Jersey: Funds Quarterly Legal And Regulatory Update - 1 April 2017 To 30 June 2017

1. JERSEY DEVELOPMENTS

1.1 Consultation on impact of Brexit on businesses

In June 2017, the Government of Jersey published a survey inviting local businesses from all industries to provide their views on Brexit and the potential impact it might have on them. The responses will assist the government in understanding the issues that will have the greatest impact on the economy, helping inform the development of future policy and feed into the Brexit negotiations. The survey, which is anonymous and can be found by following this link, will be available until 28 July 2017 and we would encourage readers to complete it as it will provide the Government with valuable input to ensure the best outcome for Jersey.  

1.2 Jersey signs OECD Multilateral Convention on BEPS

In June 2017, Jersey signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI), and is among 76 jurisdictions that have either signed or formally expressed their intention to sign the MLI. The MLI will amend bilateral tax agreements to take into account recommendations of the BEPS Project.

Jersey became a BEPS Associate and Member of the BEPS Inclusive Framework at its inaugural meeting on 16 June 2016. Recent guidance published by the OECD in relation to BEPS restates the importance of the actual conduct of parties to a transfer pricing arrangement and the substance of the relationship, rather than the mere contractual and legal arrangements in place.

Although BEPS's impact remains uncertain, we are hopeful that it will bring opportunities to Jersey, for example, by driving more asset management "substance" to Jersey. We are following any developments closely, which will be covered in our next update.

1.3 New 'Think GDPR' website

In May 2017, the Office of the Information Commissioner launched a website designed to provide Jersey businesses with advice and guidance on the General Data Protection Regulation (GDPR), which comes into force across the EU on 25 May 2018.

It is very likely that Jersey firms will be affected by GDPR. Firstly, local companies selling goods or services to EU citizens will be required to comply with the GDPR, regardless of what regulatory or legislative regime is in place in Jersey. As we discussed in our last update, in February 2017 the Assistant Chief Minister approved instructions to law draftsmen to repeal the Data Protection (Jersey) Law 2005 and to prepare new legislation to replace it, which we expect will incorporate the GDPR into local law. It will require data controllers to review their existing policies and documentation to ensure that they are equipped to meet the new standards and we would encourage organisations to review the changes at an early stage.

1.4 Regulatory fees

In June 2017, the JFSC published its Feedback Paper to Consultation No.2 2017 on proposals to change FSB, AIF, AIFSB, CIF, COBO and QSMA fee rates. Accordingly, the JFSC has amended such fee rates in line with the levels consulted on, which have applied since 1 July 2017. The new fees can be found here.

1.5 Jersey Financial Crime priorities

In May 2017, the Jersey Financial Crime Strategy Group (JFCSG) announced that among its priorities for 2017-2019 are the consideration of policy and legislative changes for fighting financial crime in Jersey. The MONEYVAL report recommended that Jersey authorities consider enhancing the resourcing of financial crime, with a view to increasing the number of money laundering investigations and prosecutions in Jersey. As a result, the Council of Ministers approved an increase in budget for such matters and changes will include additional staff and the establishment of a new Economic Crime and Confiscation Unit, which will provide specialist complex case investigative capability within the Attorney-General's Department.

1.6 JFSC Beneficial Ownership and Control Policy

We mentioned in our last update that from 1 January 2017 the Registry replaced COBO consents for all legal entities with a new form of COBO consent containing additional notification requirements in respect of beneficial ownership and control. As of 1 July 2017, new COBO consents have changed slightly, as explained in a policy statement issued by the JFSC (the Policy).

In relation to funds, the Policy explains that certified or recognized CIFs structured as Jersey companies or limited partnerships are likely to soon be required to comply with similar reporting requirements to those prescribed under COBO consents. It would therefore be prudent for funds or administrators to begin collecting information concerning owners and controllers of such CIFs in anticipation of the changes.

The Policy also provides more restrictive guidance in relation to COBO consents issued between 1 January 2017 and 30 June 2017, confirming that beneficial ownership notification may only be relaxed in respect of public authorities or listed companies identified with simplified identification measures. Otherwise, ownership and control information should be notified on the basis of the general threshold of 25%.

If you have any queries in relation to the Policy please do not hesitate to get in touch.

2. GLOBAL DEVELOPMENTS

2.1 ESMA Opinion on EU Supervisory Convergence

In the context of the UK's withdrawal from the EU, the European Securities and Markets Authority (ESMA) has issued an opinion (the Opinion) setting out its expectation for national regulators to apply significant substance requirements when assessing applications from "third country" regulated entities hoping to establish an EU presence. The Opinion can be found here.

ESMA says that the Opinion should be seen as a practical tool addressing the risks of regulatory and supervisory arbitrage that may arise in the context of a large volume of applications by firms seeking to relocate to the EU. In particular, the Opinion will be of interest to UK regulated businesses when undertaking contingency planning in advance of Brexit and such businesses should be aware of the challenges it poses if, for example, they are intending to rely on outsourcing to mitigate the impact of Brexit.

The Opinion contains nine general principles that, although they largely restate the current rules applying to national competent authorities (NCAs), are strongly worded in their support for strict supervisory convergence. For example, ESMA expects each NCA to scrutinise applications where it appears that an entity intends to pursue the greater part of its activities in other member states from the member state of authorisation.

We will be keeping a close eye on developments in this area, especially given that ESMA intends to develop further sector specific guidance in respect of asset managers, investment firms and secondary markets.

2.2 FATF FinTech and RegTech Forum 2017 

In May 2017, the Financial Action Task Force (FATF) held a FinTech and RegTech Forum in San Jose, United States attended by over 150 representatives from the FinTech and RegTech sectors, financial institutions and FATF members and observers. The forum discussed trends in FinTech and RegTech, and how the financial services landscape could look in the near future, including peer-to-peer transfers, crowdfunding, distributed ledger-technology or blockchain-based services, analytical tools, KYC utilities, and digital identity.

FinTech innovation could also improve the access and delivery of financial services. The forum explored how technology-based innovations have the potential to be utilised to better fight money laundering and terrorist financing. For example, big data, artificial intelligence, and machine learning could improve the detection of suspicious activities, potential illegal activity and criminal networks.

A key challenge in the area of FinTech and RegTech is to strike the right balance between supporting innovation and managing any money laundering and terrorist financing risks that arise, for example in the context of crowd funding, virtual currency transactions, initial coin offerings (or ICOs) among others. Jersey is at the forefront of FinTech and RegTech both in the area of innovation in combatting money laundering and terrorist financing, and also in establishing a "regulatory sandbox" for virtual currency exchanges, as discussed in our briefing.

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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