Ensuring Regulatory Effectiveness and Assurance: A Practical Overview of Jersey’s Article 5 Auditor Requirements

Ensuring Regulatory Effectiveness and Assurance: A Practical Overview of Jersey’s Article 5 Auditor Requirements

In Jersey, registered persons (only) supervised by the Jersey Financial Services Commission (JFSC) must obtain an independent auditor’s Article 5 report each year.

Registered persons are supervised persons for AML/CFT/CPF, but not all supervised persons are registered persons.

In this regard not all supervised persons (e.g. lawyers, accounts, estate agents) are required to have an independent audit.  

A Practical Overview of Jersey’s Article 5 Auditor Requirements (registered persons (only))

The Article 5 report

• The Article 5 report assures the JFSC that the firm’s regulatory and compliance framework, including governance, internal controls, and AML/CFT/CPF arrangements, is designed and operating effectively, and that the Directors’ Declaration of compliance is reliable.
• The obligation is set out in sector-specific JFSC Accounts, Audits and Reports Orders, where Article 5 prescribes the auditor’s reporting requirements (with additional provisions typically appearing in Article 7).
• These Orders complement Companies Law Part 16 requirements on audits and the JFSC’s process for filing through myJFSC

Scope.

• The Article 5 engagement is not limited to the financial statement audit.
• It requires the auditor to assess whether nothing has come to their attention to suggest the Directors’ Declaration is incorrect; to consider compliance with applicable Codes of Practice and AML/CFT/CPF legislation; and to report breaches, material failures, or exceptions to the JFSC as required.
• Where appropriate, auditors must also communicate certain circumstances directly to the JFSC.

Regulatory use and consequences.

• The JFSC uses Article 5 reports in risk-based supervision to identify weaknesses early, prioritise supervisory action, or, if needed, take enforcement measures where significant non-compliance is identified.

Why it matters to Boards.

• The regime reinforces board accountability for effective compliance, promotes a robust control environment, and underpins Jersey’s standing as a well-regulated international finance centre.
• Aligning governance, AML/CFT/CPF, and operational controls with the Orders and Codes, and ensuring the Directors’ Declaration is evidence-based, is essential to achieving a clean Article 5 opinion and avoiding supervisory concerns.

Process (high level).

1. The firm appoints a suitably qualified/recognised auditor (as applicable under Companies Law and JFSC regime).
2. Directors prepare financial statements and a Directors’ Declaration addressing regulatory and AML/CFT/CPF compliance, including any exceptions.
3. The auditor performs testing of systems and controls, reviews the declaration, and conducts file-based compliance work (including AML/CFT/CPF).
4. The auditor issues the Article 5 report (and any Article 7 reporting), which, together with the financial statements and declaration, is submitted to the JFSC via myJFSC.

Step by step, please review the process.

• Below is a clear, detailed, citation-supported explanation of the Jersey Article 5 auditor’s report process, the report that JFSC-registered persons must obtain from their independent auditors regarding compliance, regulatory reporting, and internal control adequacy.
• Although practitioners commonly call it an “Article 5 Report,” the requirement actually arises from several sector-specific JFSC Orders (e.g., for fund services business, trust company business, investment business, etc.).
• In each of these Orders, Article 5 prescribes how the auditor must review the regulatory/compliance framework and issue a report to the JFSC.

1. What the Article 5 Auditor’s Report Is

Across the JFSC’s legislative Orders, for example, the Financial Services (Fund Services Business (Accounts, Audits and Reports)) (Jersey) Order 2007, an auditor’s report is defined as a report specifically required under Article 5 and Article 7 of that Order. [jerseylaw.je]

In general terms, the Article 5 report is:

• An independent auditor’s opinion on the registered person’s compliance with:
• The Financial Services (Jersey) Law requirements,
• Applicable Codes of Practice,
• Anti–money laundering / counter-terrorist financing (AML/CFT/CPF) obligations,
• Any other regulatory duties imposed by the specific license class.
• A report submitted to both the registered person and the JFSC, typically alongside annual financial statements.

It is not a financial audit in the traditional accounting sense; rather, it is a regulatory and compliance assurance engagement mandated by law.

2. Legal Foundation

The requirement is embedded in the JFSC’s sector Orders, each of which contains Articles titled:

• Article 5 – Auditor’s report
• Article 7 – Additional reporting requirements

For example, in the Fund Services Business Order, Article 5 expressly states that the auditor must prepare an “auditor’s report” on the registered person.
The Trust Company & Investment Business Order includes a similar structure, including: [jerseylaw.je]

• Appointment of auditor,
• Auditor’s reports,
• Circumstances requiring communication to the JFSC. [jerseylaw.je]

3. What the Auditor Must Review

Although details differ slightly across sectors, Article 5 duties generally require the auditor to:

1. 1. Review Financial Statements

The auditor must examine annual financial statements and form an opinion consistent with Part 16 of the Companies Law and the relevant Order. [mourant.com]

1. 1. Assess Compliance Framework

The auditor must evaluate whether:

• The directors’ regulatory declaration is accurate.
• Internal systems, controls, policies, and procedures comply with:
• JFSC Codes of Practice,
• AML/CFT/CPF legislation,
• The Financial Services (Jersey) Law and relevant Orders.

JFSC submission guidance confirms that the auditor must report whether “nothing has come to the auditor’s attention that could indicate the directors’ declaration is incorrect.” [myprofile….seyfsc.org]

1. Report any Material Failure

Under the Orders, auditors are required to identify:

• Breaches,
• Material failures,
• Exceptions,
• Issues requiring disclosure to the JFSC. [jerseylaw.je]

If such issues occur, the auditor must communicate them directly to the JFSC.

1. Ensure Independence and Qualification

Jersey requires auditors to be:

• Recognised auditors or
• Approved auditors authorised by the JFSC.
  This is mandated under the Companies Law Part 16 and JFSC oversight rules. [jerseyfsc.org]

4. The Article 5 Process – Step by Step

Step 1: Appointment of Auditor

• The firm appoints a qualified auditor approved by the JFSC.
• Public companies and market-traded companies must appoint a recognised auditor.  
• Trust company, fund services, or investment business licensees must appoint an auditor as required under their respective Orders. 

Step 2: Preparation of Financial Statements & Directors’ Declaration

Before an Article 5 report can be produced, the entity must prepare:

• Annual financial statements,
• A Directors’ Declaration confirming:
• Compliance with regulatory laws,
• Compliance with AML/CFT/CPF standards,
• Disclosure of any breaches, exceptions, or failures. [myprofile….seyfsc.org]

This declaration forms the core of the auditor's verification.

Step 3: Auditor Conducts Regulatory Compliance Review

The auditor conducts:

• A financial audit plus a regulatory audit under Article 5.
• Interviews with compliance and MLRO/MLCO.
• Review of systems, controls, training, risk assessments, procedures.
• Testing of sample client files.
• Checks on AML/CFT/CPF monitoring, suspicious activity escalation, and sanctions screening.

Under the Orders, the auditor must report any issues to the JFSC where required. [jerseylaw.je]

Step 4: Auditor Issues the Article 5 Report

The report typically includes:

• Opinion on the accuracy of the directors’ declaration,
• Confirmation of compliance or description of identified breaches,
• Commentary on internal controls,
• Assessment of AML/CFT/CPF compliance,
• Details of any issues that must be notified to the JFSC.

JFSC’s 2024 guidance highlights that the auditor must state whether anything has come to their attention that contradicts the directors’ declaration. [myprofile….seyfsc.org]

Step 5   Submission to the JFSC

The registered person must file:

1. Financial statements
2. Directors’ declaration
3. Auditor’s Article 5 report

All documents are submitted via myJFSC. [myprofile….seyfsc.org] - The JFSC then reviews the report as part of its supervisory process.

5. How the JFSC Uses the Article 5 Report

The JFSC uses the report to:

• Evaluate whether the firm’s compliance framework is functioning,
• Detect early signs of control weakness,
• Identify AML/CFT/CPF deficiencies,
• Prioritise supervisory engagement or on-site visits.

JFSC enforcement guidance notes that poor governance, AML failures, or inadequate compliance frameworks can result in penalties, public statements, or conditions on licensing. [amatilaw.com]

6. Why the Article 5 Report Is Important

• It provides independent assurance of regulatory compliance.
• It ensures Board accountability via review of the directors’ declaration.
• It helps maintain Jersey’s reputation as a well-regulated finance jurisdiction.
• It supports JFSC’s risk-based supervision by surfacing issues early.

Web Sources

1. Financial Services (Fund Services Business (Accounts, Audits and Reports)) (Jersey) Order 2007 (Official Consolidated Version)
   https://www.jerseylaw.je/laws/current/ro_154_2007
2. Financial Services (Trust Company and Investment Business (Accounts, Audits and Reports)) (Jersey) Order 2007 (Official Consolidated Version)
   https://www.jerseylaw.je/laws/current/PDFs/RO_183_2007.pdf
3. JFSC – A guide to submitting financial statements and associated documents on myJFSC (April 2024)
   https://myprofile.jerseyfsc.org/globalassets/a-guide-to-submitting-financial-statements-and-associated-documents-on-myjfsc.pdf
4. JFSC – Our Role in relation to Audit and Auditors
   https://www.jerseyfsc.org/industry/sectors/auditors/our-role-in-relation-to-audit-and-auditors/
5. Companies (Jersey) Law 1991 – Recognised Auditors (JFSC guidance page)
   https://www.jerseyfsc.org/industry/guidance-and-policy/recognised-auditors/
6. Mourant – The accounts and audit rules applicable to Jersey companies (Guide, Feb 2023)
   https://www.mourant.com/media---guides/mourant---the-accounts-and-audit-rules-applicable-to-jersey-companies.pdf
7. Amati Law – Regulatory Briefing: Overview of JFSC Enforcement regime
   https://www.amatilaw.com/briefings-blog/pb9odrkuthtradlklkpo2e03gpvdtk

Below is a clear, concise, and accurate explanation of the difference between a JFSC-registered person and a JFSC-supervised person, with citations from authoritative sources.

Difference Between a JFSC Registered Person and a JFSC Supervised Person

1. JFSC Registered Person

A registered person is an individual or entity that is formally registered with the JFSC to carry on financial services business under the Financial Services (Jersey) Law 1998 or other product-specific regulatory laws.

✔ Key characteristics:

• The term is used in the sector laws and Orders (for example, Trust Company Business, Fund Services Business, Investment Business).
• A registered person holds a JFSC-issued licence/registration permitting it to conduct regulated activity.
• Obligations include:
• Annual financial statements,
• Directors’ declarations,
• Article 5 auditor reports (where applicable),
• Compliance with JFSC Codes of Practice.

✔ Source support:

• The AML/CFT/CPF Handbook notes that different legislation uses different terminology and explicitly lists “registered persons” as one such category used in statutory frameworks. [jerseyfsc.org]
• The Trust Company/Investment Business Orders and Fund Services Business Orders also repeatedly refer to the entity as a registered person subject to audits, declarations, and financial reporting. [jerseylaw.je]
• In short:➡ A registered person = licensed/registered by the JFSC to carry on regulated financial services business.

2. JFSC Supervised Person

A supervised person is a broader term defined in the AML/CFT/CPF legislative framework, including persons who are supervised specifically for anti-money laundering and counter‑terrorist financing purposes, whether or not they carry on regulated financial services business.

✔ Key characteristics:

• Used in the AML/CFT/CPF Handbook, which applies to “all supervised persons.” [jerseyfsc.org]
• A supervised person may include:
• Regulated financial services businesses (registered persons), and
• Non-regulated entities that conduct Schedule 2 business (e.g., certain trustees, family offices, governance entities) must register for AML supervision only.
• These persons are supervised under:
• Proceeds of Crime (Jersey) Law 1999,
• Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008,
• Money Laundering (Jersey) Order 2008.
• The Handbook clearly states that “supervised persons” correspond to “relevant persons” under the Money Laundering Order. [jerseyfsc.org]