Private banking and wealth management
All questions Regulation
What are the main sources of law and regulation relevant for private banking?
At present, banking (deposit-taking) and investment business are regulated under separate legislation. Accordingly, most private banks will need to be registered under both pieces of legislation as well as a general piece of legislation that applies to all businesses.
Accordingly, the main sources of law and regulation governing private banking in Jersey are the Financial Services (Jersey) Law 1998 (FSL), as amended, the Banking Business (Jersey) Law 1991 (the Banking Law), as amended, and the Control of Housing and Work (Jersey) Law 2012 (the Control Law). There is some customary law.
The Control Law simply regulates anyone that wishes to conduct business from Jersey. All businesses must have a general business licence under the Control Law and comply with its requirements. Failure to do so constitutes a criminal offence.
The FSL stipulates that legal persons may only conduct ‘financial services business’ in Jersey by way of business if it is regulated to do so or is exempt from the need to be supervised. It is a criminal offence to breach the FSL.
The FSL defines financial service business as covering investment business, trust company business, general insurance mediation business, money service business, fund services business or alternative investment fund (AIF) services (covered by Directive 2011/61/EU). Most private banks are regulated for at least investment business. Investment business includes dealing in investments, discretionary investment management as agent for a principal and giving investment advice. Investments covers shares, debentures, instruments entitling holders to shares or securities, units in a collective investment fund, options, futures, contracts for differences, long-term insurance contracts and rights to or interests in any of the above investments.
In addition, if the private banks are providing deposit-taking services, they must also be registered under the Banking Law. However, such registration is subject to very strict criteria.
Banks may either be set up in their own right or managed by an existing organisation on behalf of a bank that does not wish to set up there in itself.
A business is not classed as a deposit-taking business if in the normal course of business the person carrying on that business does not hold itself out as accepting deposits on a day-to-day basis and any deposits that are accepted are only accepted on particular occasions.
As regulated and supervised entities, private banks are required to comply with the relevant codes of practice for the purpose of establishing sound principles for the conduct of financial services business or banking (as the case may be) dealing with integrity, highest regard for interests of their clients, organising their affairs effectively for the proper performance of their business activities and being able to demonstrate adequate risk management services (basic standards, organisation and competence of principal persons, key persons and other employees, qualifications and experience of employees, continuing professional development, compliance and record-keeping), transparency, financial resources and adequate insurance, being open and cooperative with the Jersey Financial Services Commission (JFSC) and they must not make statements that are misleading, false or deceptive. These requirements are set out in the various codes of practice published by the JFSC.
What are the main government, regulatory or self-regulatory bodies relevant for private banking and wealth management?
The JFSC, established by the Financial Services Commission (Jersey) Law 1998, as amended, is responsible for the regulation and supervision of private banks in Jersey.
Private wealth services
How are private wealth services commonly provided in your jurisdiction?
There is a wide scope of services offered by private banks in Jersey as a result of high demand. Such services include private banks and independent asset management. There has been significant growth of family offices over the last few years (some are regulated under the FSL while others benefit from one of the exemptions).
Definition of private banking
What is the definition of private banking or similar business in your jurisdiction?
‘Private banking’ is not defined under Jersey law but is widely accepted to include any form of wealth management, investment business and other financial services business to high net worth individuals and ultra-high net worth individuals. There are usually entry-level requirements of between £1 million and £2 million of assets under management. Exceptions are sometimes made.
What are the main licensing requirements for a private bank?
The JFSC has published a licensing policy for each of the various regulated activities. The authorisation process requires an applicant to make a detailed application providing information and supporting documentation (including a business plan) dealing with the business, corporate governance, span of control, ownership, financial resources and systems and control. The applicant will also need to demonstrate suitability and satisfy a fit and proper test. Certain employees being principal persons and key persons will be required to hold certain professional qualifications and have the appropriate level of experience.
What are the main ongoing conditions of a licence for a private bank?
Private banks (subject to their regulated status) must meet the legal and regulatory requirements of Jersey. This includes abiding by the relevant codes of practice published by the JFSC from time to time, which registered persons (being the private banks) are required to follow. The private banks will be actively supervised (with regular supervisory visits) and must have appropriate financial and non-financial resources and satisfy the core principles under the relevant codes of practice depending on their registrations under the FSL and/or the Banking Law.
What are the most common forms of organisation of a private bank?
A foreign private bank typically sets up a Jersey entity (usually a limited liability par value company). The entity will be regulated by the JFSC and separately capitalised. It is possible to have a Jersey branch. It is not a separate legal entity and will need to be regulated by both the regulator in its home jurisdiction and the JFSC.
Obtaining a licence
How long does it take to obtain a licence for a private bank?
An application for a private bank to obtain an investment business registration under the FSL takes from three to four months. An application for a registration under the Banking Law can take up to a year depending upon the nature and status of the application. There are very strict criteria for a registration under the Banking Law.
What are the processes and conditions for closure or withdrawal of licences?
The JFSC has very wide powers under the FSL to take enforcement action against registered persons. Article 9 of the FSL gives the JFSC powers to revoke registrations. To date, the JFSC has not revoked any registrations as the registered persons have agreed to cease trading and surrender their registrations.
There is a right of appeal to the Royal Court of Jersey within one month of the decision on the grounds that the JFSC’s decision was unreasonable having regard to the circumstances of the case.
Wealth management licensing
Is wealth management subject to supervision or licensing?
Like private banking, wealth management firms are usually registered persons under the FSL for investment business and are regulated by the JFSC in the same way.
Family offices can structure themselves in such a way to avoid registration on the proviso that the family in question owns a majority stake in the entity.
What are the main licensing requirements for wealth management?
The licensing requirements are identical to a private bank not registered under the Banking Law (see question 5).
What are the main ongoing conditions of a wealth management licence?
These are the same as a private bank (see question 6).
Anti-money laundering and financial crime prevention
What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?
Private banks must comply with the Proceeds of Crime (Jersey) Law 1999 (the Proceeds of Crime Law), as amended, the Money Laundering (Jersey) Order 2008 (MLO), as amended, and the Drug Trafficking Offences (Jersey) Law 1988 (the Drug Trafficking Law), as amended, in relation to drug trafficking and the Terrorism (Jersey) Law 2002 (the Terrorism Law), as amended. Accordingly, private banks must have in place effective systems and controls to comply with the anti-money laundering and financial crime requirements.
Although the Jersey legislation is partly modelled on the UK legislation, the Proceeds of Crime Law had four main effects:
- it enabled the Royal Court of Jersey to confiscate the proceeds of criminal conduct;
- it allowed for the enforcement in Jersey of foreign confiscation orders;
- it created certain offences relating to money laundering; and
- it imposed obligations on those persons who provide financial services to screen and identify clients, produce records for each client, train staff to recognise potential money laundering activity and produce an internal system to report such suspicious activities to local police authorities.
The Drug Trafficking Law makes provision for:
- the making and enforcement of confiscation orders against persons convicted of drug trafficking offences;
- the offence of assisting drug traffickers to retain the proceeds or benefit of trafficking;
- the offence of making any disclosure likely to prejudice an investigation; and
- the making of production and enforcement orders in relation to production of and access to materials required in connection with a police investigation.
The Terrorism Law provides for:
- the making and enforcement of exclusion orders;
- the offence of financial assistance for terrorism; and
- the offence of assisting another in the retention or control of terrorist funds.
The MLO sets out a higher level of customer due diligence measures (CDD) than most jurisdictions including the UK, which private banks have to comply with before entering into a business relationship or carrying out a transaction. Private banks are obliged to take a ‘risk-based approach’ to CDD. As a result, private banks are expected to verify, inter alia, identity, place of residence, source of wealth and source of funds. In addition, private banks are expected to classify clients as low risk, standard risk or high risk.
Politically exposed persons
What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?
Article 15(6) of the MLO defines a PEP as an individual (including immediate family member and close associate) who is or has been entrusted with a prominent public position outside of Jersey or an international organisation outside of Jersey. Examples include heads of state, heads of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations and important political party officials.
What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.
A private bank opening an account for an individual must verify the client’s full legal name, residential address, date of birth, tax residence (including tax code), source of wealth and source of funds. This information must be verified by obtaining legally certified documents.
For verification of identity, this must be a valid passport or EU national identity card showing the client’s full name, photograph, residential address or date of birth. For proof of address this must be a utility bill (in the last three months and not a mobile phone) or a bank statement. It is possible to accept certain other documentation such as military identity card, driving permit, government pension documentation, a letter from the tax office and TV licence.
Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?
Money laundering offences assume that a criminal offence has occurred in order to produce criminal property (that is say property representing a person’s criminal conduct) now being laundered. This is effectively called a predicate offence. Where a tax offence is a criminal offence in Jersey or outside of Jersey, it is a predicate offence for the purposes of Jersey anti-money laundering legislation.
What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?
The MLO requires private banks to conduct due diligence when they enter into a business relationship or carry out a transaction. This is mainly to verify the identity of the client. Private banks are required to establish whether or not their clients are reportable under the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). This includes verifying where a client is resident for the purposes of any tax imposed by law.
What is the liability for failing to comply with money laundering or financial crime rules?
The Proceeds of Crime Law created four main offences:
- assisting another to retain the benefit of criminal conduct;
- acquiring, possessing or using the proceeds of criminal conduct;
- concealment or transferring the proceeds of criminal conduct; and
- tipping off.
Article 23 of the MLO makes it an offence for failing to report knowledge, suspicion or where there are reasonable grounds for knowing or suspecting, that another person is engaged in money laundering.
To be guilty of an offence there must be knowledge or suspicion of criminal conduct by the client. This will be a question of fact in each case.
A private bank’s employees will not be liable if they promptly disclose their knowledge or suspicion of money laundering to the money laundering reporting officer. The money laundering reporting officer does not necessarily need to pass on the suspicious activity report after reviewing it unless it is deemed reportable. It can be an offence for the money laundering reporting officer to fail without a reasonable excuse to pass on such disclosures to the States of Jersey Police (usually the Joint Financial Crimes Unit).
The MLO creates a general obligation on private banks to establish adequate and appropriate procedures to prevent money laundering. Liability can be occurred by the registered persons, principal persons and key persons.
Failure to comply with any of these legal obligations is a criminal offence and risks a prison term and a fine.
Client segmentation and protection
Types of client
Does your jurisdiction’s legal and regulatory framework distinguish between types of client for private banking purposes?
To the extent that the private bank is an investment business under the FSL, it must notify the client of its type of registration and any restrictions. It must also categorise the client and notify the client of the type of categorisation. Retail clients receive the highest degree of protection under Jersey’s regime.
What are the consequences of client segmentation?
Professional clients and sophisticated clients receive a lesser degree of protection. Private banks have different legal obligations depending upon the type of business that they conduct such as investment business and banking.
Is there consumer protection or similar legislation in your jurisdiction relevant to private banking and wealth management?
Apart from the regulatory and legal requirements imposed on private banking by the relevant codes of practice, private banks need to consider the implications of the Supply of Goods and Services (Jersey) Law 2009 for retail clients.
Exchange controls and withdrawals
Exchange controls and restrictions
Describe any exchange controls or restrictions on the movement of funds.
There are none.
Are there restrictions on cash withdrawals imposed by law or regulation? Do banks customarily impose restrictions on account withdrawals?
There are none, save for those imposed by the internal rules of the relevant private bank (typically ranging from £200 to £1,000 per day).
Are there any restrictions on other withdrawals from an account in your jurisdiction?
There are none. Private banks will honour all withdrawals subject to sufficient cleared funds.
Describe the private banking confidentiality obligations.
Jersey does not have any statutory framework for bank or professional secrecy. Banking and other professional confidentiality arises as a matter of an express or implied contractual obligation.
Decisions of the Royal Court of Jersey confirm the existence of a duty on the part of a banker or other person not to disclose to a third party information that is in its nature ‘confidential’ to the customer or the client.
Private banking contracts will contain the usual clauses dealing with confidentiality. In addition, the relationship between a private bank and its client will generally be sufficient to imply an obligation of confidentiality under the customary law doctrine of breach of confidence based on the English common law position.
A person is also guilty of an offence if he or she discloses any information relating to the business or affairs of anyone protected by the FSL without the consent of the person to whom it refers.
What information and documents are within the scope of confidentiality?
Confidentiality will apply to all information that has the ‘necessary quality’ of confidence. Most information and documents will fall within this scope.
Expectations and limitations
What are the exceptions and limitations to the duty of confidentiality?
The duty of confidentiality will not apply to documents in the public domain or where disclosure is under compulsion of law. Examples include disclosure to the JFSC where it is for the purpose of enabling or assisting the JFSC to discharge its functions under the FSL, disclosure to the Royal Court of Jersey and disclosure to the Attorney General or a police officer in certain circumstances.
What is the liability for breach of confidentiality?
The client may apply to the Royal Court of Jersey for an injunction preventing further disclosure of its confidential information. Damages may also be recoverable.
What is the general framework dealing with cross-border private banking services into your jurisdiction?
There are none at present.
Are there any licensing requirements for cross-border private banking services into your jurisdiction?
There are none at present.
What forms of cross-border services are regulated and how?
There are none at present.
May employees of foreign private banking institutions travel to meet clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?
May foreign private banking institutions send documents to clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?
No, it has to be distributed through a registered person under the FSL.
Tax disclosure and reporting
What are the main requirements on individual taxpayers in your jurisdiction to disclose or establish tax-compliant status of private banking accounts to the authorities in your jurisdiction? Does the requirement differ for domestic and foreign private banking accounts?
The only major tax in Jersey is income tax. Liability for income tax is based on residence. All residents are required to report interest earned on their worldwide accounts in their tax returns.
Are there any reporting requirements imposed on the private banks or financial intermediaries in your jurisdiction in respect to their domestic and international clients?
If private banks in Jersey have reportable accounts, they need to report to the Comptroller of Taxes the name and address, jurisdiction of residence and date and place of birth of account holders if they are resident in any of the CRS jurisdictions as well as the account number and balance. If the account holder is an entity, private banks should report the details in respect of any person controlling that entity as well as beneficial ownership.
Further, there is a legal obligation pursuant to the MLO on private banks for staff to compile a suspicious activity report to give to their designated money laundering reporting officer (which may lead to a suspicious activity report to the Joint Financial Crimes Unit) where money laundering is suspected. It is also an offence to inform a client that a suspicious activity report has been made.
Client consent on reporting
Is client consent required to permit reporting by the private bank or financial intermediary? Can such consent be revoked? What is the consequence of consent not being given or being revoked?
No client consent is required. Typically, private banks’ terms of business contain provisions to disclose information if legally obliged to do so.
What is the most common legal structure for holding private assets in your jurisdiction? Describe the benefits, risks and costs of the most common structures.
The most common structure in Jersey is an Anglo-Saxon discretionary trust. The Trusts (Jersey) Law 1984, as amended, codified the existing customary law.
The trustee is usually a registered trust company business under the FSL. Trusts offer clients the benefits of confidentiality, dynasty planning, creditor protection (in certain circumstances) and the preservation of wealth. There is no register of trusts and the terms contained in the trust instrument are confidential as the trust instrument is a private document. Subject to the terms of the trust, the beneficiary class can be restricted or extended.
A trust can be set up for approximately £3,000 with annual administration costs varying from £5,000 to £100,000 depending on the activity of the trust and value of the trust fund.
There are several types of trust including fixed interest trusts, discretionary trusts and purpose trusts.
Jersey has a healthy range of structure products including companies, foundations and partnerships.
The choice of companies (both private and public) can be established as limited liability, par value and no par value, limited by guarantee, protected cell companies and incorporated cell companies. The main piece of legislation for companies is the Companies (Jersey) Law 1991, as amended, which has many features of the UK companies legislation but much more flexibility.
The concept of a foundation was established by the Foundations (Jersey) Law 2009 and has proved popular, especially with clients in civil law jurisdictions. It allows the settlor to play a more active role.
Limited partnerships are also used for family private wealth structures. Jersey also has separate limited partnerships and incorporated limited partnerships.
Limited liability partnerships tend to be more suited to professional firms.
What is the customary level of know-your-customer (KYC) and other information required to establish a private banking relationship where assets are held in the name of a legal structure?
Insofar as trusts are concerned, private banks must obtain the following information: full name of the trust, its nature, purpose and objects, jurisdiction of establishment, names and registered address of trustees, names and addresses of potential beneficiaries and name and address of any protector, settlor, controller and enforcer.
The private bank should have a legally certified copy of the trust instrument, the certificate of incorporation of the corporate trustee, the memorandum and articles of the corporate trustee, the registers of directors and secretaries of the corporate trustee, and the register of members of the corporate trustee.
What is the definition of controlling person in your jurisdiction?
A controlling person is anyone holding more than 25 per cent of the beneficial interest in an entity or voting rights. It also includes a director of a company, a trustee of a trust, an enforcer to a purpose trust, a protector of a trust, the council members and guardian of a foundation.
Are there any regulatory or tax obstacles to the use of structures to hold private assets?
Apart from complying with local legislation, there are no Jersey regulatory or tax obstacles to the use of structures to hold private assets. Jersey is a tax-neutral jurisdiction so any regulatory or tax obstacles would be imposed by foreign applicable jurisdictions.
Types of contract
Describe the various types of private banking and wealth management contracts and their main features.
The main types of private banking contracts in Jersey are discretionary investment management, non-discretionary advisory and execution only.
A discretionary investment management contract is where the client gives the private bank absolute discretion to buy and sell holdings in the client’s portfolio without obtaining the prior consent of the client. The contract will stipulate the parameters.
A non-discretionary investment management advisory contract is where the private bank makes recommendations to the client but the bank can only carry out these transactions with the specific permission of the client.
What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?
The liability standard provided for by law is typically gross negligence, although negligence is more apparent where the client has some bargaining power. Gross negligence, wilful misconduct and fraud cannot be excluded.
Mandatory legal provisions
Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?
These are contained in the FSL and the Banking Law (where applicable), together with the codes of practice and guidance notes issued by the JFSC from time to time.
What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?
Jersey law contains a multitude of prescription periods for different causes of action. As a general rule of thumb, the limitation period in contract is 10 years and three years in tort (see Law Reform (Miscellaneous Provisions) (Jersey) Law 1960.
What are the local competent authorities for dispute resolution in the private banking industry?
A standard private banking contract is usually governed by the laws of Jersey and the parties submit to the jurisdiction of the Royal Court of Jersey.
Are private banking disputes subject to disclosure to the local regulator? Can a client lodge a complaint with the local regulator? How are complaints investigated?
Private banks have to keep a register of complaints for the JFSC. A client can complain to the JFSC if there has been a breach of the codes of practice such as lack of transparency and integrity. Complaints are usually investigated by an officer of the JFSC.
UPDATE & TRENDS
Update & trends
Updates and trends
The Dormant Bank Accounts (Jersey) Law 2017 has enabled private banks to close dormant bank accounts by depositing the account balance into a central fund, the Jersey Reclaim Fund. Any money that is not reclaimed from the fund will be used for charitable and social purposes. This has permitted private banks to remove the liabilities associated with dormant accounts from their balance sheets. An account will be dormant if no transactions have been carried out by the customer on it for 15 years. Private banks will have to notify customers with dormant accounts three months before transferring the funds.
The Bankers Depositors Compensation (Jersey) Law 2017 and the Bank Recovery and Resolution (Jersey) Law 2017 have enhanced protection for customers depositing funds with certain private banks with compensation up to a maximum amount of £50,000 per Jersey banking group capped at £100 million over a five-year period. The bank must be bankrupt as defined by article 8 of the Interpretation (Jersey) Law 1954.
The private banking community is embracing fintech. The Jersey Financial Services Commission is well engaged in its development. In particular, substantial groundwork has already been laid for virtual currency. The Proceeds of Crime (Jersey) Regulations 2016 have brought virtual currency exchangers within the ambit of Jersey’s anti-money laundering legislation. There is an exemption for exchangers with a turnover of less than £150,000.