The Jersey Financial Services Commission has published a new guide to describe its usual approach to inspections or, as it calls them, examinations. The guide sets out the main steps in the process, imposing some new deadlines.

In its guide the JFSC appears to be unfamiliar with the US concept of 'exams' that it has chosen to invoke, stating tautologically that a thematic examination may be conducted by way of an examination. After a tip-off about misconduct at a firm, or during a thematic inquiry that looks at a particular topic that pertains to the firm, or after a furore in the press (such as, for example, the Panama Papers which fortunately did not involve Jersey) has compelled the Government to take some action, someone at the JFSC - usually in its Supervision Examination Unit - will swing into action. The firm will initially know about an impending exam through its supervision manager, who will give it a vague idea of the reasons for it and will explore suitable dates for the interrogation process. The exam unit will then send a letter or email that pinpoints the dates it has chosen. The first of these will be for a face-to-face 'preliminary meeting' with people at the firm.

The regulators will send out a bespoke 'information request' along with the formal notification of the exam. This will set out details of the information and documents that the examination team want to see at least two weeks before they visit the firm. The purpose of the preliminary meeting, meanwhile, is for them to answer the firm's questions about the extent and purpose of the exam, to explain the process in more detail and to make sure that people at the firm understand the requirements of the information request. For some reason or other, the regulator does not count this meeting as part of the exam. It does, however, state that the preliminary meeting negates any need for a lengthy opening meeting on the first day of the exam, unless the JFSC and the firm agree otherwise.

What happens next

Having read the documents and information the firm has sent, the exam team might ask for more, either to be provided in advance of the exam or on the first day of 'on-site fieldwork,' as it calls its visiting days. It might also want to pre-arrange meetings with people at the firm at this stage. It is regulatory policy that the exam team should try to minimise disruption to the firm by "ensuring its requests are as focused and narrow as possible." As we have seen elsewhere on Compliance Matters, this is a golden opportunity for the firm and its lawyers to set limits to the enquiry and stop any brush-fires from spreading. This is important because regulators in the UK and Crown Dependencies often go beyond the original reach of their enquiries if something catches their eye; an agreement that stops extraneous information from coming to their attention is therefore worth a director's ransom.

On-site fieldwork

The exam team will arrive at the firm's offices with its own examination plan. It will typically discuss matters relevant to the scope of its enquiries with the firm's top brass and (if it wants to look into 'conduct of business' or 'customer due diligence') look at customers' files. In its exam guide the JFSC says that the examination team "operates a 'no surprises' policy in relation to examination findings," which may mean that the firm always knows what the regulatory verdict (and therefore the basis for any subsequent disciplinary action) is going to be before the end of the exam team's last visit. Rather maddeningly, the regulator stops short of saying this and instead leaves that tantalysing phrase hanging in the air. It is therefore still possible that in some cases the regulators might give a firm the impression that they have not found enough fault with it to justify disciplinary action on the day when they leave its premises for the last time, only to surprise it with some novel and disconcerting findings in a subsequent warning notice.

Debriefing and the report

When the on-site fieldwork is over, the exam team will draw its initial conclusions and compile a first draft of the examination report, normally holding a debriefing meeting with the firm within 27 working days of the end of its on-site fieldwork. Useful though this may be to the firm for the purposes of knowing what is in the report and to question its factual accuracy, it is (perhaps surprisingly) not obliged to attend. If it does attend, the firm then has 20 working days in which to write to the examination team about any inaccuracies it might have spotted. The regulators might ask for another meeting to discuss these. Eventually, the exam team will send the firm its final report in PDF format. If it contains adverse findings, the firm then has 20 working days to present an 'action plan' to its supervision manager, who will accept or reject it within ten working days. The JFSC no longer issues ‘recommendations’ and ‘timescales for completion’ as part of its exam reports.