Jersey: Jersey Funds Legal And Regulatory Quarterly Update - 30 September 2015 To 31 December 2015

Last Updated: 21 January 2016
Article by Niamh Lalor

1  Jersey Financial Services Commission updates

1.1  JFSC’s Amendments to Codes of Practice

The JFSC published Consultation Paper No. 12 2015 on 15 December 2015, which proposes amendments to the Codes of Practice (the Codes), including the following three key changes:

(a)  Notification requirements are to be made clear and unambiguous:

Currently, some provisions of the Codes are unclear in relation to notification requirements. The proposal suggests that the Codes explicitly state that all required notifications must be provided to the JFSC in writing, and that a notification by email will satisfy this requirement. This will provide some welcome clarity for local service providers and their advisers and should remove current uncertainty as to the JFSC’s notification requirements.

(b)  The Codes that relate to investment, banking and insurance business have been updated to include regulatory requirements on the handling of consumer complaints following the establishment of the Channel Islands Financial Ombudsman (CIFO):

  • Following the introduction of the CIFO on 16 November 2015, it is proposed that the complaints handing sections of the relevant Codes will be updated.  It will be a regulatory requirement for firms to advise complainants that if they are dissatisfied with a firm’s response to their complaint, they may have the option of referring it to the CIFO.
  • In addition, it is proposed that relevant firms must notify the JFSC if the CIFO requires the firm to pay compensation to a complainant or directs that the firm take certain steps in relation to a complaint.
  • It will also be made explicit that firms deal with the CIFO in an open and transparent manner.

The CIFO does not relate to certified funds or their functionaries except in relation to recognised funds. However, it is proposed that the Codes of Practice for Certified Funds be updated in relation to complaints including that the fund must:

  • maintain its central register recording complaints against the fund and such register must contain details of any agreed compensation or compromise;
  • inform unitholders of how complaints may be made and how they may expect these to be responded to
  • provide in writing within five working days (unless otherwise agreed) an acknowledgement that a complainant’s complaint has been received, including confirmation that the complaint is being considered
  • keep the complainant informed about the progress and action being taken to resolve the complaint and advise the complainant in writing when the complaint is considered closed and where the complaint is not upheld clearly state the reasons for rejecting the complaint 
  • notify the JFSC in writing as soon as it becomes aware if a pattern to complaints is identified.

(c)  To make minor updating and consequential changes:

Such changes include amendments to the introduction of the Codes, updating the Codes to include the new civil penalties regime and including the definition of anti-money laundering legislation.

Responses are required by the JFSC by 19 February 2016 and it is anticipated that the revised Codes will be issued during the first half of 2016.

1.2  Business Plan

The Jersey Financial Services Commission (the JFSC) will unveil its Business Plan to industry on Friday 5 February 2016 at the Hotel de France, starting at 08.00 and closing at 10.00.  The presentation will set out the JFSC’s objectives and priorities for 2016 and beyond.  Members of the financial services industry and other interested parties are invited to attend the event.

1.3  Change Programme - update

In November 2015, the JFSC published the first in its series of papers setting out details of its 'Change Programme'. The paper explains how the JFSC intends to change the way it will regulate firms in the future and how entities will interact with the JFSC in the future.

1.4  Consultation on JFSC funding

The JFSC Consultation Paper No. 10 Funding Review was issued in relation to proposed changes to the way fees paid by regulated businesses are calculated and levied.

Ogier responded to this consultation, which closed on 18 December 2015 and the results are expected in the first half of 2016.

1.5  FSB Annual Compliance Return

The JFSC’s Funds Supervision Team has introduced a fund services business (FSB) Annual Compliance Return, which requests information on a registered person’s business on an annual basis, bringing it into line with other regulated sectors such as trust company business and banking business. The information contained in the form will be used to assist the JFSC’s supervision of FSBs.

The form should be completed by all registered persons who hold a FSB registration, except for managed entities who do not need to complete a Return.

2  Updates to Jersey legislation

2.1  Virtual currency / Fintech regulation

Following a JFSC consultation in the summer of 2015, legislation relating to the regulation and supervision of virtual currency exchangers (i.e. those who exchange fiat money for virtual currency) is expected to be in force during the course of 2016.  The proposal set out in the JFSC’s policy document released on 21 October draws on similarities with the Jersey Money Service Business regime, and the proposal is that all virtual currency exchanges will:

  • be subject to the Money Laundering Order and AML/CFP Handbook, and therefore appoint a MLCO and MLRO and put in place policies and procedure to prevent and detect money laundering and terrorist financing (amongst other things)
  • if the exchanger has turnover of less than £150,000 per annum, they will only need to notify the JFSC that they are carrying on virtual currency exchange, such business to be known as 'exempted virtual currency exchange'.  Although the JFSC will not supervise compliance with the AML/ CFT legislation by entities with turnover of less than £150,000, the JFSC will have investigation powers as and when necessary
  • if the exchanger has turnover of £150,000 per annum or more, then it must register with the JFSC under the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008, and be subject to supervision by the JFSC and pay an annual fee to the JFSC.

3  Alternative Investment Fund Managers Directive (AIFMD)

ESMA updated its Q&A document in relation to reporting to national competent authorities under AIFMD on 2 December 2015. On 15 December 2015, ESMA issued a further update in relation to the liability of depositaries.  The updated Q&A can be found here.

4  EU Tax

4.1  The Common Reporting Standard (CRS)

The Taxation (Implementation) (International Tax Compliance) (Common Reporting Standard) (Jersey) Regulations (the Regulations) 2015 came into force on 1 January 2016, which in summary give effect to the OECD’s Common Reporting Standard (the CRS). The Regulations broadly require reporting financial institutions to (1) establish and maintain arrangements that meet applicable due diligence requirements, and (2) prepare and submit returns to the Comptroller of Taxes in Jersey (Returns).  Such Returns are then shared with the competent authority of the account holder’s resident jurisdiction.

The scope of the CRS is far wider than the existing Intergovernmental Agreements (IGAs). First, there are 51 jurisdictions that have agreed to implement the CRS on 1 January 2016 with another 44 at a later date. Second, exemptions from reporting have materially been removed except for pre-existing accounts.  As a result, Jersey service provider’s processes will need to be updated in respect of the CRS.

A first draft of the JFSC’s guidance notes in relation to the CRS is available here.

4.2  EU Parliament seeks legislative outcomes from Final Report of the Special Committee on Tax Rulings (TAXE)

The European Parliament approved the Final Report of TAXE on 25 November 2015. The Final Report urges EU member states to agree on mandatory country-by-country reporting of profits and taxes, a common consolidated corporate tax base, common definitions for tax terms and greater transparency and accountability with regard to ‘national tax rulings.’

TAXE also re-states recommendations in respect of ‘third countries’ including calling for a common EU approach to (and definition of) ‘tax havens’ and requesting that the European Commission ‘include in the European black list those territories that grant fiscal advantages to entities without requiring substantial economic activity in the country, provide significantly low effective taxation and do not guarantee automatic exchange of information with other jurisdictions.’ Jersey’s focus as a jurisdiction that builds genuine substance should put Jersey in a good position to remain off any such black lists. 

4.3  Joint Ministerial Council 2015 – Communiqué

A Communiqué was issued by the Joint Ministerial Council following the conclusion of the annual meeting of the political leaders and representatives of the UK and the Overseas Territories on 3 December 2015. 

It was noted that the Overseas Territories were responsible for their own tax rates and generating the revenue necessary for the provision of essential public services. The Joint Ministerial Council stated that it was not appropriate to refer to the British Territories as 'tax havens'.

All Overseas Territories with financial services confirmed their full commitment to international co-operation in tax matters.  They also committed to the fight against money laundering, tax evasion, illicit finances and corruption. 

5  UK Tax

5.1  New offence in relation to tax evasion

HMRC recently announced its intention to introduce a new criminal offence of 'failing to prevent the facilitation of tax evasion'. It is proposed that this will be a strict liability offence, which will hold commercial organisations to account if they fail to take reasonable steps to prevent their agents/employees from facilitating tax evasion during the course of business.

An Ogier briefing will follow in relation to this. In the meantime, if you have any questions, please contact Nicholas Williams or Leon Hurd.

5.2  Guidance on the Diverted Profits Tax

HMRC published revised Guidance on the Diverted Profits Tax on 30 November 2015. This replaced the interim guidance published in March 2015. The revised Guidance largely expands the published guidance, rather than providing any substantive changes.

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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