Jersey Financial Services Commission: Annual Report 2018

Jersey Financial

  Services Commission

2018

Annual Report 2018

Delivering balanced, progressive, risk-based

financial services regulation, built on insight, integrity and expertise.

 Contents

Jersey Financial

Services Commission

Annual Report

    2018

 00. Highlights and  

achievements

2018 _

01.   02.   07.   08.

Celebrated 20 years as the Island s financial services regulator

Collected 2.7 million data items from  Approved 340 new regulatory licences  Expanded Jersey's Investment Business Industry as part of our supervisory risk  across all sectors regime to include the regulation of advice data collection exercise and in support  given on transferring out of defined benefit of the National Risk Assessment  pension schemes

03.   04.   09.   10.

Completed restructure of our Supervision  Received landmark Royal Court judgment  Raised more than £12,000 for charitable  Achieved unprecedented staff survey division to enhance risk-based approach in favour of our enforcement action causes through staff donations results with 99% response rate

05.   06.   11.   12.

Launched ground-breaking online tool to transform Jersey Private Funds applications process

Amended legislation to extend civil  Collaborated with Government on financial penalties to individuals successful completion of statutory review

of mutual Crown Dependencies, Overseas Territories and UK Exchange of Notes.

Appointed Martin Moloney as Director General and Mark Hoban and Monique O Keefe as Commissioners.

 01 . Jersey Financial

Services Commission: our role

What we do We aim to fulfil these responsibilities by:

The Jersey Financial Services Commission (JFSC) is the financial services    Ensuring that all authorised financial services businesses and individuals regulator for the Channel Island of Jersey. We aim to deliver balanced,   meet the appropriate criteria and that we, as the regulator, match progressive, risk-based financial services regulation for the Island, built   international standards of banking, securities, trust company business, on insight, integrity and expertise.   and insurance regulation

Our mission is to maintain Jersey s position as a leading international finance    Playing our role in combatting the financing of terrorism and financial centre, with high regulatory standards, and to adhere to our guiding principles:  crime as part of the wider international effort

 Reducing risk to the public of financial loss due to dishonesty, incompetence,    Working closely with fellow regulators and law-makers to ensure access malpractice or the financial unsoundness of financial service providers  to efficient and effective markets for financial services

 Protecting and enhancing the reputation and integrity of Jersey in    Reacting to and, where appropriate, anticipating changes in markets   commercial and financial matters  and the financial services industry (Industry) by developing policy and

  the way we supervise

 Safeguarding the best economic interests of Jersey

 Acting as an agile, thoughtful, proportionate and listening regulator

  that gives fair consideration to both the costs and benefits of regulation.

 Operating the Companies Registry.

The Industry we regulate

Jersey continues to be an attractive international finance centre thanks to its

effective and proportionate regulation, its modern and respected legal system,

its flexible corporate law regime, its political and economic stability, and its

independence and tax neutrality.

The key Industry sectors include: Investment Business

Banking Licence numbers within Jerse82 licences held at the end of the yy s invear. The prestment business secofile of those licence holders typically ranges frtor remained relatively static during 2018, with om smaller

owner-managed firms to branches and subsidiaries of large multinational financial services groups. Jersey's 25 banks attract clients from more than 200 countries and a sizeable share of the Island's total

deposits are held in foreign currencies - a reflection of Jersey s international appeal as a banking centre. Services being provided to local and international clients primarily relate to discretionary investment

management services, the provision of investment advice, and dealing and custody services.

 The Island s banking model is stable and diversified, and the sector s average capital ratios remain

strong and well above Basel III requirements We saw a slight increase in the number of discretionary investment management clients, with 14,795

reported at the end of December 2018, and likewise a slight increase in the assets under management

 We have seen a trend in declining licence numbers, which has, in part, been prompted by to £23.6 billion.

rationalisation. This is due to the prolonged low interest rate environment and also to structural

reform of the UK banking sector  There was a drop in the number of qualifying segregated managed accounts (QSMA) during 2018, falling

from 22 at the end of 2017 to 16 at the end of 2018. Assets under management in QSMA however remained  Re-structuring to comply with the UK s ring-fencing regime concluded in 2018 and these changes  fairly constant with £1.5 billion compared to £1.6 billion at the end of the previous period.

provided opportunities for banking businesses in Jersey to develop more profitable asset books

Licensing activity in the sector was limited with three new licences granted during 2018. That said,  Our Banking Business Licensing Policy provides a workable and flexible framework for a wide variety  we continue to receive enquiries for potential applications.

of banks to operate within a strong regulatory framework.

14,795 £23.6

A slight increase in the number of  A slight increase in the assets under discretionary investment management  management to £23.6 billion clients, with 14,795 reported at the end

of December 2018

22 16 £1.5

2017 2018

There was a drop in the number of  Assets under management in QSMA qualifying segregated managed accounts  however remained fairly constant with £1.5 (QSMA) during 2018, falling from 22 at the  billion compared to £1.6 billion at the end of end of 2017 to 16 at the end of 2018 the previous period

Funds Trust and Company Business

Jersey has been a prominent player in delivering fund services since the 1960s, with the emphasis today  At the end of 2018, Jersey had 186 trust and company service providers, holding 843 licences.

on institutional, specialist and expert investors. Funds in the Island may be established as companies,

limited partnerships or unit trusts, and can be open or closed-ended, providing significant flexibility for  Having had its own Trust Law since 1984, the Island has a mature trust sector. Trust and company service investor needs. providers range from long established owner-managed businesses to trust companies owned by

some of the larger banks. However an increasing number of businesses in the trust sector have seen considerable private equity investment in recent times.

We are an active member of the Group of International Finance Centre Supervisors (GIFCS)  which promotes compliance with both the Basel Core Principles and the FATF recommendations. GIFCS strives

to ensure its member jurisdictions apply AML/CFT standards. It has established its own Standard for £319.9 963

Regulation of Trust and Company Services Providers.

Capital Markets

The total net asset value (NAV) of funds  Jersey has 963 regulated collective  Jersey has been attracting deposits and investments from institutions and private clients under administration in Jersey stands  investment funds across the world for more than 50 years.

at £319.9 billion

The Island supports cross-border capital markets transactions structured by leading investment banks and professional services firms.

£3.2

The Private Placement Fund regime was introduced in May 2013 and there are currently 55 Private Placement Funds with a reported collective NAV of £3.2 billion

202 £323.42

£221

We introduced the Jersey Private Fund Guide

in April 2017 to modernise the Island s private

funds regime, amalgamating the Private  Jersey listed companies on global

Placement Fund, the COBO-only fund and the  exchanges held a total combined market

Very Private Fund. The Jersey Private Fund can  capitalisation of £221 billion (compared to

be marketed to up to 50 professional investors  £323.42 billion in 2017)

and at year end 202 funds had been approved

86

Jersey has 86 companies listed on global stock exchanges

FTSE100

Jersey has the greatest number of FTSE 100 and AIM companies registered outside of the UK

Figures source: Jersey Finance

p.09

0 2.

   Vision from the top:

Chairman s statement

_ 02

 Vision from the top: The JFSC of today Chairman s statement  is responsive and

far more open to

dialogue than

2018 wincludingnon-cooperativas an esupportingventful ye tax jurisdictheear for the JFSC. WIsland tionssrand,esponseof e contcourse,to theended with global prprEureparingopean forUnionthes  essurUK listsoes f  ever before

departure from the EU. Both activities have occupied a great deal of our time

and effort. In the midst of evolving, often highly-politicised challenges, we

delivered successfully the planned stages of our change programme, further

innovation in the Companies Registry, and business as usual our ongoing

programme of supervisory, enforcement and registry activities.

This was our objective in 2018: to be an agile regulator, a regulator that encourages dialogue with firms, a regulator that listens to the wider network affected by and interested in its work, a regulator that delivers against its objectives.

20 years of the JFSC Our first guiding principle is to protect consumers

and, in turn, the reputation of the Island. This 2018 marked the 20th anniversary of the Law  focus drove the organisation s rapid development that established the JFSC and this warranted a  from 1998: widening our perimeter to include Trust reflection on our relatively short history. We have  Company Business in 2000; Fund Services

faced persistent challenges through the continual  Business in 2007; the host of firms supervised for evolution of international regulatory standards, the  AML/CFT in 2008; the extension of our powers need to deliver proportionate regulation for the  to include civil financial penalties in 2015; and the finance industry that contributes 40% of Jersey s  extension of our registry data to better capture Gross Value Added, and through the impact of  beneficial ownership and control information external events, notably the financial crisis of  in 2017.

2007-2008. In each case I believe that our agility

allowed us to react well, enabling us to calibrate  Facilitating market access is one of our other appropriate responses that, first and foremost,  critical functions. Examples from our short history serve the needs of the Island. include achieving Alternative Investment Fund

Managers Directive (AIFMD-) equivalence in

Our Registry exemplifies the very best of the  2012, introducing the innovative Jersey Private JFSC. Its journey over the past 20 years mirrors  Fund (JPF) in 2017 and our ongoing support for the developments in scale and complexity felt  regulated firms operating with crypto-assets. throughout our organisation. We have come  We were early adopters of AIFMD, ensuring Jersey from what was effectively a single, (very) partially  operators were not just adequately regulated computerised register to now housing more than  but measurable against the highest international nine registers in electronic form. Our registers are  standards. The creation of the JPF, in collaboration recognised as best-in-class by our international  with Government and Industry, has been a great peers and are accessible to enforcement  success as demonstrated by the 202 JPFs formed agencies worldwide. by the end of 2018.

Education also plays a key role in our work, both for Industry and the general public. Our innovative campaign on investment mis-selling, in partnership with the UK s Personal Finance Society, epitomises the success of what focused public awareness activities can achieve. We also undertake financial education in classrooms at two-thirds of Jersey s secondary schools and actively participate in global initiatives such as IOSCO s World Investor Week each year.

With increased responsibilities naturally follows

an increased need to be open and transparent, and to listen to all parties affected by our work. Feedback from my personal meetings with

Industry and other bodies suggests that the

JFSC of today is responsive and far more open to dialogue than ever before. While we will not always make popular decisions, we will engage to provide reasons for them.

Now to 2018 itself and change seemed an ever-present theme throughout the year for

all areas of the organisation; whether that

was driving forward the final elements of our change programme, preparing for the General Data Protection Regulation (GDPR), making the necessary legislative preparations for the UK s exit from the EU or the retirement of John Harris as Director General after 12 years of service.

The Executive team take collective responsibility

The period preceding the appointment of our

new Director General, Martin Moloney, saw the Executive team share collective responsibility for leading the organisation, while fulfilling their own roles. Fitting into the peculiar, and occasionally awkward, role of Quasi-Executive Chairman

has afforded me the opportunity to gain deeper insights into the work of the directors and their teams. It was a naturally challenging period for the Executive to ensure that it was business as usual, both inside and outside the organisation, and that they delivered our business plan objectives for

the year.

Reacting to changes in international standards saw members of the JFSC Policy teams attend

a Financial Action Task Force (FATF) plenary, contribute substantially to a FATF paper on beneficial ownership and work with Government on the publication of consultation papers

on legislative amendments associated with implementing the FATF Recommendations. They also represented the Island at MONEYVAL and formed part of a MONEYVAL assessment team.

During 2018 members of the Policy and Supervision teams also continued working

with the Group of International Finance Centre Supervisors (GIFCS) on its evaluation of our trust

and company service providers framework.

This was a significant piece of work, following  We must not forget the significant developments  I would also like to thank my fellow Commissioners their onsite visit in 2017, and subsequently we  in our Registry during the year. While the Central  for their support and dedication. In particular I

have made minor enhancements to our existing  Register of Beneficial Ownership and Control  give thanks to two members of the Board who regime on the Group s recommendation. I am  took centre stage in 2017, the subsequent  retired during 2018: Michael de la Haye and Debbie pleased with the positive results in the published  administration of the register has seen our  Prosser. Michael de la Haye provided wise counsel report, which demonstrate yet again Jersey s  small team dealing with considerable volumes of  during his tenure. Debbie Prosser served as a commitment to and compliance with  transactions. In fact, there was 1200% increase in  commissioner for ten years and as my Deputy international standards. the number of changes the Registry processed  Chair for the last three years of her term. Her

for updates to beneficial owner and controller  commitment and support to the Board, and the

It will be no surprise that the most frequent topic  information. With public registers still very much  organisation more widely, was unwavering during raised in my interactions with Industry during 2018  on the UK parliamentary agenda, members of the  that time. Jersey is in her debt. My thanks go also was our supervisory risk data collection exercise  Executive met with MPs Dame Margaret Hodge  to Ian Wright who has assumed the role of

and the National Risk Assessment (NRA). Many  and Andrew Mitchell to demonstrate the JFSC s   Deputy Chair.

firms have seized the opportunity to improve  commitment to transparency. The Registry team

information management and to enhance their  also worked on developing the new Registry Law  Looking ahead and the future is guaranteed understanding of risk in their customer base.  and the new Register of Directors, and made to bring further change and challenges for the Data-driven activity is the new normal and, while  good progress with improving portal services  JFSC, whether in relation to pressure to introduce

it continues to be a challenge, I am confident that  and creating the new registry platform.  public registers before they are the international

the future benefits will be tangible. standard, to achieve success in upcoming

Innovation was a significant feature of our work  international assessments or to deal with the next Our regulatory regime is always evolving  during 2018. Bitcoin and crypto rapidly became  unexpected challenges market forces produce. because it needs to in order to ensure we meet  ever-present in the media, not least because of a  Martin Moloney takes the reigns as Director international standards and adhere to our guiding  volatile market. Four years earlier, after extensive  General in 2019 and, on behalf of my fellow principles. In 2018 the Policy team expanded  consultation and risk assessment, we approved  Commissioners, the Executive team and the staff, Jersey's Investment Business regime to include  the regulation of the Island s first bitcoin fund  I look forward to working with Martin as we

the regulation of  advice given on transferring  and, in 2016, we introduced legislation to regulate  embark on a new chapter for the organisation.

out of defined benefit pension schemes and  virtual currency exchanges for Anti-Money

had discussions with Government about the  Laundering and Countering the Financing of  Entering my final full year as Chairman, I find that possibility of the JFSC regulating pensions and  Terrorism (AML/CFT). In 2018 we stepped up  my confidence in the JFSC s agility, talents and consumer lending in the future. The team, working  activities in this area by having regular interactions  professionalism is as strong as ever.

with colleagues in Supervision and Operations, also  with firms in the Fintech space and showing

did the groundwork to adopt Basel III banking  commitment to innovation and Regtech by joining

standards for subsidiaries and local branches  the Global Financial Innovation Network. The  John Eatwell

with the delivery of online functionality for  Policy team also published guidance on Initial  Chairman

prudential reporting. Coin Offerings. Regarding our own digital

improvements, the team developed an important

The Executive team oversaw further structural  Application Programme Interface (API) capacity

and system changes in our Supervision division  and began work on the design and development

during the year, which included the development  of our new website, which will go live in 2019.

and deployment of the Customer Relationship

Management (CRM) system to support

risk-based supervision. These improvements in  It's people who matter

digital capability led to increased engagement

with the regulated community over the course  During what could potentially have been an

of the year, with more face-to-face meetings,  unsettling period for our people, I was delighted

regular onsite visits and thematic examinations.  with the way in which staff responded to the

Supervision also launched the first online  challenges. This was reflected in the highly positive

application, the JPF, and began preparing the  results of the internal survey conducted in

functionality and agreeing the prioritisation of  November. All bar 1% of the workforce completed

further online applications. the voluntary questionnaire, of which 91% said

they were proud to work at the JFSC and 100%

Amendments to our civil penalties regime in 2018  cared about the future of the organisation.

mean that we can now fine individuals, as well

as firms, for significant and material regulatory  I would like to express my sincere thanks to

misconduct. This addition to our powers is  the Executive team and all the staff for their

a welcome change and brings us in line with  commitment and hard work throughout 2018.

international standards. In the most serious case  It was a year of transition and all our people

in 2018, members of the Enforcement team, with  delivered under challenging circumstances.

their Supervision colleagues, gave evidence at the

criminal trial of a financial adviser who was found

guilty and sentenced to seven years in prison for

defrauding his clients, conducting unauthorised

financial services business, and providing the

JFSC with false and misleading information.

_ 03

 03. A smart outlook:  regulatory standards and the regulator champions Director General s firms takttTechnology that the JFSC and Industry sharogeackle that and Jersether.e on, but the culturThis is the bigy s financial services secchallengee and ovforerlapping all ofe  us.tor  on standarfind do this, wclever e need Industry tds, but wways of achiee will do eving those standaro havverything we the ambition and e can tds. To o

low compliance costs. We will not compromise

statement willMy longersupervisory apprminimise prospercosts -term goals arin afor soundoach on the Island that is Industry. re embedding a egulatSomeory people assume environment. the imasolutions. WThis is ambitious. I donBut who eMartin Molonegination tver said re, the JFSC, cannoy o work with us tegulation w t think it will be east do this on our own. as easo find those cley? y.  ver all about smart regulation. Jersey should be

a byword for regulation that delivers diligent

supervision and high standards in ways that

that talk about reducing the cost of regulation  Director General

must mean lightening the regulatory burden.

I don t believe that s the only way. Prosperity

beckons where Industry champions high

I have arrived in Jersey as incoming Director General of the JFSC just after the end of the period which this annual report covers.

I am struck by the professionalism and talent here at the JFSC and how much has been achieved in the recent, ambitious change programme. As we bring this programme to a conclusion a little later than targeted - in 2019, this will position us well for the substantial challenges ahead.

So while this Annual Report rightly focuses on what has gone before, I take  A supervisory

this opportunity to look ahead.   approach that

And therpostover a decade b-crisise arperiode very significant challenges. The y the rhaseform obeen df rominategulatedory laforw  ecosand GoThat is particularly important because the costs ystvem and opening up dialogue with Industry ernment about where we need to go.   is all about smart and the G20 postcoming tand centrand remediato an end and nee. The most difficult is the effece those-crisis aregulatw challenges argenda. That period is ed firmswhiche frtiveness ont are oprarthis organisation and the highly committfe worth it. orevidegulation assurance will risethat andthose we needincreased to beed people ablecosts  to regulation

of supervision in sifting through an increasingly

complex and technology-driven industry to find  And, of course, getting to know the intricacies of

falling below required standards. who work here is also crucially important. I am

already heartened by what I see of the team s

It seems clear to me that of all the international  shared passion to deliver a first-class public

financial centre jurisdictions, Jersey has no  service. I look forward to working with the staff,

peers in terms of its cultural approach to good  the Executive and the Commissioners to bring

governance, its strong judicial system and its  about positive changes.

determination to have an independent regulator

with teeth which is committed to high standards.  Medium-term, I am focusing on identifying what

I will achieve over the next three years and I will

My intention during my tenure is to cement further  be opening up that strategy discussion straight

the Island s reputation as a leading international  away. Discussion will be centred on technology

finance centre by building its supervisory capacity  and culture as the two core themes of the next

to differentiate between those firms where we  phase in the development of the techniques of

need to intervene and those we can leave to go  supervision. If we can build an approach here that

about their well-regulated commercial activities. is distinctively ours and which isn t afraid of either

the impact of culture or technological innovation,

Short-term goals of anyone in my position are  then we will have done well. I don t just mean the

inevitably all about getting plugged into the local  culture in individual firms or the innovation that

04.

 Business review

_ 04

04.

   Business review

Our strategic priorities for 2018 were to focus regulation on the areas of  greatest risk, to improve interactions with Industry and the general public, to  develop our people and infrastructure, to facilitate access to key markets,  to safeguard our sustainability, efficiency and independence, and to deliver  our business as usual. We made considerable progress throughout the year  in these areas.

Performance against 2018 Business Plan objectives

2018 Priority Objective Commentary

04.1

   Charting change workthe nefor all users. This long oshops. Ww website finalised the designs in 2018 and e will go livvere in 2019 giving bedue project will replace tter  Whiledeploy wed se stillyst haems that arve more toe mordo, we flee haxible, ve now

accessibility, navigation and search functionality  extendable and more secure.

the existing 20 year old website.

Improved risk awareness and management

Embarking on our change programme in 2015, our goal was to build on our

existing reputation for efficient regulation and registration by becoming even  A large part ofocused on becoming a riskf our change pr-based rogramme has egulator. How  place tvast volume oo continuously and successf attempted cyber-attackfully rs onepel the more effective at what we do. Our vision was to create a culture of continuous  we identify, monitor and manage risk is now at the  our systems.

improvement and drive better regulatory outcomes for years to come. We had  heart oand refine our apprf all our activities and woach so that we continue te can deal with o review  As part of the change programme, we identified five key aims to become more e-enabled, achieve enhanced information  domestic and international risks that pose a threat  a need to enhance our cyber security capability.

management, improve our risk awareness, develop our authorisation and  to Jersey and the JFSC s reputation. We recruited a dedicated cyber security team supervision activities, and grow our people strategy. During the programme, we have devised and  and, with our neundertake increased penew integrated IT stration tystesting oems, wf our e now

continue to develop our Enterprise Risk  internal procedures. We have also invested in

In three years we have made significant progress in all these areas, while  Management Framework and our risk model. We  cyber security training and awareness programmes

now more easily capture risks relating to the firms  for our staff and Board members to test their continuing with our business as usual. We are now an easier organisation for  and individuals we regulate and supervise, and  diligence in identifying possible threats from

our stakeholders to interact with and we have laid the foundations for future  these will populate our risk model. We have also  emails and attachments.

enhancements to our operations. The benefits of the various projects have  created forums to identify and review internal and

had both external and internal focus and impact. acting as dedicated risk owners who oversee and  Wspacee strivwe e thao lead ve consequentlyby example in e thestablishedcyber security the

external risks, with appointed members of staff

report on any potential organisational risks. JFSC gold standard cyber security framework for Industry to be assessed against.

Unquestionably one of the greatest risks for both

the JFSC and the financial services industry is More e-enabled and enhanced information management cyber. With the amount of sensitive information

we hold, we must have the security controls in

Updating our systems was the starting point;

a priority programme of work after very little investment for the previous six year period following the financial crisis. We could not have continued to operate in the same way with the level of applications we process, the volumes of data we now hold and the information security requirements of that data.

The biggest change for Industry has been

the development of the myJFSC portal. Now

with more than 1300 users, it provides a more secure, efficient and effective way of interacting electronically with the JFSC. For us, it has simplified and reduced processes and provided enhanced management of information for both regulatory and financial control purposes. The majority of our annual regulatory fee processes

are now completely online. In 2018 we collected more than £13.5 million in fee income from the new online invoicing process. We now raise and publish more than 2,000 annual invoices through the

portal where businesses can access, download, print invoices and track their payment history. In 2018 we also used the portal for our supervisory risk and National Risk Assessment data

collection exercises, receiving more than 1,800 spreadsheets from Industry. We also implemented the functionality for a specified range of online applications for authorisation, maintenance,

cessation and notification activities. We now receive 60% of regulatory application volumes through the portal.

Our vision was to create In addition tethe data wbexpand the range otter focus our ace colleco the portal, wt and hold, which helps us ttivities and drivf tools we hae have also startve te impro analyoved tse ed o o  a culture of continuous

effectiveness and efficiency.

Anoenhancements wcor80 legacand nostakinfrastrucleading te back office IT tther component oeholders, it has subticeably hay so beturyste and capabilities, consequently ttems. While this does noer efficiencies. For eas upgrading and rve an impacechnologies and morf our tstantially imprechnical t on our example, eplacing our ot dirxtved our e than ernal ectly  drive better regulatory

improvement and

intrManahavoducing the nee thegement scapabilityystem in Supervision means ww Custto expandomer Relationship the information we e  outcomes for years

hold, prlesupervisory rtender for the design and devel and, haocess and use it tving done so, delivesponse. o model risk at entity velopment and haer a risk-based ve  to come

Our new website is one element of the change

programme that is ongoing. In 2018 we went out to

subsequently been working with our preferred

supplier on the requirements and stakeholder

People strategy

The JFSC portal Attracting, recruiting and retaining quality and  Before the change programme, we did not have

experienced people for Jersey s sole financial  a Communications function. Putting this small services regulator naturally poses some unique  team in place has enabled us to keep our people

challenges, in what is already a challenging  up-to-date about key matters affecting them recruitment market. In order to compete, we  and the organisation, as well as ensuring we

recognised that we needed to make the JFSC an  communicate more effectively with our regulated

Portal  Annual invoices raised

attractive place to work and position ourselves  community, Registry users, the media, and our

users and published

as an employer of choice.  other stakeholders.

1,300+ 2,000 Osignificantandver the past thrdevelopmentinvestmentee yandears wrinecruitoure haedpeople.vae made dedicatWe haedve  Tmeasuring the effecundertako make suren in 2017 and the second in 2018. Using e we are getiveness otting it right, wf our people e are

created a more structured approach to learning  strategy through annual staff surveys; the first

Learning and Development Manager. We have  an external provider, the completely anonymous

developed an in-house training programme  surveys provide us with honest staff feedback

to grow our own talent, to better equip  which helps us to track our performance and

staff to do their jobs effectively, and we have  progress and identify any areas for future

introduced bespoke leadership and coaching  improvement. A comparison of the results of

programmes. We support our people to further  both surveys shows we are achieving continual

their professional development through study  improvement, with overall staff engagement

and we have co-developed a specific regulatory  increasing from 85% in 2017 to 91% in 2018. All qualification. We have rolled out a performance  but one of the 27 areas we measured showed

management framework, which assesses  improvement or remained the same between

employees against a defined set of role specific  surveys. 92% of our staff say they find their work competencies and recognises them for their  both interesting and challenging, up 19% from

contribution with our Pay for Performance  2017 and 88% say they now get the training and

strategy. We have introduced a better benefits  development they need to do their job, again up

package, flexible working practices, health  19% on the previous year. And our people are

Regulatory applications  Legacy systems  and wellbeing strategies, and forums for staff,  helping to make beneficial changes. After each

received through portal replaced environmental initiatives, and corporate social  survey we create staff working groups to identify

responsibility activities. Our efforts in the latter  areas where we could be doing better and the 60% 80+

were recognised when we won the 2017 CIPD  teams find solutions and drive

award for Best Corporate Social Responsibility  forward improvements.

Initiative for our work with Jersey Mencap.

Additional significant projects

There have and always will be new and unplanned calls on our resources to deliver projects in addition to Enhanced authorisation and supervision those we have planned. We will continue to evaluate every request in order to determine what must be

done and what must be stopped or postponed.

To determine how we needed to improve the way we supervise, we undertook an extensive review of the people, procedures, process and systems capabilities required to deliver our statutory functions in the early part of change programme. This led, amongst other things, to the restructure of the Supervision division to focus on entity supervision rather than by the type of licence held, developing further our risk-based approach.

We completed the restructure in 2018, centralising authorisations and cessations, assigning firms to teams according to the perceived risks they pose, and creating a dedicated team to undertake

onsite examinations.

We implemented our new supervision target

During the change programme, we responded to and delivered several additional and significant pieces operating model, delivered functionality for online

of work and, in doing so, demonstrated our much-improved level of agility and technological capability. submissions of risk data through the portal and

Two examples of projects that were not originally in the scope of the programme but have dominated our developed core case management capabilities.

work were delivering the enhanced Central Register of Beneficial Ownership and Controllers in 2017, at short notice and to a deadline dictated by the UK Government, and the 2018 requirement to support the

> More detailed information about the changes

Island's NRA in accordance with the Government of Jersey s timeline.

in Supervision can be found on page 39 -44.

Both projects rightly took priority and required huge efforts on our part. They took more of our time and Industry s than initially anticipated and quite naturally impacted the original programme schedule, as we had to divert key IT and human resources across the organisation. The portal and technical solutions that we have implemented unquestionably minimised the burden.

Change is a continuous journey

While we have embarked on this detailed change  Collaborating with our stakeholders is key for us programme over the past three years, we know  to succeed with any future changes we make and that change is a continuous journey which is  we are grateful to those we have already worked needed and beneficial. It is the new normal for  with us to date for their valued contribution and us and, now we have laid the foundations, we  feedback. This has been a key learning area for can continue to deliver. us and one where there is an acknowledged

need to apply learning to achieve

No change programme of this size achieves  continuous improvement.

everything everyone wants. Some things could not

be done, some things took longer than we hoped,

some individual components ran over budget,

while some were under budget. We will not get it

right first time every time but we will strive to learn

quickly and use the knowledge gained to improve

what we do.

We move into 2019 under the banner

of continuous

improvement and

with the ongoing

aim of being a

smart and

agile regulator

04.1

   Charting the Change Programme progress

One JFSC  Supervision Registry developments  2018 Digital  Platform and

ICT infrastructure Implemented channels back office

Supervision TOM

2017 Delivfor submission oered functionality f risk

footprint data and

2016 target operating model

Devised Supervision  NRA through the portal (TOM) and risk-based  Developed core case

2015 Created efficiencies by capability model management

replacing legacy systems  functionality and

to provide a single record  Consulted on  delivered enhancements

of information Supervision data  to Supervision Completed core process  collection Examination Unit mapping, architecture  Introduced digital

design, data migration  channels for stakeholder Launched risk event  Implemented online strategy interaction capture form authorisation,

maintenance, cessation Devised technology  Implemented new  Defined case  and notification solution, underlying  structure required to  management business functionality

security and  become an entity-based  requirements

infrastructure design regulator Delivered risk

Delivered fee registration  functionality

Designed fee process and collection process incrementally and

finalised solution design Completed supervisory  Delivered functionality  for risk model

review for new funds product

Completed new Upgraded core back  Delivered enhanced  website design

office technologies Central Register of

Beneficial Ownership  Commenced new Enhanced technical  and Control Registry platform design infrastructre

Foundation (Design) Emerging (Implementation Phase 1) Established (Implementation Phase 2)

   Risk management intMeeernational standarting international rds is unfaltegulatering and is ory standards the changes to the new standards described Our commitment to meeting and setting  In 2018 we progressed our work to implement

intrinsically linked to maintaining Jersey s  by the Basel Committee as Basel III, in particular leading reputation as a well-regulated financial  delivering revised regulatory requirements for services jurisdiction. capital quality and liquidity management and reporting in Jersey. Our new reporting solution,

Failing to meet these standards would be a  that will be operational in 2019, draws on the significant risk to the ongoing success of the  technologies used to collect the NRA data.

In pursuit of our statutory objectives, we have identified principal risks which  island s finance industry.

we seek to manage through our regulation and supervision of Jersey s financial  Showing our commitment to meeting and

setting international standards, we worked services businesses and our own internal operations. In orassessment, in 2018 wder to ensure continued positive committed significant e international  with the Group of International Finance Centre

resources to activities, projects and initiatives  Supervisors to finalise its evaluation of our trust We are an integral part of Jersey s financial services industry and we work  designed to ensure compliance with FATF  company regulation. We were the first jurisdiction standards ahead of forthcoming  to be assessed by the Group under its Standard

together with Government and the local regulated community to manage  MONEYVAL assessment. for Regulation of Trust and Company Services the risks we all face. Providers, as we felt it was important to lead the

During the year we also supported the  way and support the process. Other jurisdictions Government s work on the NRA which is vital for  are now able to use the GIFCS standards and

We are exposed to risk from various quarters - whether on the global stage in  all the agencies across the Island to demonstrate  our evaluation to make changes to their regimes relation to political and economic issues or closer to home with the Industry we  that we have a full understanding of the threats  ahead of their assessments. This can only lead

and vulnerabilities of money laundering and  to higher standards of international regulation regulate and our own internal processes. terrorist financing. We have been able to use the  among other finance centres.

extensive reporting of the supervisory risk data,

In 2018, we have further developed our Enterprise Risk Management  collected through our new systems, to support

the NRA.

framework and will continue to evolve this in 2019.

We also continued to place persistent emphasis

on developing an approach to risk-based supervision and its ability to meet the gold

standard of compliance with FATF s technical

compliance and effectiveness standards, which Jersey s international reputation  is due to be assessed by MONEYVAL in 2021/2022.

Jersey is widely acknowledged to be a high quality International Finance Centre. Maintaining our hard fought reputation is paramount. A loss of confidence in the Island s reputation would hinder Industry s ability to retain and attract clients.

In 2018 the Island was one of a number of jurisdictions that was yet again subject to continued scrutiny and pressure to enhance transparency in relation to tax and beneficial ownership and control.

Being on the EU Tax Blacklist would mean the potential for economic sanctions and significant reputational damage for the Island s financial services sectors.

Jersey has consistently maintained that it is

a jurisdiction of substance and has worked

quickly and effectively to introduce economic substance legislation to reinforce that message. The Island works closely with the EU to monitor its requirements and takes necessary steps in order to comply.

Company Service Providers and the Central   Registry puts us in a leading position to meet

international standards. It enables us to share

information with law enforcement agencies  Leaving the European Union

across the world and help tackle financial crime.

The uncertainty of the final outcome of the UK s future relationship with the EU and the subsequent We made these arguments to two UK MPs, Dame  impact on Jersey financial services naturally features as one of our key risks in 2018. The impact on Margaret Hodge and Andrew Mitchell, when they  the Island s customers and markets is uncertain.

visited the Island last year. They are driving an

attempt in the House of Commons to force Crown  Although the Island has maintained a consistent line that it is not looking to change its relationship with Dependencies to make their registers public.  the EU, there is still a risk that the loss of the UK as an EU member state could have implications for how The Island s authorities believe that this would  remaining EU members perceive international finance centres, including Jersey.

put business at risk, so we have supported the

Government s case to prove that we have an  As a third country , Jersey should be able to maintain access to EU funds markets thanks to established effective and appropriate regime. We will  bilateral agreements between the JFSC and financial regulators in the majority of EU countries. The UK will continue to engage actively in this debate.  become a third country as a consequence of leaving the EU.

Our work with the Government of Jersey on tax  Throughout the year we monitored the negotiations, which culminated in the UK Government and the EU and beneficial ownership are two examples of  agreeing the terms of the withdrawal agreement in November 2018. At the time of writing the agreement how we regularly partner with Island agencies  was still awaiting ratification from Parliament.

to enhance the external reputation of Jersey.

During this ongoing period of political instability, we worked to secure our relationships with both the EU and the UK. The UK s change in status means that our existing memorandum of understanding with the Financial Conduct Authority (FCA) would no longer be valid so we signed a new memorandum, ensuring the Island s funds industry can continue to be marketed in the UK.

There is a vigorous international debate on the

transparency of beneficial ownership. We believe  We continue to work with Government and all relevant agencies to prepare appropriately for all possible that the combination of our regulation of Trust  outcomes, mitigating risks and threats and taking advantage of any potential future opportunities.

p.33 Risk management p.34 Annual Report 2018

Information security and cyber

As an organisation that holds sensitive and  We know the ever-increasing importance of our  commercially valuable data, we are obviously at  own staff s cyber hygiene and resilience. During  risk. Any significant information security event,  2018 we continued our programme of regular  whether loss or theft, would create considerable  training and testing with controlled phishing  reputational damage for the JFSC and the Island.  exercises for all employees including our  Equally a data breach by a local firm would pose  Board Members.  

the same reputational risk.  

Showing our ongoing commitment to protecting  As the regulator, we know the importance of  both Industry and the Island, in 2018 we actively  protecting the information we hold and we have  participated on Government s Cyber Security Task  a role to play in requiring regulated businesses to  Force, contributing our expertise and resources  ensure they have adequate controls in place, as  as appropriate.  

well as warn them about the current fraudulent  

trends affecting the Island. In 2018, we saw the introduction of the Data  

Protection (Jersey) Law 2018. Breaching this new  In 2018 we issued a number of warnings to  legislation could have serious consequences  Industry relating to impersonation attacks on  for us, Jersey s financial services community  local businesses and Islanders. This is based on  and other local organisations. During the year,  information we received from local Industry, UK  we mitigated our own risks of not complying by  agencies and global security intelligence sources. undertaking an extensive internal programme  

of work. We expect our regulated firms to have  To help our supervisors assess the security  reviewed their compliance with the law and taken  controls that regulated firms have in place, we  steps to remedy any deficiencies.  

created and delivered a cyber training plan, which  

equips our teams with security knowledge and  

assessment capabilities. We hold ourselves to the  

same standards that we assess Industry against.  

To that end, in 2018 we underwent an independent  

review and audit of our own security controls. This  

review is based on the JFSC cyber security gold  

standard framework, which is aligned to ISO27001  

and NIST frameworks.

Resource challenges

Our aim is to continue to be a sustainable, efficient and independent financial services regulator:  a fundamental pre-requisite for Jersey s ongoing success as an international financial centre. Without  sufficient financial and human resources, we will not be able to do our job effectively.

We are constantly being asked to do ever more with the same resources whilst maintaining our high  standards. Over the last 10 years, our workforce has increased by less than 15%, whereas in the same  period some regulators have doubled in size. From a Supervision, Enforcement and Registry perspective  we have to demonstrate continued effectiveness in a more demanding international environment, our  policy agenda is more complicated than ever before, and operationally we face greater challenges each  year to support the organisation to deliver new projects and business as usual activities.  

The external environment places pressures on our technology, systems and people. We have maintained  our investment in these areas whilst being mindful of the challenging environment in which regulated  firms operate. We see these pressures continuing in future years and will need to maintain appropriate  levels of expenditure to help us address the risks we and the Island s businesses face. In addition, we  will need to manage our resources so we can continue the enforcement activities that are a key part of  upholding Jersey s reputation.  

Mindful that we must safeguard our independence, in 2018 we reviewed our existing funding model and  explored other potential income streams. This piece of work will continue into 2019.

   Policy International

 Represented Jersey at MONEYVAL, forming part of the MONEYVAL team which is currently assessing Malta s compliance with the Financial Action Task Force 40 Recommendations, and acting as rapporteur for the follow-up report on Hungary

Coordinated the Island s input into MONEYVAL and FATF surveys, questionnaires and calls

for information

Attended a specialist FATF terrorist financing NRA training course and FATF plenary, and Keeping domestic laws, regulation and codes up to global standards   contributing substantially to a FATF paper on beneficial ownership

and working with international policy makers and governments are key

responsibilities of our two Policy teams. Sharing this work, our Financial   Continued tprogramme oo support the Grf mutual evaluations toup of Into assess international Finance Centrernational finance centre Supervisors with its es compliance Crime Policy advisers focus specifically on AML/CFT and sanctions while   with its Standard for trust and company service provider regulation

our Policy advisers cover all other areas. Both teams lead on evaluations by

external standard setters, update Jersey s regulatory framework as required,  Represented Jersey as members of international standard setters such as IOSCO and monitor and react with proportionate policy responses to international  Supported Government s Global Marketing Co-ordination Group with regulatory counterparts

regulatory developments.   in various jurisdictions

Participated with Government and Industry in Jersey's response to the EU Code of 2018 was dominated by two significant pieces of work for our Policy   Conduct Group

division preparations for Brexit and working on the NRA.

Signed memoranda of understanding with the Law Society of Jersey, the Irish Auditing and Accounting Supervisory Authority, and the Abu Dhabi Global Market Financial Services

Regulatory Authority respectively

In anticipation of the UK s departure from the EU, our Policy advisers participated in a Brexit legislative and regulatory gap analysis which led to formulating and reviewing legislative and regulatory amendments. This included revisions to the bilateral agreement between the JFSC and the FCA to secure continued access for Jersey to the UK funds market. The team also attended Government meetings with HM Treasury, the Department of International Trade and the Foreign and Commonwealth Office about Brexit.

In addition to this work, both teams undertook  Attended Channel Islands Brussels Office meetings on EU equivalence, Capital Markets Union, a range of other activities during 2018, including   Audit Equivalence, Sustainability, MiFID and AIFMD.

acting as the primary knowledge resource on our

regulatory framework for Industry and our staff,

supporting other JFSC departments to develop

policy specific to their functions, and assisting  Domestic

with other significant pieces of work either

domestically or internationally.

 Expanded Jersey's Investment Business regime to regulate advice given on transferring out of defined benefit pension schemes, as well as formulating enhancements to the Codes of Practice. Worked with Government of Jersey on legislative amendments for the FATF s 2012 Recommendations, and possible regulation of pensions and consumer lending

Our Policy teams provided significant support

to the Government of Jersey for the Island s    Progressed local adoption of Basel III standards through implementation of the capital quality NRA, chairing seven of the working teams and   and liquidity elements, and the development of new prudential reporting systems for locally supporting the national vulnerabilities, national   incorporated banks

threat, and financing of terrorism teams.

 Made changes to Jersey s Funds Regime

A kown supervisory data collecey component of our NRA work has been our tion exercise which    Undertook analysis of potential enhancements to the Insurance regime

we launched in 2018. Financial Crime Policy have

been extensively involved with this project, helping  Reviewed new product laws such as Limited Liability Partnerships and Limited to define the data that firms need to submit to   Liability Companies

us and producing guidance to help them meet

their requirements. Following this exercise, we  Managed enquiries and requests for support from businesses and individuals looking to have provided the NRA teams with aggregated,   launch or use Fintech products/services

analysed data so that they can undertake an

evidence-based risk assessment of the Island s  Produced guidance for Initial Coin Offerings in collaboration with Industry and Government financial services industry.

Coordinated our financial education programme for local secondary schools and delivering a regular public talk for adults called The Regulator in your Community

Issued guidance for Industry on integrity and competence.

p.37 Policy p.38 Annual Report 2018

04.3

Developing  Supervisory risk data collection exercise and National Risk Assessment proportionate  Data is intwherof our limite to focus our attegral ted resouro our work. It helps us understand ces.ention and make best use  Inusingin 2019.2018a w phasede collectappred dataoach fr, om whichregulatwilled continuesectors

policy responses  Collecfrinitiativom our local rting comparable data on a se for us in 2018. Howegulated community wever, to ryst eitematic basis as a neerate our w  Bohawhichvthe thehadhasNRAaonlysignificantandbeenourmanaownimpacdatageablet oncollecourthanktionresours t eo xerources,cise

new systems and e-enablement - CRM, our to changes in  Chairmandata-drivfor Industry.en acs comments in this Annual Report, tivity of this kind is the new normal  portalmanagement information., data storageandenhanced

international  Wfurther our riskand treporting re will use the data wo inform our futurequir-based apprements. Ae hae data collecggrve collecoach tegato supervision ed data will also ttion and ed to develop  While wsuccess, it woncethe requiragaine consider the eements owas noe thankt without its challenges and f this eallxbusinesseserxtra rcise tegulato havforory bure been a meeden. ting regulatory  form part of the Island s NRA. The long-teprxoportionatercises willerm benefits oeseeanduseffecdelivtivf these colleceringe forma morof esupervision.strtion eamlined,

standards Data collection volumes

01  02  03

Data submissions Valid data Data items processed submissions received

1,810 1,330 2,699,796

04  05

Industry respondents Questions answered

by Industry

3,377 23,255

   Supervision Pooled Supervision Unit

Supervising firms that pose a lower potential risk,  practice publications and briefings. Based on this team is responsible for approximately 700  this strategy, the unit completed a thematic

firms. A number of these are Designated  examination programme in 2018, engaging

Non-Financial Businesses and Professionals such  with 24 property managers.

as lawyers, accountants and estate agents. While

At the JFSC, we operate a risk-based approach to our supervisory activities,  the pooled firms pose a lower potential risk to  We are committed to developing the supervisors

our guiding principles, they are not necessarily  of tomorrow and this team offers the perfect ensuring that we deploy our resources to those businesses that pose the  low risk. Our strategy for supervising these  training environment, while equally giving

greatest potential regulatory risk to Jersey s reputation as an international  businesses is built on thematic examinations,  experienced supervisors the platform to finance centre.  entity risk examinations, (where the specific risk  develop their leadership capabilities.

is above our own risk tolerance) and outreach

to Industry, such as providing guidance, best

As the organisation s largest division with circa 55 staff, Supervision s primary function is to oversee regulated businesses and individuals to ensure they meet their relevant legal and regulatory obligations.

2018 was the year that we accelerated change in Supervision, implementing an extensive programme

of enhancements and laying the foundations for future improvements, with the aim of driving better  Regulatory Maintenance Unit regulatory outcomes for years to come.

Focusing on demonstrating our effectiveness to both Industry and international standard setters, we  Our Regulatory Maintenance Unit provides support to Industry and our other Supervision teams for completed a number of changes to the structure of the division in early 2018, with the aim of developing  day-to-day activities, easing the administrative burden for supervisors to ensure they can focus their our risk-based approach.  efforts on where the greatest risks lie.

Central Authorisations Unit

The first change we made was to create a  218 new approvals, including 128 JPFs. The

centralised unit for authorisation and cessation  ring-fencing of UK bank deposits generated

activities for all regulated businesses, products  a number of licence changes and there was

and individuals. Central Authorisations is our first  increased TCB activity in private wealth

Our resources are line of defence in our supervisory model and this  management. For AML purposes, we regulate

small team works closely with all of our frontline  activities in the crypto-currencies and initial

supervisory units. coin offerings sector and in 2018 we published

appropriate warnings on our website to inform

deployed to firms During the year, we approved 340 new  investors about the risks associated with

registrations and revoked 261 across all sectors.  investing in these assets.

We saw the most activity in the Funds sector with  that pose the

cRelationship Manaonsidered to present the ged Supervision greatest risk, we face-to-face activities and regular dialogue with  greatest risk

To oversee regulated businesses that are  During 2018 these units focused on increasing

created two Relationship Managed Supervision  firms, through on-site examinations, outreach

units; one for Banking and Fund Services Business  and annual review meetings. Both units dealt with

(FSB) and another for Trust Company Business  a number of emerging risks and, consequently,

(TCB), Investment Business (IB) and Insurance.  supervisors had to monitor several large

Supervisors working within these units remain  remediation projects, often working closely

sector-focused, ensuring we retain specialist  with Enforcement colleagues.

knowledge, and they manage a portfolio of entities

categorised as either enhanced or proactive .  Over the 12 months these units also worked on

the NRA, Basel III implementation, and our ongoing

internal systems development projects.

Supervision Examination Unit

Responsible for coordinating and delivering a dedicated programme of onsite examinations for all sectors of the regulated community, our Supervision Examination Unit carried out 46 examinations in 2018, its second full year of activities.

29 of the examinations were thematic and focused on two main themes - the revised registry requirements for beneficial owners and controllers and also client assets - and we published detailed feedback papers on the findings on our website.

17 of the onsite visits focused on risk, covering detailed reviews of firms compliance functions, corporate governance, market abuse systems and controls, and complaints handling.

Some of the key findings we identified were:

Conflicts of interest   Customer risk assessments

Out-of-date policies or no policies at all,  Numerous instances of customers with and conflict registers not being  high or very high risk appetites based managed appropriately on inappropriate risk ratings

Effectiveness of governance Compliance monitoring

Board meetings, agendas, minutes, actions,  Compliance monitoring plans which had not and terms of reference not being  been mapped to the risks facing the business managed appropriately  or our regulatory framework

Business risk assessments   Policies and procedures

Lack of adequate, orderly and up-to-date  Inconsistencies between group and local records of risk management systems, and  policies and procedures which resulted in a lack business risk assessments without specific  of clarity that local regulatory requirements money-laundering and terrorist financing  would be met.

risks identified

Such reviews enable us to look across all sectors and share our findings with the whole of Industry. This will continue to be a key component of how we supervise going forward.

04.4

Industry feedback on our examination process

We always ask businesses for their feedback after the examination process and this has already helped us to make refinements to our approach. The table below shows the cumulative responses from the start of the team s onsite examinations in 2016 to the end of 2018.

Feedback

Information request

Positive (strongly agree / agree) 96% Negative (disagree / strongly disagree) 4% Other (no comment / no meeting held) 0%

Preliminary meeting

Positive (strongly agree / agree) 77% Negative (disagree / strongly disagree) 3% Other (no comment / no meeting held) 20%

The examination

Positive (strongly agree / agree) 92% Negative (disagree / strongly disagree) 6% Other (no comment / no meeting held) 2%

The debrief

Positive (strongly agree / agree) 83% Negative (disagree / strongly disagree) 6% Other  (no comment / no meeting held)   11%

Factual accuracy report

Positive (strongly agree / agree) 86% Negative (disagree / strongly disagree) 3% Other  (no comment / no meeting held)   11%

Other supervisory activities

Our commitment to enhancing our digital capabilities has underpinned the changes we have made in Supervision, for example the development of our CRM system which enabled us to launch our first online application, the JPF. This was a significant milestone for us, improving our efficiency and enabling us to achieve straight-through processing. We are grateful to a number of firms who helped us to develop and test this functionality. In 2018 we also completed other digital projects, such as end-to-end processing of examinations through CRM. Our systems development will continue to be a key focus in 2019 and beyond.

As mentioned elsewhere in this Annual Report, data collection featured heavily in 2018 in support of risk-based supervision and the NRA. The data we collected via our online portal will help us to develop further our risk model so we can continue to focus our activities in the right places.

International engagement remains critical in an ever-changing world and we recognise the importance of developing relations with other regulators, particularly to support our efforts to effectively supervise local businesses with a presence in other jurisdictions. In 2018, we visited Hong Kong to share our experiences and framework for trust and corporate service providers regulation and we also led and participated in a number of trust company business regulatory colleges through our membership of the GIFCS.

We were the first jurisdiction to be assessed by the GIFCS against its Standard for Trust and Company Service Providers and we received top ratings. With stringent assessment criteria, the evaluation made a small number of recommendations for improvements to our existing practices, which we either made during 2018 or were in the process of doing so at the time of this Annual Report. A JFSC representative will be an assessor for one of the next GIFCS evaluations taking place in 2019.

04.5

   Enforcement

01

Our Enforcement team takes action against businesses and individuals that do not comply with our regulatory and legal requirements. We investigate actual and potential cases of serious regulatory misconduct.

02  03

Where appropriate, we will engage and work constructively with our regulated community so that we achieve successful outcomes. We seek to act firmly but fairly, working alongside colleagues in Supervision, to ensure regulated businesses and individuals take steps to resolve issues, particularly when breaches are self-reported

by firms.

Where breaches are particularly serious or efforts to address shortcomings fail, we will use our statutory powers and are prepared to impose a range of sanctions. These include restricting or preventing people from working in the finance industry, revoking a firm s licence, issuing public warning notices, imposing civil financial penalties and referring cases to the States of Jersey Police or Attorney General for consideration of

criminal prosecution.

In 2018, Jersey had its first criminal conviction for conducting unauthorised financial services business. Members of both our Enforcement and Supervision teams gave evidence in the trial which led to an independent financial adviser being convicted of defrauding his clients, providing false and misleading information to the JFSC

and conducting unauthorised financial services business. The seven-year prison sentence he received from the Royal Court sent a strong message to anyone contemplating defrauding

the investing public or seeking to evade our regulatory laws.

In May, the Royal Court handed down a landmark judgment in favour of the JFSC s decision to issue a direction and public statement against a former principal person. The Court agreed that we had acted reasonably in concluding that the individual had acted with a serious lack of integrity and displayed incompetence of the most serious kind.

In terms of active investigation in 2018, it was a particularly challenging and busy year for our 12-strong team who dealt with 142 cases in total. The type of cases varied with investigations into regulated businesses failing to comply with their anti-money laundering obligations, mis-selling

investments to retail clients, and individuals

conducting unauthorised financial services  Live cases  Cases carried over  New cases

annum. We carried over 65 cases from 2017 and  134 57 77 business. Where appropriate, we issued  in 2018 from 2017 in 2018

public warnings in accordance with our

guiding principles.

We started 77 new investigations during the year,

which was an increase on 2017 s total of 64 but in

line with the five-year average of 79 new cases per

this was slightly higher than the carryover figure  of 57 from 2016 to 2017.

04  05  06 In nine cases we provided assistance to overseas  

regulators by securing evidence in the Island.  

During the year, we issued 124 notices requiring  

individuals to produce evidence and information  

for our investigations.

We received 33 whistleblowing calls in 2018.  

Whistleblowers continue to play an important role   in identifying the most serious misconduct and  Cases carried  Requests for assistance  Formal Notices

investigations. In addition to managing the JFSC s  65 09 131 identity of whistleblowers, even where individuals

breaches. We remain committed to preserving the  into 2019 from overseas regulators issued

prefer to communicate through

face-to-face meetings.

Accessing reliable and timely intelligence is a

key part of undertaking effective and focused

own in-house intelligence unit, our Enforcement  team also works closely with the States of Jersey  Police and Customs Joint Financial Crimes Unit   07  08  09 to make the maximum use of intelligence, which  

often originates from Industry. In 2018 our timely  

exchange of intelligence helped protect some of  

our most vulnerable Islanders from falling victim  

to financial crime.  

In October 2018, we gained the power to extend  

financial penalties to individuals in addition to   businesses, following an amendment to the law.  Notices compelling individuals Public statements issued  Calls to whistleblowing line The threshold for imposing civil financial penalties  to attend an interview

the increased use of civil financial penalties  26 09 33

was lowered to include negligent breaches of our

Codes of Practice. These changes are likely to see

in 2019. Four of which prevented/ 16 of which led to active

restricted the individual from  investigations

working in financial services

p48 Annual Report 2018

04.5

04.6 Registry Central Register of Beneficial Ownership and Control

The international registry community and global  Every day we are now conducting an average of standard setters such as MONEYVAL regard  337 beneficial ownership and control transactions

Jersey as being in a leading position for our Central  and we now hold more than 380,000 records. Register of Beneficial Ownership and Controllers.  During 2018 we saw a 1200% increase in the Throughout 2018 our activities continued to be  number of transactions we are processing for dominated by the administration of this register. changes in beneficial ownership and controller information, now that companies are required to

While managing our business as usual  provide us with these details within 21 days of

We are one of very few jurisdictions to benefit from housing our regulator and  requirements, we worked tirelessly to satisfy  any changes.

registries under one roof. We look after nine registers, including the Central  the Exchange of Notes signed between the Island

Register of Beneficial Ownership and Control, the Security Interests Register  register is adequate, accurate and current. The  Tfurther work on the API gato deal with this increasing vewolume, ways and we underte are  ook

and the UK Government in 2016 to ensure that our

and the Trademarks Register.  agreement enables us to share highly sensitive  seeing increasing traffic via this route. Until we

information with trusted international law  introduce our new registry systems, the data

enforcement and tax authorities on request and  integrity checks we do for beneficial owner With an international reputation for being a centre of excellence for our  in appropriate circumstances. The first mutual  and controller data will remain a largely

registries, we register Jersey companies, partnerships, foundations and  review of the Notes was successfully undertaken  manual exercise.

business names. Our aim to maintain a customer-centric approach so all  and completed during early 2018.

our users have access to accurate and reliable information.

2018 developments

During 2018, we continued to make changes in the  Our next big projects are the Register of Directors Companies Registry, concentrating on delivering  and the new Registry Law. For the former operational excellence and efficiencies. we provided Government with a high-level

specification for the proposed register and for the latter we collaborated with Government to develop concepts for the new law, with a particular focus on digital enablement. Government s registry review process concluded that we would not develop this Register of Charities.

As part of our annual programme of work we made incremental improvements to our existing registry platform so it is as user-friendly and efficient as possible for our stakeholders, while we continue

to design and develop our new system.

We delivered the Limited Liability Partnerships  In July, our Director of Registry, Julian Lamb,  Managing global continuance, cross-border mergers and international  register on 1 July and for de-mergers we  became the Registrar of Companies.

transparency requirements. incorporated revised legal requirements in our

register with new systems and provisions coming

into force on 1 August.

Our busy Registry team of only 12 staff deals with vast quantities of   transactions every year. In 2018 we processed some 394,853 diverse

tasks and 33,373 company annual returns.

International engagement

As Registrar, Julian Lamb was re-elected to the  request. This was particularly the case for

Boards of the US and Canadian registry fora,  beneficial ownership and control policy and

the International Association of Commercial  best practice.

Administrators, and the new registry organisation

representing Europe, the European Business  A noteworthy Government and JFSC collaboration Registries Association. He continued to represent  in 2018 was the successful completion of statutory Jersey in other forums during 2018, ensuring the  review of the mutual Crown Dependencies,

Island is benchmarked and positioned correctly.  Overseas Territories and United Kingdom

Exchange of Notes.

Our Registry team also continued to collaborate internationally, helping with scrutiny and policy development, and providing specialists on

p.51 Registry p.52 Annual Report 2018

Registry output 2018

01  02  03

Companies  Companies  Total live incorporated dissolved entities

2,551 2,736 56,126 844F50257 314 ast track7 xxxx 2 hour 3 da1 da2 days y y   043Tregistrationsotal,400  053Total dissolutions / ,147

cancellations

629 x 5 day

06  07  08

Changes to beneficial Beneficial owners /  Annual returns owners / controllers controllers' records

43,792 382,920 33,373

   Operations

With a team of 35 people, our Operations team is the JFSC s second largest  division after Supervision. Comprising Communications, Facilities, Finance,  Human Resources, ICT, Information Management and the Programme  Management Office, this division s primary focus is to support other JFSC  teams to execute their duties efficiently and effectively.

While our official change programme is drawing to a close, we understand that to be truly effective as a  regulator, we must continue to adapt and evolve the way we operate, introducing new systems and digital  solutions to streamline our processes. Our operations team is key to making this happen and in 2018 we  made significant progress in this area by completing technological developments and laying additional  foundations for ongoing enhancements in the future.

It was also the year of GDPR, with the Data Protection (Jersey) Law 2018 coming into effect in May. To fulfil  our obligations in this regard, we established a dedicated Information Management team which, led by  a Data Protection Officer, ensured we addressed and adopted all the necessary policies and procedures.  The team also gave essential in-house training to our people.  

As anticipated, 2018 presented another full programme of projects for the Operations team. There were  numerous divisional highlights during the year including:

 Improving our data protection systems and controls to meet the demands of the Data Protection   (Jersey) Law 2018 and to strengthen the management of our information

 Facilitating the systems changes required for restructuring our Supervision division

 Making significant progress on the design, development and delivery of our new website, while   revitalising our existing intranet to improve internal communications for our people

 Recruiting a new Director General and three new Commissioners to the Board

Enhancing our financial education programme by re-launching the Jersey Fraud Prevention Forum,   supporting IOSCO s World Investor Week, and continuing to work with local schools, for example judging Les Quennevais students enterprise challenge

Supporting the supervisory risk data collection exercise and NRA through issuing communications to   our stakeholders and providing technical solutions for collection, storage and analysis of data  

Implementing the digital functionality to enable online submissions of firms financial statements,   banks prudential reporting and the application tool for Jersey Private Funds

Developing a bespoke regulatory qualification, the International Certificate in Financial Services   Regulation, in addition to establishing a comprehensives in-house training programme

Creating and delivering a cyber security training programme for supervisors to assess firms   security controls

Organising key external events and outreach such as the annual Business Plan presentation to   Industry and our 20th anniversary celebrations

Streamlining internal financial processes and controls to enhance operational efficiencies   across the JFSC.  

   Our people

91% of our employees feel engaged in their work, according to a staff survey that we  carried out in 2018. That is a statistic we are hugely proud of and will seek to improve  upon as part of our people strategy.  

We know that we are making improvements based on our 2017 survey when our  engagement score was 85%. In just one year we have been able to make tangible and  positive differences to life at the JFSC. We have done this by listening to our people  and taking on board their feedback. After each survey we have created working  groups to empower employees to find solutions and drive forward changes to improve  our culture and working environment. Our latest set of results show this  approach is working.

Our goal is to be an employer of choice. We can only achieve that by continually

improving how we do things and by recognising and investing in our people. We know  Performance Management

how important employee engagement is to the success of our organisation and we

will continue to work hard to ensure the JFSC is a motivating, rewarding, inclusive  Ourand Pinerformance2018 we tookManastepsgementto ensurframee wworke ha vhase a nowmeritbeenocraticembeddedculture for int oalltheemploculturyeese o f including the organisationthe and fun place to work, where people feel valued.  executive directors. This approach recognises exceptional work from our people and rewards achieved

performance. From the survey the 93% engagement score is a clear indicator that the Pay for Performance strategy is effective at the JFSC.

Learning and development

Throughout 2018 we focused on investing further in the professional development of our teams with the aim of creating highly qualified professionals with the technical expertise to meet the needs of the organisation.

We achieved this primarily through devising

our own learning curricula at Foundation and Intermediate Level which are delivered by in-house technical subject matter experts. In addition to in-house technical training, we collaborated

with BPP and ICSA: The Governance Institute to develop a bespoke regulatory qualification - the International Certificate in Financial Services Regulation. This qualification ensures our staff continue to focus on professional competency. During the year a number of staff achieved other professional qualifications at various levels.

Following the rollout of a structured training programme in Supervision in 2017, our dedicated Learning and Development Manager focused on meeting the learning requirements of the rest of the organisation. One successful addition to our

development programme is our leadership and

management framework. This was created to  Recruitment

support staff new to line management roles and

to up-skill existing line mangers to strengthen  In 2018 we successfully recruited for 23 positions,  who displayed exceptional ability and competence. our leadership capability.  across all divisions and at varying levels of seniority.  Some of these promotions were inter-divisional,

We fill roles by reviewing our existing expertise,  demonstrating that we support and foster

The over-arching factor in designing this  inviting current employees to apply for senior  multi-skilled and adaptable individuals in our programme was to establish a sustainable  roles and assessing any skills gaps. We have  ever-evolving organisation.

and credible leadership development offering  successfully maintained our grow your own

which has longevity. A key objective for 2019 is  model with trainees in most divisions and bespoke  During the year we also developed a working

to have our leadership programmes accredited  training plans for employees. relationship with the Jersey Employment Trust,

so that staff have the opportunity to attain an  assisting those looking for work or seeking to internationally recognised qualification  We are still attracting applicants by advertising  come back into the workplace after a period of in leadership and management. our vacancies via our social media channels,  time off. We successfully recruited into permanent

website, staff referral scheme, and occasionally  roles and provided support and guidance for recruitment agencies.  potential candidates through mock interviews

and feedback. We also invited clients into the

In 2018, we oversaw the whole recruitment  workplace and offered temporary placements to process for three new Commissioners and worked  build confidence, relationships and, most of all, the with a London-based recruitment agency for the  courage to get back into a working environment. role of Director General.

We continue to develop, coach and mentor our people and in 2018 we promoted 16 staff members

p.57 Our People p.58 Annual Report 2018

04.8

Diversity and inclusion

Part of our strategy to be an employer of choice is to successfully embed equality, diversity and inclusion into our culture and in late 2018 we started a Diversity and Inclusion Committee to do just that. With 12 members of staff signed up, we aim to demonstrate that we value and promote diversity, champion equality, and foster a respectful and inclusive environment. Our goal is to achieve the British Diversity and Inclusion Standards within the next three years.

Health, wellbeing and the environment

A primary focus for us is the health and wellbeing  In 2018 we strengthened our strategies for health, of our people. We are committed to improving the  wellbeing and environmental matters. Improving physical and mental health of our employees and  our working environment goes hand in hand with investing in initiatives to help us achieve a fit  the wellbeing of our staff and our month-long workforce. For example, we provide private  awareness campaign for better wellbeing inspired medical and dental care and we have a dedicated  staff towards healthier lifestyles. We shone more Employee Assistance Programme, which is a  light on mental health issues and engaged in more personal and confidential support service for staff. conversation around improving our wellbeing.

We encourage all of our employees to take  2018 showed that we continued to support flexible ownership of how we promote health and  working practices by reviewing flexible and remote wellbeing by joining our staff forum. Through the  working, to ensure that business needs were met forum, we collectively contribute ideas and plan  and the individuals had access to the tools they events, activities and campaigns. need to fulfil their duties.

September 2018 brought changes to the statutory rights for family friendly policies which include maternity, parental and adoption leave. We updated our JFSC policies to reflect the new legislation with additional or enhanced paid time off and support through our various healthcare plans.

Average headcount across departments (including contractors) Supervision  Enforcement  Registry

55.9 12.1 14.3

P1olic 3y .7  Operations36.6 13To2tal.5

Key staff survey results Workforce = 58% female / 42% male

Commissioners = 30% female / 70% male Heads of Unit = 55% female / 45% male.

2017 2018

Overall engagement score 85% 91% I am proud to say I work for the JFSC 84% 91%  We continue to

I would recommend the JFSC as a good place to work 72% 86% develop, coach and

I care about the future of the JFSC 97% 100% mentor our employees

 04.9 Corporate Social  

Responsibility

Year on year our people give more of their time and donations to support local and overseas charities. With a workforce of fewer than 140 employees, we  are continually heartened by the generosity and compassion displayed by  our staff, whether that s putting their hands in their pockets to support our  various monthly fundraising activities or getting their hands dirty volunteering  for community projects. Fundamentally everyone at the JFSC comes together  with the shared desire of making a positive impact on our community and our  environment and this is now a very evident part of our culture.

Since 2016 we have supported Jersey Mencap, a local charity for children  and adults with learning difficulties and once again we nominated it as our  chosen charity for 2018. In addition to raising money for the organisation,  

our staff continued to help at its Pond Project, developing the reservoir and  conservation area by planting more trees and introducing an irrigation system.

Jersey Hospice, the JSPCA, Autism Jersey and Fostering and Adoption Jersey were some of the many  other worthy causes that benefitted from the £12,000 we raised during the year. We always explore  innovative and engaging ways to fundraise and our dedicated team of Staff Forum volunteers are  instrumental in spearheading our activities. Over the 12 months, two team members from Supervision  jumped out of a plane, another trekked to Machu Pichu, a group served up an in-house soup kitchen,  while other teams took part in the Swimarathon, South Coast Charity Walk, the Race for Life, and the  Standard Chartered Jersey Marathon. At Christmas, we raised £2,000 in one week for Jersey Hospice and  the JSPCA, also donating pet food and toys to the latter.

Thanks to our corporate social responsibility (CSR) policy, staff can dedicate up to two days every year  to volunteer for their chosen charitable causes or environmental projects. While there are too many to  mention here, one initiative we are particularly proud to support is Every Child, Our Future - the education  charity that helps primary age pupils improve their literacy skills. Our employees are some of the 500 plus  volunteers who regularly go into local schools to help young children with their reading.

p.61 Corporate Social Responsibility p.62 Annual Report 2018

04.9

Charity money raised Giving

£12,000+

Money raised for good causes (£2,000 in one week)

Another of our core CSR initiatives is our work with  With global focus on climate change and the  

the Jersey Fraud Prevention Forum. Established  impact we are having on our environment, we  

in 2015, we are a founding member of the Forum  recognised that we needed to do more as an  

that was set up to raise awareness about frauds  organisation so in 2018 we focused more of our  and scams in the Island. In 2018, we strengthened  energy on saving energy and becoming a greener,  our existing activities by doing public road shows  leaner, cleaner JFSC. We embarked on a  

and social media campaigns, and launching  month-long internal awareness campaign  

of a biannual newsletter that is distributed to  dedicated to eco and sustainable activities such  all Island homes. We also coordinated a text  as a bike maintenance workshop to encourage  message campaign that reached all Islanders  more staff to cycle to work, a beach clean, and  with mobile phones, warning them about the risks  plastic-free solutions. Over the year, we stopped  of phishing. We commit our time and funding to  using plastic glasses in the office and invested  support Forum activities, which align with our own  in re-usable water bottles for all staff to raise  guiding principles of protecting the public and  awareness about single-use plastic. Thanks to our  reducing the risk of financial loss. We see this as a  Green team volunteers making sure that eco is  significant component of our work, particularly  now a top priority, we have achieved Plastic Free  given the huge impact and sophistication of  status in 2018 and have a year of activities planned  frauds and scams today.  for Green 2019.

Our staff s commitment to making a difference  

by donating to charities and doing more to  

protect the environment is truly commendable.  

In turn, that commitment is fostering a culture of  community and teamwork within the JFSC, which  we wholeheartedly encourage and will continue  to support.  

 04.10 Finance and  Operating costs

resources Our t(2017: £16.9 million). The most noduringby uneotal expecthexpenditurytearedly lowweree increr inincrveased teasesestigation and table moino £17depr.6 million eciation,vements  Prbecause oand costs incurrour nesyostfessional services costs rems dew registry sf tvemporary relopments ented in the early deystem. Wesoure eer the capital staemained high ce rxpecequirvelopment ot these costs ements ge of f

computer expenditure, professional services and

operational costs. These increases were offset  to decline as the vacancy rate improves and litigation costs. development and finally wind down on completion.

Overall our operating costs broadly reflect a  Our investigation and litigation costs decreased similar cost structure to that of 2017. We had  significantly in 2018 compared to the historic

higher computer systems and depreciation costs  average. This was due to the completion of a due to the introduction of digital and  significant enforcement case during the year.

In 2018 we made a surplus of £843,000 compared to a budgeted deficit of  automated processes. Our costs for the year were £373,000, compared £369,000. This was predominantly due to increases in registry and supervisory  to £872,000 in 2017 and we expect it to revert to The sensitive nature of the information we hold  a high level in due course.

fee income and lower than expected enforcement costs. Our total regulatory fee  and our increasingly digital infrastructure mean

income increased by 11% year on year which we can attribute to inflationary  that we need to continually develop and maintain

annual fee increases and stronger than expected income from applications  apprinternational scale and compleopriate levels of cyber defences. The xity of cyber-crime

and funds sector activity. continues to pose a significant risk, both now and

for the foreseeable future. We therefore continue

Our total expenditure for 2018 was marginally below budget overall, which resulted from lower than  to maintain our level of investment in cyber

expected investigation and litigation costs, higher staff vacancy rates throughout the year, and lower  defences and anticipate these costs will

annual depreciation charges. continue to rise in years to come.

Our staff costs remain the most significant item The result for the year was a net surplus of  of expenditure. The average number of full-time

employees remained unchanged in 2018. Staff £843,000 (2017: deficit of £320,000) vacancies than expected throughout the year.

costs incurred were below budget as we had more

We have committed to strengthen our IT systems which has led to a shift in our operating costs towards

IT spending together with further investment of £1.6 million on new systems. The expenditure on new   systems in recent years has also increased the depreciation and amortisation charges. On a net basis,

the book value of intangible and tangible fixed assets increased to £5.3 million by year end

(2017: £4.4 million). Financial position

Our overall financial position remains under  Depreciation and amortisation charges rose

Our financial reserves consequently increased to  pressure, having sustained losses in recent years.  to £887,000, reflecting the extent to which we

While our financial reserves improved during 2018  have invested in fixed assets. Depreciation was £6.4 million by 31 December 2018

to £6.4 million, they remain below target levels.  slightly behind budget because of delays in the

We have an ongoing requirement to return to the  development of our new registry system and the target level of reserves necessary to demonstrate  implementation of systems that were nearing

While our cash balances increased to £9.5 million (2017: £8.9 million), short-term liquidity barely changed.  our resilience. To achieve this, we need to develop  completion at the end of 2018.

Our liquidity (net current assets excluding prepayments, income received in advance and provisions)  additional sources of income and continue to

increased marginally to £6.4 million (2017: £6.1 million) illustrating the limited extent to which the current  manage costs very tightly in future years. We have made provisions for probable material year surplus affected our cash balances. liabilities to ensure that we have funds available

Cash balances improved, increasing by £0.6  to settle these obligations when they materialise. million to £9.5 million (2017: £1.1 million inflow to  Total provisions of £510,000 were reflected at the

£8.9 million), but overall short-term liquidity is  end of 2018 (2017: £513,000) with £183,000 (2017: little changed from the prior year at £6.4 million,  £210,000) expected to be settled during 2019.

Regulatory fees despite the current year surplus.

Our total regulatory fee income reached £18.2 million (2017: £16.6 million) following increases in both supervisory and registry fee income.

Supervisory fee income rose by £1.7 million compared with 2017. Higher annual fee income accounted for £1.3 million of this increase, with the remaining £348,000 arising from stronger than expected business volumes.

Registry fee income increased more moderately,  Our total investment in fixed assets amounted taking into account that the number of annual  to £1.8 million (2017: £1.6 million). Our principal returns processed in 2018 declined by 0.4%. The  investments during the year related to core

total increase in registry income roughly equates  information systems replacements, upgrades and to the rate of annual inflation. further development of our CRM system for risk-

based supervision and the expansion of our

portal services.

Our principal capital maintenance objectives of providing appropriate levels of working capital, funding investigation costs and replacing assets over the long-term remained unchanged and we will continuously monitor our position through robust forecasts and strong

budgetary disciplines.

_ 05

   Governance

Constitution

Delegation of Powers

We are a statutory body established under Article 2 of the Financial Services

Commission (Jersey) Law 1998 (FSC(J)L) which provides that the JFSC shall be  OofutrhBeo JaFrSdCd eslteagffa tteos e itnsspuorewtehrast wwhee rcea anp rpersopporinadtep trooomnpet olyr, meffiorceie onf t tlyh ea  nCdo meffmeics tsiivoenlye r ts o o er v t eo n ats maenmdb er governed by a Board of Commissioners comprising persons with financial  circumstances. You can find a full explanation about the Delegation of Powers on our

services experience, regular users of such services and persons representing  website: jerseyfsc.org

the public interest.

Composition of the Board and appointment of Commissioners

Accountability arrangements

We are an independent body, accountable to the  In 2017, an Article 12 Direction was issued in order for public through the Island s elected representatives,  the Exchange of Information on Beneficial Ownership namely the Chief Minister and the States of Jersey.  agreement with the UK to be implemented to allow Our relationship with ministers is set out in a  the Island s Joint Financial Crimes Unit to access to memorandum of understanding to ensure our  our relevant information and databases on beneficial independence, whilst facilitating effective dialogue  ownership. The intention is that the Direction will be and working practices. Article 12 of the Commission  withdrawn once appropriate substitute legislation

Law provides that the Chief Minister may give the  has been enacted.

JFSC general directions, subject to

significant safeguards. We produce an annual Business Plan, and separately

an Annual Report, to inform members of the States Assembly and other stakeholders. We consult extensively on all proposals to create or amend

Laws and Regulations, and we provide feedback statements to explain how we have taken responses into account.

Governance arrangements

Our Board of Commissioners believes that high  the Chairman and the Director General, that no quality effective governance arrangements are  individual has unfettered decision-making powers essential for well-run organisations. There are  and that we have transparent procedures for

no comprehensive Codes or Standards for the  the appointment and re-appointment

governance of a financial services regulator,  of Commissioners.

but the Board believes that the UK Corporate

Governance Code (Code) is an appropriate  As explained in the Chairman s statement, the benchmark. The Code requires Boards to comply  retirement of the Director General led to the

with its high-level principles or explain how the  Chairman taking on more responsibility for the day objectives behind those high-level principles have  to day running of the organisation. Due to these been met through other arrangements. unusual circumstances, the Chairman increased

the amount of consultation with other Board

We comply with the vast majority of the Code s  Members to mitigate the risk that the division high-level principles. For example, we ensure  of responsibility between the Board and the

there is a clear division of responsibility between  Executive was compromised.

Our Board currently comprises the Chairman, Deputy Chairman and nine other Commissioners, including the Director General. All of our Commissioners are considered to be independent, with the exception of the Director General. A chart of our current Commissioners is set out on page 103 - 104 of this Annual Report and you can find further information on their skills, knowledge and experience on our

website: jerseyfsc.org

Commissioner recruitment

2018 was a busy year for the Board of  This now brings the number of female Commissioners in terms of recruitment. In line with  Commissioners on the Board to three, representing our succession planning strategy, and mindful  just over 25% of the Board s membership.

that there were a number of Commissioners who

would shortly reach the end of their second and  After 10 years of service as a commissioner and, final terms of office, three new Commissioners  in more recent years as Deputy Chairman, Debbie were identified for recruitment. Prosser retired at the end of November 2018.

Commissioner Ian Wright assumed the position Our Board endeavours to ensure that there is an  of Deputy Chairman following recommendations appropriate degree of knowledge, experience and  from the Board and appointment by the Chief diversity amongst the Commissioners. When a  Minister. Michael de la Haye stepped down as vacancy becomes available, the Board evaluates  a Commissioner on 31 December 2018.

the current balance of its membership and

identifies the characteristics, skills and experience  It is intended to recommend to the Chief Minister that would most enhance its effectiveness. Once  that Mark Hoban assumes the position of

again, we worked with the Jersey Appointments  Chairman in 2020, subject to his satisfactory Commission during the recruitment process. The  performance as a Commissioner. The current Nomination Committee evaluated the successful  Chairman, Lord Eatwell, is due to retire in candidates and made recommendations to the  April 2020.

Board. The appointment of Commissioners Mark

Hoban, Monique O Keefe and, more recently, Tracy  Profiles of our new Commissioners are on our Garrad were made following this process. website: jerseyfsc.org

Board meetings and attendance

Our Board met seven times during 2018 to  Our Commissioners had regular discussions  consider strategy, risk and regular business. All  during the year with Government in terms of  Board members attended all seven meetings with  significant financial services matters, the NRA  the exception of three Commissioners, of whom  and Brexit preparations.

three were unavailable for one board meeting  

respectively. Our Board also met several times  Our Board members consider carefully the  

in 2018 to review and consider enforcement  potential for conflicts of interest to arise and  settlement cases and contested matters. The  excuse themselves should any perceived or  Commissioners and Executive also met for a  actual conflict be identified.

strategy day and participated in events with fellow  

regulators, Industry representatives, Government  An externally facilitated governance effectiveness  ministers and the States of Jersey Police. review will be conducted towards the end of 2019  

or early 2020.

Board activities Executive Board

The unexpected absence of a Director General during the second half of 2018 posed challenges, largely  in terms of time commitment, for our Board and Chairman in particular. In addition to their regular Board  meetings and sub-committee commitments, the Commissioners took time to collectively support and  provide guidance to the Executive team throughout the period. The Chairman spent more time in Jersey  to make himself available to the Executive, ensuring that the organisation maintained progress with the  Business Plan and continued to conduct business as usual effectively.

20 years

As we celebrated 20 years of the JFSC, our Board reflected on the past two decades and acknowledged  the increased pressures on regulators today in terms of international standards and the advantages and  complexities of technological developments. The overriding reason for establishing the JFSC remains true  today to protect the public and maintain Jersey s strong position as an international finance centre with  a highly respected regulatory framework.

International assessments

International assessments featured as a regular  Throughout the year, our Board was kept  

Board meeting agenda item. In the interests of  apprised of developments regarding the NRA data  Industry and the Island s reputation, our Board  collection process. Commissioners supported  

is keen to ensure that we continue to strive  the Executive in considering how to manage this  to meet the level of regulatory performance  obligation alongside business as usual, while  expected among international bodies. Today that  acknowledging the impact on Industry.

incurs large costs and increasing demands on  

resources due to the scale and capacity of that  

expectation. In terms of the long-term vision for  

the JFSC, our Board was forced to acknowledge  

that our sustainability is of concern in the face of  

continuing resource pressures.  

Risk Commissioners remuneration

Throughout 2018 our Board maintained a strong focus on risk management. Work is progressing

to embed risk into our organisation wide culture and all employees daily activities. Commissioners and executive directors worked closely together on strategy while the Board kept oversight of developments. As the ERM model developed, it became clear that a Risk Committee of the Board

was the next natural step in establishing risk as a  Commissioners receive a fixed annual amount, with no additional amounts paid for participating or key element of the Board s strategy. In February  chairing subcommittees, dealing with enforcement cases or attending to other matters.

2019 the Board approved the formation of a Risk

Committee with Mark Hoban as Chairman. The  Commissioners fees did not increase in 2018. The existing annual amounts will be reviewed during 2020 Risk Committee will advise and partner with the  following the next external governance effectiveness review.

Executive in fulfilling the Executive s accountability

to the Board regarding risk management. Towards the end of the year, our Board concluded its annual evaluation of the Chairman s performance,

noting in particular his increased commitment to the organisation and executive leadership in the absence of a Director General. It was also noted that, as ever, his activities had helped to enhance the visibility and reputation of the JFSC, both on and off-Island.

Other matters

During 2018 our Board also:

Kept the possible implications of Brexit under close review

Received monthly reports from the executive directors on various matters and made challenges and recommendations to address issues as they arose

Supported the publication of guideline methodology to determine the quantum of civil penalties.

As a consequence of being granted the power to impose civil financial penalties on principal persons where their actions (or inaction) has resulted in the contravention of a Code of Practice, we needed to update our Decision-Making Process. This was publicly consulted on in accordance with Article 21B(6) of the FS(J)L

Monitored the significant cost implications for the JFSC of future digitalisation and the ever-increasing threat of cyber-attacks. Digitisation is an ongoing strategic consideration for the Board, recognising the merits of automating systems and exploring the benefits of Artificial Intelligence

Reviewed and were delighted with the unprecedented results of the Staff Engagement Survey (conducted in November 2018) which undoubtedly reflect the positive culture now very much embedded at the JFSC.

Our Board of Commissioners believes that high quality effective governance arrangements are essential for well-run organisations.

Fees paid to Commissioners during the year were as follows:

2018  2017

£  £

Lord Eatwell of Stratton St. Margaret (Chairman)  150,000  150,000

John Harris (Retired 10 July 2018)  -  - Michael de la Haye (Retired 31 December 2018)   26,000  26,000

Peter Pichler  26,000  26,000

Simon Morris  36,500  36,500

Debbie Prosser

(Retired as Deputy Chairman 29 November 2018)  30,571  33,350

Markus Ruetimann  36,500  36,500

Cyril Whelan  26,000  26,000

Stephan Wilcke (Retired 31 July 2017)  -  21,292

Ian Wright

(Appointed Deputy Chairman 29 November 2018)  26,740  26,000 Annamaria Koerling (Appointed 29 September 2017)  36,500  9,262

Mark Hoban (Appointed 9 November 2018) 3,041 - Monique O'Keefe (Appointed 9 November 2018) 2,167 -

400,019  390,904 Subsequent to the year end, Tracy Garrad was appointed as Commissioner on 8 February 2019.  

John Harris , who retired from the JFSC in July 2018 with six months leave of absence, was not paid any fees in his capacity as a Commissioner but rather was paid in his capacity as Director General. During the year, he received total remuneration of £303,333 (2017: £335,000).

Remuneration Committee

One of the Committee's principal functions is to approve the staff salary and bonus allocations for the year and this process took place in November 2018. Remuneration and bonus payments are awarded strictly by reference to performance and the Committee was pleased to note that high performance ratings for several individuals reflected that in 2018. The Committee assists in approving and providing oversight for the awards of bonuses for the highest achieving members of staff.

The Committee met on four occasions during 2018 and all committee members attended the scheduled meetings. Certain members of the Executive and the Head of Human Resources attended the meetings as required. The remit of the Committee is fairly broad, encompassing a wide range of remuneration and human resources functions. The Committee had regular discussions regarding remuneration strategy.

The Committee's Terms of Reference, which are reviewed annually, are available on our website.

The former Deputy Chairman, Debbie Prosser continued as Chairman of the Remuneration Committee until October 2018, with members Markus Ruetimann, Michael de la Haye and Annamaria Koerling. Commissioner Koerling assumed the position of Chair following Debbie Prosser s retirement and Monique O Keefe joined the Committee on 1 December 2018, in anticipation of Michael de la Haye s departure on 31 December.

Audit Committee report

The Audit Committee is constituted of  In 2018 the Committee was chaired by Ian Wright Nomination Committee Commissioners with relevant knowledge,  and its members included Crown Advocate Cyril

experience and qualifications to carry out  Whelan and Peter Pichler. The Committee had Our Board acts as its own Nomination Committee as all but one of the Commissioners are considered  an effective audit committee function.  appropriate financial and other experience

to be independent and generally there is insufficient nomination activity to justify a separate committee  detailed below:

arrangement. Where the requirement to consider nominations arises, the Board follows a fully inclusive  All eligible members attended all four meetings.

approach to identify potential candidates, prioritising relevant knowledge and experience in relation  Ian Wright:

to their role. The Terms of Reference for the Audit Committee  Qualified chartered accountant (ACA), former

are available on our website. Senior Partner of the Price waterhouseCoopers As stated overleaf, two new Commissioners were appointed in 2018. Global Corporate Reporting Group, former

The Committee agreed specific plans by external   Deputy Chairman of the UK accounting

John Harris retired in July 2018 and Martin Moloney was chosen as the new Director General in November  audit to the coverage of internal financial controls  regulator and current member of the Audit 2018, following a thorough search process, in partnership with the Jersey Appointments Commission and  and were able to confirm to the Board that it  Committee of the States of Jersey.

recruitment firm Odgers Berndtson. was reasonable to conclude that such financial

controls had been effective during the period. Crown Advocate Cyril Whelan:

Senior Crown Advocate of the Island of Jersey, The 2018 audit process went well and it was  current Senior Consultant at Baker & Partners

concluded that there were no material unadjusted  and former Senior Legal Adviser in Jersey s errors in the accounts.  Law Officers Department.

Legal Proceedings Committee

The Legal Proceedings Committee was created in 2018 after the Board had to consider a number of enforcement cases under the Decision-Making Process. The Committee s terms of reference are available on our website jerseyfsc.org

In accordance with our policy statement

 Delegation of Powers of the Jersey Financial Services Commission , the Legal Proceedings Committee has responsibility for determining whether we will initiate or defend any legal proceedings arising from any law under which we have statutory powers. However, a decision to defend or not to defend an appeal to the Royal Court, against an imposed regulatory sanction

The Committee met with the audit partner as part or other decision taken by the Board, is a matter  of the audit planning process and held a meeting reserved to the Board. The Committee takes into  at the completion of the annual audit process account potential legal costs when  where it reviewed in detail the judgements made making decisions. about subsequent events and contingencies.

Depending on the duration and complexities of a case, or in the event of court proceedings, legal fees represent our highest costs, which are often unknown and cannot easily be budgeted for. Our Board recognises that a large enforcement case may significantly deplete our cash reserves.

The initial members of the Legal Proceedings Committee were Lord Eatwell, Debbie Prosser and Peter Pichler. Cyril Whelan replaced Debbie Prosser and Monique O Keefe joined the Committee in November 2018.

Peter Pichler:

Qualified chartered accountant (FCA), member of the Canadian Institute of Chartered Accountants, former Chief Operating Officer and Finance Director of Mourant Ozannes, former CEO of Deutsche Bank Offshore (Jersey), former Director of a FTSE 350 company and Chairman of its Audit Committee.

Auditors

BDO LLP (the auditors) undertook the annual audit as approved by the Audit Committee in November 2017.

During 2018 the auditors undertook a review of management override (such as journal entries made with a degree of estimation) as well as revenue recognition/completeness (looking at whether all revenue had been recognised this financial year, including deferred income and appropriate postings at year end).

Responsibility for Annual Report and accounts

This Annual Report and accounts comply with the requirement in the FSC(J)L to produce an Annual Report to the Chief Minister and to be presented to the Members of the States no later than seven months after the end of the financial year.

The statutory obligations on the Commissioners are not extensive, requiring only that the annual accounts shall be prepared in accordance with generally accepted accounting principles and show a true and fair view of the surplus or deficit for the period and state of affairs at the period end. The Commissioners have elected to prepare the financial statements in accordance with Financial Reporting Standard 102 (FRS 102); the Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland.

Taking into account general practice, the Commissioners confirm that they are responsible for:

Keeping adequate accounting records sufficient to show the financial position within a reasonable period of time

Safeguarding the assets and for taking reasonable steps for the prevention and detection of fraud and other irregularities

Preparing the financial statements in accordance with applicable laws and regulations Selecting suitable accounting policies and applying them consistently Making judgements and accounting estimates that are reasonable and prudent

Preparing the accounts on a going concern basis unless it is inappropriate to presume that the JFSC will continue in business.

Our Board has reviewed the effectiveness of the principal financial controls over its financial accounting systems with the internal and external auditors and did not identify any material deficiencies.

The Commissioners have considered the financial statements on pages 83 - 100 and are satisfied that they show a true and fair view of the surplus or the year and our financial position at 31 December 2018.

The Commissioners have considered the Annual Report and, taken as a whole, confirm that they believe the Annual Report is fair, balanced and understandable.

For and on behalf of the Board of Commissioners

L Roe

Commission Secretary 6 June 2019

PO Box 267

14-18 Castle Street St Helier

Jersey

Channel Islands JE4 8TP

   Independent auditor s

report to the Chief Minister of the

States of Jersey

_ 06

   Independent auditor s  Key audit matters

report to the Chief  dTouihrerecsateuin dmgitatothfteet hreseff wfionertrasen oacfdi atdlh sree t asetsneegmda  geinnettmhseean  sct oa tnewtaehmx ot.l eo ,f  Minister of the Kpoprtoiusereokyfrrrfisaoaaeudouusdfsddaiimi)tnotwodnmafeati anetl ihtjdcrutielaeedulnrfidgmstnemifiaaisteernhsendcett,tiaa,hmitnwloescomsetlsuearteedt mnesionimtagf g(tnmwet tienfihhortcoesssastt tohneshfet i wa gtrath nhos, eiiisrficnecnchosuao husrntr arecde ddeun  etin   provide a separate opinion on these matters.

and in forming our opinion thereon, and we do not

the greatest effect on: the overall audit strategy,

the allocation of resources in the audit; and

States of Jersey Key audit matter     How wthe matte addrer in our auditessed  

Income recognition existence  For regulatory fees we reconciled the revenue in the including cut-off around year end financial statements to system generated reports containing details of the licences held. We tested

Opinion Revenue consists of regulatory and registry fees,  these reports through performing walkthroughs of

the relevant systems. We also tested on a sample We have audited the financial statements of  Republic of Ireland (United Kingdom Generally  for which annual fees run from different dates  basis that fees for regulated entities had been

Jersey Financial Services Commission ( the  Accepted Accounting Practice). throughout the year depending on the specific fee.  calculated in accordance with fee notices published Commission ) for the year ended 31 December  There is a risk that revenue recognition policies  by the Commission, agreed to payment, and

2018 which comprise the income and expenditure  In our opinion the financial statements: are not appropriate, revenues do not exist, or that  recognised in the appropriate period.

revenue may be incorrectly recorded in the wrong

account, the balance sheet, the statement  year resulting in a misstatement of revenue.

of changes in accumulated reserves, the  give a true and fair view of the state of the  We recalculated deferred income to ensure it had statement of cash flows and notes to the financial   Commission s affairs as at 31 December 2018  been correctly accounted for in accordance with

statements, including a summary of significant   and of its surplus for the year then ended The details of the accounting policies applied  the Commission s accounting policies, and that the accounting policies.  during the year are given in note 1 to the  appropriate proportion of fees had been deferred.

have been properly prepared in accordance  financial statements.  We tested a sample of regulatory fees and receipts The financial reporting framework that has   with United Kingdom Generally Accepted  processed specifically around year end to ensure

been applied in their preparation is the Financial   Accounting Practice the related income had been recognised in the Services Commission (Jersey) Law 1998 and  appropriate period.

United Kingdom Accounting Standards, including  have been prepared in accordance with

Financial Reporting Standard 102 The Financial   the requirements of the Financial Services  For registry fees we tested on a sample basis that Reporting Standard in the United Kingdom and   Commission (Jersey) Law 1998. fees had been calculated in accordance with fee

notices published by the Commission and agreed to payment.

We recalculated annual return income based on Basis for opinion the number of registered companies. We tested

a sample of registry fees and receipts processed We conducted our audit in accordance with  to our audit of the financial statements in the  specifically around year end to ensure the related

International Standards on Auditing (UK) (ISAs  UK, including the FRC s Ethical Standard, and we  income had been recognised in the

(UK)) and applicable law. Our responsibilities  have fulfilled our other ethical responsibilities in  appropriate period.

under those standards are further described in  accordance with these requirements. We believe

the Auditor s responsibilities for the audit of the  that the audit evidence we have obtained is  financial statements section of our report. We are  sufficient and appropriate to provide a basis  independent of the Commission in accordance  for our opinion.

with the ethical requirements that are relevant  Completeness of income We tested the completeness of regulatory and registry income throughout the year by selecting

Given the number of income streams and the  a sample of Financing Statement numbers and ad-hoc nature of some of these fees, there is a  company numbers and vouching to supporting

Conclusions relating to going concern risk that certain fees had not been billed to the  fee income, ensuring that the fees had been

customer, or that the income had been recognised  recognised in the appropriate period.

We have nothing to report in respect of the  the Commissioners have not disclosed in  in the incorrect period due to billing taking place

following matters in relation to which the ISAs   the financial statements any identified material  significantly later than it should have. We also tested completeness by checking for any

gaps in the Financing Statement numbers, which (UK) require us to report to you where: uncertainties that may cast significant doubt

are expected to be sequential.

about the Commission s ability to continue to  The details of the accounting policies applied

the Commissioners use of the going concern   adopt the going concern basis of accounting  during the year are given in note 1 to the

basis of accounting in the preparation of the   for a period of at least twelve months from the  financial statements.  We reviewed a sample of post year end receipts

and invoices to ensure the related income had been financial statements is not appropriate; or date when the financial statements are

recognised in the appropriate period.

authorised for issue.

p.81 Independent auditor s report p.82 Annual Report 2018

06.

Annual return fee surplus We reviewed the Commission s paper on the

accounting treatment of the surplus.

During the year, an increase in the annual return fee

per entity led to surplus funds being received by the  We obtained and reviewed all correspondence on Commission. The surplus funds have, on agree- this matter, including confirmation from the States ment with the States of Jersey, been retained by the  of Jersey of the position at year end.

Commission, partly as an agreed recurring uplift in

the Commission s portion of the total Annual Return  We reviewed the accounting entries that had been fees, and otherwise allocated to various projects  made and compared those to our expectations and expenditure, including the development of the  having reviewed all available documentation.

Register of Directors which took place during

the year.

A risk arose over the accounting treatment as a degree of judgement was involved to ensure that the accounting treatment reflected the substance of the agreement with the States of Jersey.

The details of the accounting policies applied during the year are given in note 1 to the financial statements. Note 12 to the financial statements provides further information on the treatment of the surplus funds.

Our application of materiality

We apply the concept of materiality both in planning  within the annual report. Average income was used and performing our audit, and in evaluating  to calculate materiality to ensure any significant the effect of misstatements. In order to reduce  increases in fees or aspects of non-recurring

to an appropriately low level the probability that  income did not bring materiality to an unacceptably any misstatements exceed materiality, we use a  high level.

lower materiality level, performance materiality,

to determine the extent of testing needed.  We determined performance materiality to be Importantly, misstatements below these levels  £211,700 (2017: £193,575). In determining this in will not necessarily be evaluated as immaterial as  both the current and prior year, we based our

we also take account of the nature of identified  assessment on a level of 73% (2017: 72.5%) of misstatements, and the particular circumstances  materiality. In setting the level of performance

of their occurrence, when evaluating their effect  materiality we considered a number of factors

on the financial statements. including the expected total value of known and

likely misstatements (based on past experience We determined materiality for the financial  and other factors) and management s attitude statements as a whole to be £290,000 (2017:  towards proposed adjustments.

£267,000). In determining this in both the current

and prior year, we based our assessment on a  We agreed with the Audit Committee that we

level of 1.75% of average income over a 3 year  would report to the Committee all audit differences period. We used income as a benchmark as this  in excess of £14,500 (2017: £13,350) as well as

is the primary Key Performance Indicator used to  differences below that threshold that, in our view, address the performance of the business by the  warranted reporting on qualitative grounds. Commissioners, and is consistently referenced

An overview of the scope of our audit

Other information

The Commissioners are responsible for the other  the other information is materially inconsistent information. The other information comprises the  with the financial statements or our knowledge information included in the annual report, other  obtained in the audit or otherwise appears to than the financial statements and our auditor s  be materially misstated. If we identify such report thereon. Our opinion on the financial  material inconsistencies or apparent material statements does not cover the other information  misstatements, we are required to determine and, except to the extent otherwise explicitly  whether there is a material misstatement in the stated in our report, we do not express any form  financial statements or a material misstatement of assurance conclusion thereon. of the other information. If, based on the work

we have performed, we conclude that there is a In connection with our audit of the financial  material misstatement of this other information, statements, our responsibility is to read the other  we are required to report that fact. We have information and, in doing so, consider whether  nothing to report in this regard.

Responsibilities of Commissioners

As explained more fully in the statement  In preparing the financial statements, the

of Commissioners responsibilities, the  Commissioners are responsible for assessing Commissioners are responsible for the  the Commission s ability to continue as a going preparation of the financial statements and  concern, disclosing, as applicable, matters related for being satisfied that they give a true and  to going concern and using the going concern fair view, and for such internal control as the  basis of accounting unless the Commissioners Commissioners determine is necessary to enable  either intend to liquidate the Commission or to the preparation of financial statements that are  cease operations, or have no realistic alternative free from material misstatement, whether due to  but to do so.

fraud or error.

Auditor s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance  Misstatements can arise from fraud or error and about whether the financial statements as a whole  are considered material if, individually or in the are free from material misstatement, whether due  aggregate, they could reasonably be expected to to fraud or error, and to issue an auditor s report  influence the economic decisions of users taken that includes our opinion. Reasonable assurance  on the basis of these financial statements.

is a high level of assurance, but is not a guarantee

that an audit conducted in accordance with ISAs  A further description of our responsibilities for (UK) will always detect a material misstatement  the audit of the financial statements is located when it exists. on the Financial Reporting Council s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor s report.

Use of our report

This report is made solely to the Chief Minister  report and for no other purpose. To the fullest

in accordance with Article 21(3) of the Financial  extent permitted by law, we do not accept or Services Commission (Jersey) Law 1998. Our  assume responsibility to anyone other than the audit work has been undertaken so that we  Commission and the Chief Minister, for our audit might state to the Chief Minister those matters  work, for this report, or for the opinions we

we are required to state to them in an auditor s  have formed.

Our audit of the Commission was undertaken  Our audit approach was developed by obtaining

to the materiality level specified above and was  an understanding of the Commission s activities  BDO LLP 20 June 2019

performed at the Commission s office in Jersey. and the overall control environment. Based on this  Chartered Accountants

understanding we assessed those aspects of the

Commission s transactions and balances which  BristUnited Kingdomol BDO LLP is a limitin England and Wales (with red liability partnership registered number OC305127).egistered were most likely to give rise to a

material misstatement.

0 7.

   Financial statements

_ 07

   Financial statements

Income and expenditure account

For the year ended 31 December 2018

2018  2017 Note  £'000  £'000

Regulatory income

Regulatory fee income  4  13,815  12,146 Registry fee income  5  4,396  4,248

Total regulatory income  18,211  16,394

Other income  6  194  192 Interest income  41  19

Total income  18,446  16,605

Expenses

Staff costs  7  (11,837)  (11,572) Computer systems  (1,549)  (1,172) Premises costs  (845)  (782) Professional services  (956)  (729) Investigation and litigation  (373)  (872) Other operating costs  (730)  (653) Depreciation, amortisation and impairments  (887)  (799) Staff learning and development  (247)  (191) Travel costs  (179)  (155)

Total expenses  (17,603)  (16,925) Surplus/(Deficit) for the year  8  843  (320)

All the items dealt with in arriving at the net surplus/(deficit) relate to continuing operations.

There are no recognised gains and losses in the current and preceding year other than those included in the net surplus/(deficit) above, therefore no separate statement of other comprehensive income and expenditure has been presented.

The notes on pages 88 to 100 form an integral part of the financial statements.

Balance sheet as at 31 December 2018

2018  2018  2017  2017 Note  £'000  £'000  £'000  £'000

Fixed assets

Intangible assets  9  4,697  3,694 Tangible fixed assets  10  621  720

5,318  4,414

Current assets

Trade receivables  322  768 Sundry debtors  181  102 Prepayments  1,087  923 Cash and bank balances  11  9,515  8,886

11,105   10,679 Total assets  16,423  15,093

Creditors - amounts falling due within one year

Fee income received in advance  5,903  5,441 Creditors  12  3,656  3,628 Provisions  13  183  210

9,742  9,279 Total assets less current liabilities  6,681  5,814

Creditors - amounts falling due after one year

Provisions  13  327  303 Total assets less total liabilities  6,354   5,511

Represented by

Accumulated reserves  6,354  5,511

The notes on pages 88 to 100 form an integral part of the financial statements.

The financial statements on pages 83 to 100 were approved by the Board of Commissioners on 6 June 2019, and signed on its behalf by:

John Eatwell  Martin Moloney Chairman  Director General

Statement of changes in accumulated reserves

Accumulated reserves

£'000

Balance at 1 January 2017  5,831 Deficit for the year  (320)

Balance at 31 December 2017  5,511

Balance at 1 January 2018  5,511 Surplus for the year  843

Balance at 31 December 2018  6,354

Statement of cash flows

For the year ended 31 December 2018

2018  2017 £'000  £'000

Cash flows from operating activities

Net surplus/(deficit) for the year  843  (320) Interest receivable  (41)  (19) Depreciation, amortisation and impairment charges  887  799 Utilisation of provision  (111)  (111) Movements in provisions  108  112 Deferred rental incentive  6  6 Decrease/(Increase) in debtors and prepayments  204  (350) Increase in income received in advance  462  688 (Decrease)/Increase in creditors  23  1,906 Net cash generated from operating activities  2,381  2,711

Cash flow from investing activities

Interest received  41  19 Purchases of tangible and intangible fixed assets  (1,793)  (1,584) Net cash used in investing activities  (1,752)  (1,565)

Net increase in cash and bank balances  629  1,146 Cash and bank balances at 1 January  8,886  7,740 Cash and bank balances at 31 December  9,515  8,886 Cash and bank balances consist of:

Cash at bank and in hand  283  205 Short term deposits  9,232  8,681

Cash and bank balances  9,515  8,886

The notes on pages 88 to 100 form an integral part of the financial statements.

 Notes to the

Financial Statements

For the year ended 31 December 2018

01. Significant accounting policies Basis of preparation

The financial statements have been prepared in  The financial statements contain information accordance with FRS 102, the Financial Reporting  about the JFSC as an individual entity, and do Standard applicable in the United Kingdom and  not include consolidated financial information as the Republic of Ireland. the parent of a group. We are exempt from the

requirement to prepare consolidated financial

The financial statements are prepared on  statements because the inclusion of our subsidiary a going concern basis, under the historical  is not material for the purpose of giving a true and cost convention. fair view.

The principal accounting policies applied in preparation of the financial statements are set out below. These policies have been consistently applied in all years presented.

Income

Income is accounted for on an accruals basis.  Recoveries of enforcement costs are accounted Regulatory and Registry annual fees received  for only when they have been awarded and it has in advance are recognised as income on a  become virtually certain that they will be received. straight-line basis over the relevant period. Annual  Interest received on bank deposits is accrued on registry fees and revenue from the operation of  a time basis by reference to the principal Government of Jersey registers include only the  outstanding and the effective interest rate

share of income attributable to the JFSC. applicable. Sundry income is recognised on

receipt as this approximates the timing of the Revenue from the rendering of services,  services provided.

including the design, development and operation

of Government of Jersey Registers, is recognised

based on the stage of completion method. Where

uncertainty exists in relation to the stage of

completion, revenue recognition is limited to

the extent to which costs have been incurred.

Expenses

All expenses are accounted for on an accruals basis.

Foreign currency Intangible assets

Foreign currency balances are translated to  the date of the transaction. Profits and losses on  Intangible assets are stated at historical cost less  Gains and losses on disposal of intangible assets sterling at the rate of exchange ruling on the  foreign exchange are included in the income and  accumulated amortisation and any impairment  are determined by comparing any proceeds with last business day in the financial period. Foreign  expenditure account. losses. Historical cost includes expenditure that  their carrying amount and are recognised in the currency transactions are translated into sterling  is directly attributable to the development of the  income and expenditure account.

at the rate of exchange ruling on  intangible asset. Subsequent maintenance and

support costs are charged to the income and  In the requirements gathering phase of an internal expenditure account during the period in which  systems development project, it is not possible to they are incurred. demonstrate that the project will generate future economic benefits and hence all expenditure

Amortisation of intangible assets is calculated so  incurred is recognised as an expense when

Investigation and litigation costs as to write off their cost on a straight-line basis  incurred. Systems developments are recognised

over their expected useful lives.  as fixed assets from the development phase of Investigation and litigation costs are recognised as incurred. No provision is made for the cost of  a project if, and only if, certain specific criteria completing current work unless a present obligation exists at the balance sheet date. The estimated useful lives used for this  are met in order to demonstrate the system will

purpose are: generate probable future economic benefits and that its cost can be reliably measured. If it is not

Computer software   Up to 7 years possible to distinguish between the requirements gathering phase and the development phase, the

expenditure is treated as if it were all incurred in Cash and bank balances The cost of computer software in respect of major  the requirements gathering phase only.

systems is capitalised within intangible assets. All

Cash and bank balances comprise cash in hand, deposits and other short-term liquid investments that  other computer software costs are expensed as

are readily convertible to a known amount of cash, are subject to an insignificant risk of changes in value,  incurred. Computer systems under development

controlled by the organisation and to which the organisation attaches equitable ownership.  are not amortised until the system has been

completed and is ready for use.

Government registers

A financial asset is recognised in relation to the cost of design, development and operation of Government registers on an accrual basis, provided such costs are contractually recoverable.

Tangible fixed assets

Fixed assets are stated at historical cost less  The estimated useful lives used for this purpose are: accumulated depreciation and any impairment

losses. Historical cost includes expenditure that   Motor vehicles  3 years

is directly attributable to bringing the asset to   Office furniture, fittings

the location and condition necessary for it to be  and equipment  3 to 5 years

capable of operating in the manner intended

by management. Computer equipment  3 to 5 years

Leasehold improvements  Over the lease period Repairs and maintenance are charged to the

income and expenditure account during the

period in which they are incurred.  Gains and losses on disposals of fixed assets are

determined by comparing the proceeds with the Depreciation of fixed assets is calculated so as to  carrying amount and are recognised in the income write off their cost less estimated residual value on  and expenditure account.

a straight-line basis over their expected

useful lives.

Impairment

Assets that are subject to depreciation and  and supervisory income are separately identifiable amortisation are assessed at each reporting  and assets are allocated between these cashflows date to determine whether there is any indication  based on their operational application.

that the assets are impaired. Where there is

an indication that an asset may be impaired,  Non-financial assets that have been previously

the carrying value of the asset is tested for  impaired are reviewed at each reporting date to impairment. An impairment loss is recognised for  assess whether there is any indication that the

the amount by which the asset s carrying amount  impairment losses recognised in prior periods may exceeds its recoverable amount. The recoverable  no longer exist or may have decreased.

amount is the higher of an asset's fair value less

costs to sell and value in use. For the purposes

of assessing impairment, assets are grouped at

the lowest levels for which there are separately

identifiable cash flows. Cashflows from registry

Leases

Rent payable under operating leases is charged  For leases entered into after the date of adoption to the income and expenditure account on a  of FRS 102, lease incentives received to enter into straight-line basis over the term of the lease. operating lease agreements are released to the

income and expenditure account over the full

We have taken advantage of the exemption  term of the lease.

available on transition to FRS 102, which allows

lease incentives on leases entered into before the

date of transition to continue to be released to the

income and expenditure account on a straight-line

basis over the period to the first lease break.

Financial contributions   02. Critical accounting judgements and key sources of estimation uncertainty

Financial contributions received for the  relating to revenue or the development of assets.  Estimates and judgements are continually evaluated and are based on deGovvelopment and implementation oernment policies and objectives arf specific e  Contributions ras income over the period in which the relating to revenue are recognised elated  historical experience and other factors, including expectations of future

accounted for in accordance with the guidance  costs are recognised. Contributions related to the  events that are believed to be reasonable under the circumstances. provided for government grants. Contributions  development of assets are initially recognised as

received are recognised based on the accrual  deferred income and are recognised in income on

model and are measured at the fair value of the  a straight line basis over the expected useful life

assets received. Contributions are classified as  of the related asset.

Key accounting estimates and assumptions

Management is required to make estimates and assumptions concerning the future. The resulting

accounting estimates may not equal the actual outcomes. The estimates and assumptions that have a

significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within Government grants the next financial year are outlined below.

Amounts received from the Government of Jersey are accounted for under the accrual model. These

amounts are measured at their fair value and are classified as relating to revenue. Amounts received

are recognised as income over the period in which the related costs are incurred.

Provision for long leave entitlements

The balance of the provision for long leave has been determined based on a range of estimates regarding

the probability that the related leave entitlement will vest and be taken. This represents management s Pension costs best estimate regarding the expected future cash flows related to long leave entitlements.

The costs of defined contribution pension schemes are accounted for on an accruals basis. The costs

of annual contributions payable to defined benefit schemes operated by the Government of Jersey are

accounted for on an accruals basis because we are unable to obtain the information necessary to apply

defined benefit scheme accounting (see note 16).  Provision for premises reinstatement

The balance of the provision for premises reinstatement has been determined based on the applicable square footage of leased premises and the rate per square foot for such reinstatement works published

by the Royal Institute of Chartered Surveyors. The provision is adjusted annually based on movements in Annual leave pay accrual the published rate per square foot. This represents management s best estimate regarding the expected

future cash flows related to these costs. The balance is discounted if the effect would be material.

A liability is recognised to the extent of any untaken annual leave entitlement which has accrued at the balance sheet date and can be carried forward to future periods. The liability is measured at the undiscounted cost of untaken annual leave that has accrued up to the balance sheet date.

Useful lives and residual values

Provision for long leave entitlements

Provision is made for the accrued entitlements to long leave as at the balance sheet date,

even when such entitlements may not yet have vested. The provision is increased each year as additional entitlements are earned. The provision is decreased when long leave entitlements are taken and when such entitlements expire.

Fixed assets are depreciated over their estimated useful lives, taking into account residual values where

appropriate. The actual lives and residual values are assessed annually and may vary depending on a

number of factors. In re-assessing useful lives and residual values, a wide range of factors are taken The provision represents management s best  into account. Changes in these assessments are accounted for prospectively and therefore only have a estimate of the amounts expected to be paid  financial effect on current and future periods.

out, taking into account long leave entitlements

that may be lost when an employee leaves our

employment. The provision is discounted if the

effect would be material.

3. Taxation

The JFSC is exempt from the provisions of the Income Tax (Jersey) Law 1961, as amended.

Provision for premises reinstatement

Provision is made for the expected cost of  cost of restoration and discount rates where reinstating office premises to their original  applicable. The provision will be reduced when condition on termination of existing lease  related costs are incurred in future periods. agreements. The balance represents  Provisions for premises reinstatement are management s best estimate of amounts to be  discounted if the effect would be material.

paid for reinstatement. The provision is assessed

each year based on changes in the expected

4. Regulatory fee income   06. Other income

2018  2017 £'000  £'000

Banking  1,775  1,489

Funds  6,130  5,310

Insurance Companies  908  698

General Insurance Mediation  148  108

Investment Business  1,337  1,355

Trust Companies  2,788  2,545

Designated Non-Financial Businesses and Professions  675  599

Recognised Auditors  33  19

Money Service Business  21  23

 07.

13,815  12,146

2018  2017 £'000  £'000

Income from hosted events  -  18 Registry development services  -  67 Recognised financial contribution income  185  71 Sundry income  9  36

194  192

Staff costs

2018  2017 £'000  £'000

Staff salaries  9,653  9,401 Commissioners' fees  400  391 Social security contributions  447  438 Pension contributions  771  740

5. Registry fee income

Permanent health and medical insurance  360  325 Registry fees arise from the operation of the Companies Registry, the Business Names Registry,  Other staff costs  135  150

the Registry of Limited Partnerships, the Registry of Limited Liability Partnerships, and the Security  Long leave provision  57  112 Interests Register.

Annual leave pay accrual  14  15

Registry fees include annual return fees. The amount of the annual return fees payable to the Registry

include amounts collected on behalf of and remitted to the Government of Jersey.  11,837  11,572

The number of annual returns received during the year was:

2018  2017 Annual returns received  33,373  33,515

2018  2017 £'000  £'000

Total annual return fee income  6,905  7,023 Less: collected on behalf of Government of Jersey  (4,912)  (5,025)

Retained by the JFSC  1,993  1,998 Other Registry income  2,403  2,250

Total Registry income  4,396  4,248

Contributions to staff pension schemes are payable monthly to pension scheme administrators. Contributions amounting to £NIL (2017: £95,000) were payable to the schemes at year end.

The average number of staff employed during the year was 131 (2017: 131).

8. Surplus/(Deficit) for the year

Surplus/(Deficit) for the year is stated after including the below:

2018  2017 £'000  £'000

Depreciation of tangible fixed assets  (273)  (251) Amortisation of intangible assets  (614)  (548) Foreign exchange differences  7  - Contributions to employee pension schemes (refer to note 16) (771)  (740) Operating lease expenditure  (566)  (537) Audit fees  (32)  (22)

9. Intangible assets   11. Cash and bank balances

Computer systems  Computer

under development systems  Total

£'000  £'000  £'000

Cost

Balance at 1 January 2018  1,127  5,892  7,019

Additions  1,638  -  1,638

Completed computer systems (1,572) 1,572 - Disposals  -  (40)  (40)

At 31 December 2018  1,193  7,424  8,617 Amortisation

Balance at 1 January 2018  -  (3,325)  (3,325)

Charge for the year - (614) (614) Disposals  -  19  19

At 31 December 2018  -  (3,920)  (3,920)

Net book value at 31 December 2018  1,193  3,504  4,697 Net book value at 31 December 2017  1,127  2,567  3,694

2018  2017 £'000  £'000

Current accounts  281  201 Deposit accounts  9,232  8,681 Petty cash  2  4

Cash and cash equivalents at bank  9,515  8,886

Our accumulated financial reserves, less the funds invested in fixed assets and working capital, are invested in bank deposit accounts. In order to mitigate the credit risk, these deposit accounts are maintained with five different banks.

Included in deposit account balances are funds amounting to £1,718,565 (2017: £677,496) which have been identified as relating to deferred registry fees (refer to Note 12).

12. Creditors

Our principal expenditure during the year related to core information systems replacements and upgrades, further development of our CRM system related to risk based supervision, and expansion of our portal services.

10. Tangible fixed assets

Office furniture, Leasehold Computer Motor

fittings & equipment improvements equipment vehicles Total

£'000  £'000  £'000  £'000  £'000

Cost

Balance at 1 January 2018  760  295  1,555  13  2,623 Additions  13  16  147  -  176 Disposals  (186)  -   (306)   -  (492) At 31 December 2018  587  311  1,396  13  2,307

Accumulated depreciation

Balance at 1 January 2018  (700)  (44)  (1,157)  (2)  (1,903) Charge for the year  (36)  (59)  (174)  (4)  (273) Disposals  184   -   306   -   490 At 31 December 2018  (552)  (103)  (1,025)  (6)  (1,686)

Net book value at 31 December 2018  35   208   371  7   621 Net book value at 31 December 2017  60  251  398  11  720

2018  2017 £'000  £'000

Trade creditors  391  1,333 Accruals  958  705 Deferred rental incentive  88  82 Financial contributions  358  422 Deferred registry fees*  1,719  678 Sundry creditors  142  408

3,656  3,628

* We agreed with the Government of Jersey that a portion of the additional registry fees charged, with effect from 1 January 2017, will be segregated and used for certain current and future enhancements to the Registry and its systems.

In the event of a sustained surplus of such deferred fees, the residual amount is likely to be remitted to the Government of Jersey at a future date. The balance represents the surplus of such fees collected in 2017 and 2018 that exceeded the agreed expenditure on registry systems in the year.

13. Provisions for liabilities   14. Commitments under operating leases

We had minimum lease payments under non-cancellable operating leases as set out below:

Provision for  Reinstatement

long leave Provision Total

£'000  £'000  £'000 Balance at 1 January 2017  268  -  268

Amounts provided for during the year  120  244  364 Reversal of unused provision  (8)  -  (8) Utilised during the year  (111)  -  (111) Balance at 31 December 2017  269  244  513

Amounts provided for during the year  71  37  108 Reversal of unused provision  -  -  - Utilised during the year  (111)  -  (111)

Balance at 31 December 2018  229  281  510

Falling due within one year  183  -  183 Falling due after one year  46  281  327

229  281  510

Provision for long leave

The provision for long leave relates to the expected cost of long leave entitlements that have accrued up to balance sheet date. Long leave entitlements may continue to accrue up to June 2043 if all vesting conditions are satisfied up to that period.

Provision for premises reinstatement

The provision relates to the expected cost of reinstatement of office premises to their original condition on termination of premises leases. The balance at year end has been determined based on a guideline rate of £13.80 per square foot (2017: £12 per square foot) as determined by the Royal Institute of Chartered Surveyors. The provision is adjusted annually based on movements in the guideline rate.

2018  2017 £'000  £'000

Not later than 1 year  592  560 Later than 1 year but not later than 5 years  1,422  2,015