States Meeting Transcript - 4th June 2014

STATES OF JERSEY OFFICIAL REPORT WEDNESDAY, 4th JUNE 2014

PUBLIC BUSINESS – resumption ...............................................................5

1. Sunstone Holdings Limited and De Lec Limited – ex gratia payments to investors (P.90/2013) - resumption..................................................................5

1.1 Senator I.J. Gorst :........................................................................5 Senator P.F.C. Ozouf :..........................................................................9 Mr. T.J. Le Cocq Q.C., H.M. Attorney General: ...............................................9

1. Deputy S. Power of St. Brelade : ........................................................11
2. Deputy J.A.N. Le Fondré:..............................................................11
3. Deputy J.M. Le Bailly of St. Mary:.....................................................14
4. Senator B.I. Le Marquand:..............................................................14
5. Deputy R.G. Bryans of St. Helier:......................................................16
6. Deputy J.H. Young:....................................................................16
7. Deputy J.A. Martin:....................................................................17
8. Senator P.M. Bailhache : ................................................................19
9. Deputy M.R. Higgins of St. Helier:.....................................................20
10. Deputy S.G. Luce of St. Martin:.....................................................22
11. Deputy G.C.L. Baudains of St. Clement:............................................22
12. Senator P.F.C. Ozouf : ...............................................................23 The Attorney General:........................................................................25
13. The Very Reverend R.F. Key, B.A., The Dean of Jersey: ............................26
14. Senator S.C. Ferguson:..............................................................27
15. Senator F. du H. Le Gresley:........................................................28
16. Senator A. Breckon:.................................................................30

2. Channel Islands Lottery: allocation of profits for 2013 (P.22/2014)...................34

2.1 Senator A.J.H. Maclean (The Minister for Economic Development):...................35

1. The Deputy of St. Martin:..............................................................36
2. Deputy R.G. Le Hérissier: ..............................................................36
3. Deputy A.K.F. Green of St. Helier:.....................................................36
4. Deputy J.H. Young:....................................................................36
5. Deputy M. Tadier of St. Brelade:.......................................................36
6. Connétable L. Norman of St. Clement:.................................................37
7. Senator A.J.H. Maclean:................................................................37

3. Draft States of Jersey (Amendment No. 7) Law 201- (P.31/2014)......................39

3.1 Senator I.J. Gorst (The Chief Minister):................................................40

4. Draft Treason (Jersey) Law 201- (P.32/2014) ..........................................40

4.1 Senator I.J. Gorst (The Chief Minister):................................................41

1. Deputy M.R.Higgins:..................................................................41
2. Senator P.M. Bailhache : ................................................................41
3. Deputy J.H. Young:....................................................................41
4. Deputy M. Tadier :......................................................................42
5. Senator B.I. Le Marquand:..............................................................42
6. Deputy S.Y. Mézec of St. Helier:.......................................................42
7. The Deputy of St. Martin:..............................................................43 The Attorney General:........................................................................43

LUNCHEON ADJOURNMENT PROPOSED..................................................44 LUNCHEON ADJOURNMENT................................................................44

The Attorney General:........................................................................44

8. Deputy N.B. Le Cornu of St. Helier:....................................................45
9. Senator P.F.C. Ozouf :..................................................................45 Deputy M. Tadier : ............................................................................46 The Attorney General:........................................................................46
10. Deputy M.R.Higgins:...............................................................46
11. Connétable P.J. Rondel of St. John:..................................................46
12. Senator I.J. Gorst : ...................................................................46

5. Draft Financial Regulation (Miscellaneous Provisions No. 2) (Jersey) Law 201- (P.47/2014)...............................................................................49

1. Senator P.F.C. Ozouf (Assistant Chief Minister - rapporteur):..........................49

1. Deputy R.G. Le Hérissier: ..............................................................50
2. Deputy J.H. Young:....................................................................50
3. Senator P.F.C. Ozouf :..................................................................50 The Attorney General:........................................................................50

2. Senator P.F.C. Ozouf :..................................................................51
   3. Senator P.F.C. Ozouf :..................................................................51

1. Deputy J.H. Young:....................................................................51
2. Senator P.F.C. Ozouf :..................................................................52

6. Ratification of the Agreement on the exchange of information relating to tax matters between the Government of Jersey and the Kingdom of Belgium (P.52/2014)........52

6.1 Senator P.M. Bailhache (The Minister for External Relations):.........................52

7. Draft Taxation (Exchange of Information with Third Countries) (Amendment No. 11) (Jersey) Regulations 201- (P.53/2014)...................................................52

7.1 Senator P.M. Bailhache (The Minister for External Relations):.........................53

8. Draft Insurance Business (Amendment No. 7) (Jersey) Law 201- (P.55/2014)........54

8.1 Senator P.F.C. Ozouf (Assistant Chief Minister - rapporteur):..........................54

9. Draft Food Costs Bonus (Jersey) Regulations 201- (P.56/2014)........................55

9.1. Senator F. du H. Le Gresley (The Minister for Social Security): ........................56

1. Deputy J.H. Young:....................................................................56
2. Deputy J.A. Hilton of St. Helier:........................................................56
3. Deputy M. Tadier :......................................................................56
4. Senator F. du H. Le Gresley:............................................................57

9.2 Senator F. du H. Le Gresley:............................................................58

10. Draft Safeguarding of Workers (Machinery and Woodworking Machines) (Revocation) (Jersey) Regulations 201- (P.57/2014)....................................59

10.1 Senator F. du H. Le Gresley (The Minister for Social Security): ........................59

11. Draft Social Housing (Transfer) (Jersey) Regulations 201- (P.58/2014) - as amended60

1. Deputy A.K.F. Green (The Minister for Housing):......................................61

1. Deputy J.A.Hilton:..................................................................62
2. Senator A. Breckon:.................................................................62
3. Deputy R.C. Duhamel of St. Saviour:................................................62 The Attorney General:........................................................................63
4. Deputy J.H. Young: .................................................................63
5. Deputy G.P. Southern of St. Helier:..................................................65
6. Senator S.C. Ferguson:..............................................................66 The Attorney General:........................................................................66
7. Deputy K.C. Lewis of St. Saviour:..................................................67
8. Senator P.F.C. Ozouf : ...............................................................67
9. Deputy S.Power:....................................................................70
10. Deputy A.K.F. Green:............................................................71

2. Deputy A.K.F. Green:..................................................................75
3. Deputy A.K.F. Green:..................................................................75
4. Deputy A.K.F. Green:..................................................................76

11.4.1 Deputy J.H. Young: .................................................................76

5. Deputy A.K.F. Green:..................................................................78
6. Deputy A.K.F. Green:..................................................................78

12. Housing Transformation Programme: amendment to the Medium-Term Financial Plan 2013-2015 (P.59/2014)..............................................................80

12.1 Senator P.F.C. Ozouf (The Minister for Treasury and Resources):......................80

1. Deputy A.K.F. Green:...............................................................81
2. Deputy J.H. Young: .................................................................81
3. Senator S.C. Ferguson:..............................................................81
4. Senator P.F.C. Ozouf : ...............................................................82

13. Housing Transformation Programme: Memorandum and Articles of Andium Homes Limited (P.60/2014) - proposition of Senator P.F.C. Ozouf under S.O. 26(7) to allow lodging period to be reduced ............................................................83

1. Senator P.F.C. Ozouf (The Minister for Treasury and Resources):......................83

1. Deputy G.P. Southern : ..............................................................84
2. Deputy A.K.F. Green................................................................84
3. Deputy T.A. Vallois:................................................................84
4. Deputy J.H. Young: .................................................................84
5. Deputy M.R.Higgins:...............................................................84
6. Deputy G.C.L. Baudains: ............................................................85
7. Deputy M. Tadier :...................................................................85
8. Senator I.J. Gorst : ...................................................................85
9. Deputy J.A. Hilton:..................................................................86
10. The Connétable of St. John : ......................................................86
11. Senator P.F.C. Ozouf : ............................................................86

2. Housing Transformation Programme: Memorandum and Articles of Andium Homes Limited (P.60/2014)......................................................................88

1. Senator P.F.C. Ozouf : ...............................................................88
2. Deputy C.F. Labey of Grouville :....................................................89
3. Deputy G.P. Southern : ..............................................................89
4. Deputy J.M. Maçon of St. Saviour : ..................................................90
5. Deputy J.H. Young: .................................................................90
6. Deputy A.K.F. Green:...............................................................91
7. Deputy R.G. Le Hérissier:...........................................................91
8. Senator F. du H. Le Gresley:........................................................92

ADJOURNMENT................................................................................93

[09:31]

The Roll was called and the Dean led the Assembly in Prayer.

PUBLIC BUSINESS – resumption

1. Sunstone  Holdings  Limited  and  De  Lec  Limited – ex  gratia payments  to  investors (P.90/2013) - resumption

The Bailiff :

So we return now to the consideration of Projet 90, Sunstone Holdings Limited and De Lec Limited - ex gratia payments to investors lodged by Senator Breckon. The debate is now open and I see the Chief Minister.

1.1 Senator I.J. Gorst :

I doubt that Members will recall the speech that I gave to the Assembly last September on this proposition, however some may, and my position remains unchanged. Given the time that has elapsed I intend to repeat some of the points that I made in that speech. I also intend to briefly summarise to Members what has happened since last September and refer to new matters that have arisen as a result of David Thomas' report. Some will recall that last September there were a number of questions raised in the debate that could not be answered. I agreed to undertake an inquiry to get some of the answers, and with this in mind Members agreed that the debate should be adjourned. Subsequently I asked an independent expert, David Thomas, to undertake an inquiry. I proceeded to agree terms of reference with Senator Breckon, which are set out in full in the further comments of the Council of Ministers which we presented on 29th April this year. I think it is important for Members that I outline at the start some of the qualifications of David Thomas to explain why I rely on the conclusions of his report in full. David Thomas was appointed the Banking Ombudsman in the United Kingdom in 1997 after practising for 28 years as a solicitor. He then became Principal Ombudsman and subsequently Chief Ombudsman of the Financial Ombudsman Service. He is currently acting as part-time consultant to the new Chief Ombudsman with the title of Lead Ombudsman. The report that David Thomas has produced is the result of a significant work which involved, among other matters, the consideration of 24 storage boxes of files, potentially relevant to the J.F.S.C.'s (Jersey Financial Services Commission) supervision of Goldridge and the disclosure of a significant amount of information from the States of Jersey police. I hope that Members have had an opportunity in advance of the debate today to consider Mr. Thomas' report. I appreciate that because of the statutory constraints set by Article 37 of the Financial Services Commission (Jersey) Law Members are not able to see for themselves the full results of David Thomas' inquiry, but I can assure Members that it has been comprehensive, thorough, and above all, independent and I stand fully by the conclusions of the report. It would not be right, and I do not propose to go through the report today in detail, but I do think it is worthwhile considering the conclusions that are reached in chapter 10 of the report so that we are in no doubt about the findings of that report. I will refer to those findings in turn, so that there can be no misunderstanding of David Thomas' conclusions. To the question: "Did 2 investors express concerns to the J.F.S.C. in 2006 or 2007?" the report found the answer to that question was no. In question: "Was the J.F.S.C. aware and should it have taken action before 2008?" the answer to that question is no. In question: "Should the J.F.S.C. have been aware of warning signs, irregularities and taken action concerning the incorporation operation of Sunstone and De Lec by the regulated principals?" that is Cameron, Foot and Lewis . In answer to that question no. In question: "Were there regulatory breaches on behalf of Goldridge?" David Thomas says in answer to that: "I am prevented by law from adding to the J.F.S.C.'s 2008 statement which has been included in an annex." In question: "Were the J.F.S.C. enforcement actions in respect of Goldridge sufficient?" the answer of David Thomas is: "If the J.F.S.C. had taken timely and sufficient action issues,

including Goldridge, unconnected with Sunstone and De Lec, it would have been likely to become public by January 2007. If the J.F.S.C. had possessed a wider range of graduated powers these issues could have become public at a much earlier date" and I will come on and talk about those later in my speech. In question: "If the J.F.S.C. should have been aware and should have taken action in respect of Goldridge before January 2008 would that have made any difference to the loss incurred by investors in Sunstone and De Lec?" in answer to that question: "Investors would have been unlikely to invest or increase an existing investment in Sunstone and De Lec after March 2007 but it would have made little or no difference to the losses incurred by those who had already invested by March 2007 and for the removal of any doubt it would have made little or no difference to those who had invested by March 2007 but rolled over their existing investments at a later date." I think it is extremely important that Members are aware of those questions and those findings in that independent report. I also hope that Members have had an opportunity to consider the comments of the Council of Ministers that were presented last week. Again, for the avoidance of doubt, let me re-emphasise the position taken by the Council of Ministers on a number of key points that are of particular relevance when considering the proposition of Senator Breckon. The circumstances of the Alternate Insurance Services Limited case are so significantly different from those of Sunstone and De Lec that the former does not establish a precedent of which advantage can be taken in this latter case. David Thomas' report has conclusively stated that the J.F.S.C. acted immediately upon notice in January 2008. When investment is contemplated in high risk areas such as off-plan foreign property purchases - which is what this was - investors should always seek independent advice separate from those promoting the investment scheme. The fact that the principals marketing the scheme had been separately approved by the J.F.S.C. as fit and proper - and Senator Breckon spoke about this yesterday - for different regulated purposes is not a sufficient reason for not taking proper investment advice, nor for justifying compensation by the taxpayer if the investment decisions taken should prove to be faulty. As the J.F.S.C. had no statutory responsibility for the scheme there is no case, I believe, for the Commission to be called on to meet the claim for compensation, which is what the proposition asks. Indeed, it should be noted that it would potentially be objectionable to some of those in the financial services industry who pay

licence fees, for their fees to be used to fund compensation from an unregulated investment scheme. To my mind, more importantly, any call on the J.F.S.C. to provide funding for compensation in this matter would potentially severely compromise the independence of the regulator. The proposal, as I have said in part (b) of the proposition would potentially place Jersey in conflict with internationally accepted principles of financial regulation. Namely, that the regulator must be independent of government, that government cannot be seen to direct the regulator to act in any certain manner as and when it feels appropriate. I must also inform the Assembly that I have not at this point taken legal advice with regard to the legality of this part of the proposition and should it be approved today I would need to do so, but I must say for my part I am far from certain that it would be legally possible.

[9:45]

Any decision on whether the taxpayer should compensate the investors should depend upon whether the circumstances can be seen as sufficiently exceptional in terms of the hardship suffered to justify public support. Members will recall that in their previous comments the Council of Ministers expressed the view that it was extremely unlikely that if the same circumstances had prevailed in the U.K. (United Kingdom) compensation would have been forthcoming under the U.K. investor protection scheme. On the information that David Thomas had provided to him that was not available to the Council of Ministers at the time that previous comments were lodged it appears a group of investors might have been subject to compensation under the U.K. investor protection scheme if the same circumstances had prevailed in the U.K. and Members hopefully will have noted that this is detailed in section 5.5 to 5.7 of Mr. Thomas' report. Jersey does not

currently have an investor protection scheme. The reasons why an investor protection scheme has not been introduced in Jersey to date was set out in our original comments when the proposition was initially debated in 2013, but in summary such a scheme, if it is to be funded by investment advisers - which is how it is funded elsewhere or we might expect it to be funded - could be called, so if the scheme were funded by those advisers and could be called upon it could force many small investment advisers out of business. If investment advisers were to seek to pass the cost on to their clients, those clients can be expected to be attracted to the idea of moving their business to competitor jurisdictions, and for those reasons the introduction of an investment protection scheme in Jersey has not been, and is not, supported at the present time. I therefore maintain the view and support the Council of Ministers' view that notwithstanding that it could be said that some of the investors may have fallen within the U.K. investor protection scheme if their same circumstances had, as I have said, prevailed in the U.K. there, I do not believe, are sufficient grounds for suggesting they be compensated in Jersey. Compensation would set a precedent for introducing an investor protection scheme which is undesirable, and I am pleased that that is accepted by those who may be now supporting the proposition, which I believe is undesirable for the reasons that I have outlined briefly today but also are included in the comments of the Council of Ministers. Alternatively, compensation in this matter could set a precedent which would lead to future applications being made to the States Assembly to effectively act as a compensation scheme funded by the taxpayer, and so I hope that Members will share my view that this would be fundamentally wrong. Members will however be aware from the further comments of the Council of Ministers that there is a conclusion in the report that a number of investors might not have invested money if issues had come into the public domain in March 2007 as I have already said, which would have had a significant impact on the reputations of Cameron, Foot and Lewis . I feel that it is important at this point to address some of the points that Senator Breckon made in his opening remarks

relating to this finding, and I want Members to be absolutely clear here: "The report concludes that the J.F.S.C. could have acted sooner in bringing issues including Goldridge into the public domain by March 2007. This would have had a significant reputational effect on the principals." I would also highlight however that the conclusions of the report state - and this is important because we cannot just pick and choose individual elements of the conclusions - the conclusions of the report state: "This would have made little or no difference to the losses incurred by those who had already invested by March 2007 or those who had invested by March 2007 but rolled over their existing investment at a later date." I appreciate these are, to some extent, technical but I hope that Members are following because they are important conclusions of the independent report, conclusions which Senator Breckon did not comment upon in his opening remarks. Senator Breckon did suggest in his opening remarks that the reasoning behind this conclusion is that the J.F.S.C. had other powers that they did not use. Particularly he mentioned the following parts of the Financial Services (Jersey) Law, Article 9, Power to Revoke a Registration, or Article 23, Power to Give Direction. Let us be clear here. David Thomas, who has had the advantage of studying all the relevant documentation, reached the firm conclusion that there was nothing the Commission could have done that would have had the effect of bringing matters into the public domain earlier than 2007, which might have persuaded people not to invest. There are, in my view, no grounds to challenge his view and there can be no suggestion that in any circumstance matters could have come into the public domain any earlier than March 2007. Regardless of this, clearly the report of David Thomas does conclude that the J.F.S.C. could have acted sooner than 2008 in bringing issues, including Goldridge, into the public domain. Therefore the Council of Ministers have agreed that it is for consideration whether in the light of this a case can be made for some investors who might have been dissuaded from investing if information had been made available in 2007 to be recompensed in some way. I have undertaken that I shall ask David Thomas to carry out further work on this matter and I will report the results of those findings back to the States in

due course. I am conscious that among the investors generally there are cases of particular hardship and I am naturally sympathetic to their position. However, unfortunately, inevitably this can always be an outcome when poor investment decisions are made. In deciding whether such hardship should justify compensation being provided from public funds the reasons for this must be shown to be exceptional if a precedent is not to be set of which many others could seek to take advantage. On the basis of information presently before this Assembly I do not believe that this can be said to be proven in this case. In conclusion, notwithstanding my undertaking to carry out this further work, my position and that of the Council of Ministers is that the proposition before the Assembly, as Senator Breckon is maintaining, opposition remains firm, and that is that in light of everything included in the independent report the proposition as presented should be today rejected. Thank you.

Deputy R.G. Le Hérissier of St. Saviour :

I wonder if the Chief Minister, given the quite important material he has put in front of us, could give us a possible date or an approximate date as to when Mr. Thomas could report back, because this is dragging on an awfully long time.

Senator I.J. Gorst :

Officers have already on my behalf spoken to Mr. Thomas about this work. It is technical, detailed work and it will take some months to undertake, but it is the only area within the independent report that I, and the Council of Ministers when they read it, recognised that there was further work that needed to be undertaken in this area. Members will be aware of the number of months it has taken to get to this point and so even more detailed work will unfortunately take many months into the future as well.

Deputy J.A. Martin of St. Helier :

Can I ask for a point of clarification of the Chief Minister? I think earlier on in his speech he said that he had not taken any legal advice on if this was passed today whether it would meet international conventions being the regulator from where it was paid out. If that is so, could he explain why? Are we wasting our time? Why has the Chief Minister not taken legal advice?

Senator I.J. Gorst :

It would not be normal that one would ask for such advice. My concerns of course may be proven to be unfounded but when I look at the international standards governing the independence of regulators I say to the Assembly that I am far from certain that it would be possible and I would need to take comprehensive legal advice on that particular point, should the States accept the proposition today.

Deputy R.G. Le Hérissier:

I wonder with the Attorney General back, I am very worried about the earlier comment as was Deputy Martin, because it strikes me that if we do embark on a fully fledged debate and then we are told that legally the States are not in a position to pay, assuming for example there was a compensation decision made, we are going to look very foolish. I wonder if it might not be the time to ask the Attorney General whether we can proceed.

The Bailiff :

Yes. Just to be clear, Deputy , I think what the Chief Minister said was that it was part (b) only that he had reservations about. In other words there is nothing to stop the States deciding to pay out this money. It is a question of whether it can pass legislation to force the Financial Services Commission to reimburse the States. It is only that second part (b) which the Chief Minister was expressing reservations about.

Deputy J.A.N. Le Fondré of St. Lawrence :

May I seek clarification from you, Sir? Are we able to vote on each part separately on this proposition?

The Bailiff :

Senator Breckon did say right at the beginning of his speech that he wanted (a) and (b) to be taken together and (c) separately.

Deputy J.A.N. Le Fondré:

Just to be clear, I appreciate Senator Breckon's position but hypothetically could we vote on (b) separate from (a) if he was willing to change it? Is there anything that prevents do (a) and (b) have to be put together?

The Bailiff :

I would have thought no, if Senator Breckon wants to take them separately he can. It is a matter entirely for him.

Senator P.F.C. Ozouf :

May I just signal some legal advice? There are issues to make the necessary legislation. I do not know if that is just simply loose wording but I think the Attorney General is going to have to answer, and I just give notice now, that under the Financial Services Commission Law there are

certain powers of direction that in theory could be used, which fall short of legislation, which could be directed. That is not desirable but I think we need to know what the legal position is of the requirements that the Minister could direct now. This is not a legal issue. The political issues will be rehearsed later, but effectively there are powers of course under the direction. They should not be used but we need to be told by the Attorney General what they are and what they are not and whether or not they can be used. There is legislation in the use of the existing legislation.

Deputy J.H. Young of St. Brelade :

Could I ask for further clarification on the Chief Minister's speech? The Bailiff :

One moment. Can we deal with one thing at a time, Deputy ? I suspect the Attorney may want to think about this. I think there are 2 issues which Members would value his assistance on. The first, which has just been raised by Senator Ozouf , is that there are apparently powers of direction which can be given to the Financial Services Commission and I think the question is could legally the direction be given to reimburse the States for any money it agrees to pay out to the investors? The second is whether, as the Chief Minister has indicated, (b) is possible. In other words, is it open to this Assembly to pass legislation requiring the Financial Services Commission to reimburse them on a one-off basis for the cost of compensation? There are those 2 issues. Do you want to take time to think about them, Attorney, or are you in a position to answer?

Mr. T.J. Le Cocq Q.C., H.M. Attorney General:

I certainly wish to take time to look at the powers of direction point. On the second point it is I think a quite potentially subtle and complex matter. There is no question about it that under the Financial Services Commission (Jersey) Law 1998 Article 2(4), the commission is structurally independent of the States and Government. It is a strict statutory position and it was set up in that way because it is essential that there is a structural independence between a regulator and the Government. Similarly, under Article 9 of that same law, the Commission is not liable for any losses occasioned in and about the exercise of its function unless they are carried out in bad faith. The primary statutory position it seems to me, without looking at the powers of direction which I

will come on to do subsequently, is that it is not generally appropriate and indeed possible within the current statutory regime to achieve what part (b) of the proposition wishes to achieve. Of course part (b) talks about bringing forward legislation and as a matter of pure parliamentary sovereignty it is open to this Assembly, and it would not be a breach of human rights or international conventions as far as I am aware, to bring forward whatever legislation it wishes.

[10:00]

However, I can see that that would lead to very difficult structural questions and very difficult questions of influence and possibly the functioning in the future of the Commission if its independence is once seen to be compromised by a decision of the Assembly. I do not think I can advise on the second point without doing considerably more work any further than I have done, and I would like the opportunity, if I may, to look at the directions point that has been made.

The Bailiff :

Well, the directions point is not directly relevant to the proposition because the proposition in (b) talks about doing this by legislation, so the directions point does not directly arise but I understand why Members might wish to know whether in fact it can be achieved without the need for legislation.

Senator P.F.C. Ozouf :

Yes. So legislation is regulations as well. The Bailiff :

Yes, but the powers of direction are in existing legislation, so it would not be a question of passing regulations.

Senator P.F.C. Ozouf :

I will develop my arguments later when I address the Assembly. The Bailiff :

Very well, then the Attorney General will take time to think about the second point. Deputy Young, you wanted further clarification from the Chief Minister?

Deputy J.H. Young:

Yes, thank you. I wanted to ask the Chief Minister to clarify his remarks about Mr. Thomas' report on the question of March 2007, whether it was unlikely that investors would have invested if the J.F.S.C. had acted earlier. Did he say that he had any quantification of that or not to guide the Assembly?

Senator I.J. Gorst :

Does the Deputy mean quantification of number of investors or amounts? Either way I do not have that quantification. That is the extra work that would need to be undertaken.

Deputy J.A.N. Le Fondré:

Sir, may I seek a further point of clarification of the Chief Minister? I was waiting for the queue to get down to me. One question I would like to ask the Chief Minister further to his speech, and I will use the term "perpetrators of the fraud" is in relation to have any inquiries been requested by the Council of Ministers during this intervening period as to, for example, were any assets transferred from those perpetrators to spouses to avoid them being seized by the courts and, for example, have any inquiries been made as to what the status is of Mr. Christmas' pension when he comes out of prison?

Senator I.J. Gorst :

I would have thought that they were issues more correctly dealt with by the courts and the proceedings that were heard in that place. I undertook to instruct an independent investigation which is exactly what I have done. We are talking today about whether the regulator should fund compensation for those who were the victims of this fraud and not whether the assets are recoverable from elsewhere, which would be outside of my powers anyway.

Deputy J.A.N. Le Fondré:

That is the middle part of the proposition. The first part is whether we should pay compensation in the first place.

The Bailiff :

Yes, but I think the Chief Minister has made the point this is whether the States should pay the compensation. Very well. Does any other Member wish to speak?

1. Deputy S. Power of St. Brelade :

I will be brief. I am grateful to the Chief Minister for what he said this morning, but it does put us in a difficult position in that we are dealing to all intents and purposes with an incomplete situation and an incomplete summary of where we are. I have to condense this down to where I am this morning in dealing with this report and proposition. I come back to this point, that irrespective of fraud in general in Jersey there are always going to be cases where people are dishonest or people commit fraud or people commit fraudulent behaviour and that this is another example of that. My understanding of the papers that have been supplied both in the Council of Minister's comments and in the proposition is that to a large extent this operation, this entity, was unregulated in that it operated below the radar of the Jersey Financial Services Commission completely unregulated. As such, I accept what the Chief Minister said, that it is not down to the J.F.S.C. to pay compensation. I accept that point completely. However, there is a number of what I would call acid tests in this as to where this Assembly is this morning, and the first one is that a custodial or a series of custodial sentences were pronounced or made. In one of those custodial sentences an individual in a position of responsibility who was dispensing to all intents and purposes justice, whose opinion was relied on, whose opinion was trusted, who was an agent of the States of Jersey, who was an employee of the States of Jersey, was involved and was found guilty. To me that really is a test, a strong acid test. It is a test for me that the claim for responsibility in some cases and in this particular case the moral responsibility of this Assembly is to decide whether we are of the opinion can we make ex gratia payments from a fund or central reserves or funds that may be available to Treasury to do something about this? It is one of these reports and propositions that is an extremely difficult and uncomfortable one to deal with. We know from what the Chief Minister has said and from what Senator Breckon has said that the J.F.S.C. here are not responsible. This was an under the radar activity that was unregulated, fraudulent and illegal and the rest of it is very well documented. I do believe that this is not a normal fraud in the sense that I do not know how you define normal fraud but there is a complication to this fraud case in that the persons involved, one of them was in a position of responsibility, and because of the custodial sentence and because of what we know has come out in the media afterwards about pension funds and so on, the situation is far from straightforward. I believe that there is a case this morning and I disagree with the Chief Minister. There is a case here that we have to deal with in some way. There are some funds where the proceeds of crime in Jersey are available or are guardianed by Treasury and in this case I will support part (a) and I am not sure about (b) or (c), but I am certainly going to support (a) and I hope

colleagues can make some sense of that. I think it is a highly technical, legal case but when you boil it all down it is unadulterated fraud.

2. Deputy J.A.N. Le Fondré:

I will go. We know this is going to be a difficult day. In fact, I am reminded of a time for those of us who were in the Assembly, it was not a fraud, it was about a redundancy of the day, which was Woolworths. It is an analogy from the point of view that it was going to set a precedent and in those particular instances the employees had not been treated fairly. That was the legal position. The legal position was that we did not have any responsibility to them, but there was a possibility that assets could be recovered. I did not go with the vote that day but the Assembly as a majority voted to support those individuals. I think to give credit to Senator Breckon here there is a possibility that irrespective of the outcome today a subsection of the investors may achieve some form of compensation on the basis of the report, on what we have seen, but of course, as we heard, there is no guarantee because it is subject to the next piece of work that could take another few months to do, and this has been dragging on a long time. I think somewhere in the reports I read that 3 people have died in the time period already. I think it is also quite clear, as Deputy Power has alluded to already, this is not just about investors who simply took a loss on a risky investment. It is that extra 2 levels, and (1) is it was a fraud and (2), which is the key tipping point for me, it was a fraud that was partially committed by a judge. I will touch on that further down the line, but in my view, and I have said this previously in the state in the wider sense, not the States Assembly, have given that individual the cloak of respectability during that whole period when that fraud was being perpetrated. Therefore for me the March 2007, for example, cut-off date is a useful date from the point of view it is earlier than the F.S.C. (Financial Services Commission) got involved, but that cloak of respectability was put on that individual some time before then, I believe. I will refer to some comments I probably made in the last debate. I am very clear I do not point any fingers at the Financial Services Commission. I hold them in great regard. They have a huge volume of issues they have to deal with, whether it is dealing with the regulation that they have to deal with from Europe and all the rest of it to the regulation of all sorts of bodies at all sorts of levels. To an extent, because of the level of resource that they have, they have to take a risk-based approach. I think it was the Minister for Economic Development who stated at some point - and it might have been when he was talking about Alternate - that it was always intended to deal with exceptional cases as and when they arose on a case-by-case basis, and this is definitely an exceptional case. The reason I put it that way round is from that point of view and I would hope that Senator Breckon could split it into sections (a),(b) and (c) and separate votes. We have heard there is no procedural reason why he could not, because certainly I will not be supporting (c). I fully understand the

issues around competition for the industry against our Island competitors and all that type of stuff, and I am happy to support the view that it is not appropriate to establish an investor compensation scheme at present. I am also happy not to support (b) in terms of which I think is one of the big concerns, where a lot of this has come from, because of trying to keep the independence of the Jersey Financial Services Commission and for all the reasons we have heard. That then causes me to focus on (a), and I think there I am trying to make the split between a legalistic issue and what I will call a political decision, and I think it is absolutely right for us to make that political decision. I quote .. I believe this was again from the Minister for Economic Development who was quoting the court in the Alternate case, which was a recommendation to compensate in the Alternate investor's case: ".. is made because it is not acceptable that unsophisticated small investors in Jersey can be so badly advised. The advice given was dishonest, one might almost say fraudulent. It was misleading." That was a different set of circumstances and I cannot remember the details. I think it was tied-up with mis-selling or whatever, but here the case we are dealing with is definitely about fraud. It is one level different. The other quote I found quite interesting was that: "One of the reasons those offences are so serious is because it is vital that those who invest with professionals" and to me this was the crucial bit: ".. whether they are regulated or unregulated in their business must be given accurate and honest advice." I was thinking personally, and it has happened, one gets approached at varying times with investment proposals, you know: "We are marketing this fund or that fund" or whatever, and if they are an I.F.A. (Independent Financial Adviser) and therefore a professional and you believe them to be credible you are not going to go to another I.F.A. down the road just to check. You might sense check it yourself but I think you will rely on the independent financial adviser bit, particularly in addition, as I said, with this other veneer of respectability we have given when it is a judge that is involved in the promotion. The comment I think is worth making and again this is Senator Maclean in Hansard, and I am sure he will really thank me for quoting this one: "The responsibility quite simply was that these investors have been let down by the fact that the system did not suitably protect them. They were given the advice by members of this particular company which was recklessly misleading." That was the justification, as I said, on the Alternate situation when I think we paid out over £1 million anyway. I accept there are differences but as we have said it is a case-by-case basis and this is a different case.

[10:15]

The interesting thing, and I will probably get accused of taking an element of the report out of context, and I hope I am not, but the report from the adviser on the Sunstone case does ask the question: "Did J.F.S.C. take timely and sufficient enforcement action in respect of Goldridge Stone?" "Whether or not J.F.S.C. took timely and sufficient action in respect of Goldridge is a question of judgment" so if you like it is an opinion, it is not necessarily a matter of law: ".. rather than as a question of fact. In my opinion however J.F.S.C. did not take timely and sufficient enforcement action in respect of Goldridge Stone." You see, I think that the nature of the individuals concerned, and some were elderly individuals, they may well have been wealthy but they were elderly, my understanding has always been that the regulated individuals from Goldridge Stone basically took advantage of the information they had from that position and then blurred the matter by booking it all under an unregulated entity. I do not think the investors would have particularly been sophisticated enough to identify that situation. That is obviously an opinion that might not match up with reality. But I think when you put all that together that is why I am very much supporting part (a). As I said, the tipping point for me is the role of the judge. In the last debate we heard that he prodigiously wrote the judicial code. His position as a judge was used to promote a fraud and, as we know, such was the setting of that particular individual's moral compass he continued to claim his judge's salary, even in the early days of while he was in prison and that was to the tune of £500,000 in the 4 years he was arrested. As I said, I am curious, and that is why I was curious whether the Council of Ministers asked the question during their deliberations over the many months it has taken since the last debate. I am curious: is there any truth in the rumour he will continue to be entitled to claim his pension? It then comes down to, as Deputy Power says, this moral judgment. It is a political decision; that is okay because one way this message could be interpreted, and I make no excuse for repeating what I said last time round, the message will be, if we do not support this today, it is okay to defraud people, including the terminally ill. You will go to jail for a period of time. You can continue to claim your salary and you can have your pension when you come out. Ultimately, in this particular circumstance, the pension will have been paid by, basically, the taxpayer at some point. The taxpayer will be compensating the fraudster who will not be compensating the victims. From a moral judgment position I cannot believe that stacks-up. As I said, I would very strongly support the view that one should do the compensation, according to the scheme that Senator Breckon has laid out. But we should very strongly look to repel the assets, if there are any, from the individuals who were the perpetrators and I would think that that is a matter of law and I do not know if it is possible. I have always understood that in a divorce pensions are brought into the pot. Maybe there is a legal

difference in this situation so it may not be practical. But, as I said, in respect of all that, that would be where I would like to go but that is separate, that is a matter for us. I think there is that clichéd expression that justice needs to be seen to be done or something and I think also needs to be done swiftly. It is not much good waiting for many more months for any further investigation to be

done, it does not help the victims. We should sort the victims out first and then look to compensate from whatever sources we can achieve. I think that probably is what I have mainly got to say. I would conclude by, I think, saying that Jersey rightly has an extremely good reputation for its finance industry but I think one also has to accept that this is potentially a blot or a stain on that reputation. Yes, the perpetrators have been jailed, that is good but I think, ultimately, the question today in front of us is, do we have a moral responsibility to compensate the victims? We are for them the last chance, we are the final court of responsibility. In other words, I suspect, having been defrauded already, they probably do not have the resources to bring civil actions against the individuals, particularly given the legal situations, as I have understood, have occurred. They are looking to us as their parliament, as their representatives to assist them in very unfortunate circumstances. It is not a case of just speculation and they have lost the money and they are coming to us. This is a fraud and, most particularly, as I said, for me the tipping point, it was a fraud perpetrated by someone we had given a veneer of respectability to over a number of years. On that basis I shall be supporting part (a). I do urge other Members too.

3. Deputy J.M. Le Bailly of St. Mary :

We must remember that the people who invested with Sunstone did so in order to get a good return on their money, having been failed miserably by the banks' less than attractive rate of interest. However, they also knew that they could make a loss. That was acceptable if their money had been invested in the legitimate scheme that they were told that they would be part of. Unfortunately, their money was never invested on their behalf. It was embezzled by the very people who recommended the investment. How was that possible for one of our high-profile figures, a magistrate, to be part of an investment company while at the same time undertaking the duties of a judge in our courts? It is not ethical for a judge to be connected to a private enterprise, so just how was that possible? Is that not why we have a Jersey Financial Commission in order to safeguard clients' interests and to keep Jersey squeaky clean? Someone in this Financial Commission early on must have known that one of our senior judges had his fingers in the pie and that was not appropriate. The victims were totally taken in by having felt secure in having such a high-profile and respected top Island official endorsing and promoting the investment, even doing so in a promotional video wearing his judge's robes. That was the trap. This was not just a couple of spivs in flash suits. The frontman was a man of integrity. These people did not have an investment that went wrong, they were robbed. It is only fair that they receive compensation. The question is: where does that compensation come from? The Jersey Financial Commission is there to set regulation in the industry, that is their responsibility. They should have known that the directors of Sunstone were not working to accepted procedures. Identifying who the crooks are is part of their remit. If they did not know that then they have failed in their responsibility. We should not dismiss this as a business venture gone wrong. Imagine if it was your parents who had been persuaded to part with their life savings to this grubby little lot, would you not want recompense for them? Would you not want justice to ease their loss? This should certainly apply to the investors post-2007, that has not happened. We can allow at least part of that to be put right. I agree with the

principle of this proposition.

4. Senator B.I. Le Marquand:

The problem with the current proposition is that it seeks to treat all the "investors" alike and to give them equal status when the circumstances of each are very different. Most investors were extremely unwise in relation to the decision to invest in this particular investment. What was being set up was a highly-geared investment in the U.S. (United States) property market. Some had a 4 to one gearing, in other words three-quarters was being borrowed and a quarter being put in. That is incredibly high-risk investment because, effectively, if the value of the property goes up by a quarter you have doubled your money, if it goes down by a quarter you lose it all. Indeed, some also have been persuaded to lend money at an interest rate, which are the forms that I have seen, at 7 per cent for an entity that was entering into such very highly-geared investments, that is practically suicidal in terms of business sense. I say most of them were extremely unwise because in fact we do not know whether there were some investors who knew perfectly well what they were investing in and were happy to invest in a highly-geared investment of this nature related to an individual property. Much has been made of the fraudulent element of some of the cases but fraud was not found in all cases. It appears that what was happening was as they got more and more desperate for money, as the system was running out of cash, that, indeed what was going on, became more and more fraudulent to draw in extra investors to keep the system going, a sort of Ponzi scheme but we do not know that that was the situation right from the start. Indeed, as I have said, there may well have been investors who knew perfectly well what they were investing in right from the start and that is one of the problems that I have. Some Members will be influenced, as indeed was the last speaker, by the involvement of the former assistant magistrate. I prefer if Members refer to the former assistant magistrate because if they refer to the former magistrate then he is the person who is currently speaking and I certainly would not have got involved in any way in this kind of thing. But, of course, the former assistant magistrate was very involved with one of the 2 companies and, indeed, that company was involved with far less in the way of investments than the other. Again, there is a differential if Members are influenced by that involvement. I am in a position, as having been the former magistrate, to comment to a degree on what was known or what was not known in relation to him and I can say categorically that what he was doing was completely unknown to any of those in authority, to myself, to the Bailiff or to anybody else. If we had known what he was doing then firm action would have been taken against him at an earlier stage because it was wholly improper for him to be involved in seeking investments from members of the public by virtue of his status. Indeed, it is contrary to the terms of office to be involved in other business in this kind of way. But the fact that this was unknown is amply demonstrated by the fact that after I had resigned - I gave quite a lot of notice of resignation because my intention was to stand for this election to this Assembly - the curious fact was that the former assistant magistrate then also resigned, that is the peculiarity of the situation. He thought that he was going to do so well out of this other business that he resigned his post. Then when things started to turn

down he asked to withdraw his resignation, went to the Bailiff of the day who agreed to his resignation being withdrawn and he then subsequently applied for the post of magistrate, the post that I was vacating. Clearly there was a selection process. He was then selected for that post, although never sworn in as things turned out, and that, if I may say so, is ample demonstration that absolutely nobody within the system or the seniority of the ranks within the system had any idea of his involvement in this kind of way. I think it is very unfair to suggest, as did the last speaker, that the J.F.S.C. are at fault in some way for not knowing that he was doing this. Even those with whom he was working and those who were his seniors had absolutely no idea of this. But, as I said, this is a separate category of case, separate group of investors who invested in a different company and they were indeed in the minority. There is also the issue of date.

[10:30]

As a result of the work commissioned by the Chief Minister we have come up with a situation in which the independent investigator has looked at this, is clearly of the opinion that there was no failure on the part of the regulator in not knowing about the activities of these particular companies that were not regulated companies that could have been, frankly, doing almost anything, could have been set up purely for the purposes of individuals themselves who owned the company investing in property in America. There is no way of distinguishing in relation to that sort of thing. But what the investigator has come to the conclusion of - and this is his personal view, he makes that clear it is a personal view, it is a judgment call on his part - is that there were issues in relation to Goldridge Stone that could have led to earlier action. He is of the opinion that in relation to Goldridge Stone that earlier action, on a balance of probability, should probably have been taken by January 2007. He is of the opinion that that, therefore, has a follow-on effect in terms of investors who may have invested from March 2007. They are a different group and, interestingly enough, they are potentially a different group in a different way because if they, indeed, have a stronger case for compensation than others - and that appears to be the situation certainly in my view - then why should they be put in with all the others in terms of receiving a percentage of compensation, which is based on a flat-rate basis right across? In fact the proposition is clearly based upon the United Kingdom Compensation Scheme and followed the figures at the relevant time, although that has since now changed from a maximum of £48,000 to £50,000. I have a problem with this lumping everybody in together into one scheme, irrespective of their degree of responsibility in relation to their decision making, irrespective of whether or not the former assistant magistrate was concerned in their case, irrespective or not whether they have a stronger case for compensation than others. For those reasons I will not be supporting any part of the proposition but will be supporting and, indeed, it was already my view that the Chief Minister should go down the route that he has of seeking to do extra work, to look specifically at this post-March 2007 group who, in my view, have a much stronger case for compensation than others.

5. Deputy R.G. Bryans of St. Helier :

I will be brief because I think Senator Le Marquand has covered a lot of what I wanted to say. Members of the Assembly will remember that I stood up to support Senator Breckon's proposition and I still congratulate him for bringing it to the Assembly because it has highlighted one particular aspect that gave me concern. The director of the J.F.S.C. kept referring to the initial briefing that we had that his Commission had not seen what he called the nexus or a connection between Goldridge Stone and the subsequently unregulated Sunstone Holdings. That was where I was concerned and that is where the independent, Mr. Thomas, has found a connection and found a nexus. It is that thing that clarifies it in the same way that Senator Le Marquand does, that begins to identify for me there is a case or is there a cause for compensation? Just to clarify the issue, Goldridge Stone was a regulated entity, it was a bunch of I.F.A.s. Then there was a point - and this is where I think the fraud begins to coagulate - when they moved from a regulated entity into an unregulated entity of Sunstone Holdings the shape-shifting is the bit that gave me the concern. I think the independent report has identified that. I am sure every Member in this Assembly feels the same, deeply sorry for these investors who put most of their life savings into this situation. I do not know that there is ever a compensation, certainly for the 3 that have already died, that we could ever give back. But I think the point for me was the clarity of understanding where the responsibility lay in this particular case. I am more than happy for the Chief Minister to take this on and go back to the independent and identify where the causes were and who could pay for this.

6. Deputy J.H. Young:

I should declare that very recently I discovered that a person known to me has taken a loss. I do not think I have a conflict but I have to declare it. I supported this before and I maintain that view. The reasons are is that 57 ordinary unsophisticated investors with very modest sums, retirement pockets and so on, retirement funds, invested £5.3 million in this very high-geared high-risk scheme. Only £1.1 million was recovered, leaving a loss of £4.2 million and there was a connection to somebody in the most highest levels of government employ, which the way Jersey works would have definitely influenced people to come on board. I heard what the Chief Minister said and I accept that there are technical arguments to avoid responsibility but I think there is an overriding moral one. I think that where we had somebody operating in the market locally making such decisions indiscriminately in respect of personal circumstances, people who could ill afford to take those risks and were so exposed to high-risk investments, the fact that we ended up with that being unregulated, as what is being said there, troubles me immensely. I think it probably exposes for me the wider issue that there is in Jersey, a massive gap. There is not availability, in my view, of what you might call a really effective private pension scheme for people that are not able to access these and you look nowhere else. The fact that you can earn, if you are a corporate player, 3.75 per cent on your money, when if you go to the bank as a private investor you get 0.1 per cent. Where does the difference come from? It is obviously because of the power of collective investment and people that are looking for this. I was very pleased with the Chief Minister for Mr. Thomas' report and the conclusion that says to me clearly is that he says in his opinion: "J.F.S.C. did not take timely and sufficient enforcement action in respect of Goldridge." I accept the fact there is this distinction between decisions taken by investors post-March 2007 that his report says was the key date. But, unfortunately, we do not have a proposition to that effect. The Deputy Chief Minister tells us he will support the Chief Minister's proposal to distinguish between the 2 groups of investors in producing some sort of scheme but we do not have it. It is not in the proposition and I am really disappointed there is no amendment. I would have thought, and I expected that if there was that sort of situation we would have had an amendment from the Chief Minister recognising that element. What we are asked to do I think here, and I think we have got no choice. Procedurally the choice before us is this, if we vote against this because something might be coming from the Chief Minister that is not going to come back to this Assembly in this Assembly's life. It is going to take months to do that work, it will not come back until 2015 and a new Assembly. Is it the right thing to do to those people? The court case was in 2012, people were convicted, serving time. The report came here in 2013, now it is with us halfway through 2014. I would have supported an amendment if there was one but there is not. I have to make a decision on the basis of what we have got. My personal take on this is that the case for the regulator doing more or should have been doing more is because I do not believe from what I have read that this started out as a fraud. This was a group of people seeking to make money on high-value investments. The risks were so there was no absence, there were no hedging measures, there were no guards against the risks happening. When the risks happened and the underlying base of the investment started to become questionable they then went into cover-up. They went into cover-up procedures and, finally, then they went to full-blown fraud. I think that shows you what potentially can happen in any sort of financial services. The slippery slope going from high risk to cover-up to eventual fraud to cover up the criminality. My view is that if we had an effective regulatory structure here for the small investors that process would have been stopped down the track before it got to full-blown fraud. It is not just an arithmetical thing. It is their own risk up to March 2007 and after that it is a liability. I think somewhere down that track people were encouraged to make investments and a more effective regulation would have halted it. Probably might have and meant that there would have been a greater recovery, instead of the £1.1 million, and the outcome would have been very different for investors. I ask myself here, why is this, have the J.F.S.C. got the right tools? Here I started looking around and I see what other regulators, they have got fining powers and I looked up some figures here. What was the U.K. Financial Services Authority and it is now the Financial Conduct Authority, according to their report in 2014 so far they have made £131 million in fines and in 2012 they have made £311 million in fines. In the U.S. you can look to fines of over 100 billion dollars against U.S. banks. You look at the European Banking Authority and you find they have got major fining powers. I think there is a case for giving our regulator regular teeth. I think the moral responsibility says to me because of the association with people with the highest level of authority and trust by going with this proposal then it will ultimately lead to strengthening of the role and the power of the regulators. I think that does also mean looking at the activities of such unregulated activities to see whether some of that in the future should come within the scope. I wish we had an amendment from the Chief Minister to draw those finer distinctions but we do not. I am going to come down in favour of the proposition.

7. Deputy J.A. Martin:

I was involved in one of the cases with Senator Breckon and trawled through many, many, many readings of court statements and evidence. Today I have heard some more evidence from Senator Le Marquand, who states that the former assistant magistrate thought this business was so lucrative he tendered his resignation. Unfortunately, we heard that on a turn of events he then reapplied and on another turn of events he was offered the job as magistrate. The Senator said if we had known he had been doing anything wrong he would not have been appointed and his words were: "Firm action would have been taken." What was the interview process in all this to a magistrate? On page 10 of the comments on 2(3): "In February 2004 De Lec, a property company, was incorporated as a company in Jersey. It was set up by Lewis , Ian Michael Christmas and a third person." I am sorry, a background check would have known and should have known what our former assistant magistrate was doing. We have the timeline also and, sorry, but the Senator and Deputy Young and the Deputy of St. Mary are all on the same track. When did this actual so-called high-gear investment become total fraud?

[10:45]

Because I can offer you a return of any amount if I am just going to go and play with it or spend it myself or have a good time because you are never going to get your money back, but I am headed up by someone who is totally respected on this Island, appointed, just as Senator Le Marquand said, by the top people to that job, fronting this fraud. It gets worse because Deputy Le Fondré asked: "What has happened to the pension? What has happened to compensation?" The person we were dealing with was under compensation and not confiscation and the magistrate refused to pay, was offered to do more time in jail and reneged his debts. When I was researching this I spoke to the Law Officers who said: "It is bigger than this, it will not be resolved today but this needs to be looked into." "I can pay possibly but will I do another 6 months where I would only serve 3 and the compensation falls away." As Senator Breckon said there was an arrest finally on the very good pension, whoever is paying it, but he was employed as a Crown Officer. I may be wrong, he was appointed by the Crown, and the firm action that was promised by Senator Le Marquand never happened. People out there cannot believe that the ex-magistrate retained all his wages and was doing a back office job. Because if I, as an ordinary person, had gone in and robbed a few packets of sweets or robbed from my company, I would be sacked that day; I would have no redress and I would be in court for stealing or fraud, it is a very similar fine line. The Chief Minister: I am very disappointed about the part (b) where we do not even know if it is legal; it is not moral. We have heard from the Minister for Treasury and Resources that possible directions could be made to the J.F.S.C., but we did hear in the Chief Minister's speech about what was said in all these pages. The investors should have had a third eye. Well, I have one arm in this business which is regulated. These people were regulated to give property advice but not in the company that they were investing in. So, it is very, very muddy. As I say, I also wonder sometimes where Jersey is coming from because it says under the .. this is not the right scheme, we have heard, from other people who are not supporting it. Maybe we are including too many people who should not get it: were they greedy? Well, only if you knew that you were investing in something that really was not there. But a lot of them were vulnerable people. Whether he was involved in the full extent but he was paraded out to a lot of these vulnerable people which thought: "Well, this must be legitimate because it is the magistrate" and he is saying or he is having dinner with them or whatever way these people were advised to part with their money or roll their money over, we had one of the top officials in Jersey sitting around that table. It appears that, under the report, if these people had been in the U.K., many of them would fall under that compensation scheme. But really why people are saying they cannot support (c) is because it says: "Currently Jersey does not have an investor protection scheme. The reasons why an investor protection scheme has not been introduced in Jersey to date were set out in the comments of the Council of Ministers. In summary, such a scheme, if it was to be funded by investment advisers, could force many out of business, and in the

absence of a similar scheme in competitive jurisdictions, such as Guernsey and the Isle of Man, business would be lost. For these reasons the introduction of an investor protection scheme in Jersey is not supported at the present time." Well, go back 10 years. Had anyone heard of bank compensation scheme? I mean, we had to jump on that bandwagon very quickly because we would have lost. Where would you put your money? You have not got a lot to invest, you have got nothing to lose money-wise. Where would you put your money? I thought we were Jersey, well- regulated and above everybody else. But no, let us keep down to the other people's level. Now, if I was looking around to invest, small amount, a few thousand, £50,000, where would I go? Where would I go? I would, with everything that has happened over the last many years in all different financial situations, go with a well-regulated compensation scheme, and Jersey should get ahead of the game. I really think, having dealt with one case but being involved and reading about lots of these cases, the Chief Minister's: "Let us all go away and come back another day with some sort of scheme", as Deputy Young said, will not be in this House and it will all start again. We have a moral judgment here to make. Do we let the J.F.S.C. because we can all say: "Well, this company, these people wearing this hat was not regulated" which I think Deputy Bryans seems okay with. I may have interpreted his words wrong but that part of the company was not regulated. These are the same people and they were regulated. But that is okay because the J.F.S.C. should not have been looking at it. When they did look at it, and if they had looked at it sooner, they wrote straight away and they reported it to the police. To me, it is quite simple. If you cannot, morally or financially, support (a) or (b), and I am looking forward to hearing from the Minister for Treasury and Resources about directions for the Jersey Financial Services Commission, but (c) is absolutely a must.  We have got to get ahead of the game like Deputy Young says. We want to .. yes, big investors but you have a hundred, a few thousand small investors, it is all money and their money needs to be protected. We need to be well regulated. I really think that reading again the report from the independent Mr. Thomas, it has got to be supported. There are too many ifs.' Should you have known? Yes, you had known, and the absolute .. I mean, I know Senator Le Marquand was trying to be helpful but to me it has opened up another big can of worms. Who and when knew that this person, top of our Island judges in the magistrate, did not anything .. it astounds me when the resignation was tendered and when the business was going downhill he not only came back as an assistant but went for the magistrate's job. But where were the checks? I will leave it there. I am absolutely amazed that this has happened and people have had this person touted in front of them saying: "Your money is safe, trust me." I think it is totally immoral and we owe these people the respect they deserve, and they were not greedy people, they thought they were possibly on a high geared investment, but like the Deputy of St. Mary said, it was basic .. not basic, it was fraud.

Thank you.

8. Senator P.M. Bailhache :

I think that Senator Breckon has made a good case but he is making life difficult for Members because once again we are debating a proposition without all the necessary information to hand. Paragraph (b) of the proposition seems to me potentially a disaster area where, even if it is legally possible to do what is suggested by the proposition, it is bound to have very unfortunate consequences for the Jersey Financial Services Commission and perhaps also for the Island's reputation in terms of regulation, in that we will be demonstrating very clearly that the Commission is not really an independent player and that we are in a position to tell it what to do and to extract funds from it. Some Members may think that taking money from the Financial Services Commission is a neat solution because it is not taxpayers' money but, as the Chief Minister has said in his speech, there seems absolutely no justification for requiring those who have contributed fees to the Jersey Financial Services Commission to, in effect, bail out those who have been the victims of fraudulent activities of those who have been convicted. I could not possibly vote for paragraph (b) in any circumstances. I turn to paragraph (a) and I said that Senator Breckon had made a good case. He has made a good case in respect of some of the investors who may be deserving of an ex gratia payment from public funds but, as Senator Le Marquand said, I thought very persuasively, one size really does not fit all. If the Assembly adopts paragraph (a), £1.9 million of taxpayers' money, at its maximum, £1.9 million of taxpayers' money will be paid out and much of that will go to people who are quite undeserving of an ex gratia payment. Now, that seems to me to be absurd. We are turning the central reserves of the States, in effect, into an insurance scheme for all those who have made an unwise investment. There will, sadly, always be fraudsters. There will always be victims of fraudulent schemes, people who are taken in by smooth talking and by people whom they thought, wrongly, to be friends and to be trustworthy individuals. What we would be saying if we adopted paragraph (b) is that anyone in that position in the future is entitled to find a Member to bring a proposition and to say: "Never mind, we will compensate you with taxpayers' money." That does not seem to me to be a responsible position for this Assembly to take. I would have wished that Senator Breckon might have been willing to defer debate on his proposition so as to enable the Chief Minister to carry out the inquiries that he has undertaken to do, because that would put the Assembly in a position of having full knowledge in relation to this matter and to be able to make an informed decision. If the Senator insists on putting his proposition to the vote, like Senator Le Marquand I shall be bound to vote against all the paragraphs of it.

9. Deputy M.R. Higgins of St. Helier :

Having worked at the Jersey Financial Services for 12 years, along with Senator Ferguson who was also there for many, many years, I think I have got a better insight into the working of the Commission than many Members here. I know that the vast majority of members of the Commission are hardworking and conscientious and I have got a great deal of respect for what they do. I do, however, have concerns about the Commission and I have had those concerns for many, many years, and one of the main ones was to do with staff turnover. In fact, if I go back to the time that I joined the Commission in 1995, I think there are only 5 members left. The vast majority of people who come to the Commission have been drawn from industry partly because they wish to get up to date knowledge of what is going on and if you have been at the Commission for a longer period of time you may get out of date and not know the current practices.

[11:00]

But the problem with people coming from the industry is that the vast majority of them are only coming for 2 or 3 years. Why? It looks good on the C.V. (curriculum vitae) as they move from one company to another. Now, one of the problems with having a large turnover at times and people staying for such a short period of time is the lack of corporate memory. People forget what has gone on. They may not be aware of all the signs that have been there before, and so I do have concerns in that sense, and it may well be that in this case - I do not know, I do not know the facts, I have not discussed it with any member of the Commission - but it could be that maybe signs were there which were not passed on for whatever reason. I also know that the compliance and enforcement teams, even today, are very, very busy and there are many firms and individuals under investigation, and when evidence is obtained no doubt they will be brought to book, at least I hope so. Because there were things that we were aware of at times, it was just gathering the evidence to get sufficient to take action. Now, I think it was Deputy Young who addressed the Assembly about the Commission's lack of powers conferred to many other regulators. Well, I can tell you that, I think it was in 2005, I wrote a paper for the board of the Commission regarding, I think it was fining powers, and in fact I was reviewing a whole series of powers and there is no doubt in my mind that the Commission does not have sufficient powers and should have a wider range of powers so they can use them in particular circumstances. I will not say it was political objections but for a variety of reasons they were not followed through. I cannot remember now as to the reasons why not, but I do think that the Commission does lack proper powers. It should have those that are held by other regulators abroad. Now, this is an exceptionally awkward case. My sympathies are for the people concerned and I would like to support them. I do have this problem, going back to Mr. Thomas' comments regarding the split between the investors in time. There is no doubt that those after the, I think it was March 2007 or March 2008, whatever the date was, have got certainly a better case in my mind than the others and unfortunately the proposition does not deal with it. So my heart is telling me to support. I have not really decided which way I am going to fall. But I want to comment on something else too. I found the Chief Minister's comments regarding the setting up of an investor compensation scheme as shameful, especially when one considers that he, his Minister for External Relations and Minister for Treasury and Resources and Geoff Cook of Jersey Finance, are going around this world telling people what a fantastic finance industry we have; we have got one of the best regulated, one of the best finance centres anywhere, and yet we encourage people to come to Jersey, and local people, to deposit their money, either in banks or invest in Jersey companies with Jersey professionals and Jersey businesses, and yet when push comes to shove we have no protection for them. Now, it may be of interest to you to know he said that, for example, we do not have a scheme and others do not have a scheme. Well, believe it or not, in the Financial Services (Jersey) Law - I think it is Article 27 - has an Article to do with compensation schemes, and it states that: "The States may by Regulations establish in relation to any financial service business, other than trust company business, or classes of such businesses, other than trust company businesses, schemes for compensation in cases where registered persons are unable or are likely to be unable to satisfy claims in respect of any description of civil liability incurred by them in connection with such business, and the provisions of such schemes may be different for different classes of persons or for different classes of such business." We have got the provision in the law, it has been there from the very beginning. It has been chosen for political reasons not to do it. Now, we are told it makes us uncompetitive. Well, let me just tell you that Guernsey, believe it or not, were told it has not got investor protection schemes. It does have one, it has got the Collective Investment Scheme Compensation for Investors Rules 1988 and they can, on this particular scheme, which I might add has not been called upon provides for compensation for investors in Class A' schemes of up to £5 million in any one year. Subject to this limit the maximum compensation payable to an investor is 90 per cent of the first £50,000 and 30 per cent of the balance up to £100,000, making a maximum of £60,000. As I say, no one has called on it. In Europe, most investor compensation schemes are giving protection of up to 20,000 euros. Not very high but there is protection. Our competitors in Singapore and in Hong Kong have investor protection schemes. So I do not accept the argument that it makes us uncompetitive. In fact I would argue Jersey should be selling itself out as an ethical business and finance centre. We should