The
UK's three inshore IOFCs, Jersey, Guernsey
and the Isle of Man have each developed
some specialisations; Jersey stands out
as a banking and finance centre, with
a large offshore fund industry. It has
relatively few 'captive' insurance companies
compared with Guernsey. Jersey has a very
well-developed trust sector with particularly
strong support from law firms, trust managers
and advisory practises. As a rather broad
generalisation, the business environment
in Jersey has shown a marked tendency
to become more international over the
last few years, partly because of the
usefulness of the island to multinationals
setting up in the EU, and partly because
of increasingly tough anti-avoidance rules
that have made it difficult for UK citizens
to make productive use of trusts.
The
attacks on 'offshore' by the EU and the
OECD don't seem to have slowed the growth
of Jersey's finance businesses, or the
number of new company formations.
Company
formations were up 17% between the end
of the second and third quarters of 2009.
However, the total number of live companies
on the register decreased by 624 during
the quarter from 33,811 to 33,187.
Commenting
on these figures, Geoff Cook, Chief Executive
of Jersey Finance, said: “Overall,
despite a difficult and challenging climate
this year, Jersey has enhanced its reputation
as a leading international finance center
with ringing endorsements for the quality
of its financial services from bodies
such as the IMF, STEP, the Global Financial
Centres Index and OECD. These results
do however highlight the need for Jersey
to continue to market itself vigorously
in a very challenging and competitive
market place.”
Jersey
was named the best international finance
centre at the International Investment
Fund and Product Awards 2007. In
winning the prestigious award, Jersey
beat off competition from other international
finance centres including Dublin, Gibraltar,
Guernsey, the Isle of Man and Luxembourg,
which were all short listed. in 2008,
Jersey was recommended as one of the top
three global financial centres by leading
advisers and wealth managers in research
conducted by Citywealth.
Jersey
remains the highest rated offshore international
finance centre according to competitive
rankings published by the City of London,
and was the only offshore jurisdiction
in the top twenty in the last report,
released in March 2010. Jersey was placed
18th in the Global Financial Centres Index
(GFCI) overall.
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Jersey Trade Marketing
and Distribution
For all the sophistication of its business
environment and its convenient location
alongside the vast EU market-place, Jersey's
small size and limited resources mean
that the island is not a suitable base
for physical warehousing, processing or
distribution. However it is used as a
base for trading, marketing and distribution
in the EU by a substantial number of companies.
In the past investors very often used
the lowly-taxed International
Business Company format which permitted
commercial activity on the island as long
as transactions didn't involve Jersey
residents, although this vehicle was abolished
to new entrants with effect from January
1, 2006.
Along
with other offshore jurisdictions, Jersey
is a suitable place in which to base e-commerce
services for retail or wholesale distribution
of material or non-material goods: see
Offshore-e-com.com
for extended descriptions of how such
businesses can take advantage of the combination
of offshore and e-commerce.
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Jersey Investment Fund Management
Collective
Investment Funds are supervised by the
Financial Services Commission under the
Collective Investment Funds (Jersey) Law
1988, and if 'recognised' are allowed
to be marketed in the UK. This has been
a stimulus for the growth of a substantial
managed funds sector on the island. Other
types of fund, both public and private,
are also licensed and supervised by the
Financial Services Commission, and are
usually directed at professional investors
since public marketing would not be allowed
in most countries, particularly not in
the EU. Indeed the ability of Ireland
and Luxembourg as EU members to host funds
for public distribution in the member
states of the EU has created strong competition
for Jersey.
Nonetheless,
the total value of collective investment
funds on the island has grown rapidly.
The total
value of collective funds administered
from Jersey grew by almost GBP150bn over
the nine years to 2008. This figure then
dropped by GBP77bn in 2009. In 2009, the
Net Asset Value of funds in Jersey fell
by 32% to GBP163bn and the total number
of funds fell by 11% to 1,287.
Continuing
the behaviour seen in the previous year
the number of investment business clients
decreased by over 1,100 from September
2008 to September 2009. However, the total
funds under management increased by over
GBP1bn to GBP18.9bn, and the average asset
value per client increased by over 16%
to GBP1.28m.
In
February, 2004, Jersey introduced 'expert'
investor fund legislation. This gives
qualifying fund managers freedom to offer
funds to licensed investors without previously
clearing them with the FSC, provided they
stick to the guidelines. A number of Jersey's
competitor jurisdictions offer such freedoms,
without which it is impracticable to offer
attractive products to wealthy investors
and their advisors. The new regime has
proved popular, and by the end of 2008,
more than 400 expert funds had been approved.
In
June 2004 the JFSC also launched a Non-Domiciled
Fund Guide. The Guide introduced a streamlined
authorisation process for persons wishing
to become functionaries (for example,
an administrator, custodian, distributor)
of Non-Domiciled Funds that are: materially
equivalent to Jersey Expert Funds; equivalent
to Jersey Recognized Funds; or compliant
with the latest EU UCITS Directive.
The
Guide was the result of a joint effort
between the Commission and the Jersey
Funds Association and followed on from
the successful launch of the Jersey Expert
Fund Guide in February 2004.
In
October 2006, the JFSC announced plans
to extend the Expert Fund regime to closed-ended
investment funds listed on European and
other leading stock exchanges including
the Channel Islands Stock Exchange. The
regime would be available to private equity,
property and other alternative investment
funds such as hedge funds and funds of
hedge funds. It would operate in a similar
fashion to the existing Expert Fund regime,
except that there would be no selling
restrictions attached to these investment
funds. The JFSC had concluded that the
regulatory environment of products listed
on recognised exchanges and promoted by
established sponsors already provided
an appropriate level of investor protection
and therefore a lighter level of regulation
in relation to authorisation was considered
appropriate.
In
February 2006, the JFSC published two
consultation papers on the regulation
of functionaries and funds dealing with
the Commission's long-term goal of bringing
regulation of all financial services business
operating in Jersey within the Financial
Services (Jersey) Law 1998 (the “FS(J)L”).
The
first paper set out the proposal for the
future regulation of funds and functionaries.
The Commission proposed that regulation
of functionaries to unclassified funds
be transferred from the Collective Investment
Funds (Jersey) Law 1988 (the “CIF(J)L”)
to the FS(J)L. This was achieved by creating
a new category of financial service business
under the FS(J)L to be called “fund
services business”.
The
advantage of this new “one licence”
regime is the removal of the requirement
for functionaries to hold multiple permits
under the CIF(J)L. Instead, functionaries
are required to be registered under the
FS(J)L to carry on fund services business
from within Jersey. Every fund services
business is supervised under the FS(J)L
and the Commission issued Codes of Practice
in the form attached to the consultation
paper.
In
2008, Jersey introduced an Unregulated
Funds Regime designed to provide promoters
and other fund introducers with the simplicity,
certainty and speed they seek when setting
up certain types of specialist fund.
A
key feature is that there is no need to
seek regulatory approval when establishing
the fund. Geoff Cook, Chief Executive
of Jersey Finance Limited, commented:
“This is a significant step forwards
for the Funds Industry in Jersey and is
seen as a natural progression in our goal
to become the European jurisdiction of
choice for the Alternative Funds sector.
Fund promoters of high net worth, sophisticated
investors and institutions will have greater
flexibility when choosing Jersey and will
be able to structure their funds to suit
both commercial and tax requirements.”
The
Unregulated Funds Regime includes an Unregulated
Eligible Investor Category (UEIC) and
an Unregulated Exchange Traded Category
(UETC). Funds in these categories do not
need to be approved or authorised by the
Island’s financial regulator, the
Jersey Financial Services Commission (JFSC).
Jersey
Finance reported that 26 unregulated funds
had been registered by October 2008.
Funds
utilise a unit trust structure, or the
limited liability company with redeemable
share capital; lately the limited partnership
has become popular for some types of private
fund. See Types
of Company.
In
September 2009, Jersey’s Economic
Development Department asked members of
Jersey’s business community for
their views on draft legislation which
would introduce to the Island limited
partnerships with legal personality.
Since
the introduction to Jersey of limited
partnerships in 1994, they have proved
increasingly popular, particularly as
investment vehicles.
The
Economic Development Department has announced
that it is seeking to build on that success
with the introduction of two further limited
partnership laws, introducing different
possible legal statuses for limited partnerships.
The
two laws are the draft Separate Limited
Partnerships (Jersey) Law 200- and the
draft Incorporated Limited Partnerships
(Jersey) Law 200-. These provide respectively
for the establishment of Separate Limited
Partnerships (SLPs) and Incorporated Limited
Partnerships (ILPs).
The
SLP will have legal personality but without
being a body corporate (as is already
the case for a Scottish limited partnership),
whereas the ILP will be a body corporate.
The
Department believes 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.
Limited
partnerships are frequently used in fund
structures but, at present, the Jersey
limited partnership does not have a separate
legal personality and must contract through
its general partner (usually a body corporate),
which will have unlimited liability for
the debts of the partnership. Each of
the two proposed limited partnership vehicles
will have a separate legal personality,
however, as its name suggests, the Incorporated
Limited Partnership will have the additional
feature of being incorporated.
Welcoming
the proposals, Joel Hernandez of Jersey
law firm, Mourant du Feu & Jeune noted:
"There is increasing demand amongst
fund promoters for limited partnerships
with separate legal personalities so that
the assets of the partnership can be recorded
in the name of the partnership, rather
than its general partner.”
Sophie
Travis, also of Mourant du Feu & Jeune,
added: ”We anticipate that the new
limited partnerships will be well-received
by the funds industry and will complete
the range of limited partnerships available
in Jersey.”
Prior
to recent legislative changes, collective
Investment Funds with foreign ownership
could take advantage of International
Business Company status to achieve
a very low
rate of taxation, while still being
allowed to have offices on the island;
alternatively a Collective Investment
Fund could have exempt
(tax-free) status if its administration
was conducted on the island by an arm's
length manager for a fee. However, the
International Business Company vehicle
was abolished to new entrants with effect
from January 1, 2006. The tax landscape
has also changed with the 'zero ten' reforms,
introduced in January 2009. See Domestic
Corporate Taxation for details.
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Jersey Banking
Statistics
released by the JFSC in April 2010 showed
that over the previous nine years, total
bank deposits held in Jersey have increased
by more than GBP50bn, achieving a peak
in 2007, and declining thereafter. The
number of bank licences has declined by
26, mainly due to mergers. At the end
of September 2009, there were 47 banks
in Jersey, holding deposits of GBP170.6bn.
In
2008, the annual profit of the banking
sub-sector was GBP1.16bn, a fall of 3%
(about GBP40m) on 2007. This decrease
represented the first fall in profits
for this sub-sector for four years.
In
addition to commercial banking, asset
management, foreign exchange and securities
trading, Jersey banks have recently become
involved in a number of large securitisation
programmes. The creation of the Channel
Islands Stock Exchange has encouraged
the development of a larger capital issuance
sector. The issuance of SPVs (Special
Purpose Vehicles) and Covered Warrants
has been a rapidly growing business for
Jersey.
Banks can operate as limited
companies or branches; or, in response
to growing pressure on local resources,
as managed units whereby another bank
acts as a local manager, without the need
for additional premises and staff.
All
banks in Jersey are supervised by the
Financial Services Commission under the
Banking Business
(Jersey) Law 1991 and accompanying
regulations. An initial fee is payable
on registration, and there are continuing
annual registration fees.
In
November 2009, Jersey’s States Assembly
approved legislation to establish a Depositors
Compensation Scheme (DCS) in the island
with immediate effect. The
scheme provides protection of up to GBP50,000
per person, per Jersey banking group,
for local and international depositors
in line with international standards.
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Trust management, particularly for wealthy
UK individuals, was Jersey's traditional
business. Successive tightenings of UK
anti-avoidance legislation have reduced
the possibilities for UK citizens, but
Jersey's trust business has continued
to grow based on a more international
clientele, and following the introduction
of the purpose trust, a surge in corporate
trust work. Many Collective Investment
Funds are also of course based on Trusts.
Total
trust assets looked after on the island
exceed GBP100bn, excluding Collective
Investment Funds.
Jersey
has an extremely well-developed legal
and financial infrastructure for trust
management. With such a large established
base of trusts, and a growing reliance
on corporate work, the volume of trust
litigation is becoming significant.
Jersey's
Financial Services (Extension) Law extended
the remit of the Financial Services Commission
(FSC) under the Investment Business (Jersey)
Law 1998 over banking, investment funds
and insurance activities into trust and
company management, if the underlying
activity is connected with financial services.
The
law's code of practice was applied to
relevant financial service providers from
27 November, 2000. Business licensing
and qualification regulations came into
force from 2 February, 2001, and 28 May,
2001 was the final deadline after which
all other businesses must operate in full
compliance with the code of practice.
Qualification requirements for most lower
category staff had to be fulfilled before
November 2003; the deadline for top and
middle category employees was November
2005.
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.
Click
on Formation
of Trusts or Taxation
of Trusts for further information.
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Jersey Professional Services
Jersey is a convenient location in which
to locate professional services operations
servicing the European Union. Partnership,
Foreign Partnership and Limited Partnership
forms are available, with tax advantages
if some of the partners are non-resident.
Limited companies also offer good tax-saving
opportunities for professional services.
Click
on Forms
of Company or Offshore
Legal and Tax Regimes for further
information.
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Jersey Insurance
See
Offshore Business
Review – Insurance for a more
general treatment of captive insurance
companies.
Captive Insurance is regulated by the
Insurance Business (Jersey) Law 1996 (as
amended), the Insurance business (General
Provisions) (Jersey) Order 1996 and the
Insurance Business (Solvency Margin) (Jersey)
Order 1996.
Category
A permits are issued in respect of insurance
business carried on by companies authorised
and supervised in another jurisdiction,
and Category B permits which apply in
every other case including captive insurance
business. Permits are subject to conditions
which will be determined on a case by
case basis. It is possible to prescribe
conditions applicable to all, or a class
of, insurers.
There
were 168 insurance companies registered
in Jersey as of mid-2005, (after which
the Financial Services Commission stopped
collecting statistics from insurance companies);
this number had been tending to fall slightly
due to amalgamations.
The
sector is regulated by the director of
insurance in the Financial Services Commission.
An annual audit is required, as are semiannual
unaudited accounts and confirmation that
permit conditions are being met.
The
minimum capital requirement is GBP100,000
or its currency equivalent. Incorporation
costs GBP120 plus a stamp duty on authorised
capital at a rate of 0.5%, to a maximum
of GBP2,500.
As
of October 1, 2009, insurance companies
pay the following fees:
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