The first of a multi-part series by JEP investigations into the Jersey Financial Services Commission

The first of a multi-part series by JEP investigations editor Orlando Crowcroft on the work of an organisation that operates with impunity and strikes fear into the hearts of many people working in the finance industry – the Jersey Financial Services Commission

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THE FOLLOWING TEXT IS EXTRACTED FROM THE ABOVE JEP EDITION AS LINKED HERE

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Finance regulator that many call ‘the Kremlin’.

The first of a multi-part series by JEP investigations editor Orlando Crowcroft on the work of an organisation that operates with impunity and strikes fear into the hearts of many people working in the finance industry – the Jersey Financial Services Commission

THE sign on the exterior of the swanky St Helier office may say the Jersey Financial Services Commission, but 14–18 Castle Street has another name among many of those who work in the Island’s finance industry: the Kremlin.

It isn’t the worst thing the island’s regulator has been called over the past two decades by any means. For those who work in the finance industry, as well as for estate agents, businesses, accountants, lawyers, charities, anyone who lends anyone else money, the JFSC is a constant presence.

And familiarity, perhaps, has bred contempt.

And yet, the inner workings of the JFSC remain a mystery to all but a handful of insiders. Unlike other jurisdictions, the regulator is exempt from scrutiny under the Freedom of Information Law and acts with almost total impunity. It refuses to divulge information to either journalists or the public about its decisions or its significant budget.

But over the course of several weeks, the Jersey Evening Post has investigated the JFSC, speaking to dozens of individuals who have encountered them as a regulator – and others who have worked on the inside. Most have painted a picture of an organisation that is at best remote and unaccountable, at worst evasive, opaque and vindictive.

“They are a law unto themselves,” said one senior finance executive who asked to remain anonymous due to fear of reprisals.

That fear is a very real one within Jersey’s small and close-knit finance community, which employs over 15,000 people and contributes as much as 40% to the Island’s economy. With only a handful of exceptions, those who spoke to this newspaper demanded total anonymity and warned that the organisation had a proven willingness to silence those who criticised it.

“If you want my advice it is to drop this.

If you pursue them they will come after you,” one former finance executive told the JEP. “They will ruin your life like they ruined mine.”

One of the key weapons in the JFSC arsenal has been the use of public statements, published on the organisation’s website and open for anybody on the internet to see. Over the past decade, the JFSC has sanctioned 46 people in this way, banning them from working in the finance industry for life, or until the regulator decides to lift the ban.

The power to make public statement is under Article 25 of the Financial Services Commission Law 1998 and gives the commission power to issue it “in the best interests of the public”. The JFSC’s rulings can be – and often have been – overturned by the courts, but the costs have often been crippling for the firms and individuals involved.

Other than the courts, there is no formal process for appealing against the decisions of the JFSC aside from going to the Royal Court, an absence that is almost unique among other regulators in the democratic world. Those accused of financial impropriety by the JFSC are permitted to have a lawyer with them, but must pay for the privilege.

In a number of cases the JFSC has investigated and then sanctioned an individual with a public statement only for the decision to be revoked many years later.

In 2022, the JFSC reversed a 13-year ban on working in the finance industry imposed on a former financial adviser, Russell Shelton Homer. It did not give a reason for Mr Homer’s ban being lifted, and as far as the JEP understands he never received an apology for the 13 years he spent unable to work.

In an earlier case, the JFSC lifted sanctions on the director of a financial advisory firm, Jeremy Leslie-Smith, who had been investigated and subsequently sanctioned by the JFSC despite being acquitted of fraud in Jersey’s Royal Court. The JFSC never admitted fault in the case of Leslie-Smith, who was subsequently forced to leave the Island.

Other regulatory powers have come under scrutiny for a lack of accountability: in Malta, the island’s courts branded the fines and sanctions policy of its regulator, the Financial Intelligence Analysis Unit, “completely illegal” because supervised agencies had no right to a fair hearing.

This stemmed from a case brought by a start-up that criticised the FIAU’s role as investigator, prosecutor and judge.

The Cayman Islands’ monetary authority was found to have acted unreasonably by the jurisdiction’s courts in fining and preventing individuals from working in finance due to allegations of deficiencies in anti-money laundering processes.

And in Guernsey, three senior executives at Artemis Trustees managed to overturn directorship bans and reduce the fines they received by the Guernsey Financial Services Commission. The island’s Lieutenant-Bailiff, Hazel Marshall KC, concluded: “In sporting terms, [the regulator] writes a lot of the rules of the game – but then also acts as a referee.”

She said that in its enforcement func-tion, the regulator operated as “policeman, prosecuting authority, jury and judge”.

“Where there is such a concentration of functions within one institution, the importance of having some external and dispassionate check on the proportionality of outcome is obvious,”she said.

The Lieutenant-Bailiff’s decision was later overturned on appeal, but in its findings Guernsey’s Court of Appeal criticised the decision-making process at the GFSC during the case and called for a new senior decision maker to be appointed.

For those few individuals in Jersey who have managed to overturn the JFSC’s sanctions, there are many more who have not. The JEP spoke to a number of people who have been fighting for years to have public statements removed from the internet and have met with either silence or outright refusal from the regulator to do so.

Most of these individuals spoke on strict condition of anonymity, fearing that highlighting their situation would make the struggle harder than it is already.

The JEP has spoken to executives or even mid-level-ranking executives who have agreed to a ban from working in finance without a public statement, with the regulator warning that it would go public if it was defied. The number of these closed-door agreements has not been revealed by the JFSC and the regulator refused to disclose it to this newspaper.

Many of those who have spoken to the JEP lost their jobs and their livelihoods after falling foul of the commission; many have left the Island, some never to return.

“I’ve never been convicted of anything.

I’ve never been accused of anything. I am the little guy,” said Jon Hackwood, a former independent financial adviser who was investigated by the JFSC in 2016. “I had to sell my house. I had to sell my car.

I went from earning £50,000 to £60,000 a year to going cap in hand to Social Security.”

A former director of Sycamore Governance and Compliance, Mr Hackwood had applied to the JFSC for a licence to advise local non-profit organisations on upcoming changes to the Island’s charities law.

The regulator had questions about the£25,000 in cash he was required to have on hand to qualify for indemnity insurance, and opened an investigation into him.

Mr Hackwood told the JEP that at one point during his six-hour interrogation by the two JFSC officials, one of the young men was standing up, enraged, and shouting at him over the table, and he had to be physically restrained by his colleague.

“It was a small room, no windows, and the two of them sat there with a bible of documents in front of them six inches high. It was intense; it was very intimidating.

They were shouting at me across the table, and I was shouting back at them,” he recalled.

“One of them kept hammering his fist on the table and pointing in my face, shouting: ‘You will answer! You will!’ ”

After a day of interrogation, Mr Hackwood was allowed to go home. He was later told that the JFSC would ban him from ever working in the finance industry. After he complained, the JFSC later reduced its ban to working as a so-called “principal person” in a financial-services company.

The distinction did not help when Mr Hackwood tried to find work.

“You type my name into Google and it is the top thing that comes up,” he said.

It was not clear to Mr Hackwood in 2016 what he had done to anger the commission – and it is not clear to him today. In its public statement banning him from ever working in the finance industry again, the JFSC does not elaborate on its reasons, and told the JEP that it could not give any further detail on why the ban was imposed “for legal reasons”.

Another financial adviser who was banned from working in the finance industry in 2019 after over 20 years working in the UK and the Channel Islands spoke to the JEP on condition of anonymity.

The adviser, who was never convicted of a crime nor sanctioned by any kind of professional body or association, had to leave Jersey as a result.

“I fully appreciate and understand that the JFSC have a role and a duty of care in protecting the public and maintaining the Island’s reputation,” he said.

“But it is clear I pose no risk to the financial system of the Island. By banning me, by naming and shaming me, who are you protecting and what do you achieve?”

The JFSC’s enforcement division has been integral to its operation as a regulator.

For 13 years it was run by an ex-police officer, Barry Faudemer, who joined the regulator from the Financial Crimes Unit, where he led investigations into money laundering and drug trafficking. Mr Faudemer declined to comment to the JEP.

Mr Faudemer was surrounded by other former officers, including Kerry Petulla, who joined the JFSC in 2007 and is now executive director of enforcement. She spent eight years as a police detective in Jersey’s Joint Financial Crimes Unit.

“It was always designed to be police-led,” said one Island finance executive who declined to be named. “I guess in theory that’s because they understand due process, and they’re good interrogators.

I think they are good interrogators, but they’re not so good at due process.

“There is a huge amount of inconsistency and a disproportionate response. There is also the feeling that while they give the small man a kicking, if you’re rich, powerful and ugly enough you can afford to duck and dive anything the commission throws at you.”

JFSC insiders told the JEP that the enforcement division was a closed shop, and few knew what they were doing and why.

“They were very secretive,” said one former employee. “No one saw any of their information. We were never in the room when those discussions were happening.”

And yet, the former employee said, the enforcement division had almost unrestricted power to make or break a finance executive or a business. The law that established the JFSC in 1998 gives the organisation vast powers to demand information, conduct raids on premises, seize documents and publicly name and shame companies and individuals.

“If you’re an enforcement officer you can literally take someone off the street on a Friday and have them in front of a visit officer on Monday. And yes, some people use and abuse that power. Some people are generally good human beings and they don’t. But you definitely come across a few that do,” said one finance executive.

“You can’t have an organisation that has that much power and is unaccountable.”

Decisions of the enforcement division have to be ratified and imposed by the JFSC’s commissioners, but critics argue that few of them have a serious background in finance and, as such, tend to believe whatever the enforcement decision tell them. Many commissioners do not live in the Island, and insiders claim that they are given little time to really evaluate the results of investigations before they make a decision to ratify them.

“If I’m sitting on the board of the JFSC and I have Barry Faudemer telling me something is wrong, then I am going to think well, yeah, you’re an ex-policeman, I’m going to believe you,” said one senior executive who spoke to the JEP.

Indeed, critics argue that the JFSC’s zealotry in pursuing small financial-advisory firms and independent advisors contrasts starkly with a lack of prosecutions for money-laundering offences, a criticism that was echoed in the recent Moneyval report on the Island’s finance industry, which called for the regulator to increase prosecutions.

A former senior executive at the JFSC, who spoke to the JEP on condition of anonymity, said that one of the key roles of the regulator – to support the economic development of the Island – involved a conflict of interest, because it was in the organisation’s interest for major financial crime or malfeasance to stay off the international radar.

This may explain its keenness to crack down on individuals like Mr Hackwood and dozens of others and not on major companies or individuals. “What is the damage done, in that case? What damage did he actually do? Guys like this who forgot to sign something and were dragged over the coals for it. It is heavy-handed,” the former senior executive said.

Unlike the UK’s Financial Conduct Authority, the JFSC is not subject to freedom-of-information requests and has no requirement to disclose anything about either its budget – which is funded mostly by taxpayers – or the measures that it takes and why it takes them.

The JEP has repeatedly made requests for information that would shine light on the issues raised by those who spoke abouttheir experiences; all have been refused.

In a written response to multiple questions by the JEP, the JFSC said it did not comment on individual cases. In a statement, the regulator said: “The JFSC is scrutinised both locally and internationally, and more recently by MONEYVAL, a permanent monitoring body of the Council of Europe which assessed the Island’s compliance and effectiveness on international standards to counter money laundering and the financing of terrorism.”

It said that the use of public statements was “an essential and effective tool in fighting financial crime and their use in Jersey was recently endorsed by MONEY- VAL”, and on enforcement, it said: “We have a demonstrable and public track record of actively pursuing a broad spectrum of appropriate enforcement activities of varying type, scope and entity size.

“Our enforcement team seeks to act firmly but fairly, playing a critical role in investigating and, where appropriate, instigating action against businesses or individuals who do not comply with legal and regulatory requirements. This includes cases of serious regulatory misconduct.”

Few – if any – of those who spoke to the JEP over the past several months had an issue with the role of regulation and regulator in the finance industry – indeed, a number spoke positively of dealings with the UK’s Financial Conduct Authority. By contrast, experiences with the JFSC have been resolutely negative.

Of the dozens of people who spoke to the JEP for this investigation, only one – Mr Hackwood – agreed to go on the record.

His career ruined, he said he had nothing to lose.

“What more can they do to me,” he said, “than what they have already done?”

‘‘ I’ve never been convicted of anything.

I’ve never been accused of anything.

I am the little guy.

I had to sell my house.

I had to sell my car.

I went from earning £50,000 to £60,000 a year to going cap in hand to Social Security

Tomorrow

• A Jersey lawyer compares the JFSC to sometimes behaving like Javert, the police inspector in Victor Hugo’s Les Misérables, who is incapable of compassion or pity

What do you think?

• Contact Orlando Crowcroft in confidence at Orlando@allisland.media
• Take part in our survey: jerseyeveningpost.com/JFSCfeedback/ or scan the QR code below

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