Jersey: Channel Islands Funds Quarterly Legal And Regulatory Update Q2 2018: 1 April - 30 June 2018

Last Updated: 12 July 2018
Article by Niamh Lalor, Craig Cordle, Sophie Reguengo and Gabrielle Saul

Most Read Contributor in Jersey, August 2018

1 JERSEY DEVELOPMENTS

1.1 Enhancements to Jersey's Investment Business Regime

On 11 June 2018, the JFSC published Consultation No. 4 2018: Enhancements to Investment Business Regime. The Consultation considers amendments to the Investment Business regime to incorporate changes in regulation at an EU and international level. The Consultation closes on 3 September 2018. A track-change version of the Investment Business Code and a response template have also been published.

The JFSC considers all of the changes to be regulatory enhancements/clarifications to ensure that Jersey's IB regime continues to be aligned with international standards.  A number of proposed enhancements respond to facets of MiFID II but only where relevant and proportionate to the Jersey industry.

The JFSC is considering whether or not Investment Business under the Financial Services (Jersey) Law 1998 (the FSJL) should be extended to include the activity of "arranging deals in investments" as a separate class of IB. This would mean that arranging deals in Investments (as defined in the FSJL) would be regulated as financial service business.

Ogier will prepare a written response to the consultation and we welcome feedback from our clients to ensure appropriate industry representation.

1.2 Limited Liability Companies arrive in Jersey

On 21 May 2018, the Draft Limited Liability Companies (Jersey) Law 201- was lodged au Greffe by the Chief Minister. The new law will introduce Limited Liability Companies (LLCs) in Jersey. Art. 60 gives the States the power by Regulations to make such provisions as the States thinks fit for the purposes of carrying this Law into effect, such as mergers and demergers of limited liability companies and the winding up and dissolution of solvent and insolvent limited liability companies. The Draft Law is scheduled for debate on 10 July 2018. Regulations relating to LLCs are expected to follow in 2019.

Jersey's Government believes that having the Jersey LLC regime align more closely with US law caters to a growing client base in the US. North American assets and funds administered in Jersey in 2016 totalled approximately £169 billion. The Jersey Finance "Value to Britain" research paper dated October 2016 reported that in 2014 Jersey administered approximately £93 billion of North American-sourced corporate or institutional assets and £76bn from North American funds, representing a 15% market share (by comparison non-UK Europe represented 20%). Those figures were estimated in 2012 to be £26bn and £46bn respectively and are expected to have increased since (they also pre-date wider developments in cryptocurrency).

At Ogier we are delighted with the introduction of the LLC.  It is a familiar product and is used very often by US fund managers in their structures as they offer the flexibility of a company and a partnership combined in one vehicle. 

1.3 Jersey Limited Liability Partnerships get a make-over

On 21 May 2018, the draft Limited Liability Partnerships Jersey Law 2017 was lodged au Greffe by the Chief Minister. This brings the new LLP Law into force in its entirety on 1 August 2018, replacing the old framework for LLPs set out in the LLP (Jersey) Law 1997. Also on 21 May 2018, draft regulations were also lodged and these provide for transitional arrangements to the new LLP law for all LLPs that exist under the old framework so that any LLP established under the old framework will continue under the new LLP law as if they had been registered and granted a certificate under the new law. The debate is scheduled for 10 July 2018.

The changes will make the Jersey LLP more competitive as provisions relating to solvency and insolvency and their general function have been simplified and improved.  We often see the need for LLPs in the ownership structure of fund vehicles, so by adopting these changes and making Jersey LLPs easier, it will make them more attractive to industry.

1.4 Digital Jersey signs MoU with Binance

On 11 June 2018, Digital Jersey entered into a Memorandum of Understanding (MoU) with Binance, the world's largest cryptocurrency exchange. Under the MoU, Binance will develop a compliance base and cryptocurrency exchange in Jersey.  Digital Jersey will collaborate with Binance to deliver training and other initiatives to support the growing blockchain ecosystem in Jersey. A press release is available.

1.6 Brexit and Jersey

The Jersey Chief Minister published a statement on Brexit which marks one year before the UK formally leaves the European Union and sets out Jersey's aims for its relationship with the UK and the EU in the future. Jersey aims to maintain the Common Travel Area, Common Customs Territory and freedom of movement of capital with the UK, as well as maintaining access to goods markets, EU financial services markets and securing the same deal as the UK on the movement of British nationals in the EU.

2 GUERNSEY DEVELOPMENTS

2.1 First Quarter Investment Statistics 2018

The Guernsey Financial Services Commission (the GFSC) has published its investment statistics for the first quarter of 2018. 

The latest figures show that whilst the net asset value of funds business in Guernsey declined by 2.9% (£8 billion) during the quarter, the total assets under management and administration in Guernsey have grown by £40 billion over the past three years. Total assets under management and administration in Guernsey now stand at £262.5 billion.

The GFSC has seen an increase in applications for new funds, with a year-on-year rise to more than 110 applications over the past six months.  During the first quarter of 2018, the GFSC approved 16 new investment funds; 10 closed-ended, 2 open-ended and 4 non-Guernsey schemes.

2.2 Managing Money Laundering and Terrorist Financing Risks

During 2017, the GFSC undertook a thematic review on financial crime governance, risk and compliance frameworks of a selection of smaller firms within the trust and corporate service provider sector. 

The GFSC concluded that the majority of firms understood the importance of governance, risk and compliance, which is essential in the mitigation of financial crime.  However, it was identified that there were deficiencies in the compliance monitoring programmes in a minority of firms, which warranted the imposition of risk mitigation programmes by the GFSC. The GFSC's report, published in May, sets out in detail both good practice and areas with scope for improvement.

2.3 GFSC's 2017 Annual Report

The GFSC has recently published its 2017 annual report and financial statements

Amongst the key themes explored in the report was the GFSC's Guernsey Green Fund initiative which is discussed in more detail below.  In addition to the Guernsey Green Fund, the GFSC also announced its intention to work with the global insurance industry on an initiative which aims to make it easier for insurance companies to invest in long-term green assets.  It is hoped that by widening the pool of purchasers for green investments this, in turn, will make it easier for insurance companies to offer sustainable long-term returns to policyholders.

In terms of the GFSC's financial position as at the end of 2017, the GFSC has moved from a negative asset position at the end of 2016 (approximately £2.3 million) to a surplus of £579,000.

2.4 GFSC Contributes to the Mutual Recognition Dialogue at the IOSCO European Regional Committee

At a meeting of the International Organisation of Securities Commission, representatives of the GFSC supported an assessment of the potential for developing a template or multilateral instrument to help the ongoing evolution of mutual recognition regimes within the fund industry.

The GFSC's contribution to the debate was welcomed and had been invited to present its views in more detail at the next meeting of the European Regional Committee in Luxembourg, in October.

GFSC Contributes to the Mutual Recognition Dialogue at the IOSCO European Regional Committee

At a meeting of the International Organisation of Securities Commission, representatives of the GFSC supported an assessment of the potential for developing a template or multilateral instrument to help the ongoing evolution of mutual recognition regimes within the fund industry.

The GFSC's contribution to the debate was welcomed and had been invited to present its views in more detail

2.5 Long-Term Green Investments

The GFSC is seeking to work with the global insurance industry to ensure that long-term green investments can be effectively taken on as assets to meet long-term life insurance liabilities.

The initiative seeks to fulfil two aims; the first is to make it easier for insurance companies to access long-term investments that will make it easier for insurance companies to offer sustainable long-term returns to policyholders; the second is to widen the pool of purchasers for green investments and therefore protecting the global environment.

The GFSC is actively considering how it might be able to amend its approach to regulatory life insurance solvency requirements in order to facilitate green investments.

2.6 Draft Outsourcing Guidance Note for Licensed Insurers

A draft guidance note in respect of outsourcing for insurers licensed under the Insurance Business (Bailiwick of Guernsey) Law, 2002 (as amended) (the Insurance Business Law) has been published. 

The guidance has been published to clarify the requirements of licensees under the Insurance Business Law and to outline the manner in which licensees are expected to act in relation to outsourcing and is in line with international standards in insurance regulations, as set by the International Association of Insurance Supervisors in the Insurance Core Principles.  The issuance of such guidance is not expected to impact licensees, as the guidance is for clarification purposes only.

2.7 Insurance Manager and Intermediary Approved Asset Consultation Paper

A consultation has recently been published making proposals in respect of regulations applicable to insurance managers and intermediaries licensed under the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002.

The GFSC is proposing to revise the Insurance Mangers and Insurance Intermediaries (Approved Assets) Regulations, 2002.  The key aim of this revision is to remove the current gap in the existing prudential rules for licensees, which has the effect at present of weakening the quality of regulatory capital available to licensees.

2.8 Consultation Opens on Guernsey Green Fund

Guernsey is set to launch the world's first regulated green investment product.

The GFSC has published a consultation paper setting our draft green fund rules which will enable fund managers to apply for a green label for their funds if they can demonstrate compliance with defined green rules.  Such green rules will be open to all types of new and existing funds, with different levels of certification available.

The move to more environmentally friendly financial products is part of the GFSC's strategy to be the leading jurisdiction for green investments.

2.9 GFSC signs MoU with Bank of England

The GFSC has signed a Memorandum of Understanding (MoU) with the Bank of England.

The new agreement reaffirms the long-held relationship between the GFSC and the Prudential Regulation Authority (PRA) (being the body through which Bank of England prudentially regulates and supervises financial services firms), allowing both parties to share confidential information about regulated entities and formally co-operate on other supervision activities.

CHANNEL ISLAND DEVELOPMENTS

3 GDPR in Jersey and Guernsey

The Data Protection (Jersey) Law 2018 (which replaces the current Data Protection (Jersey) Law 2005) and Data Protection (Authority) Jersey Law 2018 came into effect on 25 May 2018. The new Laws will bring Jersey legislation in line with the EU General Data Protection Regulation. On 25 May 2018, the JFSC and the Office of the Information Commissioner published a joint statement on the Data Protection (Jersey) Law 2018. Some financial services firms which are regulated by the JFSC have queried their ability to comply with both the DP Law and the requirements of the JFSC, however it is not considered that the DP Law imposes any requirements which are not compatible with the JFSC's regulatory requirements. 

The Data Protection (Bailiwick of Guernsey) Law, 2017 (which replaced the Data Protection (Bailiwick of Guernsey) Law, 2001) also came into effect on 25 May 2018, bringing Guernsey in line with the GDPR.

Read our briefing here.

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