1 Jersey Developments
1.1 Limited Liability Companies arrive in Jersey
On 11 September 2018, the Draft Limited Liability Companies (Jersey) Law (the LLC Law) was adopted by the States of Jersey paving the way for limited liability companies (LLCs) to be established in Jersey. The LLC Law will now go before the UK Privy Council for final review and approval. Regulations to bring the new law into force are currently being progressed by the States.
The LLC Law largely mirrors the Delaware model. LLCs offer the limited liability protection of a company and the flexibility and privacy of a partnership in one vehicle. They have become increasingly popular vehicles globally and particularly in the US. We expect to see a reflection of this trend in Jersey following the implementation of the LLC Law.
Please find a link to our briefing here.
1.2 A new law for Jersey Limited Liability Partnerships
The Limited Liability Partnerships (Jersey) Law 2017 (LLP Law), which replaces the Limited Liability Partnerships (Jersey) Law 1997 (1997 Law), came into force in its entirety on 1 August 2018, together with the following Regulations relating to limited liability partnerships (LLPs):
(a)The Limited Liability Partnerships (Amendment of Law) (Jersey) Regulations 2018 provides for transitional arrangements to the new LLP Law for all LLPs that exist under the old framework; and
(b)The Limited Liability Partnerships (Dissolution and Winding Up) (Jersey) Regulations sets out the circumstances in which an LLP may be dissolved and the procedures that should be followed to wind up an LLP in both solvent and insolvent situations.
Importantly, LLPs established under the 1997 Law are required to appoint a secretary and notify the Registry of the name and address of the secretary within six months of the new LLP Law coming into force. Please find a link to our briefing here.
1.3 Updates to the Jersey Private Fund Guide following JFSC launch of an online application tool
On 2 August 2018, the JFSC announced the launch of an online application tool for Jersey Private Funds (JPFs). All applications, notifications and annual returns in respect of JPFs must (as of 1 September 2018) be made online and will no longer be accepted in paper format. The purpose of the online authorisation tool is to speed up application turnaround times and improve efficiencies. The JFSC has also made a number of other amendments to the Jersey Private Fund Guide (the JPF Guide). The changes of particular significance are that a JPF cannot be more than one vehicle and applicants must now clearly state the date upon which Annual Returns are due by.
1.4 Enhancements to Jersey's Sound Business Practice Policy
On 2 August 2018, the JFSC amended the Sounds Business Practice Policy (SBPP) to clarify that any sale or facilitation of sale of citizenship / citizenship by investment (which includes the administration associated with citizenship and/or arranging for citizenship), is a sensitive activity falling within Table 2 of the SBPP. Table 2 sets out activities that are not within the regulatory oversight of the JFSC but are considered to likely pose a potential reputational risk to Jersey and will therefore be carefully considered by the JFSC when forming an opinion on whether to issue consent under the Control of Borrowing (Jersey) Order 1958 for entities engaging in such activities.
1.5 Overhaul of Jersey's double taxation agreement with the UK government
On 3 August 2018, the Minister for External Relations ratified a new double taxation agreement (DTA) with the UK government. The new DTA eliminates double taxation with respect to taxes on income and on capital gains. It replaced the existing 1953 agreement and aligns itself with the OECD model DTA convention standard.
1.6 New Guidance Notes from the JFSC
The JFSC has issued a comprehensive guidance note in relation to professional indemnity insurance (PII) which covers PII cover, PII policy limitation and the policies and procedures relating to PII. As a result policies and procedures manuals for regulated entities may require updating.
On 12 July 2018, the JFSC issued a guidance note on the application process for issuers of initial coin offerings (ICOs). This is welcome guidance for industry and confirms Jersey's pragmatic approach to ICO activity. Please find a link to our briefing here.
The JFSC has issued a guidance note on integrity, honesty and competence in respect of conduct by regulated entities and individuals. This was in response to the recommendation of the Royal Court in the judgment of Francis v JFSC JRC203A that the JFSC "issue and publish a guidance note making it clear that a finding of lack of integrity is not the same as a finding of dishonesty and expanding on what it does mean" so that subjects of regulatory action are clear of their standing.
On 23 July 2018, the JFSC published its 2018 themed feedback paper on revised Registry requirements for beneficial owners and controllers of corporate entities. Through a programme of on-site examinations the JFSC has highlighted key areas of improvement for compliance with the Registry requirements by Trust and Corporate Service Providers (TCSPs):
(a) Ensure that board minutes record deliberations and resultant actions in sufficient detail to demonstrate board oversight;
(b) Ensure that it is evident that the risk-based approach incorporating the three-tier test has been appropriately documented within policies and procedures;
(c) Provide practical guidance to staff in applying the three-tier test to identify beneficial owners and controllers in varying scenarios;
(d) Ensure that the evaluation or outcome of the three-tier test is formally documented to demonstrate that the firm has appropriate record-keeping arrangements and documented rationale for disclosing information to the Registry;
(e) Revise the terms and conditions of their service contracts to oblige administered registered companies or partnerships to inform the firm of changes in their beneficial owners or controllers or changes to their details; and
(f) Where submissions of information to the Registry are made via the Application Program Interface (API) system, the JFSC would expect that management would sign off any transmission of information and that independent sample checks are carried out to prevent instances of misspellings and omissions of relevant information.
1.7 Q4 industry update
On 15 August 2018, the JFSC issued an industry update announcing details of its supervisory examination themes for the final quarter of 2018. These are as follows:
(a) Outsourcing arrangements – the JFSC issued a new 'Outsourcing Policy and Guidance Note' which came into effect on 1 June 2017 for all new outsourcing arrangements. A review and assessment of the extent to which registered persons have understood the new requirements and adopted the applicable deadlines when it comes to outsourced activities will be undertaken. Please find a link to our briefing here.
(b) Property managers – the JFSC intends to examine whether, in providing property related services, any of those services fall within the scope of activities that require registration under the Proceeds of Crime (Jersey) Law 1999.
2 Guernsey Developments
2.1 Prospectus Rules and Registered Collective Investment Scheme Rules
On 6 July 2018, following a period of consultation, the Guernsey Financial Services Commission (the GFSC) issued the Prospectus Rules 2018 (the Prospectus Rules) and the Registered Collective Investment Scheme Rules (the RCIS Rules, and together with the Prospectus Rules, the Rules).
The Rules will each become effective from 6 October 2018.
The GFSC has stated that implementation of the Rules may be achieved through the earlier of:
(a) a registered investment scheme initiating an annual review at an appropriate time to identify the changes required to comply with enhanced disclosures; or
(b) any change of circumstances requiring filing to the GFSC of a notification to investors, supplement or revised prospectus.
The Rules make it clear that the Prospectus Rules do not apply to Private Investment Funds. Further the GFSC has ensured that the Rules make it clear that revisions to a prospectus in a closed-ended fund may be in the form of a notification to investors, thereby providing sufficient disclosures to investors and the GFCS without incurring exceptional costs.
Please find a link to our briefing on the Rules here.
2.2 Guernsey Green Funds
As anticipated in our last update, the GFSC has now published the Guernsey Green Fund Rules (the Green Fund Rules). The Green Fund Rules were published on 9 July 2018 and create a new designation for Guernsey registered or authorised schemes that have the objective of seeking a return for investors whilst mitigating environmental damages and that comply with certain defined carbon mitigation standards.
Once a declaration is provided that a scheme's objectives encompasses mitigating environmental damage and confirms that its investment criteria complies with the green criteria in the Green Fund Rules. Upon meeting such requirements, a scheme receives a Guernsey Green Fund designation from the GFSC and may use the Guernsey Green Fund logo to advertise its compliance with the Green Fund Rules.
Please find a link to our briefing on Guernsey Green Funds here.
2.3 Insurance Manager and Intermediary Approved Asset Regulations
Following the closing of the consultation on potential amendments to the Insurance Mangers and Insurance Intermediaries (Approves Assets) Regulations, 2002 (the 2002 Regulations), the GFSC published its feedback paper and amending regulations on 10 July 2018.
Respondents agreed with the GFSC's rationale for the proposed amendments, being to remove an inconsistency in the 2002 Regulations that weakened the capital available to licensees by allowing controllers, associates or associated parties to capitalise a licensee and then potentially have that funding loaned back to them.
The amending regulations, referred to as the Insurance Managers and Insurance Intermediaries (Approved Assets) (Amendment) Regulations, 2018, will come into force on 10 October 2018 following a three month transition period.
2.4 Outsourcing Guidance Note for Licensed Insurers
Further to the last update, on 12 July 2018 the GFSC issued a guidance note for licensed insurers on outsourcing. The aim of the guidance is to clarify the expectations of the GFSC with respect to the outsourcing of material activities by licensees under the Insurance Business (Bailiwick of Guernsey) Law, 2002.
2.5 Global Financial Innovation Network
The GFSC has, in collaboration with eleven financial regulators and related organisations, recently announced the establishment of the Global Financial Innovation Network (the GFIN).
The network will seek to provide a more efficient way for innovative firms to interact with regulators worldwide, helping them navigate between countries as they look to scale new ideas and technologies. It will also create a new framework for co-operation between financial services regulators on innovation related topics.
GFIN also launches a consultation on the role GFIN should play in delivering its objectives, including the tools it will use.
2.6 GFSC announces senior staff changes
Following the appointment of Dr Andy Sloan, as Deputy Chief Executive, Strategy at Guernsey Finance, the GFSC has made some alterations to its senior management structure.
Senior staff responsibilities have been re-allocated as follows:
(a) Emma Bailey is now Director of the Authorisations and Innovation Division
(b) Katherine Jane is now Director of Risk and Financial Stability
(c) Gillian Browning is now Director of the Investment, Fiduciary and Pension Division
2.7 Second quarter investment statistics 2018
The total value of funds business in Guernsey is at a five year high following a rise in net asset value in second quarter of 2018.
The net asset value of total funds increased by £13 billion to £276.2 billion, which is the highest since the end of June 2013. Private equity business was a significant contributor to this increase, with a near £7 billion on the first quarter of 2018 to £112.7 billion, accounting for more than half of the overall increase.
Guernsey-domiciled closed-ended funds experienced a quarterly increase of £0.4 billion and an annual rise of £1 billion. Open-ended funds also increased by £1.4 billion over the quarter to £43.2 billion.
Non-Guernsey schemes grew by 22.9% (£11.9 billion) to £64.7 billion, an increase of £4.9 billion since 30 June 2017, which is the highest they have been since September 2014.
3 Developments in the Channel Islands
3.1 UK government to make public registers of beneficial ownership in Overseas Territories
On 26 August 2018, the UK House of Commons published an updated beneficial ownership briefing looking at the development of beneficial ownership registers in the UK, its Overseas Territories and its Crown Dependencies (being Jersey, Guernsey and the Isle of Man). The UK government are looking to include a new clause in the Sanctions and Anti-Money Laundering Bill 20- which will in effect compel Overseas Territories to make public the register of the beneficial ownership of companies in their jurisdiction by the end of 2020, but this requirement will not be extended to the Crown Dependencies.
3.2 Consultations on the introduction of substance requirements in Jersey and Guernsey
The Jersey and Guernsey consultations on the introduction of legislation for companies tax resident in Jersey or Guernsey and conducting specific income-generating activities (being banking, insurance, fund management, financing and leasing, headquarters, shipping, holding company activities and intellectual property) closed on 31 August 2018. Such companies will be required to demonstrate that they have sufficient substance in Jersey or Guernsey, as applicable, as required by the EU's Code of Conduct Group on Business Taxation in line with the OECD's base erosion and profit shifting (BEPS) Action 5.
Draft legislation and industry guidance notes are expected by the end of October with an effective implementation date of 1 January 2019 in both jurisdictions. Do let us know if you have any questions regarding the current position.
The Government of Jersey's Brexit planning has been developed based on a ‘no deal’ or ‘hard Brexit’ scenario. A summary of the Government of Jersey's initial position in relation to the UK government's series of technical notices on Brexit are available on the States of Jersey website.
The States of Guernsey has formed a Brexit group to assess the impact of Brexit on the Bailiwick and to prepare for a range of outcomes, including a 'no-deal' Brexit, the maintenance of the status quo under any implementation period and the possibility of a new partnership between the EU and the UK. The latest news and information issued by the Brexit group can be found on a microsite for the group by following this link: Brexit and Guernsey.