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Jersey NEGLIGENT businesses fined £2 million, but NO Directors are held accountable? Should senior managers be worried?

04/07/2022

INTRODUCTION

1.The board and senior management of a Jersey registered person are ultimately responsible for ensuring that it organises and controls its affairs in a way that             effectively mitigates breaches of the following:-

  1. The Financial Services (Jersey) Law 1998 and other associated regulatory laws
  2. conduct of business [CoB] Codes of Practice (i.e., a Code of Practice issued under Article 19 of the Financial Services (Jersey) Law 1998, as amended (the FS (J) L)).
  3. Money laundering and terrorist financing risks prevention and detection law (Money Laundering (Jersey) Order 2008)
  4. AML/CFT Codes of Practice (i.e., a Code of Practice issued under Article 22 of the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 [POCSB LAW]

Concerning the above [1] to [4],

  • The board and senior management (along with other employees) are exposed to legal and regulatory sanction

Concerning [2] to [4],

  • The board and senior management are also subject to regulatory CIVIL PENALTY [FINING] along with other regulatory and legal sanctions that may be applicable.

JFSC POWERS

  1. The JFSC has a discretionary power to impose a financial "civil penalty" on a registered person (for conduct after March 2015) or a principal person (for conduct after October 2018 [A]) concerning significant and material contraventions of its codes of practice.
  2. And as of the beginning of 2022, Senior managers of JFSC-supervised firms can now be subject to a JFSC civil fine in the same way as a director.

CIVIL FINING APPLIED TO:

  1. Since 2015 the JFSC has issued civil penalties [fines] of over £2,019,246.17 to the following
    • June 202 - Equity Trust (Jersey) Limited (Equity) £115,575.00
    • July 2019 -  Sanne Fiduciary Services Limited (SFSL) £381,010 o
    • February 2021 – x3 SG Kleinwort Hambros firms = £719,000.00
    • July 2022 - IQ EQ (Jersey) Limited = £803,661.17

Total = £2,019,246.17

5. There have been no fines of a director of any business

CIVIL PENALTIES - DIRECTORS IN SCOPE FOR FAILURE

  1. Taking account of the JFSC powers SG Kleinwort Hambros and IQEQ (Jersey), Limited failures fall within the 2018 amendment.
  2. Yet even with these 2018 powers, the IQEQ or SG Kleinwort Hambros entities' directors were not subject to any enforcement action (e.g. fining) even though it was clear directors were asleep at the wheel

SO WHO IS TO BLAME

  1. In reviewing the two penalties, namely £803,661.17 (on IQ EQ (Jersey) Limited) and £719,000.00 against three SG Kleinwort Hambros firms [NOTE B], no director[s] has been held accountable.
  2. Although it is clear, the JFSC has blamed the board[s]. Just consider what the JFSC said about board negligence and failure [see below @ 10 + 11]

THE JFSC SAYS

  1. IQEQ – JFSC focused on the period from 1 January 2018 to 29 November 2019 (the relevant period) and concluded that during 2018-2019,

NEGLIGENTLY breached certain sections of Principles 2 and 3 of the TCB Code, section 4.5 of the TCB Code and certain areas of the AML/CFT Code.

The board[s] FAILED to sufficiently recognise the risks and increased complexity arising from the business and customers following various acquisitions of regulated businesses and to ensure commensurate and robust controls were in place to

The IQEQ Jersey FAILED to maintain adequate systems and controls to mitigate financial crime risk.

The IQEQ Jersey Board FAILED to address the 'root cause' of the issues presented by the four customers it considered and, instead, focused on the particular circumstances of the matters raised

The board also FAILED to sufficiently recognise the risks and increased complexity arising from the business and customers following various acquisitions of regulated businesses and to ensure commensurate and robust controls were in place to mitigate such risks

11. SG Kleinwort Hambros [SG] entities – JFSC focussed on the period from 1 January 2018 to May 2019 [the date of the On-Site Examination] (the Relevant Period)     and concluded the SGKH Entities during the Relevant Period

  • NEGLIGENTLY breached: Certain paragraphs of Principle 3 of the Codes: Certain paragraphs of Principle 6 of the Codes:
  • FAILED TO demonstrate they had adequate risk management systems, breaching specific sections of Principle 3 of the Codes.
  • FAILED to notify the JFSC in writing as soon as they became aware of issues which required notification, breaching specific paragraphs of Principle 6 of the Codes.
  • The SGKH Entities failed to clearly articulate the critical areas of Compliance Risk in respect of their respective regulated activities under the specific Jersey Regulatory and AML/CFT Regime

SENIOR MANAGERS

  1. So does this mean that any similar failure in 2022 onwards will only be attributable to a senior manager[s]?

CONCLUSION

  1. For SG or IQEQ, the JFSC has not stated why a director [s] has not been held accountable for a fine [civil penalty]; however, they told the "States of Jersey" that their general approach to enforcement is

14. It would therefore seem that failure in Jersey business can be a collective responsibility rather than attributable to one individual.

15. I wonder how long this position will continue?

END

NOTES

16. The board and senior management of a registered person are ultimately responsible for ensuring that it organises and controls its affairs in a way that effectively   mitigates breaches of the following:-

  1. The Financial Services (Jersey) Law 1998 and other associated regulatory laws
  2. conduct of business [CoB] Codes of Practice (i.e., a Code of Practice issued under Article 19 of the Financial Services (Jersey) Law 1998, as amended (the FS (J) L).
  3. Money laundering and terrorist financing risks prevention and detection law (Money Laundering (Jersey) Order 2008)
  4. AML/CFT Codes of Practice (i.e., a Code of Practice issued under Article 22 of the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 [POCSB LAW]

Concerning the above [1]-[4],

  • The board and senior management (along with other employees) are exposed to legal and regulatory sanction

Concerning [2]-[4],

  • The board and senior management are also subject to regulatory civil fining along with other regulatory and legal sanctions that may be applicable.

  17. SG Kleinwort Hambros entities

  • SG Kleinwort Hambros Bank (CI) Limited (SGKH Bank
  • SG Kleinwort Hambros Trust Company (CI) Limited (SGKH Trust)
  • SG Kleinwort Hambros Corporate Services (CI) Limited (SGKH Corporate)

Sources

JERSEY