Interested parties have a month in which to tell the Jersey Financial Services Commission whether they think the island should introduce a regime equivalent to that of the European Union’s second Markets in Financial Instruments Directive.

The introduction of a MiFID II-like regime in Jersey would create the opportunity for local firms to export their services to professional clients across the EU. Consequently the regulator is asking local financial service providers and consumers whether they consider this appropriate.

MiFID regulates the activities of financial service providers and market operators in respect of the buying, selling and issuance of financial instruments such as shares and bonds. MiFID II, which is considered an improvement on the MiFID I regime. The idea is to protect consumers from sharp practice, to make markets easier to scrutinise and to make financial service providers and market operators easier to govern.

JFSC Deputy Director General John Everett commented: “Jersey’s reputation as a leading offshore financial centre is set upon the high standards of its regulatory regime. Bringing in an equivalent regime to MiFID II does create opportunities for Jersey firms in the EU but it would not be without cost, which is why we are asking for feedback before any decision is made.”

If the plan goes ahead, there will be a nail-biting wait while the European Commission, the unelected committee that runs the EU, decides whether the regime is acceptable. If Britain decides to leave the European Union, this may well endanger the plan because of Jersey's close relationship with it. The plan is also fraught with danger because, in the solecistic words of the consultation paper, "summarising the opportunities for registered persons in the EU, post the implementation of MiFID II, is difficult due to several unknowns, many of which relate to final standards that have neither been drafted or approved, either at an EU level or in each member state."

One important stumbling-block concerns the access that investment firms from outside the EU will have to EU countries. This decision resides with each EU member-state, but is complicated by (a) whether the EU country has decided to sign up to the EU's "harmonised branch regime" described in article 39 of MiFID; (b) whether the European Commission believes that non-EU country to have "regulatory equivalence" as described in articles 46 and 47 of MiFIR; and (c) the application of the transitional provision, set out in article 54 of the Markets in Financial Instruments Regulation or MiFIR.

The new regime, if it comes to pass, will probably affect the advisors and distributors of public and private collective investment funds but not their managers or depositaries; the advisors and managers of investment schemes as distinct from collective investment funds; and registered persons licensed for trust company business if they are responsible for the safekeeping of MiFID financial instruments.

The JFSC's Codes of Practice for Investment Business impose detailed requirements related to corporate governance on registered persons, but the regulator will probably have to add to them to accommodate MiFID II. MiFID article 9 gets most of its 'governance' features from articles 88 and 91 of the EU's Capital Requirements Directive.

MiFID makes 'principal persons' (as defined by the Financial Services (Jersey) Law 1998, see below) explicitly accountable for the way in which they govern their investment firms and contains 'principles' that govern the way they must be supervised. The most significant difference between MiFID and Jersey’s Civil Financial Penalties regime with respect to governance appears to be the requirement for the EU's competent authorities to be allowed to fine individuals for breaches of the MiFID/CRR governance requirements.

MiFID also limits the number of directorships that the members of the ‘management body’ (i.e. those 'principal persons' who are mentioned in the Act of 1998) may hold. These are one executive job and two (or, in some cases, four) non-executive jobs. As far as this requirement is concerned, intra-group directorships are counted as one directorship and directorships of not-for-profit organisations do not count. The Chairman and Chief Executive cannot share the same job. Every large and complex firm has to set up a nomination committee. The JFSC expects that, by EU standards, large and complex firms may approximate to the Financial Stability Board’s list of Systemically Important Financial Institutions. Principal Persons and especially nominations committees will have to "demonstrate consideration of diversity" in the composition of their boards.

Under the long-established Jersey law of 1998, a 'principal person' can be a sole trader or proprietor; or a partner in a partnership; or in a company, a person who directly or indirectly holds 10% or more of the share capital and/or 10% of the voting power at the general meeting and/or is able to exercise significant influence over the company's management of the company, telling directors what to do etc.