Understanding JFSC & Professional Indemnity Insurance (PII) requirements

Navigating the complexities of insurance policy documents can be challenging, often leaving many businesses needing clarification about their coverage. This lack of clarity underscores the importance of adhering to regulatory codes, seeking expert guidance, and consulting with specialist brokers to ensure comprehensive understanding and compliance.

Why Awareness of PII Rules is Crucial

1. Increased Regulatory Focus: With no financial services compensation scheme in Jersey—aside from bank deposits and recognised funds—the Jersey Financial Services Commission (JFSC) has heightened its scrutiny of PII arrangements. Local firms and licensed entities must prioritise understanding their policies to meet the JFSC's expectations.
2. Financial Risks of Inadequate Coverage: Insufficient insurance can lead to significant financial repercussions, especially if a valid claim is denied, potentially forcing directors to cover their defence costs. Moreover, underinsurance violating regulatory codes can result in hefty financial penalties.

2018 JFSC Guidance Highlights

1. Comprehensive Review: In 2017, the JFSC conducted an extensive review of PII arrangements, assessing 50 license holders across various sectors, including Funds Services and Trust Company Business. The findings emphasised the need for boards to prioritise the adequacy of their PII coverage.
2. Updated Guidance Note: Released in June 2018, this guidance provides essential insights for registered persons:
• PII Policy Limitations: It outlines standard exclusions and limitations, such as employer’s liability and property damage, stressing the importance of negotiating with insurers for adequate coverage.
• Obtaining PII Cover: Registered entities are encouraged to work with experienced insurance brokers and meticulously review proposal forms and policy documents to align coverage with their business needs.
• Board Responsibilities: Boards must regularly evaluate the adequacy of their PII coverage, especially in light of any changes to their business model.
• Notification Requirements: If a registered entity cannot secure adequate PII cover or their policy is cancelled, they must promptly inform the JFSC.

2019 Developments

1. Public Consultation: Following the 2018 guidance, the JFSC engaged the industry in a public consultation to gather feedback on proposed amendments to the Codes of Practice, aiming to standardise PII provisions across sectors.
2. Revised Codes: Effective June 1, 2019, the revised codes mandate that registered entities maintain specific insurance arrangements, including:
• Adequate coverage aligned with business activities, incorporating fidelity guarantee and Directors & Officers (D&O) insurance.
• PII must cover negligence and errors or omissions.
• Prohibition against insurance contracts that indemnify against financial penalties imposed by the JFSC.
• Coverage must be on a "claims made" basis, including legal defence costs and document theft liabilities.
• Adequate coverage must remain post-claim, ensuring that any excess per claim does not diminish the limit of indemnity.
• Registered persons must notify the JFSC of any material limitations, including inadequate PII cover or policy cancellations.
• Appropriate run-off PII cover must be arranged for claims arising from past acts, with expectations for coverage lasting three to six years.
• For registered persons facing eligible complaints under the Financial Services Ombudsman (Jersey) Law 2014, adequate PII cover is essential to address potential determinations against them.

By understanding and adhering to these guidelines, businesses can safeguard themselves against potential risks and ensure compliance with JFSC regulations.

*Source

1. https://www.jerseyfsc.org/industry/codes-of-practice/
2. https://www.jerseyfsc.org/media/5758/cp-code-amendments-no10-november-2018.pdf
3. https://pineladvocates.com/news/2019/1/16/jfsc-amendments-to-codes-of-practice
4. https://www.jerseyfsc.org/industry/guidance-and-policy/professional-indemnity-insurance-guidance-note/
5. https://www.ocorian.com/insights/covering-all-bases-jerseys-professional-indemnity-insurance
6. https://www.gov.je/Industry/Finance/DepositProtection/pages/overview.aspx
7. https://www.jerseydcs.je/aboutthescheme.html