SECURITY ISSUERS – JFSC DEAR CEO says following recent incidents, it will not be sympathetic

Today, 3^RD March, the JFSC issued a 'Dear CEO' letter regarding SECURITY ISSUERS, saying that:

• In the past, the JFSC has taken a sympathetic standpoint on breaches.
• Following recent incidents, the JFSC will now consider taking action.

The Dear CEO

• Reminds everyone that breaching the Control of Borrowing (Jersey) Law 1947 (the "Law") and its related ORDER is a criminal offence.
• Highlights a change in approach to breaches following an increase in instances where consents have not been followed or the law has been breached.

The JFSC has stated that:

• "Where breaches do not accord to the JFSC’s guiding principles of reducing risk to the public, these will be referred to HM Attorney General."
• The HM Attorney General will decide if the same should be prosecuted.

The JFSC says

• This letter is for security issuers, including issuers in initial coin/token offerings, under the following laws:
• Control of Borrowing (Jersey) Law 1947 (the COBO Law)
• Control of Borrowing (Jersey) Order 1958 (the Order)

Overview:

1. The law requires security issuers to get consent from the JFSC before carrying out relevant activities to protect investors.
2. When the JFSC issues this consent, it comes with conditions that the security issuer must meet.
3. The JFSC have identified several instances where security issuers have not complied with the conditions of the consents the JFSC issued.
4. There has also been an increase in issuers not having the necessary consent before undertaking relevant activity. This has the potential to put investors’ money at risk.

Background

1. The JFSC oversees security issuers pre-launch according to the COBO Law and the Order.
• This includes referring issuers to published guidance notes, which set out our qualitative and governance-related expectations. The JFSC apply many of these expectations as conditions to the consent the JFSC issues by the Order.
2. The JFSC has noted an increase in security issuers not observing those conditions, including failure to:
• File audited accounts with the Registrar under Article 108 of Companies (Jersey) Law 1991, irrespective of whether the company’s status is public or private.
• Get our prior consent when certain key functionaries change.
3. There has also been an increase in instances where the necessary consent was not obtained before the relevant activity occurred, primarily due to lapses in corporate governance by directors. Instances have included:
• Unauthorised circulation in Jersey of prospectuses of foreign body corporates.
• Unauthorised issue of securities.

Expectations:

1. Historically, the JFSC has taken a sympathetic standpoint on those breaches when it has been satisfied that:
1. They occurred because of administrative oversight
2. They were technical
3. They posed no financial loss to the public
4. Issuers immediately took steps to rectify the position
2. However, following recent incidents, the JFSC will consider taking further action. The JFSC, therefore, wish to emphasise that:
1. Breaches of the Order constitute a criminal offence.
2. The JFSC consider breaches of conditioned consents issued under the Order as a material occurrence.
3. While the JFSC recognise that security issuers often engage the support of legal advisors as part of the application process, the responsibility to comply with the Order and consents issued according to the Order rests with the board.
4. Conditioned consents of security issuers will form an area of focus for the Registry’s Supervision team.
3. Where breaches do not comply with the JFSC’s guiding principles of reducing risk to the public, they will be referred to the HM Attorney General.

JFSC’s guiding principles

1. The Jersey Financial Services Commission (JFSC) adheres to four guiding principles, which are central to its mission and regulatory activities:

1. Reducing Risk to the Public: The JFSC aims to minimise the risk of financial loss due to dishonesty, incompetence, malpractice, or the financial unsoundness of financial service providers.
2. Protecting and Enhancing Jersey’s Reputation: The JFSC works to protect and enhance Jersey's reputation and integrity in commercial and financial matters.
3. Safeguarding Economic Interests: The JFSC is committed to safeguarding the best economic interests of Jersey.
4. Countering Financial Crime: The JFSC actively works to counter financial crime within Jersey and internationally.

2. These principles guide the JFSC’s regulatory approach, ensuring that Jersey maintains high standards in its financial services industry.

Source:  

1. About the Jersey Financial Services Commission. https://www.jerseyfsc.org/about-us/.
2. Guiding principles and key deliverables — Jersey Financial Services .... https://www.jerseyfsc.org/publications/annual-reports/annual-report-2020/guiding-principles-and-key-deliverables/.
3. Our approach to enforcement. https://www.jerseyfsc.org/media/8105/our-approach-to-enforcement.pdf.