Jersey: Funds Legal And Regulatory Quarterly Update - 1 April 2015 To 30 June 2015

Last Updated: 13 July 2015
Article by Niamh Lalor

Most Read Contributor in Jersey, September 2016

Local developments

1.  Consultation on amendments to regulatory legislation

The Jersey Financial Services Commission (the JFSC) has issued a consultation paper proposing a number of regulatory changes in Jersey. The principal changes include:

  • Amendments to the regulatory laws, including the Financial Services (Jersey) Law 1998, to exclude custodians holding shares from the statutory provisions that apply to principal persons. Essentially this means that when considering whether a shareholder of a registered person is a "principal person", a person holding shares only in a custodial capacity will be excluded. This will be a welcome development for fund clients as it will enable the focus of the JSFC's "fit and proper" assessment to be on the beneficial owner of shares, rather than its custodian.
  • The ability for a banking business licencetaker.
  • Clarifying the provisions under which auditors and other reporting professionals may pass relevant information to the JFSC without contravening any duty to which they may be subject, such as a duty of confidentiality.

2.  JFSC FSB examination programme

The JFSC recently published summary findings from its on-site examination programme with respect to the supervision of fund services and collective investment funds.

During 2014, 36 cross divisional on-site examinations were conducted to identify whether applicable legal requirements were being respected. Efforts to improve systems and controls have been acknowledged.  However, the JFSC identified various areas that required attention.  Of particular interest to Jersey trust companies will be the following findings:

  • Poor AML Business Risk Assessment (BRA) was a significant finding across a number of firms. Findings range from failure to include key AML/CFT risks in the assessment, such as reliance on obliged persons, jurisdictional risk, in particular the increased exposure a firm and a collective investment fund has to its clients/investors from higher risk jurisdictions, and failure to keep the BRA up to date so that it reflects the current risks within a business.
  • The JFSC considers regular risk-based compliance monitoring as an essential part of a risk control framework as it enables registered persons to test compliance with an adequacy of its own internal policies and procedures. The on-site examinations found that the quality of compliance monitoring programmes needs improvement - in particular service providers need to implement effective programmes that set out the objective and frequency of the monitoring, the scope of testing and detail on how the testing should be performed and the desired outcome.
  • The report confirms that the Suspicious Activity Report (SAR) process will continue to be a focus for the JFSC and reiterates that registered persons must have a SAR process in place that enables full compliance with the legislative and regulatory requirements.

3.  Tax distribution review

On 18 May 2015, it was announced that Jersey's tax agents were being asked to provide their views on a review of the rules applying to the taxation of distributions from Jersey resident companies, undertaken by the Tax Policy Unit and the Taxes Office.

The aim of the review is to improve the framework of the distribution rules and, where possible, reduce the administrative burden for taxpayers. Among the possibilities being considered is the extension of the distribution rules to Jersey trustees. Any changes to the current rules will be contained within the 2016 Budget.

4.  Feedback Paper on Money Laundering Provisions

On 10 April 2015, the JFSC published its feedback paper on JFSC Consultation Paper N.4 2015 - Revisions to the Money Laundering Order and AML/CFT Handbooks, responding to proposed changes to:

  • Article 3 of the Money Laundering Order (MLO) to clarify that identification measures to be applied to a customer also include determining whether the customer is acting indirectly for a third party and, if so, identifying that third party;
  • Article 11 of the MLO to require policies and procedures to determine whether a relationship is with a person who is subject to sanctions legislation;
  • Section 3.3 of the AML/CFT Handbook (the Handbook) to clarify that "any third party on whose behalf the customer acts" includes a named beneficiary of a life assurance policy; and
  • Section 4 of the Handbook to provide further guidance on how someone may be a beneficial owner or controller of a customer.

JFSC Revised Fees

5.  Investment Business Fees

The JFSC has published a revised investment business fees notice, annual registration fee form and a feedback paper on its related consultation paper.  The revised fees are payable from 1 May 2015, and a link to the investment business fees notice is here.

6.   Funds Fees

The JFSC has published revised notices on fees in relation to fund services business, Collective Investment Funds and CoBO funds/vehicles.  The revised fees are payable from 1 July 2015.  Notable changes include (for example) a fee of 1,000 in respect of a private placement fund and 300 in respect of a very private vehicle (with 15 or fewer investors). A link to the fees notice in relation to fund services business is here; CIFs is here; and CoBO funds is here.


7.  CRS Regulations – Law Drafting Instructions

On 1 April 2015, the Chief Minister signed a ministerial decision approving law drafting proposals for the Taxation (Implementation) (International Tax Compliance) (Common Reporting Standard) (Jersey) Regulations. This will implement the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information, signed by the Jersey government in 2014, which seeks to improve international tax compliance based on the Common Reporting standard (CRS) for the automatic exchange of financial account information published by the Organisation for Economic Cooperation and Development (OECD).

8.  OECD publishes Common Reporting Standard FAQs

On 17 April 2015, the OECD released a series of FAQs which cover a range of issues on the CRS, including financial institutions, financial accounts, due diligence procedures, and reportable information designed to assist in preparations for implementation of the CRS in participating jurisdictions.

9.  4MLD - Council's negotiated text moves closer to adoption

On 21 April 2015, following the adoption by the Council of the EU of the text for the Fourth Money Laundering Directive, copies of the Directive, a related statement and a voting result were published.

On 27 April 2015, in a communication from the European Commission (Commission) to the European Parliament, the Commission showed support for the Council's text, which provides a "delicate but acceptable" balance on the subject of beneficial ownership. However, in relation to the proposed access to central registers by "persons with legitimate interest", the Commission warned that "legitimate interest" must be understood in light of the requirements stemming from Articles 7 and 8 of the Charter of Fundamental Rights (the right to protection of personal data and the right to privacy).

10.  OECD BEPS update

The OECD released new discussion drafts on its base erosion and profit shifting (BEPS) project, which were open for discussion and included:

  • Action 12 – mandatory disclosure of tax avoidance strategies by multinational companies;
  • Action 3 – strengthening CFC rules; and
  • Action 11 - methodologies to collect and analyse data on BEPs.


11.  ESMA issues updated Questions and Answers

The European Securities and Markets Authority (ESMA) published an update to its Questions and Answers on the application of the Alternative Investment Fund Managers Directive (AIFMD).

Some helpful guidance includes:

  • Clarity regarding what constitutes leverage - leverage by a structure controlled by an Alternative Investment Fund (AIF) will be included in the calculation of the exposure where the structure was specifically set up to directly or indirectly increase the exposure at the level of the AIF. There is a warning that structures should not be used as a means to circumvent the provisions of AIFMD on leverage.
  • Confirmation that Non-EU Alternative Investment Fund Managers (AIFMs) need to calculate a unique reporting frequency that takes into account all the AIFs they manage and market into the EU to calculate their reporting frequency. AIFMs must apply the same reporting frequency to all member states in which they market their AIFs.

12.  AIFMD – FCA Guidance Note and Forms for NPPR 'material changes'

The UK Financial Conduct Authority (FCA) has updated its webpage on the AIFMD National Private Placement Regime (NPPR), which includes a Guidance Note on Material Change Notifications.

Among the additions to the webpage are three new notification forms to be used by AIFMs to notify the FCA of material changes in previously submitted information, relating to Article 36, Article 42 and Small Third Country respectively.

13.  AIFMD – ESMA signals efforts to restrict add-ons

In a recent keynote speech at the Luxembourg Stock Exchange Day Steve Maijoor, the Chair of ESMA, discussed the need for 'more concrete proposals' for the further development of a pan-European asset management sector. He explained that the introduction of additional requirements for AIFs by national authorities hindered their cross-border marketing and passporting potential, so ESMA will need to control the type of add-ons that national regulators can introduce.  This will be of critical importance in the event that passporting is extending to Jersey AIFMs.

14.  Investment Association publishes 'Statement of Principles'

On 28 April 2015, the Investment Association (IA) published its Statement of Principles for investment managers, which sets out what the responsibility of investing other people's money should mean in practice. The statement requires investment managers to go beyond the regulatory obligation of "treating customers fairly" by outlining a core principle to "always put clients' interests first and ahead of our own".

Signatories to the statement will be required to demonstrate their approach to maintaining the principles and monitoring compliance with them. They must also confirm annually that their processes for doing this are effective and that any issues identified are being addressed. A list of signatories will be placed on the IA website from 31 July 2015, with links to further information introduced in 2016 and 2017 respectively.


15 EU publishes ELTIF Regulation

On 20 April 2015, Regulation (EU) 2015/760 on European long-term investment funds (ELTIFs) was adopted by the Council, which creates a new form of fund vehicle designed to increase the pool of capital available for long term investment into the EU economy. By virtue of the asset classes that they will be allowed to invest in they are expected to provide investors with long-term, stable returns.
The creation of clearly defined ELTIFs will also help tackle barriers to long-term investment in, for example, infrastructure projects, thereby stimulating employment and economic growth. ELTIFs will only focus on alternative investments that fall within a defined category of long-term asset classes whose successful development requires a long-term commitment from investors.

16.  AEFI expert group - First Report Published

The Commission has published the first report of AEFI, the Expert Group on Automatic Exchange of Financial Account Information for Direct Taxation Purposes. The EU Savings Tax Directive is due to be replaced by an amended Directive on Administrative Cooperation and AEFI was formed to ensure that any new measures would be compatible with the OECD's CRS, and minimising administrative burdens and ensuring consistency among the different compliance regimes.

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.

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