Jersey Investment exchanges and arrangers regulation is coming – beware!!

The Government of Jersey, following the recommendation of the Jersey Financial Services Commission (the “JFSC”), is to amend the Financial Services (Jersey) Law 1998 (the “FS Law”).

The Draft Amendments fall into three categories:

1. A new form of regulated financial service business for ARRANGING,
   • The activity of arranging for another person to deal in investments is limited only to the retail market (“Arranging Amendments”).
2. A new form of financial service business for EXCHANGES
   • The activity of operating an investment exchange (“Exchange Business Amendments”).
3. Clarifying, updating, and aligning the definitions used in Schedule 1 of the Financial Services Law so
   • That they are consistent with the UK FCA MiFID II definitions (“Schedule 1 Definition Amendments”).

The Draft Amendments will ensure Jersey’s investment regime remains aligned with its key markets and give retail consumers of Jersey’s investment market equivalent protections.

The purpose of the Draft Amendments is to:

1. Modernise and align Jersey’s investment business regulatory regime with international standards.
2. Provide additional consumer protections by introducing arranging as a new category of regulated investment activity.
3. Facilitate in the future Jersey’s adoption of a regulatory framework for investment exchange business as a new form of regulated investment activity.

On the arrangement front there is an exemption for Sophisticated and High Net Worth Investors as recorded as follows:-

1. The proposed Amendments exempt sophisticated and high net-worth investors from the scope of the legislative changes.
2. The Panel questioned the Assistant Chief Minister on the reasoning behind this, and was informed in the correspondence of 07 August 2023 that whilst the intent of the MiFID II rules on ‘arranging’ are good for consumer protection and avoid harmful practices arising in the retail investment market, they are not as necessary or appropriate for the private arrangements made between the financially sophisticated or expert investors.
3. The Assistant Chief Minister indicated
   • That this would also be the case for informal, unpaid recommendations or introductions made by friends or business colleagues in the ordinary course of life and business.
   • That sophisticated and high-net-worth persons are more commercially sophisticated and capable of assessing for themselves or paying for advice to determine the appropriateness of such recommendations or introductions.
   • As such, they are not as susceptible to the consumer harms that arise from unregulated arranging whilst also being able to bear the financial loss if the investment goes wrong.
4. The Panel notes that Article 5B of the draft Order will establish that sophisticated and high net-worth persons would be those
   • Undertaking investments valued at no less than £250,000 in aggregate or
   • Taking part in collective investments certified under existing legislation or
   • Those persons having an individual wealth or market value of no less than US$10,000,000 or the equivalent in another currency.
5. The Assistant Chief Minister has identified that introducing regulation of arranging to Jersey’s International Finance Centre product market would be perceived by these types of investors to be more of a barrier to using the jurisdiction than a benefit, and it risks being perceived as an unnecessary interference in commercial relationships between parties.
6. It has been further highlighted that Jersey, adopting a simpler and more targeted approach, will avoid much of this while still ensuring that those investors who need protection are properly protected.

DRAFT FINANCIAL SERVICES (AMENDMENT OF LAW) (No. 6) (JERSEY) REGULATIONS 202-

https://statesassembly.gov.je/Pages/Propositions.aspx?ref=P.54/2023(Re-issue)&refurl=%2fPages%2fPropositions.aspx%3fNavigator1%3dGovJEYear%26Modifier1%3d%22%c7%82%c7%8232303233%22

Additional information for P.54/2023

• P.54/2023(Re-issue)

Draft Financial Services (Amendment of Law) (No.6) (Jersey) Regulations 202-. https://statesassembly.gov.je/assemblypropositions/2023/p.54-2023%20(re-issue).pdf

Lodged by: Chief Minister

Proposition lodged date: 07/07/2023

Hansard of debate: 12/09/2023

States minutes of debate: 12/09/2023

• P.54/2023(Com)

Draft Financial Services (Amendment of Law) (No.6) (Jersey) Regulations 202- (P.54/2023): comments https://statesassembly.gov.je/assemblypropositions/2023/p.54-2023 com.pdf

Lodged by: Economic and International Affairs Panel

Proposition lodged date: 16/08/2023

Hansard of debate: 12/09/2023

States minutes of debate: 12/09/2023