Thursday, Apr 09, 2020

Pandemics and Financial Stability (Part 4)

This is the fourth part of a Toronto Centre Webcast Series to help financial Supervisors and Regulators gain insights and perspectives on COVID-19 and its impact on the global financial system from supervisory experts. This episode features:

• Clive Briault – Chair, Toronto Centre’s Banking Advisory Board
• Martin Moloney – Director General, Jersey Financial Services Commission

 

Full transcript

April 9, 2020

Clive Briault:

Well, good morning, good afternoon, and good evening to our global audience today. There are more
than 250 of you joining the call from nearly 40 countries and it's a great pleasure to be hosting this
webinar on your behalf. My name is Clive Briault. I'm the chair of Toronto Centre's banking advisory
board and previously I was a regulator in the UK. Welcome everyone to this fourth webinar of the
Toronto Centre series on pandemics and financial stability, the supervisory challenge.

Clive Briault:

Our special guest today is Martin Moloney. The Director General of the Jersey Financial Services
Commission. He moved to Jersey in February 2019 from the Central Bank of Ireland and his full
biography is available on the invitation for this webinar. It will certainly be fascinating to hear his
perspective on how supervisors are responding to the impact of the COVID-19 outbreak on the real
economy and on the financial sector. Before we begin, I would just like to thank the sponsors and
funders of the Toronto Centre, Global Affairs Canada, the Swedish International Development
Cooperation Agency, the International Monetary Fund, Jersey Overseas Aid, and Comic Relief without
whom the Toronto Centre could not achieve its global mission.

Clive Briault:

One final word of introduction. I know that many of you will have questions for Martin. We will have
time to ask Martin some of these in the second half of the webinar. Do please type your questions in as
we go along in the Q&A tab which you should find below your video screen, or indeed above it if you're
watching on an iPad and to be collected in those questions, we will endeavor to answer as many of them
as our time allows. Martin, to set the scene more generally, can you tell us what's happening to the local
economy and to the financial sector in Jersey as a result of the COVID-19 outbreak and in particular,
which financial sector risks have increased as a result.

Martin Moloney:

Gladly, Clive and it's good to talk to you. I have to say my congratulations to the Toronto Centre for
running this series, which is great for networking regulators around the world at this time when people
really do need to talk to each other about what's going on. In Jersey, our local economy is characterized
by being a financial services center, and that means it's a small, very open economy but with two critical
dependencies, one on global financial markets and the other on the UK economy to which we are
historically connected.

Martin Moloney:

Our government's fiscal advisory panel did an assessment a couple of weeks ago of the impact on the
local economy of this crisis and estimated that at about 6% of GDP. Now, when you compare that to
others at that time, some of the estimates were ranging between five and 10% and as you will know,
some of the estimates since have gone up over 20% for different countries and indeed in one or two
countries some of the expert estimates have touched 30%, but I suspect our impact to be somewhat on
the lower side of that range.

Martin Moloney:

Our government are taking measures which are similar to those being taken in other countries to
improve liquidity and support up to half our workforce in order to limit the demand and labor supply
impacts of this crisis. As a regulator, our first focus was on the way this was hitting the global financial
markets themselves, because most of our firms are linked to those markets and as a securities regulator,
what you're really interested in is how orderly markets are working so the prices are moving up, moving
down, some people are making money, some people are losing money and all that's happening in an
orderly way. You actually don't want to stop it.

Martin Moloney:

What we do know from prior experience that as the tide goes out, I guess weaknesses get revealed and
you've got to be able to see those coming and to engage very early with relevant firms. I think this is
particularly the case when some unexpected things happen such as we've seen during this crisis,
particularly we've seen some selloffs of assets that people would have deemed were quite safe assets
and we've also seen things like a breakdown in the oil cartel, for example, and these would be
unexpected events. It's also happening against a background of concerns that regulators have had and
we've been involved in these conversations for some years about the pricing of corporate credit in
particular and then some of the structures that are emerging like [CLLs 00:05:36] with behavior patterns
like tranche and warehousing that regulators have seen in the past and that have worried us in the past,

Martin Moloney:

Some of the questions that were in our minds were how is this impacting on those and what do we need
to focus on? What we actually saw in markets back in early and mid March as we looked at this, was we
saw doubts about the valuation of illiquid assets. We saw some doubts about automated trading and
how that's working and those have become perennial problems in each time we get significant volatility
now. We saw concerns about how liquidity was working. We definitely saw those becoming quite
substantial.

Martin Moloney:

In the JFC in response to that, we started to focus our scrutiny on some particular entities, some banks
with large lending exposures, some funds with less liquid assets and we were concerned obviously about
how these market movements were impacting on them. I think market liquidity definitely did reach a
point in March where some of the key indicators of stress, particularly when I'm thinking of exchange
traded funds trading away from net asset value but there were some others as well, which were
indicating rising stress and that it wasn't all entirely orderly, but the Fed, the ECB, the Bank of England
they've intervened and since then our view is markets are trading well.

Martin Moloney:

In fact, we've seen some capital raising, which in a way is quite extraordinary, but we've seen quite a bit
about in the markets. We have seen fund suspensions. We've seen some of them in some of our Jersey
funds because of valuation doubts mainly, and I would distinguish between suspensions caused by
valuation doubts and other reasons for suspensions. I'm personally strongly of the view that's actually a
reflection of an orderly market, not a reflection of a disorderly market. That was the first phase of our
supervisory work and I think it went quite well.

Martin Moloney:

The second phase involved us thinking about a V-shaped recession, which was the most reasonable, I
think early scenario as to what was going on here, and that means we were concerned about short-term
impacts on consumers and therefore on credits and on banks and that turned our focus to the
impairment of debts in the banking sector. We did a quick stress test early in March in the banking
sector and that showed us maybe unsurprisingly but the banks were well-placed to deal with, what am I
called? The first round effects of a sudden movement and interest in exchange rates.

Martin Moloney:

That did not surprise us because of all the work that had been done on bank liquidity in recent years and
we had fully participated in that. Where we are now is we're tying to think about the range of impacts
on the banking sector of the likely second round effects of this crisis, particularly affects on the real
economy and I think we've all got to be frank. That's very difficult to assess. There are lots of people
with opinions on that, but it is difficult to be authoritative particularly given that the exit strategy from
the public health measures both on a global level and on a regional level remains to be determined.

Martin Moloney:

There are two aspects of that. It's the timing of those public health exit strategy measures and the
content of them exactly how you do it, whether you do it sector by sector or particular trenches in the
workforce and so on. It does seem likely now that this will not be a V-shaped recession, but will be
somewhat worse. Will it be a U-shaped recession or will recovery be more gradual? There's a lot of
people who think it will. Maybe you could say that's likely, but I think we can't be absolutely certain
about that yet. How the global economy synchronizes as it starts up again, I think that's the fact that one
thing that is really important and the second is to try to figure out how much of the demand that hasn't
been realized in the recent period has been suppressed and how much has actually gone and just won't
be there again as the economy starts up again.

Martin Moloney:

I think at the heart of the question we're facing is trying to work out what are regulators... firms are
facing is the degree to which harm is likely to occur, and what I like to think of as a whole network of
current debts between all the firms and the traders and the economy. If payments of receivables are
delayed, then that's one thing. They might be impaired. That's still okay, but if a substantial amount of
debtors in the real economy just go out of business, then a significant portion of those receivables and
the working capital funding that banks provide to support that process could have to be written off and
this is a very different scenario and governments, I know are doing their best to try to cushion that
effect, but there are still question marks there.

Martin Moloney:

As a regulator, as the public health exit scenarios and different jurisdictions becomes clear, we need to
understand the economic mechanics of how that's going to work, how that's going to impact in the
economy and we need to start working on the character and testing of both the likely scenario and the
downside scenario for the particular institutions that we're regulating, and that's where we are now
with a particular focus on the branches and the subsidiaries of the large global groups with the exposure
of many countries that are characteristic of our jurisdiction.

Clive Briault:

Okay. Thanks a lot for that Martin. A comprehensive view there of what's happening out there in the
economy and to the financial sector. We'll come back to the supervisory response to that in just a
moment, but can we just take a look now inside the Jersey Financial Services Commission. How have
your staff been affected? Have you activated your business continuity plan? Have you activated any
crisis management arrangements? How have you replaced on-site supervisory activities?

Martin Moloney:

Yes. I expect our experience here is quite similar to that of many regulators. If I think back and it seems
like a long time ago to January and February where we were monitoring the buildup of this with a
particular focus on our travel policy, and we really started to ratchet up our monitoring and
consideration of this and I think it was the last week of February. At that point I set up a mid level
management committee working for me to look at this and we reviewed our business continuity plans
and actually we realized at that point that we weren't in the right place and we had work to do so.

Martin Moloney:

We immediately moved then to places under the agenda of our executive board members and we made
it a key priority of our chief operations officer. We prepared a partial work from home test involving
about a third of our staff and we did that at the end of the first week of March. We learned a lot from
that, and we picked up a lot of glitches and we then did a 90% staff out test on the 18th of March, and
that works so well that we were actually able to get that 90% of our staff out of the office indefinitely
from the 20th of March.

Martin Moloney:

We then, 24th of March made the call and moved to a 100% out of office. Our timing was really a
fortuitous in a way because the Jersey government then announced their stay at home plan on the 29th
of March and we were already in place and ready to help them with that. I should say, Jersey is
experiencing this virus at a somewhat slower race than our main neighbors, the UK and France. Our local
figures currently are with a population of just over a hundred thousand. We have three deaths and
some 170 confirmed cases and that three deaths figure has remained static for a number of days. Those
stay at home measures seem to have had a very strong effect.

Martin Moloney:

I think our government actually benefited from having done a pandemic planning exercise quite
recently, and government is now working on a recovery plan to help the economy after we get out of
this. Turning back to the JFC, I think it's worth asking maybe what didn't work so well. One thing that
didn't work so well that others might also mirror is we had an external dependency for ensuring the
security of our home working arrangements. We had a clear standard that we had decided we are not
going to compromise under any circumstances which was the standard of security of our data and our
information from the firms that we regulate, and that meant we had a clear preference, a clear choice.

Martin Moloney:

If it was going to be a choice between the security of data or the productivity of our staff, we preferred
to take the hip to productivity rather than to put any of that data at risk, and that sort of slowed us
down and to getting back up to full productivity, because our external suppliers understandably were
suffering from an excess of demand all over the place because lots of people both here and elsewhere
were trying to do the same thing we were doing. Why we were able to get 90% of the staff fully
functional from home from the 24th of March, we've only just got to the full a 100% fully functional as
of the 3rd of April, where I pleased with that obviously. It's a very successful program having regard to
everything.

Martin Moloney:

I guess the other problem is not so much a hardware problem, but it's a cultural issue because we now
are all asking ourselves, what are the problems and challenges for a dedicated staff working from home.
I think this kind of crisis is a real health check on the internal culture of an organization. What you're
looking for in your staff I think are signs of big reserves of morale, team playing, inventiveness, public
spiritedness, problem sharing, people just reaching out to help each other whenever they see people
might have a problem. What you don't want to say are some of the behaviors that the organizations do
sometimes display in the crisis, which are behaviors of defensiveness, exclusion, indecision, inflexibility,
secretiveness, those sort of behaviors.

Martin Moloney:

We've seen our staff drawing on huge reserves of goodwill to help each other deal with the emotional
shock. I think it is an emotional shock that this crisis has involved. We see our staff who are parents
trying to work from home who are minding children sent home from school. We've got staff trying to
support vulnerable relatives, and I just can't speak highly enough of the way our stuff have rallied
around and helped each other. We did try to set the tone as a management team very early on when it
was a matter of looking at the safety of travel and we took a view at that point that we would put the
safety of staff first in all those travel decisions at that time. More generally maybe I should-

Clive Briault:

Okay. Well-

Martin Moloney:

Go ahead. Please.

Clive Briault:

Sorry. Okay. Well, thanks Martin. Really useful to hear that especially since, as you say, similar issues will
be facing supervisors-
... the world over and good to hear your perspective on what went well for you and watching some
places went less well and had to be dealt with. Given the increased risks out there that you talked about
earlier, combined with the pressures on dealing with the move to homeworking internally, how have
you gone about reprioritizing what you do to focus on your most important supervisory activities in
current conditions? What are you doing more of? What are you doing less of, and how are those
decisions reached and documented by your senior management in your board?

Martin Moloney:

Yeah. This is actually a topic quite close to my heart actually, because I think most regulators have for
many years now wrestled with the prioritization of day to day work, particularly how to balance
frontline supervision with work on developing new workflow management systems, new risk
management systems, putting new regulatory frameworks in place in the post-crisis environment. I
suspect myself that the burden of trying to manage change has actually for a number of years been one
of the hidden causes of regulatory failure.

Martin Moloney:

When any crisis hits, you add another element to that difficult balancing act, and that element is all the
additional enhanced crisis impact focused work that has to be done and there definitely is a significant
additional amount of work to be done. In this case, in addition to even that, there was a fourth element
which was your organization does to divert resources to triggering and implementing and planning its
own business continuity plan, and that's hugely diverting for your resources. In our case, I would say
there were a good two weeks when that became our primary focus, and you also in some crises, and
certainly this one, you get an additional fifth element of trying to help government with their actions,
what they're trying to do in relation to the economy and in this case their stay at home scheme.

Martin Moloney:

Putting all that together you get... the relationship between the urgent and the important becomes
really problematic. Unmanaged, you would see huge damage to your work program and particularly to
your capital investment program and so on from this. You would see couple of us in program work being
sacrificed. You would see policy development work being sacrificed. You would see the prudent
[inaudible 00:19:38] supervision not being done if you didn't manage it. We have to find ways to
manage the impact of a crisis driven work as we're now facing.

Martin Moloney:

I should say, firstly, that we maybe got a bit lucky here because supporting our government in its stay at
home policy hasn't been as much of a draw on our resources as we had initially feared. The Jersey
finance industry has done really well in moving to homeworking and actually homeworking maybe
something where the finance sector is particularly well suited. Clearly construction sector you can't do
homeworking, and retail sector you can't do home working except remote deliveries and so on.
Different sectors are different, but the finance sector seems to be actually particularly well-placed in
many aspects of its activity for homeworking, and the Jersey finance sector with the exception of one or
two firms has done really well and the continuity has been very impressive.

Martin Moloney:

The draw on us to support that work has been limited. The draw on resources from stepped up crisis
focused supervisory work has been and is the key challenge. In my view, the key to sustaining this is to
develop quickly a standardized tool to support the enhanced monitoring that you have to do. If you can
get some standardized enhanced reporting templates in place, that gives your supervisors a framework
for engagement, and it also allows you to have discussions internally so as to focus as narrowly as you
can allowing for your risk appetite on what it is that concerns you, because it's very easy for a regulator
to start worrying about everything.

Martin Moloney:

Frankly, the definition of a panic in a regulator in this situation is to start enhanced monitoring of
everything, and that is not the way I think regulators should respond. We've tried to focus as narrowly
and as purposefully as we can so that we minimize what has to be sacrificed in terms of our other work.
In regulatory terms I guess, this is quite a simple crisis. Even though in human terms it's an
extraordinarily hurtful and distressing crisis. We should be able to identify clear areas of focus for
ourselves and I would just say, it varies from country to country, but generically market liquidity and
rising bad debts, I would say are the two key focuses that will be common for most regulators.

Martin Moloney:

We should, on that basis, be able to design a regime which allows a significant portion of our pre-plans
day to day work to continue. In the JFC, we're in the middle of that process right now. We've bedded
down our out of office working arrangements and we're now designing our additional monitoring
framework. Once we have that built, which will be done in just a few days, then we get to restart a
stripped back version of our capital investment process development projects. Perhaps there'll be a little
slower than they would have been before. I suspect they will, but we will still be on course and that's
very important, I think for maintaining confidence and continuity for everyone.

Martin Moloney:

Some of the things we're doing to achieve that, for example we are currently designing our remote
recruitment around boarding process for new staff. When we initially went out of the office, you might
have assumed that recruitment has to all stop until we all get back to the office. Well, it doesn't, we can
keep that going. Maybe as interesting for a lot of regulators is that we are currently designing a new
procedure to do inspections remotely which some might have thought that was counterintuitive, but I
think actually there's a lot we can do there as well.

Martin Moloney:

We recently held a board meeting, a perfectly normal board meeting which dealt with all the topics that
would have dealt with before the crisis with just one exception. Everybody was on a screen and on the
screen the boardroom was empty. Nobody was there. As much as possible, we are continuing to work to
our normal targets. As I mentioned earlier about the public health exit strategies, I think as those
strategies become clear, I suspect that we will have to recalibrate our focus to see which aspects of the
financial system are most strained and we'll pivot our enhanced monitoring roles in those directions so
you have to remain flexible, I think in how you design focus, refocus, check again and again that you're
looking at the right thing.

Martin Moloney:

For now it's a little early to say where that focus should be or is likely to be at the end of May or the
beginning of June. That feels almost like a lifetime away at this stage, but as the effects of the crisis
compound, I do expect to see more, not less crisis driven additional supervisory work to be done, and
that's where I think good regulatory management judgment is going to come in. In terms of high level
decision making, how do we do it? Continuous with that, I think a key part of our approach has been
trying to maintain as much normality as possible in the way that decisions are being taken and keep an
eye on our own patterns of behavior.

Martin Moloney:

In that regard, we have a long established approach of frontline supervisors having a significant amount
of trust to my organization to make judgements in relation to their supervised entities, obviously with an
escalation option which they trigger when the most difficult judgements have to be made. To give you
another example, our senior management team would have initiated that bank. Senior managed
supervision team, I should say, would have initiated that stress test in the normal way. What has come
up to the executive board, and to me have been decisions which involve change of approach to respond
to unexpected events and the actual triggering of our BCP plans and our engagement with government,
which obviously has no playbook for it. It's something we just have to work out as we go along.

Martin Moloney:

I think one of the mistakes regulators can make in a crisis is excessive centralization. A crisis
management team can naturally emerge and then everyone very quickly starts to defer to them and this
can create a bit of paralysis in the rest of the organization and that's not good. You have to mobilize all
the wisdom and the ingenuity across the whole organization to deal with these kinds of situations and
yet you don't achieve that by centralizing your decision making in that way. Far better, I think to put
catch ups in the diary every day, no other purpose than for senior management to tell each other what
they are doing, and this is a hugely powerful but very simple technique. It circulates novel information
and it builds senior team bonds, and if the senior team is doing it, other teams will then do to it as well,
and suddenly the velocity and volume of the circulation of critical information in the organization just
goes very quickly up.

Martin Moloney:

I think of it as a bit like the arteries in your body expanding to facilitate increased blood flow. It's very
simple but it's very effective in an organization managing its way through a crisis in a constructive way,
and when you have a very broad based... I should say this as well. When you have a very broad based
non-executive board as we have with a significant number of people active in the city of London and so
on or on, who are on our non-executive board, they are a very useful resource as well. They act as a
challenge forum for your decisions, but also as a source of intelligence as to what's going on elsewhere. I
think it's really very effective to bring them into the loop as well.

Clive Briault:

Thanks for that Martin. That's a fascinating insight on how you've prioritized your supervisory reactions.
Let's just focus for a moment on the policy and supervision decisions you've taken to address the impact
of the COVID-19 crisis. Various supervisors around the world have wrestled with forbearance, relaxing
reporting requirements, requiring financial services firms not to pay dividends and the like. Which policy
and supervision decisions have you taken in response to the crisis?

Martin Moloney:

Well, obviously this is very dynamic and active. I would say on some things, our attitude is there's no
forbearance, and we should be clear on those in the first instance. We've been very clear with our
industry that protection of client assets, professional indemnity insurance, quality of compliance with
AML requirements, reporting to us on liquidity and giving us that information. There just is no
forbearance on those sort of key parameters I think of behaviors and industry have been very good at
that.

Martin Moloney:

On the other hand, deadlines for responding to consultations on policy matters, deadlines for regulatory
data reporting, and there's a range of those kinds of deadlines which might be considered as business as
usual deadlines are ones which are definitely up for review and extension and we've provided a
significant number of extensions across the board on those and publicized those. In addition, we've
altered our governance requirements so as to accommodate the fact that not just... in this environment
just sometimes key individuals are just not available and they should be but they're not and we have to
give a little bit of latitude in that regard.

Martin Moloney:

We've issued guidance on the regulatory and compliance aspects of business continuity planning earlier
on as our regulated firms were building their business continuity planning for this, and we've also guided
industry on some tricky issues like physical signatures where some of them are having problems. We're
currently considering what other areas we want to provide additional guidance on and actually one of
the options we're thinking about is a role for online webinars, because sometimes it's just about firms
getting clarity on how the rules exist in this situation and they don't actually need anything more than
that, but they just haven't had a chance to think through and talk through with their regulator or with
their advisors how those rules apply in this situation and we can help them in that.

Martin Moloney:

One area I should mention is, we are issuing warnings on the types of fraud and cyber risk we're seeing.
We're very conscious that there is an unfortunate reality here. Criminals will try to take advantage, and
the pattern here over the last few days and last couple of weeks has been very clear. We've actually
even streamlined our own internal process for vetting those warnings and getting up onto our website
faster so that we can be as helpful as we can to industry. You mentioned dividends. I think when it
comes to dividends, this is something that not only a regulator is looking at but the banks are looking at
them. We see even some asset managers looking at this question of dividends.

Martin Moloney:

We have not yet imposed any constraints. Most of our banks are subsidiaries or branches of larger
financial groups and we will take into account the group situation. We will examine this very carefully,
but the way our industry is structured, it's something we have examined on a case by case basis and I
think that's our way forward here rather than a general rule. One of the things I think which is probably
worth mentioning here that we have done in terms of enhancing our discussions with industry is by
putting our hands up to help government with its staying home at home scheme. We've actually placed
ourselves within the process between government and the industry as a facilitator of the
communications on how that business continuity planning and staying at home scheme is working.

Martin Moloney:

As I said, most of the financial sector in Jersey is actually doing really well. We've had a couple of entities
that have had problems, but by acting as an informed facilitator in that process between firms and
government, we can hope to oil the wheels of just crisis management in general in the industry at this
point in time.

Clive Briault:

Okay. Thanks a lot for that Martin. Maybe a good moment now to take one of the questions from a
participant and indeed I think this question probably breaks the record because I received it no more
than two minutes after it started. It certainly deserves to be asked first and it relates back, I think, to this
question of supervisory and regulatory approach. The question is what's next in terms of regulation? Are
we going to see a slate of guidelines and regulations emanating from the current crisis as we've a
previous global financial crisis? Or do you think regulators will the opportunity to step back and really
look at what the financial system needs based on the last two crises which have been extremely
different in nature?

Martin Moloney:

Yeah. I think this crisis is actually really different in nature from the previous crisis and it's very different
in nature from what we had in some respects and what we had planned for. An awful lot of the
measures that we have put in place over the last 10 years have been about dealing with a sudden shock
within the financial system itself and a loss of confidence and a set of second round effects which
accelerate and intensify the effects of that initial financial sector shock.

Martin Moloney:

Paradoxically, what we've actually had in this situation, leaving aside the whole horrible human cost
element to this, is a real economy shock which has come into the financial sector and actually the
plumbing of the financial sector has so far worked quite well. It hasn't broken down with a bit of help
from central banks. There are in that sense, relatively few lessons in terms of the resilience and
structure of the financial sector to be drawn from this crisis. It may well be that the main consideration
that we have to take coming out of this crisis is what impacts the further enhanced government
measures and central banking measures in relation to putting liquidity into the system have for the
financial sector.

Martin Moloney:

It's almost a reverse of our prior way of thinking about it. Some might argue that we had scope to think
about that already because this is sustained monetary policy position that we've been in now for a
number of years has had an impact on asset prices for many years and therefore has had an impact on
the risks that regulators have to deal with, but I think that's a debate for a bit down the road and is
somewhat related to the point I made earlier, which was that we really aren't clear on how this crisis is
going to unwind. It is at that point that the stresses on the financial system will become strongest and if
there are some structural flaws that have come out of that, then regulators have to learn to respond to
that but at this point in time, it's more about supervision than about regulation I think.

Martin Moloney:

Good supervision, contact with your entities, understanding where they are, guiding them, talking to
them about their own risk management and how they're managing their balance sheet exposures, that's
what I see here. I guess there may well be further talk about countercyclical measures and that we see
the countercyclical capital buffers in many countries being used at this point to give further freedom to
banks to lend. I think you can argue around the capacity of the regulatory system to do other things
which are countercyclical and we should have a discussion around that, and I suspect myself that that
will throw up some questions around the global governance of macroprudential regulation and financial
stability.

Martin Moloney:

One of the things you can say I think coming out of the last crisis that we did a huge amount, but
perhaps we left the global governance of financial stability a little bit weak and I suspect that discussion
may happen because coordinated countercyclical policies are important here if we're not just going to
leave everything to go to central banks in terms of improving liquidity.

Clive Briault:

All right. Well, thanks for that Martin. There's a series of questions coming in which relate to the
comments you've made about the Jersey Financial Services Commission moving to homeworking and
the various implications of that. Let me just ask some of those questions and see if I can link them
together slightly with apologies to the people who asked them for no doubt not doing this as well as you
might want. First of all, does the Jersey Financial Services Commission have any kind of timescale
expectation for how long the Jersey locked down might last. Second, have you made, or could you
comment further... I think you suggested you had made, but could you comment a bit more on what
accommodation you've made for people working from home who are parents of small children or caring
for the elderly and how that operates during a crisis and how they can either maintain their productivity
or somebody can understand the reasons why they can't?

Clive Briault:

Then in terms of a firm, certainly other end of this. Now, what sort of guidance have you given them on
some of the things which used to be done face-to-face and can no longer be done face-to-face like the,
know your customer and identity checks for anti-money laundering purposes. What can the supervisors
do to help there, and probably also just related a little bit to this. How can you substitute for the types
of detailed file reviews which you may have done in the past as part of your onsite supervision? Four, I
think broadly related questions. They're all coming back to the question of how the move to
homeworking has affected you and the firms you supervise.

Martin Moloney:

Let me take those in sequence as you asked them. When we went down to the office, we describe and
indeed in terms of our planning for that, we decided to plan for that as in depth. We decided not to put
any timeline on it. We have set up our arrangements so that we can keep doing this for as long as we
need to keep doing it. Obviously, we'd all love this done sooner rather than later, but we know that
governments are actively monitoring, debating, and discussing where and the curve and so on you can
take your foot off the pedal and there are different views and different places on that.

Martin Moloney:

The only prudent approach for us to take and the prudent approach that we are recommending to our
industry is that you say that we are going to set up our arrangement sufficiently robustly that we can do
this indefinitely. It doesn't mean you expect it to be indefinite, but it just means that you don't know
when it's going to end and we have to be honest about what we don't know. The question about
parents and those with vulnerable relatives and so on, it's one really close to our heart as an
organization. One of the first things our staff did when this happened, once we got our remote working
up was to set up a channel for parents to chat to each other about the problems they were facing and
those were really great conversations, and they really do help just to share your problems with other
people, because some people have children who are in a well established routine.

Martin Moloney:

Children are actually very adoptable, but if they don't understand what's going on, you got to talk to us
and share experiences with other people and that helps. Going along with that as an employer, there
are a lot of very simple messages that we've sent out to people along the lines of look, if you tell us it is
easier for you to do your work in the evening rather than to do it during the day time as somebody else,
so you're around in the morning, but you've got to be with the children the afternoon and you'll pick it
up in the evening. That's okay. As an organization we fully understand the challenges of parents in this
situation. Some of our staff frankly, have more difficult challenges. They have actually been forced away
from their work to help others.

Martin Moloney:

I think as a public service organization trying to set the tone for the whole island in terms of how we
manage this and how we pull together, the right thing for us to do is to say to people that's okay, we
understand. We've taken that kind of approach. The closer you stay to your staff... I had another
discussion yesterday with my executive board to ask them all the question, how sure are you that
people are staying in touch with everyone and that there isn't anyone getting left out here of the
internal virtual conversations which have now become the backbone of our organization? They were all
very comfortable that we have done a huge amount to make sure everybody is getting spoken to and
talking to, and everybody gets a chance to put their [inaudible 00:41:24] take me in and then share their
ideas as to how we manage this.

Martin Moloney:

It is surprisingly how effective people can be if they share tips, hints, and feelings, and emotions around
this. Turning maybe to the question, I thought might interest some people around the idea of remote
inspections. Here's the thing. Look, everyone can talk about a sort of don't rate type inspection and
things like that where you just go in and sort of crashing through the doors or whatever, but the vast
majority of inspections that financial regulators do are a very different order. What we generally tend to
do is go into a regulated entity. We get ourselves a room in there and we get them to bring files to us,
and we are minutes of [inaudible 00:42:11] committees and so on and we get key people to come and
we interview them and that's how an inspection tends to work.

Martin Moloney:

The question we've asked ourselves, well, why can't that just be a virtual room? Why does not room
have to actually be onsite? And of course the only constraint you really have in that context is, well,
what's the filing system of the regulated entity? To what extent can they get you soft copies of a lot of
the key documentation that you want to see, and some organizations have a problem with that but a lot
of organizations don't, and in the past we may not have taken advantage of those possibilities and this is
the occasion I think to do so. I think that's all the questions you asked me Clive.

Clive Briault:

There was one I think that you didn't touch on, but let me-

Martin Moloney:

What was [crosstalk 00:42:59]?

Clive Briault:

Let me ask it in another slightly broader context. In terms of what are you seeing by way of what your
supervised firms are doing in response to the crisis and there've been a number of questions about that.
One was the one which I think you might want to have an opportunity to touch on, which is what should
they be doing in terms of the know your customer and ID type requirements for anti-money laundering,
but also some questions about, have you seen firms activating their own business continuity plans in the
crisis? And did that go well or not?

Clive Briault:

Have you seen firms suffering from perhaps entering into outsourcing agreements particularly with
firms outside Jersey that have since gone a bit wrong? And perhaps more generally what has this crisis
told you about the standards of firm's own risk management in terms of being able to assess with
themselves the sort of impact which the crisis might have both now and further down the road on their
balance sheet's capital, solvency, liquidity and so on.

Martin Moloney:

I think actually firms have done, as I mentioned earlier, incredibly well in terms of triggering their own
business continuity plans and a bit like us. I'm quite sure that many of them did not have business
continuity plans for this type of scenario in place. I think we've all got, let's be honest about it, a little bit
lucky because on the one hand we've had business continuity plans for a different type of scenario, but
another hand quite unrelated to that. We've increasingly come under... face demands for homeworking
options from members of our staff. A lot of organizations in the financial sector in order to be attractive
employers, have actually worked on homeworking options which had nothing to do with financial
planning, but they have been able to put the two together in this crisis and actually create a quite short
notice an effect of a business continuity plan suitable to this event.

Martin Moloney:

That has worked far better than I had feared. I'm just being genuinely very surprised at how good the
industry have been at doing this. Some sectors of the industry were a 100% out of the office before we
were. I was very impressed with that. In relation to the AML question you raised around onboarding. It is
a critical standard, we have said to industry, you cannot dilute your standards because this is a situation
in which some people will take advantage. However, we have long said to our industry that you really
need to read the advice that we have issued in great care and read the fact of guidance on this and you
will find that there are options available to you that you have not necessarily taken up. As some of our
industry have long known this and taken advantage of it for some time.

Martin Moloney:

Some we were actually in discussions with before this crisis rose as to what their options were, and we
do plan, I think on doing more communication with industry over the next couple of weeks around what
their options are. There's a rather simplistic view that I've seen in some other jurisdictions where people
are saying give us relief from the rules in this period. In fact, you don't need relief. You need to apply
yourself cleverly and take full advantage of what the guidance allows you because [Fatof 00:46:41] has
been conscious for some time of the pressure of innovation and remote onboarding and so on, and has
already put guidance in place. They've taken full advantage of that allows people to set up processes
that can work. I've no doubt there's a transition issue for our firms.

Martin Moloney:

It can be difficult to plan and organize, and some of the third parties that are selling services to help
them with that will themselves be incredibly busy at the moment. That will be an issue for some, but I
would say rather than dilute standards, it may be necessary for them to do as we have done, which is
just to slow the onboarding a bit and those who are best prepared will be best able to take advantage of
the business opportunities. Outsourcing has been an issue for some firms, definitely. Outsourcing to
certain countries where the response to the virus has created local problems has been a particular issue
and we have been in contact with some of our regulator entities to make sure that they are managing
those outsourcing relationships very closely.

Martin Moloney:

Speaking globally, it is definitely the case that looking at outsourcing as a global challenge, that there are
patterns in some entities of not having all the legal powers in their contractual relationships for
outsourcing that they would wish to have to be able to deal with quality assurance issues in this kind of
situation, but actually where an outsourcing dysfunction is appearing in this context, it's actually quite
evident and quite fundamental rather than marginal. Most firms that are suffering from outsourcing
problems I find they've been on top of it. They've realized the problem relatively early because it's been
quite graphic and they've managed it down over a period of time.

Martin Moloney:

Sometimes that does involve a change in productivity, but what has actually surprised me... We run a
company's registry as well as running a regulator as the [JRC 00:48:35] both in terms of our applications
for authorization as a regulator and in terms of our company registration applications. Our volumes are
actually up, they're not down and as business actually seems to be intensifying, if anything, rather than
the opposite. From our discussions, generally, what firms are doing that within the framework that
we're imposing on them.

Clive Briault:

Okay. Thanks a lot Martin. A couple of questions coming back to what you were saying earlier about
maintaining security in your move to homeworking. One question was, I think questioning how sure can
you be about the security and confidentiality and privacy of anything, be it written or spoken that's
communicated to staff at home and discussed between them on video calls or whatever? The second
question and a question I may know, a bit of inside information on this which I'm not privy to, but
somebody asking how dependent you on your supervised firms are on the Jersey network for internet
and telecommunications. How good is your fiber network and how robust is it?

Martin Moloney:

Just on your first point, I think we have benefited from the fact that we had done some work in advance
of this on how to integrate third party video conferencing programs into our system in a secure way.
What we did, we were faced with the temptation when we started our business continuity planning to
try to plug in some of these video conferencing programs without actually connecting them fully up to
our system. We resisted that and we only connect to them and as we could ensure the security of those
connections.

Martin Moloney:

We have a standard in relation to the security of how we deal with information, and that includes verbal
conversations. We've maintained that standard and it's one that was set well before this crisis and
hasn't been diluted at all. I acknowledge there are ways to do video conferencing and remote working
and so on, which do involve dilution of security. We just haven't gone down that route and once or
twice my IT people might have cursed me in terms of the work we were requiring them to do at very
short notice, but they did it to a brilliant standard and we were able to get those facilities up and
running.

Martin Moloney:

I would say to any regulator with this issue to challenge your IT people. If you haven't got the expertise
in house and some very small regulators wouldn't sort of go to government or go to a third party or
police or somebody who has that level of knowledge and get a bit of help to make sure that you have
the encryption and the secure lines and so on to do it properly. Actually in Jersey in terms of network,
we are blessed by the quality of our internet network. It's a very high speed network, and it has proven
extremely reliable.

Martin Moloney:

We ourselves purchased additional bandwidth at the start of this and we created a cushion for ourselves
in order to ensure that no matter how much our internal volume of traffic went up that we would be
safe and we were doing that at the same time like a lot of others as other people were buying additional
bandwidth. It was a case of getting early if you wanted to get that bandwidth for yourself and thankfully
from our point of view we were able to get it.

Clive Briault:

Excellent. Well, you're still with us Martin so that must be a testament to the quality of the fiber
network. One final set of questions looking forward, asking really how worried are you and what are you
most worried about as the crisis continues and if it continues for longer? What happens if the economic
situation does worsen further? Which risks might increase further and are there any pressures building
up in terms of how long your staff can productively work from home?

Martin Moloney:

Yeah. It won't surprise you to hear that we have discussed this. I can say with some confidence... I think
our staff can actually work from home for quite a long time and I think that's because, this comes back
to the cultural issue. That's because we're talking about the problems of working from home. We're
talking among ourselves about it, and we're admitting the issues. I think humans can become very
resilient when they support each other. When you're under stress, I can back you up and help you and
later when I'm under stress and you're okay, you can back me up. That actually is not my key worry, I
think. I think my worries are elsewhere.

Martin Moloney:

We've all I guess, become sort of armature epidemiologists in the context of watching the terrible
unfolding of these events. Like many others, I worry about things like virus mutations which might
bypass the accumulating immunity, or I worry about potential for failed vaccines or tests that don't work
for example and all those are just scenarios which all amount to, we need the same thing. I worry about
the exit strategy, and I worry about the exit strategy having to be abandoned and go back to the start
again. That's a big worry in terms of the economy and in terms of the finance sector.

Martin Moloney:

I worry more particularly about a point if it's reached when public finances just can't bear anymore the
burden of the programs that have been put in place. I worry about the plain and simple scenario in
which the capital of our financial institutions gets eaten through by bad debts. Now, thankfully neither
of those situations is close. We're still doing okay, but this is a bit like a slow bicycle race, I think. We've
got to stay up on that bike for as long as possible and let the economy operate as slowly as we can for
until our public health advisors tell us it's okay. That is definitely the nature of my concerns.

Martin Moloney:

In the longer term and this relates to one of the questions that was mentioned earlier. I think I worry
about the political economic implications of this crisis. I do. I hear pundits who say that it will cause a
further retreat within borders. I hope that's not true, but I do also recognize that we cannot as a society
have the experience of one and a hundred year events every 10 or 12 years and keep on using central
bank liquidity to ease the burden of those crises without having good ways to unwind that liquidity and
get back to a more normal operating situation.

Martin Moloney:

There are some worries there, but I think at this point they are overwhelmed by the positive messages
of how well the financial system is doing.

Clive Briault:

Okay. Well, thank you for that Martin and I think that's the point at which we must draw to a close. Our
hour is being used up rapidly even as more questions come in and I'm sorry we couldn't answer all of
them. I think this has been, and I hope you agree an important and stimulating conversation. First of all,
a tremendous thank you to you, Martin for all that you've contributed and a thank you also to our
participants both for joining us and for asking so many questions. As I say, I'm sorry, we haven't been
able to answer all of them.

Clive Briault:

We hope this has been helpful. We are in a sense all in this together and it's a time of uncertainty and
I'm sure there's a lot we can all learn from each other. Let me just read out one input which I've received
from a participant which isn't a question, but I hope sums up the feelings of everyone on this call, which
is to say, I just want to thank Martin for being so honest and professional in sharing with us not only his
professional advice, but also his very human really touching advice as a parent and a family man. Thank
you, Martin.

Clive Briault:

I think that sums it up really on behalf of all of us and thank you for the participant who sent that in.

Martin Moloney:

Thank you very much

Clive Briault:

Yeah. I should perhaps just mention the Toronto Centre is publishing today and should be posting on its
website a couple of Toronto Centre notes of particular relevance to today's session. One is on 10 issues
for supervisors to consider in a crisis and the second is on business continuity planning for supervisory
authorities. Do please, if you're interested, take the trouble to look at those and read them. They're
both quite short and to the point.

Clive Briault:

Do please stay tuned for our upcoming events. You can find details of all of those on the Toronto Centre
website and so thank you, Martin, and all of the participants for your participation today and do please
stay safe and healthy. Thank you very much.

Martin Moloney:

Thank you very much. Thank you.