Monday 26th August 2019
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Comsure operates in:the UK, Jersey, Guernsey

Civil Financial Penaltieson Principal Persons:Methodology for determining the amount

1. Introduction

a. The methodology set out in this paper describes the Jersey Financial Services Commission’s (JFSC)guideline approach to the determination of the amount of a civil financial penalty to be imposed on a principal person. The circumstances of each case will be different and the JFSC will apply each step in the methodology with the necessary degree of flexibility and discretion that the particular case will merit.

2. Background

a. Pursuant to provisions in the Financial Services Commission (Jersey) Law 1998(the Commission Law),where the JFSC is satisfied that a registered person has, to a significant and material extent, contravened a Code of Practice(Code), and that the contravention was:

committed with the consent or connivance of, or is attributable to neglect on the part of a principal person; or

aided, abetted, counseled or procured by a principal person,the JFSC may impose a civil financial penalty on the principal person concerned.

b. The maximum penalty that the JFSC may impose on a principal person is set out in the Financial Services Commission (Financial Penalties) (Jersey) Order 2015(the Order). There are four penalty bands,which are summarised below:

Penalty Band Nature of the contravention by the registered person(summary)  

Maximum penaltythat may be imposed on a principal person

1. A failure to notify the JFSC of certain matters specified in a Code of Practice.   £10,000
2 A contravention of a Code of Practice not falling into Band 2A or Band 3 below and not rectified to the satisfaction of the JFSC within the time frame determined by the JFSC.   £200,000
2A A contravention of a Code of Practice committed negligently.   £300,000
3 A contravention of a Code of Practice committed either intentionally or recklessly.   £400,000

 

3. Determining the amount –what the law says

a. Article 21B of the Commission Law states that when considering whether to impose a financial penalty on a principal person and the amount thereofthe JFSC must have particular regard to the following factor:

The seriousness of the contravention;

Factors that aggravate or mitigate the position of the principal person (see Appendix 2)

The principle of ensuring that principal persons cannot expect to profit from contraventions;

Penalties imposed on principal persons in other cases; and

The potential financial consequences to the principal person and to third parties (including creditors of the principal person) of imposing the penalty

b. This list is replicated in the Appendix to the JFSC’s Decision-Making Processes, “the principles that the JFSC will apply in determining the imposition and amount of a financial penalty on a principal person.”

c. Principal persons are reminded that Article 21F of the Commission Law provides that a principal person may appeal to the Royal Court against the imposition of a financial penalty or the amount of a financial penalty on the ground that the decision of the JFSC was unreasonable having regard to all the circumstances of the case.

4. The methodology

a. The methodology for determining the amount of a financial penalty responds to Article 21B of the Commission Law by requiring a series of steps to be followed that reflect the statutory obligations imposed on the JFSCby that Article.

b. The detail of the methodology is set out in Appendix1and is self-explanatory in the main.However, Step 1of the methodology is described in detail below because it is somewhat more complex than the other steps in the methodology

c. Step 1 requires the JFSC to judge how serious it regards the contravention(or the contraventions, in aggregate)on a scale of 1 to 5.

d. The seriousness of the contravention will be judged by its impact on the Guiding Principles that Article 7 of the Commission Law requires the JFSC to have regard to when carrying out any of its functions, namely:

The reduction of the risk to the public of financial loss due to dishonesty, incompetence or malpractice by or the financial unsoundness of persons carrying on the business of financial services in or from within Jersey;

The protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters;

The need to counter financial crime both in Jersey and elsewhere.

e. Under the methodology the JFSC will judge the impact of the contravention (or the contraventions, in aggregate) on each of the three Guiding Principles, with Level 1 being the lowest impact and Level 5 the highest.

f. The table below summaries the factors that would influence the assessment of impact on each Guiding Principle:

 Guiding Principle  Determining the level (sliding scale)
The reduction of the risk to the public of financial loss due to dishonesty, incompetence, malpractice, or financial unsoundness of persons carrying on financial services  

Level 1 –Low risk of loss Level

3 –Significant risk of loss or significant occurrence of   loss.

Level 5 –Very significant risk of loss or very significant occurrence of loss

The protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters  

Level 1 –No significant reputational damage.

Level 3 –Significant reputational damage domestically.

Level 5 –Significant reputational damage internationally

The need to counter financial crime  Jersey or elsewhere.  

 

Level 1 –Low risk of financial crime occurring.

Level 3 –Significant risk of financial crime  occurring or significant financial crime occurred

Level 5 –Very significant risk off financial crime occurring or very significant financial crime occurred

g. For consistency, when evaluating the impact of the contravention against the second of the Guiding Principles (reputation) the methodology works on the assumption that the contravention will, if not already, become public knowledge (which, save in exceptional cases, will always be the casein any event through the issuance of a public statement by the JFSC when the financial penalty is imposed –whether under a settlement agreement or otherwise)

h. Under the methodology, once the impact of the contravention(or the contraventions, in aggregate) on each of the three Guiding Principles has been judged, the resultant average level would be that which determines the “seriousness” of the contravention and how much in financial terms the “seriousness”factor will contribute towards the final amount of the penalty, as set out in the table below. Under the methodology, this is known as the Step 1 figure–see Table 1 below.

Table 1

  “Seriousness”  

Step 1 figure

Expressed as a percentage of the maximum penalty that could be imposed on the principal person –see Table 2

Level 1 15 %
Level 2 30 %
Level 3 45%
Level 4 60%
Level 5 75%

 

Table  2

 

Maximum Band 1 penalty Band 2 penalty Band 2A penalty Band 3 penalty
Penatly £10,000 £200,000 £300,000 £400,000

i. The other steps to be followed under the methodology in order to determine the final amount of the penalty are described in detail in Appendix 1 but, in summary, they are as follows:

 

 Step                               Description Contribution towards penalty amount

 

1. Judge the seriousness of the contravention of the Code of Practice. The £ amount calculated by reference to the table in paragraph4.8of this paper.(the Step 1 figure)
2. What aggravating / mitigating factors were there?(see Appendix 2)  

A(net)additional amount of up to 50% of the Step 1 figure or a (net) deduction of up to 50% of the Step 1 figure.

 

3. Application of the principle of ensuring that principal persons cannot expect to profit from contraventions +£ xxx, as appropriate (where the quantum of profit can be identified).
4. Have regard to the penalties in other cases.  

[The use of the methodology should ensure consistency.]

5.  

GROSS CALCULATION of penalty to be imposed, before the application of the statutory maximum as set out in the Order.(the Step 5 figure).

[This will be the product of Steps 1 to 4]
6. Reduction, if necessary, to the Step 5figure so that the maximum penalty permitted under the Order is not exceeded. [-£xxx, as appropriate.]
 

7.

 

MAXIMUM-ADJUSTED penalty amount (the Step 7figure)

 

£xxx

8.  

Have regard to the potential financial consequences to the principal person and to third parties (including creditors of the principal person) of imposing the penalty.

 

[-£xxx,if appropriate.]

9. ACTUAL penalty to be imposed(the Step 9 figure)  

[The Step 7 figure as adjusted by Step 8.]

10. Discount for early settlement(where applicable). See the JFSC’s Decision-Making Process document.  

[% discount expressed in monetary terms.]

11. DISCOUNTED penalty to be imposed under settlement agreement  

[The Step 9 figure as adjusted for the discount in Step 10.]

j. For illustrative purposes only, Appendix 3contains a worked example of how the amount of a financial penalty would be determined using the methodology.

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