Consultation Paper to expand Jersey's Investment Business regime to regulate advice given on the transfer out of defined benefit pension schemes
17 April 2018
On 5 April, the Jersey Financial Services Commission ("JFSC") and the States of Jersey released a joint consultation paper (the "Consultation Paper") to provide a regulatory framework for the advice given when benefits are transferred out from defined benefit pension schemes ("DB Schemes"). The Consultation Paper is available here.
The proposed changes should be welcomed; currently the regulatory framework governing advice (which includes investment advice) for DB Schemes is unclear. Investment advisors, trustees and members of DB Schemes should familiarise themselves with the proposed changes.
The key points arising from the Consultation Paper are as follows:
- The existing definition of Investment Business under the Financial Services (Jersey) Law 1998 (the "Law") will be extended to cover DB Schemes. The main purpose of the amended Law is to protect scheme members, so that advisors who are providing them with investment advice must be regulated by the JFSC pursuant to the Law.
- All investment advice provided in relation to members' benefits which are being transferred out of DB Schemes shall be regulated. This should improve the quality of the advice that is being provided to members and ensure that they are fully advised of the risks arising from the transfer out of their accrued benefits.
- As not all advisors concerned are currently regulated under the Law for carrying on Investment Business, the amendment proposes a three month transitional period to allow those who are not currently regulated to make their application to the JFSC for authorisation to carry on investment business.
- Following the change, Jersey companies which are authorised by the JFSC to provide investment advice will become chargeable to tax at the rate of 10%.
Whilst the policy intention of the Consultation Paper is clear, we believe that the proposed wording for the draft Law, as set out in Appendix A, needs further clarification. We are recommending the following changes to the proposed wording:
- It is proposed that investment advice given in respect of "defined benefit schemes" be a regulated activity. This implies that "defined benefit schemes" are an investment product in their own right. However, defined benefit schemes are typically occupational pension schemes which have been set up by employers and the main investment activity in respect of scheme assets is carried out by the trustees, with appropriate advice from the schemes' investment advisors. The investment of scheme assets by the trustees is not the activity that is intended to be caught by the Consultation Paper; it intends to regulate the advice given to members of DB Schemes where they seek to transfer their accrued benefits out of the DB Scheme.
- There are certain types of investment activities which are exempt from the proposed regulatory framework. However, as currently drafted, it is not clear which activities those exemptions are intended to cover.
Some DB Schemes have different sections, covering members from different jurisdictions and/or members with different benefits. It is not currently clear whether the proposed regulation is intended only to cover members who are resident in Jersey and who are entitled to receive defined benefits under the scheme, all Jersey residents of such DB Schemes, regardless of whether they are entitled to defined benefits, or all members of any Jersey law governed DB Scheme (regardless of where they are resident).
The timeframe for responses is very short, and comments should be received in accordance with page 2 of the Consultation Paper no later than 18 April 2018.
Bedell Cristin has responded to the Consultation Paper in respect of the above points. However, if you have any further comments, please do not hesitate to contact us.
For further advice, please contact Nancy Chien.