1 Jersey Developments
1.1 Jersey leads the way in efforts to prevent tax avoidance
On 20 December 2017, Jersey completed the domestic ratification of the Organisation for Economic Cooperation and Development's (OECD's) Multilateral Instrument (MLI) for the prevention of base erosion and profit-shifting (BEPS). The MLI is the process by which countries implement the OECD's anti-avoidance measures. Jersey is amongst one of three jurisdictions to have completed the domestic ratification of the MLI. The MLI will come into effect once it has been ratified by two additional jurisdictions.
1.2 Growth for Jersey funds sector
Fund assets serviced in Jersey are up 14.7% on last year, rising to US$346.5bn. The statistics come from the latest Monterey Jersey Fund Report, (published in November 2017), with its findings demonstrating the continued strength of the Island’s funds sector. Topping the table for Jersey domiciled funds were private equity and venture capital funds, which totalled US$91.1bn, followed by property real estate funds at US$53.6bn.
1.3 ICO Statement
Following on from statements on ICOs (Initial Coin Offerings) from ESMA (the European Securities and Markets Authority) on 13 November 2017, in December the States of Jersey issued a statement in relation to ICOs. In the statement, the States confirmed its commitment to creating a modern digital economy. The Jersey Government supports the view that ICOs conducted through Jersey legal entities should only be open to companies and legal entities that are incorporated or registered and administered through the regulated financial services sector in Jersey.
1.4 Jersey tax compliant according to OECD standards and a cooperative jurisdiction according to the EU
In November, Jersey became one of only six countries in the world to be found to be entirely tax compliant against the Organisation for Economic Cooperation and Development's criteria after two rounds of peer review, and in December the EU’s Code of Conduct Group recognised Jersey as a cooperative jurisdiction following a year-long screening process. The outcome of the Code Group proceedings has been published, together with a press release from the States of Jersey.
1.5 Cyber security strategy published
Further to the Jersey Financial Services Commission (JFSC)'s warning to local businesses and members of the public (mentioned in our previous update), in November the Chief published the cyber security strategy. The strategy seeks to ensure Jersey's continued success as an international finance centre.
1.6 BREXIT and Jersey
On 11 October 2017, the House of Commons Justice Committee published its First Special Report of Session 2017-2019 on the implications of Brexit for the Crown Dependencies. The report sets out the government's response to the Justice Committee's report on implications of Brexit for the Crown Dependencies. The government's response confirms that there is no intention to change the constitutional relationship between the UK and the Crown Dependencies. The government response also commits to providing a status update in early 2018.
On 22 December 2017, the government of Jersey published a report containing the results of the business Brexit survey. The report provides an insight into the concerns of the Island business and the level at which Brexit has impacted their thinking. A press release is available.
1.7 Jersey's data protection regime to provide equivalent protection to the GDPR
On 19 January 2018, the States of Jersey unanimously approved the Draft Data Protection (Jersey) Law 201- and the Draft Data Protection Authority (Jersey) Law 201-. Assuming these new laws receive Royal Asset, they will be implemented on 25 May 2018 at the same time as the European Union's General Data Protection Regulation (GDPR) takes effect. The aim of the new Jersey legislation is to give GDPR-equivalent rights to individuals in respect of their personal data and to ensure that Jersey businesses implement enhanced data protection standards so that they can continue to compete internationally.
Our guide on how to prepare for the new data protection regime can be found here: http://www.ogier.com/services/gdpr-get-data-protection-ready
1.8 Consultation on amendments to the Codes of Practice
Following on the from the consultation on amendments to the Codes of Practice which closed on 18 October 2017 (mentioned in our previous update), the JFSC has issued the revised Codes which will be effective from 21 March 2018. The amendments include:
(a) introducing a requirement for registered persons to regularly review their corporate governance requirements – including carrying out internal self-assessments or external assessments of the effectiveness of its board;
(b) clarification that "risk" for the purposes of Section 3 of the Codes (A registered person must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems) includes all risks, not just money laundering and terrorist financing risks;
(c) obligation on registered persons to notify the JFSC in the event its auditor determines to qualify its auditors report or to emphasise a matter in its opinion; and
(d) introducing a definition of a "complaint" which aligns with that issued by the Channel Island Financial Ombudsman.
1.9 JFSC's supervisory thematic programme 2018
As part of its move to risk-based supervision, the JFSC published an Industry Update on the supervisory thematic programme for Q1 and Q2 2018, explaining that examinations allow the JFSC to better understand particular thematic risks that cut across a range of firms in a specific sector or affect a sector as a whole. During the first half of 2018, the JFSC's Supervisory Examination Unit will assess beneficial ownership and client assets.
1.10 Risk assessment for money laundering and terrorist financing
The Jersey Financial Crime Strategy Group (JFCSG) has announced that it will conduct a national risk assessment of the threats posed to the Island by money laundering and terrorist financing. The risk assessment is due to be completed by May/June 2019, when a report and action plan will be published. The Financial Action Task Force, which sets the global standards for financial crime, now requires all countries to identify, assess and understand the risks posed by money laundering and terrorist financing.
2 Guernsey Developments
2.1 New listings on TISE
There were 705 new listings on The International Stock Exchange (TISE) during the course of 2017. This represented an increase of 203 listings (40%) and took the total number of listed securities up to 2,511 at the end of December 2017. The areas of growth for new listings included debt products such as high yield bonds and investment vehicles, including Real Estate Investment Trusts (REITs).
The focus for TISE during this year will be showcasing how both local companies and those from outside the of the Channel Islands can benefit from listing on TISE and the stability it offers at a time of significant uncertainty in the United Kingdom as a result of Brexit.
Ogier continues to be a lead sponsor on the TISE and has significant experience in working with sponsors to list REITs and other investment vehicles.
2.2 Growth for Guernsey funds sector
Figures published by the Guernsey Financial Services Commission (GFSC) show that the total value of funds business in Guernsey increased by approximately £20 billion over the 12 months to the end of the third quarter of last year.
At the end of September 2017, the net asset value of all funds under management and administration in Guernsey stood at £269 billion (an 8% increase on September 2016). The annual increase was largely thanks to the growth of Guernsey-domiciled closed-ended funds, which increased by £13.7 billion, whilst Guernsey open-ended funds remained stable at £43.9 billion.
2.3 Guernsey recognised as a cooperative jurisdiction
Guernsey, alongside Jersey (as mentioned above), has been recognised as being a cooperative jurisdiction, having made meaningful commitments to implement certain tax provisions by the end of 2018. On 5 December 2017, the European Council of Finance Ministers (the Council) released a list of countries it deemed to be non-cooperative tax jurisdictions and identified around 40 jurisdictions.
2.4 BREXIT and Guernsey
The States of Guernsey will need to enact legislation to ensure that there is continuity and certainty during the Brexit process for individuals and businesses. The Policy & Resources Committee of the States of Guernsey (the Policy & Resources Committee) has circulated a third Brexit Policy Letter which sets out the rationale for repealing the European Communities (Bailiwick of Guernsey) Law 1973 and implementing relevant EU measures into domestic law. This is analogous to the approach being taken in the United Kingdom, with its European Union (Withdrawal) Bill.
The Policy & Resources Committee has recommended that legislation be prepared to repeal the European Communities (Bailiwick of Guernsey) Law, 1973 and to ensure that the Bailiwick's legislation is aligned, as appropriate, with United Kingdom and European Union legislation and that the changes occur within the relevant timescale (likely to be March 2019).
It is hoped that the legislative changes will help the Bailiwick to be well-positioned to react to the developing circumstances as negotiations between the United Kingdom and European Union continue.
2.5 Changes to regulations on marketing of investments
The position regarding the promotion of investments in or from within Guernsey to persons licensed under one of Guernsey's regulatory laws has been amended. The Investor Protection (Designated Countries and Territories) (Bailiwick of Guernsey) Regulation, 2017 came into force in October 2017. These regulations designated certain countries and territories for the purposes of section 29(1)(cc) of the Protection of Investors (Bailiwick of Guernsey) Law, 1987. Where a firm's main place of business is in one of the jurisdictions listed in the regulation, the promotion of controlled investments to certain licensed entities in the Bailiwick of Guernsey will not require a licence, provided that certain requirements, including the completion of a simple web based notification form, are met.
Ogier has assisted a number of firms with cross-border marketing into the Channel Islands and would be delighted to assist with any queries on the new Regulations.
2.6 Increase in regulatory fees
The GFSC has confirmed that it will apply an increase of 3% across its fees in all sectors for 2018 (other than change in controller applications.)
In addition, the Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law 2016 has recently come into force, bringing into effect new levels of discretionary financial penalties. Following the enactment of this new law, the GFSC has published a feedback paper setting out its responses to the consultation process which was undertaken last year. The increased penalties will only be applied in new enforcement cases which commenced on or after 13 November 2017 and where the alleged breach also took place on or after that date.
2.7 Initial Coin Offerings
ICOs are a method of raising funds by the issuance of digital tokens or digital coins in virtual currency. The operators of the ICO may explain that the proceeds are to be used to fund the development of a project which might itself be a form of digital service or associated software. Although no such product have been launched in Guernsey, the GFSC has published guidance in response to frequently asked questions on this subject on its website.
2.8 Guernsey's response to GDPR
The States of Guernsey approved the draft Data Protection (Bailiwick of Guernsey) Law, 2017 (the Data Protection Law) in November 2017. The Data Protection Law will repeal and replace Guernsey's current data protection regime with provisions to protect the rights of individuals in relation to their personal data, and provide for the free movement of personal data, in a manner equivalent and consistent with GDPR. The associated Directive relating to the Processing of Data for the Purposes of the Prevention of Crime (Law Enforcement Directive) will be implemented by an ordinance to be made under the Data Protection Law.
The time frame for enactment is likely to be May 2018 and it is hoped that its introduction will demonstrate Guernsey's commitment to upholding international data protection standards.
3 UK Developments
3.1 UK Government publishes anti-corruption strategy
On 11 December 2017, the UK government published the UK anti-corruption strategy 2017-2022. The strategy establishes a longer-term framework to guide UK government efforts to tackle corruption at home and abroad in the period to 2022. The strategy sets out, amongst other matters, the UK’s ambition for all jurisdictions to adopt public registers and considers further the introduction of a register of beneficial ownership of overseas legal entities owning UK property.
3.2 HMRC issues consultation on taxing gains made by non-residents on UK immovable property
On 22 November 2017, HMRC published a consultation describing the government’s proposals for the intended scope of new rules to charge non-residents tax on gains realised from disposal of interests in UK property (commencing April 2019). HMRC has acknowledged that there is significant investment in UK commercial property through investment funds and that the impact on them needs to be carefully considered, so it is critical that industry players engage actively in the consultation process, which closes on 16 February 2018. A technical note has also been published by HMRC, setting out anti-forestalling rules, which apply from 22 November 2017.
Jersey Finance, (a local industry body) is preparing a comprehensive response to the consultation to support the view that no market distortion should occur as a result of changes to the rules.
Ogier, together with other industry participants, is actively involved in this consultation process and we are happy to coordinate with clients any responses or feedback that they wish to have considered as part of the response to HMRC.
4 Global Developments
4.1 MiFID II has arrived
On January 3 2018, the recast EU Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation, took effect. Read about Jersey's pragmatic and proportionate regulatory response to MiFID II in our previous update.
4.2 IOSCO publishes report on termination of investment funds and hedge funds survey
On 23 November 2017, the International Organization of Securities Commissions (IOSCO) published a report on good practices for the termination of investment funds. In the report, IOSCO highlights the importance of adopting termination procedures that take into account investor protection issues. A press release is available.
4.3 Guidance for marketing AIFs into France
On 25 September 2017, the Autorité Des Marchés Financiers (AMF) published an instruction which describes the procedure for marketing AIFs in France. Section III specifies the procedure for marketing third country AIFs or EU AIFs managed by third country AIFMs.