ASK MAT: Was the JFSC correct in criticising JERSEY POST LIMITED for not having a formally approved ToR for its board

• Was the JFSC correct in criticising Jersey Post Limited for not having a formally approved ToR for its board

MAT SAYS:-

1. In a recent enforcement public statement, the JFSC criticised in a “DETAILED FINDING” the Jersey Post Limited [JPL] Board for:-
1. NOT having a formally approved TERMS OF REFERENCE (ToR) or equivalent document
2. [Source:- https://www.jerseyfsc.org/news-and-events/jersey-post-limited/]
2. The JFSC said in its public statement 2.3 under the header of “Board administration”:-
1. The JPL Board did not operate with a formally approved Terms of Reference, or equivalent document, that set out the individual and collective responsibilities of JPL Board members.
3. The JFSC stated that the JPL Board during the Relevant Period.
1. Failed to understand that JPL must comply fully with the applicable regulatory framework as a ‘money service business’ (as defined in the FS(J)L) and is regulated by the JFSC in this regard.
4. The Jersey Regulatory Framework includes the following:-
1. Financial Services (Jersey) Law 1998 - FS(J)L,
2. Money Laundering (Jersey) Order 2008 - MLO,
3. Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 - SBL,
4. Money Service Business code of practice - MSB Code -

and

5. The JFSC AML/CFT/CPF Code of Practice as set out in the Handbook for the Prevention and Detection of Money Laundering, the Financing of Terrorism, and the Countering of Proliferation Financing for Regulated Financial Services Business, effective between 1 January 2019 and 31 December 2022. - the AML/CFT/CPF Code.

IS THE JFSC FINDING ON HAVING A “ToR” CORRECT?

1. The Jersey Regulatory Framework does not require [specify-prescribe] formally approved Terms of Reference.
2. What the regulatory framework does require is such matters as:-
   1. AML/CFT/CPF Code.- 2.3 Board responsibilities - 16.-
      • The board must document its systems and controls (including policies and procedures) and clearly apportion responsibilities for countering money laundering, the financing of terrorism, or the financing of proliferation, 
        • https://www.jerseyfsc.org/media/7584/section-2-clean-20240507.pdf
   2. MSB Code – 3 -
      • A registered person must organise and control its affairs effectively for the proper performance of its money service business activities and demonstrate the existence of adequate risk management systems.
        • https://www.jerseyfsc.org/industry/codes-of-practice/money-service-business-code-of-practice/

COMSURE VIEW

1. Although JPL may likely have had various documents that set out the individual and collective responsibilities of JPL Board members (e.g. job descriptions & core constitutional documents) and other matters, it is clear they were not present for the regulatory visit nor available to mount a defence when challenging the JFSC findings before settling on the final public statement
2. Given the above Jersey Regulatory Framework references, Comsure recommends operating with formally approved Terms of Reference (ToR) or an equivalent “single” document.
3. HERE ARE SOME REASONS WHY:
   1. Clarity of Roles and Responsibilities:
      • A ToR clearly outlines the board members' roles, responsibilities, and expectations.
      • This helps avoid confusion and ensures that everyone understands their duties and the scope of their authority.
   2. Governance and Accountability:
      • • It provides a framework for governance, ensuring that the board operates within a structured and consistent framework.
   3. Legal and Regulatory Compliance:
      • • A ToR helps ensure the board complies with legal and regulatory requirements.  
   4. Strategic Oversight:
      1. • It assists the board in providing strategic oversight and direction to the organisation
         • This includes setting long-term goals, monitoring performance, and making informed decisions.

4. While Jersey rules may not mandate a ToR or an equivalent “single” document, many corporate governance codes and best practice guidelines recommend it, and many companies adopt them. 

EXAMPLES OF COMPANIES ADOPTING BOARD ToRs

1. While it's not a specific legal or regulatory requirement, having these documents is smart. Some of the best-functioning boards I've seen have one thing in common:
   1. They have Terms of Reference (ToR).
2. As a proof of concept, I have taken a quick look at some UK companies, and it is clear other companies do embrace this practice, as follows:-
   1. Santander UK plc: Their ToR clearly outlines the board's scope, responsibilities, and procedures, covering everything from strategic issues to risk management and governance.
      • https://www.santander.co.uk/assets/s3fs-public/documents/6_board_terms_of_reference_december_2016_v4.pdf.

1. 2. Ubico Limited: Their ToR outlines the board’s responsibilities, including promoting long-term success, establishing company values, and ensuring effective risk management.
      • https://www.ubico.co.uk/media/n5kp4yjo/board-terms-of-reference-v1-0.pdf.

1. 3. Bank of Ireland (UK) plc: Their ToR details the board's roles, focusing on leadership, risk assessment, and management.
      • https://www.bankofirelanduk.com/app/uploads/board-terms-of-reference_approved-2023_boi-uk.pdf.

CLOSING THOUGHTS

1. Comsure always advises clients on the side of caution. As much as the rules do not specifically require a ToR, we suggest having a single document that outlines the terms of reference for a board’s framework is crucial for the reasons highlighted earlier
2. A single document providing the terms of reference for a board’s framework is essential for effective and transparent governance.
3. It promotes clarity, consistency, transparency, efficiency, compliance, and adaptability, ultimately contributing to the board’s ability to fulfil its responsibilities and achieve its goals.

I hope this helps. Thank you for such a great question.