Jersey Bank Deopositors Compensation Board: Annual Report and Audited Financial Statements for the Year Ended 31st January 2020

STATES OF JERSEY

JERSEY BANK DEPOSITORS COMPENSATION BOARD: ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST JANUARY 2020

Presented to the States on 17th July 2020 by the Minister for External Relations

STATES GREFFE

2020  R.73

THE JERSEY BANK DEPOSITORS COMPENSATION BOARD ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS 31 JANUARY 2020

THE JERSEY BANK DEPOSITORS COMPENSATION BOARD REPORT AND AUDITED FINANCIAL STATEMENTS CONTENTS

Page Information 1 Board's report 2 - 3 Board's responsibilities statement 4 Independent auditor's report 5 - 6 Statement of Comprehensive Income 7 Statement of financial position 8 Notes to the accounts 9 -12

Information

Board members Paul Leary, Chairman

Mark Dunlop, Advocate - (Resigned after serving full term of office on 02/02/20)

Peter Shirreffs

Amy Taylor

Independent auditor BDO Limited

Windward House

La Route de la Liberation St Helier

Jersey

JE1 1BG

Bankers HSBC Bank plc

PO Box 14

27 Halkett Street St Helier

Jersey

JE4 8NJ

Lloyds Bank International Limited PO Box 10

9 Broad Street

St Helier

Jersey

JE4 8NG

Accountants Halford Accountants Limited

Chartered Certified Accountants Les Sapins

Rue De La Guilleaumerie

St Saviour

Jersey

JE2 7XF

Board's Report

for the year ended 31 January 2020

The Jersey Bank Depositors Compensation Board (the "Board") presents its report and the audited financial statements for the year ended 31 January 2020.

Principal activities

The Board was created as a result of the Banking Business (Depositors Compensation) (Jersey) Regulations 2009 ("the Law").

The functions of the Board are generally to administer the Bank Depositors Compensation Scheme ("DCS"), including establishing and maintaining arrangements in readiness for the possibility of a default of a bank operating in Jersey and administering compensation for any such default. Its function also includes arranging for the publication of information for the public on the operation of the DCS.

An administration levy fee continued to be raised in the current year which is utilised to achieve the above functions and also provides for maintaining a prudent reserve. The Board identified that in order to continue to fulfil its functions it required an increase in its annual operating Budget. After discussions between the Board, the Jersey Bankers Association and the Government of Jersey, the External Relations Minister agreed an increase in the annual bank levy from £5,000 per licensed bank holding eligible deposits for the 2018/19 financial year to £9,000 per eligible deposit holding licensed bank for 2019/20 financial year. No compensation levy fee was raised as there was no bank default in the current year.

To ensure that the new IT systems were maintained in a state of readiness the Board oversaw the annual testing of the software which would administer payments in the event of a bank default. A penetration test was also undertaken to ensure that the systems were suitably resistant to an external cyber threat.

During 2019 the Board received formal notice that the software used to administer payments in the event of a default was beyond its useful life. The Board, therefore, undertook a detailed review of available options and at the end of the financial year was in the final selection process. It is anticipated that a new solution will have been tested and available for use prior to the current software contract expiring at the end of 2020.

As a result of the States approving the Banking Business (Depositors Compensation) (Amendment No. 2) (Jersey) Regulations 2020, which, came into force on 28 January 2020, the Board was granted powers to require banks to hold client files in a specified format. This new legislation will assist the Board to improve the future efficiency of the pay-out process.

The Board contributed to the European Forum of Deposit Insurers ("EFDI") and Affiliation of Micro European States (AMES) through attending meetings of the organisations and contributed to sharing knowledge by interaction with surveys and engaging with specific issues raised by members.

Members

Paul Leary, Mark Dunlop, Peter Shirreffs and Amy Taylor were members of the Board throughout the year.

THE JERSEY BANK DEPOSITOHS COMPENSATION BOARD Board's Heport (continued)

for the year ended 31 January 2020

Results

The Statement of Comprehensive lncome of the Board for the year is set out in detail on page 7 Disclosure  of information to auditor

Each of the persons who are members at the time when this Board's Report is approved has confirmed that:

so far as that member is aware, there is no relevanl audit information of which the the Board's auditor is unaware, and

that member has taken allthe steps that ought to have been taken as a member in order to be aware of any relevant audit information and to establish that the the Board's auditor is aware ol that information.

lndependent audtors

The independent auditor, BDO Limited, has expressed their willingness to continue in office. This report was approved by the Members on 2Z J&'{t-7a and signed on their behalf by:

Chairman

3

THE JERSEY BANK DEPOSITORS COMPENSATION BOARD

Board's Responsibilities Statement for the year ended 31 January 2020

The Board is responsible for preparing the report and financial statements in accordance with applicable Jersey law and regulations and generally accepted accounting principles.

The Banking Business (Depositors Compensation) (Jersey) Regulations 2009 (the "Law") requires the Board to prepare financial statements for each financial year. Under that Law the Board has elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland' ("FRS 102") . Under the Law, as applied to the Board, the Board must not approve the financial statements unless satisfied that they a true and fair view of the state of affairs of the the Board and of the surplus or deficit of the the Board for that period.

 In preparing these financial statements, the Board is required to:

• select suitable accounting policies for the the Board's financial statements and then apply them consistently;

• make judgments and accounting estimates that are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

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

The Board is responsible for keeping adequate accounting records that are sufficient to show and explain the Board's transactions and disclose with reasonable accuracy at any time the financial position of the Board and to enable them to ensure that the financial statements comply with the Law. They are also responsible for safeguarding the assets of the Board and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Board confirms that they have complied with the above requirements in the preparation of the financial statements.

4

Tel: +44 (0)1534 510100  Windward House

Fax: +44 (0)1534 759425  La Route de la Liberation www.bdo.je  St Helier

Jersey

Channel Islands

JE1 1BG

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF THE JERSEY BANK DEPOSITORS COMPENSATION BOARD

Opinion

We have audited the financial statements of The Jersey Bank Depositors Compensation Board ("the Board") for the year ended 31 January 2020 which comprise the Statement of Comprehensive Income, the Statement of Financial Position and notes 1 to 10 to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards.

In our opinion, the financial statements:

• give a true and fair view of the state of the Board's affairs as at 31 January 2020 and of its profit for the year then ended;

• have been properly prepared in accordance with United Kingdom Accounting Standards; and

• have been prepared in accordance with the requirements of the Banking Business (Deposit Compensation) (Jersey) Regulations 2009.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Board in accordance with the ethical requirements that are relevant to our audit of the financial statements, including the FRC's Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the Board's members use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the Board's members have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Board's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The other information comprises the information included in the Board's Report. The Board's members are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work

we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard. Responsibilities of Board's members

As explained more fully in the Board's responsibilities statement, the Board's members are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Board's members determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board's members are responsible for assessing the Board's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board's members either intend to liquidate the Board or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements  

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located at 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 Board's members, as a body, in accordance with the requirements of the Banking Business (Deposit Compensation) (Jersey) Regulations 2009. Our audit work has been undertaken so that we might state to the Board's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Board and the Board's members as a body, for our audit work, for this report, or for the opinions we have formed.

BDO Limited Chartered Accountants Jersey, Channel Islands 7 July 2020

THE JERSEY BANK DEPOSITORS COMPENSATION BOARD Statement of Comprehensive Income

for the year ended 31 January 2020

Notes 2020  2019

£ £

Administration levy income 171,000 97,268

Administrative expenses

Information technology, maintenance and support costs Board members' remuneration

Membership fees

Outsourcer fees

Professional and secretarial fees

Travel and subsistence

Auditor's fees

Accountancy fees

Conferences and training

Telephone charges

General office expenses

Irrecoverable GST

Insurances

Bank charges

Total administrative expenses

Operating profit/(loss)

Interest receivable

Total net comprehensive profit(loss) for the year

38,970 18,062 33,625 37,600

20,669 15,813 10,000 10,000

33,352 25,477 1,419 6,533

4 3,833 3,150 1,175 1,000

783 724 1,085 - 1,149 1,837

- 576

7,728 2,897 1,283 1,588

155,071 125,257 15,929 (27,989)

182 722 16,111 (27,267)

All amounts relate to continuing operations.

There were no recognised gains or losses other than those included in the Statement of Comprehensive Income.

There was no other comprehensive income for 2020 (2019 : £NIL).

The notes on pages 9 to 12 form part of these financial statements. 7

THE JERSEY BANK DEPOSITORS  COMPENSATION BOARD

Statement of Financial Position

as at 3'l January 2020

Notes 202A 201 I t E t E

Current assets

Debtors 5 4,652 7,446

Cash at bank and in hand 6 171,535 145,424

176,187 152,470

Creditors: amounts falling due within

one year 7  (12,743) (5,137)

Net current assets 163,444 147,333 Net assets _-*:-63A44* 147,333

Represented by:

Rekined surplus 8 163,444 147,333 Total administrative reeerve fund 163,444 147,333

These financial statements were approved and authorised for issue by the Board and were signed on theirbehalf on iZ  -l1.,idc, 'LC;ZC

The notes on pages 9 to 12 form part of these financial statements. 8

1 Accounting policies

General information

The Jersey Bank Depositors Compensation Board (the "Board") was created by the Banking Business (Depositors Compensation) (Jersey) Regulations 2009 (the "Law") and is domiciled in Jersey. The Board consists of four appointed members assisted by a representative of the States of Jersey.

Statement of compliance

The financial statements of the Board have been prepared in compliance with United Kingdom Accounting Standards, including Financial Reporting Standard 102, "The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland" (FRS102") effective 1 January 2015. The financial statements have also been prepared in accordance with the Law, which came into force on 6 November 2009 and has been subsequently amended on 2 October 2012 by the Banking Business (Depositors Compensation) (Amendment and Miscellaneous Provision) (Jersey) Regulations 2012.

Summary of significant accounting policies

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

Basis of preparation

These financial statements are prepared on a going concern basis, under the historical cost convention.

The financial statements of the Board are presented in British Pounds ("£"), being the functional currency of the Board. The Board has determined its functional currency based on its primary economic environment.

The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the entity's accounting policies (see note 2).

Exemptions for qualifying entities under FRS 102

FRS 102 allows a qualifying entity certain disclosure exemptions, subject to certain conditions, which have been complied with, including notification of, and no objection to, the use of exemptions by the Board.

The Board has taken advantage of the following exemptions:

preparation of a statement of cash flows, on the basis that it is a qualifying entity as required by FRS 102 paragraph 3.17 (d).

1 Accounting policies (continued) Going Concern

The Board has prepared the financial statements on a going concern basis. The Board considers this to be appropriate as they are in a position to raise administration levies on banking groups in Jersey according to the financial needs of the Board and in particular its recurring administrative costs in a particular period. The Board prepares a budget on an annual basis to project its future financial needs and is satisfied there are sufficient funds to continue as a going concern.

Revenue

Under the Law the Board can raise two types of levy income:

1. Administration levy income

Levy income is raised by the Board on an annual basis to enable it to meet its recurring administrative costs in each registration year. The level of levy is decided by the Board and is payable by each bank registered on the island of Jersey under the Banking Business (Jersey) Law 1991. Administration levy income is recognised on accruals basis and applies for the whole year in which each bank was registered.

2. Compensation levy income

Compensation levy applies if any of the banks registered in Jersey becomes bankrupt.

A bank that is not in default is liable to pay a compensation levy, in respect of the bank that is in default, if;

1. the Board publishes a notice specifying the relevant date in respect of the bank in default; and
2. the bank that is not in default held eligible deposits on that relevant date.

The total amount of the compensation levies to be paid by the banks liable to pay such a levy in respect of a bank in default will have to be sufficient to raise such amount as the Board estimates will be necessary to meet payment by it of compensation in respect of the bank in default and the Board's default-related administrative costs in that respect.

Administrative expenses

Administrative expenses are charged to the Statement of Comprehensive Income and recognised on an accruals basis in relation to the period they relate to.

Finance costs

Finance expenses are charged to the Statement of Comprehensive Income and recognised on an accruals basis in relation to the period they relate to.

Debtors

Short term debtors are measured at transaction price, less any impairment.

1. Accounting policies (continued) Cash and cash equivalents

Cash is represented by cash on hand and demand and deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

Creditors

Short term creditors are measured at the transaction price. Interest income

Interest income is recognised in the Statement of Comprehensive Income using the effective interest method.

Interest income is recognised in the Statement of Comprehensive Income on an accruals basis.

2. Judgements in applying accounting policies and key sources of estimation uncertainty

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

3. Taxation

The Board is exempt from Jersey income tax. Therefore a provision has not been made in these financial statements for Jersey income tax.

4. Auditor's remuneration 2020  2019

£ £

Fees payable to the Board's auditor 3,833 3,150

5. Debtors 2020  2019

£ £

Memberships prepaid - 2,264 Other debtors and prepayments 4,652 5,182 4,652 7,446

6. Cash and cash equivalents 2020  2019

£ £

Cash at bank 171,535 145,024

7. Creditors: amounts falling due within one year 2020  2019

£ £

Trade creditors 1,778 987 Accountancy accrual 600 1,000 Audit accrual 3,500 3,150 Other taxes and social security costs 2,236 - Other creditors 4,629 - 12,743 5,137

8. Retained surplus 2020  2019

£ £

At 1 February 147,333 174,600 Profit/(loss) for the year 16,111 (27,267)

At 31 January 163,444 147,333

9. Post balance sheet events

In the opinion of the Board, there are no adjusting or non adjusting events after the balance sheet date necessitating the revision of the financial statements.

The Board's operational income comprises the collection of an annual levy from licensed banks. Covid-19 has not impacted income as the Board has collected all expected levies for the next financial year 2020/21.In respect of the potential impact of Covid-19 on the banking sector in Jersey, the Board is in regular communication with the Jersey Financial Services Commission, the Government of Jersey and the Jersey Bankers Association and closely monitors the position. The Board exists to be ready to deal with compensation pay-outs in the event of a bank default and is mindful of the associated risks arising from the potential economic impact of the Covid-19 pandemic.

10 Controlling party

In the opinion of the Board, there is no ultimate controlling party or beneficial owner meeting the definitions as prescribed by FRS 102.