Marching in lock-step with the European Union and the International Organisation of Securities Commissions, the Jersey Financial Services Commission is updating its Code of Practice for Investment Business.

Investment business is regulated in accordance with the Financial Services (Jersey) Law 1998. As on the mainland of Britain, the term takes in all manner of financial institutions, including banks, foundation firms, trust firms, trustees, nominees, fund managers and general wealth managers.

One of the outstanding features of the consultative paper that the regulator has just released is a proposal to "introduce protection for vulnerable investors." The JFSC wants to amend the Investment Code and related guidelines to compel financial firms to identify vulnerable investors (although it is hard to believe that any invulnerable investors might exist) and afford them appropriate protection from sharp practice and the consequences of their own naïveté. On the subject of suitability, it aims to make the "assessment process, suitability letter and due diligence process" more onerous. On the subject of conflicts of interest, new requirements for "disclosure and responsibility" are the aim. In line with the EU's second Markets in Financial Instruments Directive or MiFID II, the regulator is concentrating on 'best execution' (the imperative for brokers to seek out the most favorable circumstances in which they can carry out their clients' orders) with new pronouncements regarding "outcomes and transparency on costs and venues." It wants to require firms to "track performance to an appropriate benchmark." On the subject of recordkeeping, it has expressed a desire to change retention periods and has added new requirements regarding telephone records.

On the subject of disclosures of information to either regulators or customers, to which it refers as 'transparency,' there are new requirements regarding transaction confirmations and retail (HNW) client commission. There are also new putative requirements for over-the-counter (OTC) derivative reporting in accordance with EMIR, the EU's European Market Infrastructure Regulation.

The consultative paper also suggests changes to Jersey's statutory law. It wants to extend the provision of advice to include ‘hold’ as well as ‘buy’ and ‘sell’ and classify an extra group of complex derivatives as 'investments.' It wants to include the activity of arranging as a new category of investment business and include the overseeing of exchange business in the Financial Services (Jersey) Law 1998. It also suggests a change to the Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001 to force firms to protect the assets of their customers more thoroughly, to please IOSCO.

'Vulnerability' is an area on which many organisations have concentrated recently. These include IOSCO and the UK's Financial Conduct Authority, which the JFSC also wishes to please. The paper does not state what it means by this vague term even once. Martin Coppack of the Consumer Insight Department at the FCA, however, once defined a "vulnerable customer" as “someone who, due to their [sic] personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” In the HNW context, this takes in youth or old age, memory problems, perhaps caused by old age or dementia, bad mental health and bad life events such as bereavement and illness.

Having heard from firms that had "exhibited good practice," i.e. tackled the problem in a way that pleased the FCA already, thus forming a kind of "feedback loop," Coppack and his team came up with a so-called process map - actually a set of vague instructions - that firms might follow if they wanted to stop their staff from exploiting vulnerable customers. Coppack was at pains to explain that this was only a suggestion and not FCA policy. There were four steps.

• The auditing of current practice. This consists of reviewing relevant processes, products, information provision, communications with customers, "through a diverse customer lens."
• The development of a strategy. This entails the development of policies, the handling of disclosure, timelines, a team to offer support to the vulnerable, a look at costs, and a look at how to be consistent everywhere in the business.
• Roll-out. This might entail a strategy for communicating various things to staff members and customers, the roll-out of guidelines and training for staff members, and "embedding processes."
• Evaluation, improvement and maintenance. The all-pervasive concept of  'management information' is a big factor here. Periodic assessment of various things is also important.

Comments from interested parties are welcome up until 3rd September.