencies and regulators. Registry staff received special training to present this programme.

REGISTRY

International Development of the Jersey Registry

The Registry has continued to enhance the profile  

of the Jersey Registry internationally, speaking at events such as the European Commerce Registries Forum

( ECRF ) in Serbia. Jersey is also responsible for the management and enhancement of the ECRF Website. A local website design firm continues to provide maintenance services to the ECRF Website.

After entering into an information sharing agreement with the European Business Register ( EBR ) in 2006, basic Jersey company information was made available through the EBR network from May 2007. The EBR now has a membership of more than 24 European countries providing access to information on more than 24 million companies. The Director, Registry, attended and spoke at two EBR general meetings, and he also chaired the Corporate Governance Committee during the year. In May 2008 and again in May 2010,

the Director, Registry, was elected to the Board and holds the position of vice chair of the EBR.

In May 2010, the Director, Registry, attended and

spoke at the International Association of Commercial Administrators ( IACA ). IACA represents the company registries of the United States ( US ) and Canada.

The Director, Registry, was again elected to be the  chair of the international section of IACA and a director of the board. The US continues to review its disclosure requirements for the beneficial ownership of US companies and other global issues affecting registries. Canada and the US are regarded as the leading jurisdictions for the administration of secure transactions. With Jersey s new Security Interests  Law being developed in 2011, access to expert

support will be beneficial.

The Commission continues to promote greater communication between registries globally. Contributions to EBR and the European e-justice initiatives during 2010 have kept initiatives on  cross-border migration to the fore, ensuring that  the Jersey Companies Registry continues to  

be active internationally.

KEY TASKS FOR 2011:

• Maintain an efficient service to users  of the Registry.

• Continue to provide a training programme  to promote the ECR and develop Registry employees knowledge and capabilities.

• Continue to progress the implementation  of the Registry s ECR online environment, and commence work on business-to- business (B2B) developments for  Registry users.

• Deliver the revised Business Names Law and contribute to the development of Registry related legislation such as the  new separate limited partnerships and incorporated limited partnerships legislation, new cross-border merger legislation and the introduction of Amendment No. 11 and 12 to the Companies (Jersey) Law 1991.

• Continue to make a contribution to the development of registries internationally.

THE SUPPORT DIVISIONS

One of the aims of the Commission is to ensure the Commission operates effectively and efficiently . A number of Divisions are responsible for ensuring that the Commission has in place the necessary information technology, human and physical resources to ensure that this aim is met.

Support Divisions - Information and Communications Technology ( ICT ) and Human Resources ( HR )

ICT

ICT has continued to deliver performance from technology and communication services to the Commission despite a year of great change in the Division. The Division was again fully staffed in

Q3 of 2010 and it is expected, given the quality of recruits, that they will deliver significant benefits to the Commission s technology and management information capabilities. The Division has also been strengthened with a senior management position to cover the diverse range of work and increased governance requirements.

During the year, the OneSys VI platform was completed for the Registry. This comprised a completed platform upgrade, along with many new workflows to save processing time and open up opportunities to incorporate new Registry functions in the future.

This was completed along with the large task in preparing for the new platform for the European Business Registers ( EBR ) services.

ICT have continued to improve the security of online services and in particular the financial transactions used within Registry services. These enhancements have all passed audit by the external security auditor to the ISO27001 information security standard.

A new online Funds Statistics reporting process was implemented towards the end of the year, which will greatly streamline what was a demanding manual process. A system for Enforcement was completed, which provides a case management system.

It has consolidated three legacy systems and therein significantly reduced the administrative burden and rekeying of data, which is now entered once and used many times.

In this challenging climate, ICT has played a significant part in reducing costs to the Commission in owning and maintaining its bespoke software. This has been achieved through good supplier governance and attention to detail in deleting software code that is no longer required.

ICT continues to champion development of the SharePoint platform to assist Commission workflows and reduce the administrative burden of users rekeying data. ICT has also developed a project management process for SharePoint, which provides automated workflows to key stakeholders to aid decision making, signoffs and project transparency. This should prove beneficial to the Commission meeting audit demands through the consistency of its project selection, resource planning and management processes.

HR

The HR Division s mission is to provide excellence in human resource leadership by capturing and nurturing quality talent. The success of the Division is driven by the core values of attracting and inspiring excellence, professionalism, integrity, teamwork and respect for one another.

2010 saw a period of consolidation for the Commission as it operated with a full head count and all vacant positions were successfully filled. Concentrating

on another core activity of employee engagement, HR successfully delivered a comprehensive, structured and relevant learning and development programme. This ensures that our personnel are trained to operate at a high technical and managerial capacity, thereby improving the service to the regulated community. One highlight for HR during 2010 was the successful facilitation of Industry seminars at which Commission staff presented to a total audience of some 1,200 Industry delegates.

THE SUPPORT DIVISIONS

KEY TASKS FOR 2011:

ICT HR

• Implement a new infrastructure in the  •  Develop secondment opportunities  Commission comprising: new server  (both locally and internationally) to enhance  infrastructure at its Castle Street premises,   the Commission s regulatory knowledge and new high speed storage disks for core systems,  best practice.

and upgrade all server operating software and

telephone systems. This will also include new  •  Provide internships and work experience operating systems and Office suite to all users  placements in order to give students an desktops. This will be managed through a thin  opportunity to view the workings of

client delivery that will assist software  the Commission.

management and governance. •  Continue to develop the learning culture  

• Continue to develop the SharePoint platform   within the Commission.

so as to ensure it is correctly resourced to  

deliver projects, workflows, task automation,  •  Rfuolll lreovuiteawnoefwco Snttarfaf cHtsa onfd ebmoopklo aynmde unnt.dertake a version control of documentation, and increased

systems integration. This will include developing

a process and strategy for management

information that will link with the business plan

and KPI development. This will include network

performance monitoring essential to a high

availability network supporting online services.

• Roll out a new Commission website that will include the infrastructure for in-house content management and control, and meet increased external user demands for information updates.

• Maintain ICT systems and processes to the ISO27001 information security standard.

The Commission has continued to improve the security of online services and in particular the financial transactions used within Registry services. These enhancements have all passed audit by the external security auditor to the  ISO27001 information security standard.

STATISTICAL ANNEXE

Insurance Business

Total number of insurance licences = 185 of which:

Category A = 178

Category B = 7

At 31 December 2010 there were 121 registered general insurance mediation businesses.

Companies

Registry Processing - performance against target

All Companies % Partnerships % Searches % Certification % Business names % Achieved 98.4 99.2 100 100 98.8

95 achieved  95 achieved  95 achieved  95 achieved  90 achieved

Target

within 2 days within 2 days within 2 days within 2 days within 2 days

Registry Processing - items processed

Printed search  Limited  Certificates of Date Company searches Business names

documents partnerships good standing

2008 29,007 95,806 747 125 2,155 2009 48,464 8,313 775 94 1,922 2010 57,320 673 823 102 2,258

Quarterly Company Incorporations

Year 31 March 30 June 30 September 31 December Annual Total 2008 761 799 661 537 2,758 2009 577 533 628 591 2,329 2010 709 586 605 584 2,484

Live Companies on the Register

At 31 December 2010 (2009) there were 32,722 (33,074) live companies registered in Jersey.

31  30  30  31 Date

March June  September December

2008 33,784 34,372 34,622 33,395 2009 33,579 33,811 33,187 33,074 2010 33,379 33,570 33,634 32,722

Live Companies on the Register

35.0

32.5

30.0 31 March 30 June 30 September 31 December

2008 2009 2010

Funds

Collective Investment Funds (Jersey) Law 1988 (the CIF Law ) Control of Borrowing (Jersey) Order 1958 (the COBO )

Summary of Statistical Survey of Funds Serviced in Jersey as at 31 December 2010

From 1 October 2003, the Commission has excluded from the figures the collective investment funds for

which a certificate or permit was issued under the CIF Law for the function of distributor or similar minor function. However, the Commission now collects statistics on the private schemes administered in the Island, which, although not requiring a certificate or permit under the CIF Law, require consent under the Order (such funds are termed COBO Funds ). Funds regulated under the CIF Law are referred to herein as CIFs .

Date Net asset value (£ billions) Number of funds Number of separate pools 31 December 2008 241.172 1,472 3,129

31 December 2009 166.156 1,294 2,725

31 December 2010 184.703 1,324 2,522

Analysis of CIFs and COBO Funds

Analysis by Class - 31 December 2010

Analysis of funds by classification

180

160

140

120

100

80

60

40

20

0

Unclassified Recognised Listed Expert COBO

CIFs  CIFs  Funds CIFs Funds

2008 2009 2010

Funds

CIFs & COBOs - Analysis by Investment Policy Codes

Funds - Analysis by Investment Code Policies

160  

140  

120  

Specialist

100

Equity

Bond

80

Mixed

60  Money Market 40

20

0

2008 2009 2010

Breakdown of Trust Company Businesses by size

Very Large (50+ employees) 9% Large (30-49 employees) 8% Medium (10-29 employees) 23% Small (1-9 employees) 26% Single class registration 18% Managed trust companies 16%

Banking

Deposit takers registered under the Banking Business (Jersey) Law 1991 are referred to herein as Banks . Banks and Bank Deposits - £ billions

Bank Deposits

250

200

150

100

50

0

31 December 31 December 31 December 2008 2009 2010

Sterling Currency

Analysis of Bank Deposits - 31 December 2010 (£ billions; currency stated in sterling equivalent)

Geographical analysis of deposit-taking licence holders at 31 December 2010

UK (17)

Other EU (12) Switzerland (3) North America (5) Middle East (4) Africa (3)

Asia (1)

Assets of Banks

Totals and sub-totals for all Banks, split between those that are incorporated in Jersey ( Subsidiaries ) and those that operate in Jersey through a branch of an overseas incorporated bank ( Branches ).

2010 Commentary

The £11 billion increase in All other assets reported by Branches represents group financing transactions that replaced funding of group companies, and partly explains the £27 billion decline in this item (Branches only). The second largest driver behind that decline was the net reduction in senior debt issued by Branches, see table 2, which totalled circa £10 billion.

Intra-Jersey funding represents deposits placed by banks registered in Jersey with other Jersey banks.

Funding of Banks

Totals and sub-totals for all Banks, split between Subsidiaries and Branches.

2010 Commentary

The reduction of approximately £10 billion in the Balance Sheet Total was principally the result of a net reduction of a similar amount in senior debt issued by Branches. Deposits declined overall, reflecting a decrease in deposits from other banks.

Please note that Bank Deposits reported here include intra-Jersey deposits - deposits from banks registered in Jersey - which are excluded in calculating deposit totals for the purpose of the tables Banks and Bank Deposits and Analysis of Deposits .

Key trends and profitability of Banks that are incorporated in Jersey

2010 Commentary

2010 saw a return to growth, albeit at a modest level. Net interest income continues to be impacted by the low interest rate environment, but profitability has partly rebounded due to a reduction in bad debt provisions.

Key Performance Indicators of Banks that are incorporated in Jersey

2010 Commentary

The rebound in profitability in 2010 still leaves profitability at around half the pre-crisis level. The drop in the NII margin is the main driver behind the increased Cost/Income ratio.

Profitability and NII Margin

30.0% 25.0% 20.0% 15.0%

2.00% 1.90% 1.80% 1.70%

1.60% 1.50% 1.40% 1.30% 1.20% 1.10%

10.0% 5.0% 0.0%

1.00%

2007 2008 2009 2010

Date

Key risk ratios of Banks that are incorporated in Jersey

2010 Commentary

Capital ratios are broadly the same as at the end of 2009. New provisions in 2010 principally related to debt that had been restructured or where specific evidence of impairment existed but where some recovery was expected.

Financial Soundness

17.0% 16.5% 16.0% 15.5% 15.0% 14.5% 14.0% 13.5% 13.0%

8.00% 7.00% 6.00% 5.00% 4.00% 3.00%

12.5% 12.0%

2006 2007 2008 Date

Investment Business

Total funds under management (Class B of the Financial Services (Jersey) Law 1998 = £21.4 billion.

The total number of clients of investment managers = 14,736

Funds under  Number of Date

management (£ billions) clients

31 December 2008 18.844 15,584 31 December 2009 19.686 14,765 31 December 2010 21.394 14,736

2009 2010 Funds under investment management

25 20 15 10

5

0

31 December 31 December 31 December 2008 2009 2010

Despite the international economic conditions, levels of income from funds and the Companies Registry in particular appear to have held up well.

FINANCIAL STATEMENTS

INTRODUCTION TO THE FINANCIAL STATEMENTS

Fee income in 2010 was £12.33 million compared to £11.45 million in 2009. Despite the international economic conditions, levels of income from funds and the Companies Registry in particular appear to have held up well, and indeed the level of fee income received by the Commission in 2010 was higher than in the previous year across all sectors of the finance industry.

However, bank deposit interest received was £37,000, a reduction of more than 27% from the amount received in 2009, as a result of the continuing low level of interest rates throughout 2010. Other income received came from the seminars for the finance industry that were held during the year. The cost of these seminars has been included in other operating expenses.

The Commission s major item of expenditure is staff costs. In previous years the Commission has been increasing staff numbers to a level that is sufficient for it to be able to properly carry out its functions, and to be able to deal with the increasing scope of regulation. However, during 2010 this trend was not continued and staff numbers were not increased, with the result that the Commission was able to maintain staff costs close to the same level as in 2009.

An analysis of this expenditure is contained in note 5 to the financial statements.

Expenditure on computer systems continued, in order to improve administrative efficiency but, again, costs have been held to 2009 levels. The amount of spend represents the maintenance costs for all systems (hardware and development costs are capitalised and depreciated over three years) and the software licence fees.

In contrast, the net amount spent on investigations and litigation during the year increased to £522,000 from £108,000 a year earlier. The increase arose mainly because in 2009 the Commission was able to recover a significant proportion of costs from the regulated businesses that had been under investigation, something that was not achievable in 2010. During the year, the Commission has continued its efforts to work with regulated businesses to resolve problems before they reach the stage where formal regulatory action needs to be taken.

Expenditure on business travel increased in 2010 because more frequent visits were made to overseas regulatory authorities and to international standard-setting organisations. It is important to maintain regular liaison and information exchange with these international bodies, and this will continue in the coming years.

The Commission remains committed to staff development, education and training, so appropriate funding will be made available annually for this important aspect of the Commission s activities.

Overall, the level of operating expenses increased from £11.31 million in 2009 to £11.89 million in 2010. The net result for the year was an operational surplus of £610,000 and a consequent rise in reserves to £6.50 million. The Commission has continued its policy in respect of its accumulated reserve in order to build up such a reserve to an amount equal to six months operating expenditure plus the average of the last five years cost of investigations and litigation. This is in order to meet contingencies, particularly the sizeable sums of money that may be required to fund investigations and litigation.

The Commissioners are of the opinion that the Jersey Financial Services Commission is a going concern,

and the financial statements have been prepared accordingly. The auditors, PKF (UK) LLP, who were appointed in accordance with Article 21 of the Financial Services Commission (Jersey) Law 1998, have indicated their willingness to continue in office.

STATEMENT OF COMMISSIONERS RESPONSIBILITIES

The Commissioners are responsible for preparing the financial statements in accordance with applicable law and regulations.

The Financial Services Commission (Jersey) Law 1998 requires the Commissioners to prepare financial statements for each financial year. Under that law the Commissioners have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (being United Kingdom accounting standards and other accounting principles generally accepted in the United Kingdom).

The financial statements are required to give a true and fair view of the state of affairs of the Commission and of the surplus or deficit of the Commission for that year. In preparing these financial statements the Commissioners are required to:

• select suitable accounting policies and then apply them consistently;  

• make judgements and estimates that are reasonable and prudent; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Commission will continue in business.

The Commissioners are responsible for keeping proper accounts and proper records in relation to the accounts.

They are also responsible for safeguarding the assets of the Commission and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Commissioners are responsible for the maintenance and integrity of the financial information included on the Commission s website. Legislation in Jersey governing the preparation and dissemination of the financial statements and other information included in Annual Reports may differ from such legislation in other jurisdictions.

For and on behalf of the Board of Commissioners C. F. Renault Commission Secretary

16 May 2011

PO Box 267 14-18 Castle Street St Helier

Jersey

Channel Islands JE4 8TP

INDEPENDENT AUDITORS REPORT TO THE MINISTER FOR ECONOMIC DEVELOPMENT

We have audited the financial statements of the Jersey Financial Services Commission (the  Commission ) for the year ended 31 December 2010 which comprise the Income and Expenditure Account, the Balance Sheet, the Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Generally Accepted Accounting Practice (being United Kingdom accounting standards and other accounting principles generally accepted in the United Kingdom).

This report is made solely to the Minister for Economic Development in accordance with Article 21(3) of the Financial Services Commission (Jersey) Law 1998. Our audit work has been undertaken so that we may state to the Minister for Economic Development those matters that we are required to state in the auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Minister for Economic Development for our audit work, for this report, or for the opinions that we have formed.

Respective responsibilities of Commissioners and Auditors

As explained more fully in the Statement of Commissioners responsibilities, the Commissioners are responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).

Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the Commission s circumstances and have been consistently applied and adequately disclosed, the reasonableness of significant accounting estimates made  by the Commissioners, and the overall presentation of the financial statements.

Opinion on the financial statements

In our opinion the financial statements

• give a true and fair view of the state of the Commission s affairs as at 31 December 2010 and of its surplus for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the Financial Services Commission (Jersey) Law 1998.

PKF (UK) LLP Statutory Auditors Norwich,

United Kingdom  

16 May 2011

INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2010

2010  2009 Note  £ooo  £ooo  £ooo   £ooo

Regulatory Income:

Regulatory fees  4 (a)  9,844  9,008 Registry fees  4 (b)   2,487   2,437

Total regulatory income  12,331  11,445

Other income:

Bank deposit interest received  37  51 Other income   100   -