by Peter Pexton

The continued success of Jersey as a leading financial centre means its internal controls and regulatory systems must be both workable and capable of withstanding scrutiny under the international spotlight.

This calls for active dialogue between practitioners and regulators to ensure a consensus approach. Professional organisations, such as the Jersey Branch of STEP, have been happy to play a full part in the wide-ranging consultation process established by the Jersey Government with the finance industry.

Deregulation is widely promoted as the magic ingredient to breathe new life into a flagging economy. Cut red tape, demolish restrictions and profits will flow with the new found freedoms. Paradoxically, in the thriving financial services sector, regulation and compliance seem to be the new growth industry, particularly in Europe. Jersey is no exception, with local law drafting in overdrive, producing a raft of new legislation.

This year will see the launch of the Jersey Financial Services Commission, a corporate statutory body operating independently of the Jersey Government. The Commission will take over responsibility for the development and supervision of our financial services industry. Funding will be provided by fees and charges. Overall control will be exercised by a board of commissioners representing a balanced mix of practitioners, the customer and the public interest. The commission will be more than solely a policeman and will actively promote Jersey as a major finance centre.

In 1998, it is likely that a new Investment Business Law will be introduced to regulate investment advisers, managers and securities brokers operating in or from Jersey.

At present, existing money laundering laws are specifically targeted at drug trafficking and terrorism. The scope of the legislation will be widened considerably when the Proceeds of Crime (Jersey) Law is enacted, introducing penalties in the area of handling or dealing with the proceeds of all serious crime. Separate money laundering rules modeled on the UK are being prepared to introduce a common set of client identification, verification and record keeping procedures. While generally welcome and viewed as a codification of existing best practice, there are concerns at the practical aspects of operating the law with regard to tax evasion and fiscal crime. Consultation on this continues.

Still more controversially, Jersey wishes to enact statutory control over the provision of professional trustee services. From the practitioner standpoint, the optimum goal is to have regulation with minimal bureaucracy. There would be a register, which would require all professional trustees and directors of trustee companies to have relevant professional qualifications, adequate capital or professional indemnity insurance cover and effective procedures to segregate client assets from those of the business. Could this be pioneering legislation with no equivalent anywhere else?

The legislation process has not been restricted to compliance and regulatory issues. Another area involving STEP has been in the co-operation between practitioners and the Government working on the Island's new probate law, currently awaiting Privvy Council approval. The new law simplifies and improves procedures, while retaining adequate safeguards over the release of estate assets.

New legislation is but part of the story - from the trust and estate practitioners standpoint, the attitude of the Courts is of equal importance. Given the substantial assets held through Jersey trusts, Judgements of the Jersey Royal Court are significant.

The Jersey Courts have proved robust in defending beneficiaries' rights, in paring down the protection afforded to professional trustees and in limiting the impact of exculpation clauses. They have not been afraid of making innovative decisions. Recently, beneficiaries' rights to trust information have been exercising the Judges' minds. In the cases of The Den Haag Trust and Bhander v. Barclays Private Bank, the Court gave a wide construction to the trustees' obligation to disclose trust accounts and criticised delays by the trustees. This whole topic is considered in a comprehensive discussion document recently released by the Jersey Law Commission.

It is ironic that the Home Office should have announced in January the Edward's Review of the Crown Dependencies, Isle of Man, Guernsey and Jersey just when Jersey is implementing a programme of legislation which will ensure the Island's finance sector offers first class services in an ordered environment. The review, being carried out by a former senior civil servant, is to encompass assessing arrangements for financial regulation, regulation of companies, fighting financial crime, collaboration in international criminal investigations and freezing or confiscating proceeds of crime.

Everyone involved in the Jersey Finance sector anticipates that the Report will acknowledge the considerable efforts made by Jersey to adopt "Best Practice" and that the Island's commitment to observing the highest standards in international business will be properly recognised.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information please contact:

Veronica Tonge
Ernst & Young Trust Company (Jersey) Limited
PO Box 621
Le Gallais Chambers
54 Bath Street
St Helier
Channel Islands

Tel No: 01534 501000
Fax No: 01534 23265
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