Annual Report 2012 - the Jersey Financial Services Commission

Director General’s ReportFor the Commission, our philosophy and approach is setout below.Regulatory modelNo system of regulation can guarantee that no loss will beincurred by depositors or investors in financial servicesbusinesses.Our objective is to minimise potential losses arising fromfraud and error at reasonable cost, whilst providing Industrywith enough freedom of action to support long-termsustainable enterprise, investment and employment.The legislation and the regulatory framework must becapable of implementation on an efficient and effectivebasis so as to achieve their objectives and command therespect of depositors, investors and financial servicesbusinesses. We consult widely on all proposals to changethe legislation and the regulatory framework, and workclosely with the Industry to ensure that all of the relevantlegislation and the regulatory framework are wellunderstood.“We seek to ensure that the Island hashigh standards of financial servicesregulation so as to comply with allinternational requirements on a timelybasis and for the foreseeable future.”We seek to ensure that the Island has high standards offinancial services regulation so as to comply with allinternational requirements on a timely basis and for theforeseeable future. International requirements are dynamicand are increasingly demanding. As a consequence ourlegislation and regulatory framework will at times be moredemanding than our competitors for a temporary period.Responsibilities of investors anddepositorsInvestors and depositors are responsible for their own duediligence. We do not believe that they should rely wholly onthe existence of the Commission but should be obliged tosatisfy themselves as to the financial standing of financialservices businesses and fully understand any product thatthey intend to invest in. This is particularly relevant withproducts which are aimed at professional or sophisticatedinvestors.Financial information and auditInvestors and depositors need access to relevant reliableinformation to be able to make informed decisions.We require all financial services businesses to have setminimum levels of capital and liquidity, depending on thenature and size of the business undertaken. We interveneto amend the activities of a registered business where wehave concerns about their financial strength or access toliquidity support.We require all financial services businesses to prepareannual reports and financial statements and make themavailable to prospective and current depositors andinvestors, and for these to be audited.We work with the UK Accountancy Recognised SupervisorBodies and the UK Audit Quality Review Team to havesome of the audit work carried out in the Island inspectedand we refer to them issues of potential non-compliancewith auditing standards.Governance and internal controlWe believe that the most effective system to minimise lossto depositors or investors is one operated in real time bybusinesses, which have high standards of corporategovernance and internal controls. We set standards ofgovernance and internal control for financial servicesbusinesses operating in the Island, including requiring allsuch businesses to have their own internal complianceofficer and compliance function. A great deal of oursupervisory programme, including on-site examinations,in recent years has been focused in this area.We expect regulated businesses and individuals toadvise us promptly whenever they identify issues ofnon-compliance with the legislation and the regulatoryframework, and use this experience to inform ourrisk-based analysis.We carry out periodic risk-based examinations to ascertainthe effectiveness of the internal control systems and thereliability of reports made by compliance functions to theirboards and ourselves.12 | ANNUAL REPORT 2012