The Jersey Financial Services Commission (JFSC) announced on 10th September 2021 that it has been asked by the Jersey Government to support with establishing the Jersey Resolution Authority (JRA) under the Bank (Recovery and Resolution) (Jersey) Law 2017.

The Bank (Recovery and Resolution) (Jersey) Law 2017

The Bank (Recovery and Resolution) (Jersey) Law 2017 (the Law) was passed by the Jersey States Assembly on 14 February 2017 and registered in the Royal Court on 12 May 2017, but it has yet to come into force.

Essentially, the Law seeks to: (i) protect public funds (i.e. the taxpayer) by limiting reliance on government bail-outs; and (ii) protect bank customer deposits. Jersey will be able to assist a foreign jurisdiction where equivalent bank resolution action has been taken against an international bank that happens to also have a business in Jersey. It will also enable Jersey to intervene in the affairs of a failing local Jersey bank. Although no banks with a presence in Jersey failed during the financial crisis, the Guernsey branch of Icelandic bank Landsbanki did fail and customers of it lost a reported 8% of deposits.

The Law will bring Jersey's banking legislation into line with changes made by the European Union's Bank Recovery and Resolution Directive 2014/59/EU (BRRD) and will apply to any person/entity registered to carry on deposit-taking business in Jersey under the Banking Business (Jersey) Law 1991. It therefore will apply to Jersey subsidiaries or branches of foreign banking groups established in Jersey.

Jersey Resolution Authority

The Law establishes the JRA and provides it with a comprehensive range of tools and legal powers including bail-in of creditors to recapitalise a failing bank. The JRA has three guiding principles:

  • reducing the risk to the public of financial loss due to a failing bank;
  • protecting and enhancing the reputation and integrity of Jersey in commercial and financial matters; and
  • considering the best economic interests of Jersey.

The update from the JFSC further provides that the JRA "will set the strategic direction of work on bank resolution, oversee the exercise of its legal duties and obligations, and help raise the international profile of the Authority among international counterparts."

The update from the JFSC further provides that the JRA "will set the strategic direction of work on bank resolution, oversee the exercise of its legal duties and obligations, and help raise the international profile of the Authority among international counterparts."

Once the Law is in force, Jersey registered banks should be aware that:

  • Recovery plans will need to be formulated at such times as the JFSC shall specify and the JRA is able to examine such plans, with a view to identifying any actions in the recovery plan which may adversely impact the resolvability of the Jersey bank and make recommendations to the JFSC on this basis. Failure to comply with the requirement to provide recovery plans is an offence punishable by fine.
  • Resolution plans will also need to be prepared, in addition to the recovery plans, containing such information as is specified under the Law and the JRA have the ability to require the relevant Jersey bank to "cooperate, assist and provide the information [.] for the purpose of drawing up, implementing and updating a resolution plan for the Jersey bank".
  • The Law will require banks to contractually recognise the bail in provisions in the Law (ie resolution powers to reduce liabilities, convert creditors to shareholders and transfer shares to creditors) to the extent that a liability that may be subject to the bail in is not governed by Jersey law. The intention here is to put counterparties to contracts with the relevant bank on notice that their rights may be modified by the JRA. Banks may, therefore, need to undertake a review of their terms and conditions and other contractual documentation to ensure compliance with contractual recognition of bail in. Failure to do so will be a criminal offence (subject to a fine of up to GBP 10,000) and will not, in any event, prevent the bail in tool from being deployed.
  • Similar to the investigatory powers of the JFSC, the JRA is entitled to appoint one or more competent persons to investigate the affairs of a bank and to report on the bank as the JRA may direct. This applies whether or not the bank in question is in resolution or being wound up.
  • The Law establishes a fund into which Jersey-registered banks are required to pay an annual administration levy and may also be required to make contributions to the JRA to cover the administrative costs of the JRA and essentially fund its work.

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