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Jersey: Law of Offshore

Table of Statutes

This is a non-exhaustive list of the main Jersey statutes affecting offshore and non-resident business. The statutes are listed in alphabetical order – click on the statute for a fuller description of the statute, the legal regime it forms part of, or in some cases the text of the law.

In June, 2004, the Jersey Financial Services Commission unveiled a restructuring programme that has seen the island's regulator organised more along industry lines.

Under the changes, the previous divisions, Compliance, Authorisation and Insurance, were replaced by four new divisions: Banking; Securities (including Funds and Investment Business); Trust Companies; and Insurance.

Each of the Divisions is headed by an Executive Director who is responsible for regulatory and supervisory oversight of their respective industry sectors. The Directors are responsible for delivering regulatory and supervisory policies for those sectors and they are assisted in this by a Research and Development Unit.

The four Directors report to the Deputy Director General who has overall responsibility for co-ordinating their activities, including policy development.

Other Divisions of the Commission, including Enforcement and the Registry report directly to the Director General. This includes a new Risk Unit which is be responsible for risk management, quality assurance and internal audit.

The new structure created two new Director posts. But this has been offset by the deletion of the current Director, Authorisation post and of other vacant posts. The changes have been self-financing and have not resulted in an increase in headcount with the exception of a junior post in the Registry.

Commenting at the time that the changes were announced, David Carse, then Director General of the Commission noted: "The new structure will provide a greater industry focus to the Commission's work, promote greater industry expertise within the Commission and lead to greater cohesiveness in its policy-making."

In July 2008, the Jersey Financial Services Commission issued an updated version of the Licensing Policy in respect of activities that require registration under the Financial Services (Jersey) Law 1998 (the FS(J)L).

The document commonly referred to as the “Licensing Policy” published on the Commission website is dated May 2002. Consequently the policy document was prepared and approved at a time when the only types of financial service business falling to be registered under the FS(J)L were Trust Company Business and Investment Business. Subsequent to May 2002, the FS(J)L has been amended such that it is now the primary legislation for the regulation and supervision of five financial sectors, including:

  • Fund Services Business;
  • General Insurance Mediation Business;
  • Investment Business;
  • Money Service Business; and
  • Trust Company Business.

In November 2007, a number of key changes to Jersey's Companies Law were proposed by then Minister for Economic Development, Senator Philip Ozouf, with the aim of both updating and introducing more flexibility to the Companies Law. These came into effect in January 2008.

One of the most significant changes benefits the funds sector by allowing a company to hold treasury shares. This change means that a company can purchase its own shares and hold them for a period of time, rather than cancel them. This means that a company would be able to purchase its own shares from one investor and then transfer them to a new investor.

Another change, which was intended to benefit the trust industry, allows a regulated financial services business to act as a corporate director of a Jersey company. It is common practice for directors of companies to be employees provided by a regulated business. This change benefits the trust industry by reducing the administration burden on companies when an employee leaves.

A further change relaxed the previously complicated, time consuming and often expensive procedures for certain types of companies wishing to reduce capital or distribute money to shareholders. The key to these changes is the adoption of a simplified procedure requiring directors to make a statement in relation to the company’s solvency. This boosts the ability of a company to make payments to its shareholders while maintaining protection for creditors.

Some rules were removed under the changes, including a rule preventing a person acquiring a company using a loan, and at the same time using the shares in the company as security for that loan. This rule was technically known as the prohibition against a company giving financial assistance for the purchase of its own shares. As with many of the changes to the Companies Law, the new rules permitting financial assistance act to safeguard the interests of creditors by concentrating on the solvency of the company.

Additional changes which simplify procedures when certain types of companies wish to reduce capital or make distributions to shareholders came into effect in Jersey in the second quarter of 2008. These amendments also included new provisions designed to make Jersey a more attractive jurisdiction for public limited companies, including the ability for public companies to use the suffix ‘plc’ as an alternative to ‘limited’. These changes aimed to bring further flexibility and a far wider range of options for legal and finance professionals setting up companies in the Island. The measures are particularly advantageous for those establishing special purpose companies, group holding companies or joint venture vehicles.

In June 2009, Jersey's Privy Council approved an order allowing Foundations to be set up in Jersey.

Foundations have a long history in continental Europe. In medieval times they were used for charitable or religious purposes. They are now commonly used for wealth management, and residents of jurisdictions like the Middle and Far East are more familiar with foundations than with trusts, which do not exist in their legal systems. Jersey is the first of the Crown Dependencies to bring in a genuine foundation product.

The regulations will permit foundations to migrate in and out of Jersey. They also provide for existing Jersey companies to convert to foundations.

The approval of the Jersey Foundations Law by Jersey’s Privy Council was welcomed by Jersey Finance as a hugely positive step in affirming the island as a centre of excellence for private wealth management business.

Foundations sit alongside existing vehicles such as companies, trusts and limited partnerships for use in financial planning and private wealth management strategies.

A consultation on two new draft limited partnership laws was published by Jersey’s Economic Development Department in September 2009.

The two laws were the draft Separate Limited Partnerships (Jersey) Law 200- and the draft Incorporated Limited Partnerships (Jersey) Law200-. These provide respectively for the establishment of Separate Limited Partnerships (SLPs) and Incorporated Limited Partnerships (ILPs).

The SLP has legal personality but without being a body corporate (as is already the case for a Scottish limited partnership), whereas the ILP has a body corporate.

The Department believed that a wider range of uses of Jersey limited partnerships would be made by consumers if they had the option of creating a limited partnership with legal personality.

Following the enactment of the Separate Limited Partnerships (Jersey) Law 2011 and the Incorporated Limited Partnerships (Jersey) Law 2011, both types of Partnerships were permitted to be formed from May 24, 2011.

In February 2010, the Jersey government requested views on whether the Companies law should be amended to allow for the merger of Jersey companies with foreign entities.

At present, it is only possible to merge a Jersey company with another Jersey company, however, in an increasingly globalized world, more and more business is conducted across national borders and there is a growing demand for Jersey companies to be able to merge with foreign companies.

A consultation paper has been prepared to give all interested parties an opportunity to contribute their views on the proposed changes. Issues include which foreign entities should be allowed to merge with Jersey companies, the requirements for consent from the Jersey Financial Services Commission and measures for the protection of company shareholders and creditors.

Welcoming the consultation, Minister for Economic Development, Senator Alan Maclean, said: “I’m pleased that we’re working on this excellent initiative which will ensure that Jersey’s company law remains competitive. Some other jurisdictions have already successfully introduced this added flexibility into their company law and I’m confident that Jersey will benefit from taking a similar approach.”

The consultation closed on April 2, 2010. The Companies (Amendment No. 5) (Jersey) Regulations 2011, came into force on Februrary 23, 2011. Under the new merger provisions a Jersey company may merge directly with other companies registered in Jersey or elsewhere. Shareholder approval is required for all mergers, once approval has been given, all creditors must be informed of the impending merger.

IMF Review 2008

The Financial Services Commission was notified that the International Monetary Fund would carry out a second review of Jersey’s regulatory and supervisory framework in 2008. This review was to examine in detail the extent of observance of Codes of Practice. The Commission has undertaken a comprehensive self-assessment exercise - reviewing the Island’s regulatory framework, including practical application of the framework, against the standards set by the international regulatory bodies.

The resulting IMF report, released in September 2009, praised Jersey for the regulation and supervision of its financial sector and for its money laundering and terrorist financing defences. The report concluded that financial sector regulation and supervision are of a "high standard" and "comply well" with international standards.

The Financial System Stability Assessment (FSSA) Update said that Jersey has put in place a "comprehensive and robust" framework for countering money laundering and terrorist financing and has achieved a "high level of compliance" with almost all aspects of the Financial Action Task Force’s 40+9 Recommendations.

The report also said that financial soundness indicators for banks are satisfactory and that Jersey’s banking system is resilient to a range of shocks.

The detailed assessment reports, that form the basis for most of the FSSA, show compliance ratings for each of the international standards against which the island has been assessed.

The reports show that Jersey complies or largely complies with:

  • All of the Basel Committee’s Core Principles for Effective Banking Supervision;
  • 24 of the 27 Insurance Core Principles that it has been assessed against;
  • 44 of the 49 FATF Recommendations, and 15 of the 16 "core" and "key" FATF Recommendations (Singapore and the United States comply, or largely comply, with 43 of the FATF Recommendations, and Belgium with 42).

These ratings place Jersey in the "top division" of international finance centers, including those in the G20 and European Union.

While compliance with the International Organization of Securities Commissions’ Objectives and Principles of Securities Regulation was not assessed, the FSSA says it is evident that the regulation of investment business, particularly funds business, has been "significantly strengthened" since the last IMF report in 2003. The FSSA also says the trust and company services business sector enjoys a "comprehensive" regulatory and supervisory framework.

The FSSA highlighted two particular areas that are specific to Jersey’s business model and where further enhancements could be considered.

  • Reference is made to the common business practice of “up-streaming”, where Jersey banks take deposits from customers (in Jersey and elsewhere) and then place these funds with group entities (mostly in the United Kingdom and other Member States of the European Union) – providing liquidity to the group. The report says that, in the event that the health of the group deteriorates, the exposure of Jersey banks would require careful management;
  • Mention is made of the reliance that may be placed by Jersey businesses on third parties (in Jersey and elsewhere) to have carried out customer due diligence measures for anti-money laundering and combating the financing of terrorism (AML/CFT) purposes. The IMF encourages the insular authorities to review the use of this concession, which is described as “overly generous."

Despite the very positive assessment, the Jersey authorities accept there is no room for complacency. In particular, the FSSA says the Jersey Financial Services Commission will be "challenged" to react to changes in supervisory standards coming out of the global financial turmoil and implement them "proportionately to the risks on the island."

In a joint statement, the Chief Minister, Senator Terry Le Sueur, and Commission Chairman, Colin Powell said of the report:

“This is an excellent outcome and we attach tremendous importance to the IMF’s assessment. We are delighted that it has yet again demonstrated Jersey’s high degree of compliance with international standards. The FSSA and other reports will provide a strong base from which to continue discussions with our European neighbours about recognizing the equivalence of what we have in place in Jersey.”

“Jersey remains committed to maintaining and enhancing its adherence to international standards and welcomes the recommendations made within the FSSA. These recommendations will assist Jersey in further strengthening its regulatory, supervisory and AML/CFT arrangements and in developing its capacity to deal with financial sector shocks.”

“The assessment reinforces Jersey’s position as a member of the community of nations that adhere to international standards in prudential, tax and AML/CFT areas.”

On September 7, 2009, just prior to the publication of the IMF's report, the Jersey Financial Services Commission published a consultation paper disclosing proposed amendments to the Money Laundering (Jersey) Order 2008.

The Order requires businesses within its scope to apply customer due diligence measures, to keep records, and to have policies and procedures in place to prevent and detect money laundering and terrorist financing.

Businesses that are covered by the Order include banks, investment businesses, trust companies, lawyers, accountants, and estate agents.

The main purpose of the draft Money Laundering (Amendment No. 4) (Jersey) Order is to deal with some of the technical points that were raised in IMF report.

Among the proposed amendments, the paper also considers the possibility of extending power to the Minister for Treasury & Resources to apply countermeasures, where this may address a particular risk of money laundering or terrorist financing.

The main effects of Amendment No. 4 would be to:

  • Clarify the application of customer due diligence measures to trusts and other legal arrangements;
  • Clearly set out the records that a Money Laundering Compliance Officer and Money Laundering Reporting Officer must have access to in order to carry out their statutory functions;
  • Require particular attention to be paid to implementing policies and procedures that are sufficient to prevent and detect money laundering and terrorist financing in subsidiaries and branches that are situated in countries and territories that do not, or insufficiently apply, the Financial Action Task Force Recommendations;
  • Restate the requirement that customer information must always be collected before a relationship is established - where a customer is introduced by one business to another; and
  • Amend the scope of some of the concessions that may be used when applying due diligence measures to a customer who is considered to present a low risk of money laundering or terrorist financing.

The proposed amendments have been discussed with the Commission’s Steering Group for the Prevention and Detection of Money Laundering and Terrorist Financing.

The consultation received seven responses, including from Deutsche Bank International, Dominion Corporate Services, Kedge Capital Fund Management, Lloyds TSB Offshore, Ogier, Royal Bank of Scotland International, and S G Hambros Trust Company (Channel Islands).

Another endorsement of Jersey's supervisory regime was made in September 2009 when Jersey was invited to take on the role of Vice Chair for a new Peer Review Group (PRG) set up by the OECD at its recent Global Forum on Tax Transparency and Exchange of Information.

Almost 90 jurisdictions and a large number of international organizations met in Mexico, and agreed that the PRG should develop terms of reference for a robust, transparent process to assess how effectively the international standards of transparency and exchange of information for tax purposes are being implemented by individual jurisdictions.

The OECD Global Forum elected France (Francois d’Aubert) to Chair the PRG, with India, Japan, Singapore, and Jersey as Vice Chairs.

The States of Jersey’s Advisor for International Affairs, Colin Powell, who took on the role, said: “It is a great honor to be invited to sit on the Peer Review Group as one of the Vice Chairs. This position is further confirmation that Jersey is seen by the international community as a cooperative jurisdiction and as a member of the community of nations committed to the international principles of transparency and information exchange. I am looking forward very much to playing my part in this important exercise.”

 

 

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