As the UK limps towards another deferred Brexit date, businesses in Jersey must still consider how they may be affected by Brexit (if and when it happens) and be ready for all eventualities.
Since the referendum in 2016, Jersey's government and law makers have been taking steps to ensure that there is continuity and certainty during the Brexit process for both individuals and businesses in Jersey. The States of Jersey have been engaging with the UK government as it has developed its position over the last two and a half years. The island has tried to remain one step ahead by planning for a range of outcomes (including the UK leaving the EU without a negotiated deal)and for whatever results from the UK government's decisions and UK Parliament's deliberations.
Whilst Jersey has made preparations to mitigate any adverse impacts of Brexit (notably on trade in goods and services and on immigration) and to pursue any opportunities that are created as a result of Brexit, it is important that businesses in Jersey understand the changes and measures being adopted and how they may be affected, not least to enable them to explore the potential opportunities that Brexit may bring.
With this in mind, we have created a set of FAQs that provide a brief overview of how and why Brexit is relevant for Jersey (which is neither part of the UK nor a member state of the EU) and the key Brexit issues for the island and businesses.
1. I thought Jersey was outside the EU. Why are we bothered by Brexit?
Jersey, along with the other Crown Dependencies, the Bailiwick of Guernsey and the Isle of Man, are not member states (or associate members) of the EU and are not part of the UK. Jersey has its own government which is elected locally, makes its own laws (including in respect of taxation) and has its own court system.
However, Brexit will almost certainly affect most businesses which operate in Jersey, and individuals who live and work here, in one way or another. There are several reasons for this:
- Jersey's relationship with the UK
Jersey is a Crown Dependency and as such it has a special constitutional relationship with the British Crown which is underpinned by historic Royal Charters dating back to the 14th century. Such a significant event for the UK as Brexit is likely to have some impact on Jersey.
Of particular note is Jersey's relationship with the City of London. The growth and success that Jersey has experienced in the financial services sector has tracked the success of London as an international finance centre. Any adverse affect on financial services businesses in London caused by Brexit is likely to be felt in Jersey.
- Jersey's relationship with the EU
Jersey is currently part of the EU Customs Union by virtue of Protocol 3, which also provides (with limited exceptions) for the free movement of persons between Jersey and the EU (see next question). This will no longer be the case after Brexit.
- Commercial relationships
Many businesses in Jersey have commercial ties with the UK and/or the EU, whether as part of the same corporate group as businesses in the UK or the EU, as suppliers to or customers of UK or EU businesses, as owners of assets in the UK or the EU or as employers of EU citizens. To varying degrees, Brexit will affect those relationships.
2. Protocol 3 – what is that? What will happen to Protocol 3 after Brexit?
Its full name is Protocol 3 of the Treaty of Accession of the United Kingdom to the EEC, which was signed on 22 January 1972.
When the UK joined the EU (the European Economic Community (EEC) as it was then) in 1973, it was agreed that Jersey would benefit from the UK's membership of the EU by bringing it, along with the other Crown Dependencies, within the EU Customs Union for the purposes of trade in certain goods (but not services), whilst preserving its autonomy. This agreement was set out in Protocol 3.
Broadly speaking, the effects of Protocol 3 are that no customs duties are applied to goods exported from Jersey to members of the Customs Union but a common customs tariff applies to goods imported into the Customs Union from non-member countries. In addition, EU rules which provide for the free movement of agricultural products apply in Jersey, subject to any conditions imposed by the EU.
Under Protocol 3 Jersey is "within" the EU for most of the purposes of the free movement of goods but outside the EU for other purposes, in particular non-customs related fiscal matters and the free movement of persons and services.
Protocol 3 also preserves the rights of Channel Islanders in the UK but provides that Channel Islanders with no direct connection to the UK (through birth, descent from a parent or grandparent or 5 years' continuous residence in the UK) shall not benefit from EU provisions relating to free movement of persons and services. It also requires equal treatment by the islands' authorities of all EU citizens.
Protocol 3 will cease to have any effect once the UK's membership of the EU ceases, irrespective of whether a deal is agreed – the Protocol 3 relationship is dependent on the UK remaining a member of the EU and will cease to exist simultaneously with all other treaty arrangements between the UK and the EU.
3. EU laws are not effective in Jersey anyway, right?
Yes and no. In short, EU laws are not applicable in Jersey except in a limited number of cases under Protocol 3.
Briefly, there are two principal types of European legislation which are relevant in this context: Regulations and Directives. Regulations are directly applicable in EU member states, whereas Directives are binding on member states "as to the result to be achieved", but it is for national authorities to decide the form and methods of implementing them.
EU laws which are effective in Jersey
Through Protocol 3 certain Regulations relating to trade in goods (predominantly agriculture and fisheries) are directly applicable in Jersey. They have immediate legal effect and form part of Jersey law without the need to enact local legislation (pursuant to the European Union (Jersey) Law 1973) (as amended) (1973 Law)).
If a deal is agreed between the UK and the EU and, as anticipated, the deal includes a transition period where the UK's agreement with the EU and obligations towards the EU will be maintained for a period post-Brexit (the Transition Period), Jersey will only repeal the 1973 law when the Transition Period comes to an end.
Other EU laws
Where Directives may be applicable under Protocol 3, they can be implemented locally by Ordinance, at which point, they become domestic law and will have legal force in Jersey by virtue of being Jersey law, rather than European law.
Jersey can also voluntarily implement any provision of EU law, whether or not it falls within Protocol 3, which it has done in a number of areas, including financial services, anti-money laundering, EU sanctions and data protection. Jersey has also adopted (by enacting domestic legislation) some aspects of EU legislation in compliance with bilateral agreements in place between Jersey and member states of the EU, for example agreements relating to the exchange of tax information.
Such domestic legislation will continue in force in Jersey and is unlikely to be significantly affected by Brexit, although some minor amendments may be required to take into account the practical effect of the UK no longer being part of the EU.
4. Without Protocol 3 how will Jersey trade with the EU?
Firstly, remember that Protocol 3 only provides for the trade in goods (not services) between Jersey and the EU. Horticultural products, and in particular Jersey Royal potatoes and milk from Jersey cows, represent important export products for Jersey, and go mostly to the UK. Jersey also imports a number of products from the UK and the wider EU, including industrial equipment, food and fuel.
In any event, most of the goods exported from Jersey go to the UK, underpinned by rights set out in the historic Royal Charters mentioned above, rather than Protocol 3. The end of Protocol 3 should not have a significant impact on trade.
That said, Jersey has taken steps to protect trade (in both goods and services) between the UK, the EU and the rest of the world – see next question.
Jersey is also a significant exporter of services to the EU, the UK and globally in certain industry sectors, particularly financial services. Jersey is home to a large number of banks, trust companies, fund administrators, fund managers and other financial institutions that provide services to individuals and businesses in the EU, so it is vital for Jersey's economy that the export of services to the EU (and the UK) is not affected by Brexit.
Jersey is able to market financial services to the EU because those services currently meet the requirements imposed by the EU (which will not change because of Brexit). As noted above, services have always been outside the scope of Protocol 3. Therefore the repeal of Protocol 3 following Brexit will have no direct effect on the export of these services to the EU.
Jersey has also taken steps to ensure continued market access for Jersey investment funds into the UK post-Brexit. Jersey’s financial services regulator (the Jersey Financial Services Commission (JFSC)) has signed a Memorandum of Understanding (MoU) with the UK’s Financial Conduct Authority which ensures Jersey firms can continue to use the UK’s National Private Placement Regime after Brexit. The MoU will come into effect if EU law no longer applies in the UK, either through a ‘no deal’ Brexit or at the end of any transitional arrangements (that are agreed as part of a negotiated deal) once the UK leaves the EU.
5. What has Jersey done so far to protect its economy post-Brexit?
Jersey (together with the other Crown Dependencies) has entered into a customs union with the UK which covers all trade in goods which eliminates any customs duty on imports and exports within the union, and adopts a common customs tariff in relations with third countries, to ensure trade between the UK and Jersey is unaffected by Brexit. This provides continuity for Jersey and certainty for businesses as regards UK counterparty arrangements.
6. What about representation in the EU after Brexit?
Historically the UK has been responsible for representing the Channel Islands in external negotiations with the EU but over recent years this position has been changing. For example, Jersey has entered into Tax Information Exchange Agreements with most EU member states. The UK has also, so far, made it clear that it will negotiate a new economic partnership for Jersey (along with Guernsey and the Isle of Man) that is commensurate with Jersey's economic needs.
In 2011, the Channel Islands Brussels Office (CIBO) was established to promote the interests of the Channel Islands in Europe, to represent the Channel Islands to the EU institutions, and to advise the governments of Jersey and Guernsey on EU policy issues. Politicians from both islands regularly travel to Brussels to meet with representatives of the EU institutions and both islands have committed to ensuring that they continue to have strong relationships across Europe, irrespective of Brexit.
7. I run an investment fund. We have investors in EU and non-EU states. Will anything change?
In short, no. It is expected to be 'business as usual' for Jersey funds.
United Kingdom The JFSC entered into a memorandum of understanding with the FCA in March 2019 providing certainty that access by Jersey funds and managers to UK investors will continue uninterrupted and irrespective of any Brexit outcome.
European Union Jersey is not and has never been part of the EU. Rather, as a third country, Jersey will maintain access to the EU funds markets as a result of agreements between the JFSC and financial regulators in 27 of the 31 EEA States.
As a third country, Jersey has in certain circumstances elected to comply with EU Directives, for example the Alternative Investment Fund Managers Directive (AIFMD). Jersey has passed equivalent legislation to facilitate access to EU markets.
Under AIFMD, the National Private Placement Regime (NPPR) applies until such time as a marketing passport for third countries is made available. The NPPR permits the marketing of non-European Economic Area (EEA) alternative investment funds in the EEA, subject to national law and regulation in force in the relevant country. In addition, certain conditions set out in AIFMD must be met. Those conditions include the need for supervisory cooperation agreements to be entered into between the JFSC and regulators in the relevant EEA countries in which the marketing is to take place. Jersey has managed to secure cooperation agreements with regulators in 27 out of the 31 EEA countries.
The JFSC has published Codes of Practice in respect of AIFMD (the Jersey AIF Codes) to help ensure compliance by Jersey managers with the AIFMD NPPR conditions. (The Jersey AIF Codes also include opt-in provisions to allow Jersey managers and depositaries to opt in to a set of Jersey rules which are aimed at achieving compliance with the full scope of AIFMD, should they wish to do so.)
Jersey funds are currently eligible to be marketed into the EU and EEA in accordance with the provisions of the AIFMD through the NPPR regime. AIFMD made provision for "third countries" to be granted the same passporting rights as EU member states, subject to certain conditions being met (Third Countries). ESMA published its assessment of potential "first wave" Third Countries and along with Guernsey and Switzerland found that were no significant obstacles to Jersey becoming a Third Country jurisdiction. The EU Commission has not yet pressed ahead with the implementation of the third country passporting regime, but in light of Brexit this is likely to gain greater focus and the indications are that if and when the regime is put in place Jersey will be amongst the first non-EU countries to be granted passporting rights.
The Rest of the World AIFMD is not relevant to Jersey funds with a Jersey manager which markets outside the EU/EEA. These will continue to be subject to the laws of the countries in which the fund is marketed.
8. Will the sanctions regime in Jersey change after Brexit?
It should be noted that the UN and the EU are key bodies that adopt sanctions measures which may include the following measures:
- Financial sanctions including asset freezes and investment bans;
- Travel bans;
- Import and Export bans;
- Arms embargo;
- Trade restrictions.
The current Jersey sanctions regime allows it to adopt those sanctions through various mechanisms. UN sanctions measures are sometimes implemented by an Order in Council under the United Nations Act 1946. More commonly, sanctions are implemented by way of an Ordinance under the European Union Legislation (Implementation) (Jersey) Law 2014 (as amended) which will provide that a particular EU Regulation imposing sanctions is to be treated as part of domestic law. EU sanctions will include any relevant UN measures.
In May 2018 the UK passed the Sanctions and Anti-Money Laundering Act 2018 (Sanctions Act). This new Sanctions Act will govern UK's post-Brexit sanctions regime. As a consequence of the introduction of the Sanctions Act, Jersey has enacted the Sanctions and Asset Freezing (Jersey) Law, 2019 (Sanctions Law).
Jersey's sanctions regime operates completely independently of those in other jurisdictions. The Sanctions Law will enable Jersey, as it sees fit, to continue to implement EU sanctions measures, make provision for the temporary implementation of UN financial sanctions listings and will permit the future enactment of regulations in Jersey to correspond to sanctions measures that the UK may issue under the Sanctions Act on entry into their post-Brexit regime.
This legislation will ensure that Jersey has its own measures in place to be able to move in tandem with the EU, UN and UK as it chooses to.
9. My business is part of a group with offices in Jersey and Europe. We share customer data across the group. We have spent a lot of money on GDPR advice. Do we have to start again?
A 'no deal' Brexit may well compromise the transfer of data between the UK and Europe. However, regardless of whatever form the outcome of Brexit takes, Jersey has agreements in place to ensure it can trade data with EU members and the UK. In 2018 Jersey adopted the Data Protection (Jersey) Law 2018 which ensured that the island maintained an "equivalence" standard with GDPR to ensure that data could continue to pass from the EU to Jersey and vice-versa.
10. My company owns property in London which is leased to a company based in London. I have heard that after Brexit the tenant company will be relocating to within the EU and will want to terminate the lease.Can they do that?
That will primarily depend on the terms of the lease.
If the lease contains a break clause or specifically entitles the tenant to terminate the lease in the event that the UK leaves the EU, then potentially the tenant may exercise its break or seek to terminate the lease after Brexit (provided it complies with any requirements in the lease).
Whilst a break clause would not be unusual, most leases in our experience do not include such specific Brexit termination clauses. Even if the termination clause does not give the tenant an escape route, or indeed if there is no termination clause, there may be other clauses in the lease that the tenant could try to rely on. For example, any force majeure clause or material adverse change clause. Whether the tenant would be entitled to rely on any such provision to terminate the lease would depend on the circumstances and the exact wording of the lease – legal advice should be sought before any agreement to terminate is reached.
We have however, seen that a tenant has attempted to terminate a lease by claiming that the lease has been frustrated by Brexit, meaning Brexit has made the lease impossible to perform.
The High Court recently rejected a claim that a lease had been frustrated by Brexit when the European Medicines Agency (EMA) attempted to terminate the lease of its headquarters in Canary Wharf. The EMA claimed it was being forced to move its headquarters to continental Europe as a result of Brexit. The judge found that Brexit had not made the lease impossible to perform – there was no law that required the EMA to have its headquarters within the EU and the EMA would still be able to comply with its obligations under the lease after the UK had left the EU. Accordingly, Brexit was not a frustrating event in that case.
The same principles are relevant to all commercial contracts that may be affected by Brexit. Parties concerned that Brexit may lead to uneconomic or disadvantageous consequences should review their contracts, engage with counterparties to mitigate risks and, where necessary, take appropriate legal advice.
11. Some of my staff are from EU member states. Will they be forced to leave?
No. The States of Jersey has given a commitment to secure the rights of EU citizens and their family members resident in Jersey once the UK leaves the EU.
Jersey introduced an EU Settlement Scheme, similar to the scheme proposed in the UK, on 11 February 2019. The simple application process is provided free of charge in line with the UK and will enable EU citizens, and their family members, resident in Jersey at the point that the UK leaves the EU to have their immigration rights secured by applying for 'Settled Status' if they have been resident in Jersey for at least 5 years, or "Pre-Settled Status" if they have been resident in Jersey for less than five years, which will convert to Settled Status once they have reached the five year residency threshold. The scheme is intended to remain open for applications until 30 December 2020 to ensure everyone affected has the opportunity to register.
12. Will I need a visa to travel to the UK or Ireland?
No. The UK, Ireland, Jersey, Guernsey and the Isle of Man are all part of the Common Travel Area (CTA), which reflects a long-standing constitutional arrangement enabling citizens to move freely between, and reside in, these jurisdictions. After the UK leaves the EU (no matter what the terms of the UK's exit), those rights will continue.
13. So is Brexit a good thing for Jersey?
It is generally thought that in a number of key areas (such as the financial services industry and data protection) the impact of Brexit will be minimal and that actually Brexit presents opportunities for businesses in Jersey.
At an administrative level, businesses may need to update documents such as policies and procedures and contracts to account for the UK no longer being part of the EU.
In the funds space, Jersey's National Private Placement Regime remains best in class for accessing EU investors and there may be additional opportunities for Jersey (rather than our EU competitors, such as Luxembourg) to provide structures via which UK investors can invest in UK assets. In addition, managers in the UK, US and elsewhere may be able to launch funds in a shorter time-frame and with lighter ongoing regulatory requirements than in an EU member state such a Luxembourg.
On 12 March 2019, the European Council of Finance Ministers confirmed Jersey's status as a transparent and cooperative jurisdiction, and that Jersey's legal substance requirements are considered compliant with EU requirements. The effect of this is that the European Investment Fund (the EIF) (being a specialist provider of risk finance for small and medium-sized enterprises across Europe, backed by the European Investment Bank, EU, and a range of public and private banks and finance institutions) confirmed that there is no impediment to the EIF investing in Jersey private equity or venture capital funds, meaning that Jersey funds continue to be open to billions of Euros of potential investments.
14. Is Jersey in a good position to deal with a post-Brexit world?
It is worth noting that Jersey is in a better position now than it would have been had Brexit happened say, a couple of decades ago. The establishment of the CIBO, a closer working relationship with Guernsey and more regular engagement with international counterparties are just some of the reasons contributing to Jersey's enhanced external relations. Jersey now has the resources, ability, skills and experience to equip itself for whatever challenges the post-Brexit world brings.
Thankfully, we see Jersey facing challenges of a much smaller magnitude than those faced by the UK. Jersey has shown that it is able to adapt and innovate time and again and in light of the changing landscape Brexit will bring, will continue to be alert and responsive to change as it enters a post-Brexit world.