FEEDBACK ON CONSULTATION PAPER NO.3 2012 ... one d to such r propos commen and Jersey ed from on is...

FEEDBACK ON CONSULTATION PAPER NO.3 2012 INFORMATION GATEWAYS A consultation on proposals to provide additional statutory gateways to enable the Commission to disclose restricted information to certain third parties in prescribed circumstances. ISSUED JANUARY 2013

Consultation Feedback

2 of 33 ISSUED JANUARY 2013

CONSULTATION FEEDBACK This Paper reports on the responses received by the Jersey Financial Services Commission (the “Commission”) on Consultation Paper No. 3 2012: Information Gateways. Further enquiries concerning the consultation may be directed to: Andrew Le Brun Stephen de Gruchy Director Senior Manager Office of the Director General Office of the Director General Telephone: +44 (0)1534 822065 Telephone: +44 (0)1534 822110 Email: [email protected] Email: [email protected]

Contents

Feedback on Consultation Paper No. 3 2012: Information Gateways 3 of 33

Contents GLOSSARY ................................................................................................................................................ 4

1 OVERVIEW ........................................................................................................................................ 5 1.1 Background ............................................................................................................................ 5 1.2 Feedback on the proposals contained in the Consultation Paper .................................. 5

2 Summary of Responses .................................................................................................................... 7 2.1 Structure of this section ......................................................................................................... 7 2.2 Question 4.3.9 ......................................................................................................................... 7 2.3 Question 4.3.10 ....................................................................................................................... 7 2.4 Question 4.3.15 ....................................................................................................................... 7 2.5 Question 4.3.16 ....................................................................................................................... 7 2.6 Question 4.4.6 ......................................................................................................................... 8 2.7 Question 4.4.9 ......................................................................................................................... 8 2.8 Question 4.4.10 ....................................................................................................................... 8 2.9 Question 4.5.8 ......................................................................................................................... 8 2.10 Question 4.5.9 ......................................................................................................................... 9 2.11 Question 4.6.5 ....................................................................................................................... 10 2.12 Question 4.6.6 ....................................................................................................................... 10

3 NEXT STEPS .................................................................................................................................... 13 3.1 Progressing the Regulations .............................................................................................. 13

APPENDIX A ........................................................................................................................................... 14 List of respondents to the Consultation Paper: .......................................................................... 14

APPENDIX B ............................................................................................................................................ 15 Final draft of the Financial Regulation (Disclosure of Information) (Amendments) (Jersey) Regulations 201- ............................................................................................................................. 15

Glossary


GLOSSARY BB(J)L means the Banking Business (Jersey) Law 1991.

CIF(J)L means the Collective Investment Funds (Jersey) Law 1988.

Commission means the Jersey Financial Services Commission.

Consultation Paper means Consultation Paper No. 3 2012: Information Gateways.

EBA means the European Banking Authority.

EIOPA means the European Insurance and Occupational Pensions Authority.

ESAs means the European Supervisory Authorities (collectively, the EBA,

the EIOPA and the ESMA).

ESMA means the European Securities and Markets Authority.

ESRB means the European Systemic Risk Board.

FS(J)L means the Financial Services (Jersey) Law 1998.

IB(J)L means the Insurance Business (Jersey) Law 1996.

information gateway means a statutory provision that allows the Commission to disclose restricted information to a third party in prescribed circumstances.

Regulations means the draft Financial Regulation (Disclosure of Information) (Amendments) (Jersey) Regulations 201-.1

regulatory laws is the collective name for the BB(J)L, the CIF(J)L, the FS(J)L and the IB(J)L.

restricted information

means non-public information that the Commission obtains in the course of carrying out its functions under the regulatory laws.

1 Previously titled the “Financial Regulation (Miscellaneous Amendments) (Jersey) Regulations 201-“.

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1.2.3 The Commission is grateful to respondents for taking the time to consider and comment on the proposals. Each respondent has been sent a copy of this Feedback Paper.

Summary of Responses


2 Summary of Responses 2.1 Structure of this section

2.1.1 The questions posed in the Consultation Paper and a summary of the responses received to each one is set out in sections 2.2 to 2.12.14 below. Copies of the Consultation Paper can be obtained from the Commission’s website3 or by contacting the Commission directly.

2.2 Question 4.3.9 In circumstances where a supervisor of a securities market would not qualify as a ‘relevant supervisory authority’ do you consider it appropriate for an explicit information gateway to be available to enable the Commission to disclose restricted information to the supervisor in appropriate cases? If you do not, please explain why.

2.2.1 Respondents supported the proposal for an information gateway to supervisors of securities markets.

2.3 Question 4.3.10 Are you aware of any supervisors of securities markets that may not meet the proposed definition set out in paragraph 4.3.7? If you are, please provide details.

2.3.1 No respondents were aware of any supervisors of securities markets that did not meet the proposed definition set out in paragraph 4.3.7 of the Consultation Paper.

2.4 Question 4.3.15 Do you consider the safeguards and other provisions that would regulate the use of the information gateway to a supervisor of a securities market to be appropriate? If you do not, please explain why.

2.4.1 Respondents considered that the safeguards and other provisions to regulate the use of the information gateway to a supervisor of a securities market would be appropriate.

2.5 Question 4.3.16 Do you have any comments on the text of the draft legislation itself?

2.5.1 No respondent had any comments on the text of the draft legislation that would implement an information gateway to supervisors of securities markets.

2.5.2 Post consultation, some re-wording of the definition of a ‘supervisor of a securities market’ (now set out in Regulation 19 – see Appendix B) has been undertaken so that it is more closely aligned to the existing definition of ‘securities market’ that is in Article 39A of the FSJL, although the substantive effect of the revised definition is the same as that in the consultation text. (Note

3 http://www.jerseyfsc.org/pdf/Consultation_Paper_No_3_2012_Information_Gateways.pdf

Summary

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2.9.3 The respondent opined that the reference to ‘any person’ in paragraph 4.5.6 of the Consultation Paper could raise the risk of an overly wide interpretation. The respondent suggested that the Commission should ensure (either by amending the draft legislation or by producing guidance) that the information gateway may only be used to assist those persons with lawful and legitimate authority.

Commission Response

2.9.4 The Commission considers that this point was already satisfactorily addressed by the wording of the draft legislation consulted upon because it would only allow the Commission to use the information gateway for the purpose of enabling or assisting the person to exercise a function conferred on them by statute.

2.9.5 However, a new defined term – ‘statutory control functions’ – has been inserted into the text of the gateway in the final version of the Regulations (for example, see Regulation 3 in Appendix B) that makes it clearer that restricted information may only be disclosed by the Commission to assist the other authority with the carrying out of its licensing, registration or consent functions (and “ancillary functions” related thereto, such as the placing, or monitoring, of conditions on a licence, or revocations of a licence, etc), rather than any function of the other authority (which was not the Commission’s intention).

2.9.6 The same respondent suggested that the legislation should require any disclosure of restricted information to be only “as is necessary” for the purposes of fulfilling the recipient’s statutory functions.

Commission Response

2.9.7 The draft legislation states that the Commission may only disclose information “for the purpose of enabling or assisting a person to exercise their statutory control functions”. It is therefore implicit that the Commission may not disclose restricted information that would not meet that ‘usage’ condition.

2.9.8 As for similar information gateways that exist in the regulatory laws (for example, the information gateway to a relevant supervisory authority) if the Commission were to disclose restricted information over and beyond that which “is necessary” to enable or to assist the recipient to exercise its statutory function, the Commission would be acting outside the parameters of the law and expose itself (and the relevant officers) to criminal liability.


2.10.1 No respondent had any comments on the text of the draft legislation that would implement an information gateway to Jersey authorities with licensing, registration or consent functions.

2.10.2 However, a post-consultation internal review of the text of the Regulations put out for consultation revealed that, as they were worded at the time, there was no requirement placed on the Commission, before disclosing restricted information to a Jersey licensing authority, to satisfy itself that the authority would comply

Summary of responses


with such conditions as the Commission may subject the disclosure. That is not consistent with the position in relation to disclosures to a ‘relevant supervisory authority’ (i.e. an overseas financial services regulator) and certain other persons. At the Commission’s request the Law Draftsman has amended the Regulations to address this inconsistency.

2.11 Question 4.6.5 Do you consider it appropriate for an information gateway to be put in place to enable the Commission to make public a former registration and any conditions that were attached thereto? If you do not, please explain why.

2.11.1 Respondents supported the proposal for an information gateway to be put in place to enable the Commission to make public a former registration and any conditions that were attached thereto.


2.12.1 No respondent had any comments on the text of the draft legislation that would enable the Commission to make public a former registration and any conditions that were attached thereto.

2.12.2 One respondent noted that the legislation would require that the Commission may not disclose restricted information to an ESA, the ESRB or a supervisor of a securities market, unless it is satisfied that three conditions would be met:

a) the purpose of the disclosure is in order to assist the ESA, the ESRB or the supervisor of the securities market, as relevant, in the exercise of any of their functions;

b) the ESA, the ESRB or the supervisor of the securities market, as relevant, will treat the information disclosed with appropriate confidentiality; and

c) the ESA, the ESRB or the supervisor of the securities market will comply with any conditions which the Commission may, in its discretion, subject such disclosure.

2.12.3 In relation to these three conditions the respondent asked:

• How would the Commission assess that condition (a) had been met?

• How would the Commission enforce condition (b)?

• How would the Commission enforce condition (c)?

2.12.4 The respondent also asked whether the disclosure of restricted information to an ESA, the ESRB or a supervisor of the securities market would be subject to an independent audit to ensure that the Commission had met the required standards.



Commission Response

2.12.5 The Commission already has extensive experience in applying the conditions referred to in 2.12.2 above as they already apply in relation to the disclosure of restricted information to a ‘relevant supervisory authority’ (i.e. an overseas financial services regulator). In this regard the Commission would draw attention to the standard template request letter for relevant supervisory authorities that it has published in Appendix A of its Handbook on International Co-operation and Information Exchange (see http://www.jerseyfsc.org/the_commission/international_co-operation/assisting-overseas.asp). In particular, that template request letter expects the other authority to confirm, amongst other things, that:

• it will only use any information disclosed to it in the discharge of its supervisory functions;

• it will treat any information disclosed as confidential;

• it will comply with any conditions attached by the Commission to the disclosure of the information.

2.12.6 In relation to condition (a) referred to by the respondent, in most cases it is likely to be self-evident how the disclosure of restricted information would assist the ESA, the ESRB or the supervisor of the securities market to exercise their functions. However, were it not to be obvious, the Commission would require the relevant authority to explain how the disclosure would so assist it.

2.12.7 In relation to condition (b), the Commission would only disclose restricted information on the basis that the recipient authority would have to treat it as confidential. The Commission’s internal procedures on disclosing restricted information are designed to make sure that this is the case.

2.12.8 Accordingly, restricted information would not be disclosed by the Commission unless it was certain that the relevant authority would treat the information as confidential. In the highly unlikely event that the Commission subsequently had reason to suspect that an authority was about to breach the confidentiality requirement in relation to restricted information previously disclosed, it would raise the matter directly with the relevant authority and also consider taking action to enforce such confidentiality to be observed (for example, by seeking a court injunction in the relevant jurisdiction).

2.12.9 Similarly, in relation to condition (c), the Commission would only disclose restricted information on the basis that the recipient authority would comply with any conditions set by the Commission in relation to the disclosure. Ordinarily, the Commission would condition a disclosure of restricted information so that the other authority would be required to obtain the Commission’s prior consent before passing on any disclosed information to another party. (Notwithstanding this, it has to be recognised that, in certain circumstances, the other authority may be required by law to onward disclose the information, e.g., to a law enforcement agency where the disclosed information revealed a case of suspected money laundering. In such instances, the Commission would expect the other authority to notify it of such onward disclosure either before it occurs or as soon as practicable thereafter.)

Summary of responses


2.12.10 Accordingly, the Commission would not disclose the restricted information requested if it had any doubt that the relevant authority would comply with the conditions applied by the Commission. In the highly unlikely event that the Commission subsequently had reason to suspect that an authority would not comply with a condition applied in relation to restricted information previously disclosed, it would raise the matter directly with the relevant authority and also consider taking action to enforce the condition (for example, by seeking a court injunction in the relevant jurisdiction).

2.12.11 Turning now to the respondent’s point concerning an independent audit of the Commission’s use of the information gateway. The Commission would make three observations in relation to this.

2.12.12 Firstly, if the Commission were to disclose restricted information in breach of any one of the three conditions, the Commission and the relevant officer(s) would be disclosing information outwith the provisions of the information gateway and could be exposed to criminal liability. Accordingly, the Commission has in place a robust internal procedure that is designed to make sure that any potential disclosure of restricted information by the Commission is considered very carefully and subject to approval at seniority levels within the Commission commensurate with the sensitivity of the restricted information to be disclosed.

2.12.13 Secondly, the Commission’s internal audit function provides periodic, risk-based, independent reviews of decisions to disclose restricted information to third parties.

2.12.14 Thirdly, as with the disclosure of restricted information under any of the existing gateways in the regulatory laws, any person that is aggrieved by a disclosure may petition the Royal Court to undertake a judicial review of the decision of the Commission to disclose the information.

Next steps


3 NEXT STEPS 3.1 Progressing the Regulations

3.1.1 The only substantive change made to the text of the Regulations since they were consulted upon is the amendment referred to in paragraph 2.10.2 herein. The Law Draftsman has also made a number of typographical and stylistic changes to the text of the Regulations but none of those are substantive. The final draft of the Regulations is attached in Appendix B.

3.1.2 Following a request from the Commission, the Minister for Economic Development has agreed to lodge the Regulations for debate by the States.

3.1.3 If the States make the Regulations they will come into force seven days thereafter.

Appendix A: List of respondents


APPENDIX A List of respondents to the Consultation Paper:

• Citibank.

• HSBC.

• Jersey Finance Limited (covering one response from a trade association member).

• The Data Protection Commissioner.

Appendix B: Final draft of the Regulations


APPENDIX B Final draft of the Financial Regulation (Disclosure of Information) (Amendments) (Jersey) Regulations 201-

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