Jersey
Answer ... Virtual currencies: Jersey’s principal anti money laundering law, the Proceeds of Crime (Jersey) Law 1999 (POC(J)L), defines ‘virtual currency’ as:
any currency which (whilst not itself being issued by, or legal tender in, any jurisdiction) –
(a) digitally represents value;
(b) is a unit of account;
(c) functions as a medium of exchange; and
(d) is capable of being digitally exchanged for money in any form.
For the avoidance of doubt, virtual currency does not include any instrument which represents or stores (whether digitally or otherwise) value that can be used only to acquire goods and services in or on the premises of, or under a commercial agreement with, the issuer of the instrument.
Any person that provides to third parties the business of a ‘virtual currency exchange’ (ie, the exchange of virtual currency for money or vice versa) must register with the Jersey Financial Services Commission (JFSC) under the POC(J)L and will be subject to Jersey’s anti-money laundering regime.
The Initial Coin Offering (ICO) Guidance Note published by the JFSC sets out various categories of tokens (of which a cryptocurrency is one such type) as follows.
Security token: This will typically have characteristics that are usually associated with an equity or debt security in the traditional capital markets sense, including one or more of the following such characteristics (whether contractual or implied):
- a right to participate in the profits/earnings of the ICO issuer or a related entity;
- a claim on the issuer or a related party’s assets;
- a general commitment from the ICO issuer to redeem tokens in the future;
- a right to participate in the operation or management of the ICO issuer or a related party; and
- the expectation of a return on the amount paid for the tokens.
A utility token (see below) will not be regarded a ‘security’ solely by reason of being traded on a secondary market (eg, via a cryptocurrency exchange).
Non-security token: A token which is deemed not to be a ‘security’ will typically be either:
- a utility token, which confers on the holder merely a usage right or the right to access a product or service. Such a token has no economic rights attached to it, there is no expectation of a return; or
- a cryptocurrency token, which is designed to behave like a currency, being a store of value and medium of exchange and referred to in some jurisdictions as a payment token.
See question 3.6 for more information on the regulatory treatment of ICOs.
Jersey
Answer ... Any person that provides to third parties the business of a ‘virtual currency exchange’ (ie, the exchange of virtual currency for money or vice versa) must register with the JFSC under the POC(J)L and will be subject to Jersey’s anti-money laundering regime.
The anti-money laundering requirements relating to an ICO/token issuance are stated in question 3.6.
Jersey
Answer ... In relation to a token issued by a Jersey issuer, the JFSC’s ICO Guidance Note requires the Jersey issuer to have procedures and processes in place to:
- mitigate and manage the risk of retail investors investing inappropriately in the ICO; and
- ensure that retail investors understand the risks involved.
This is usually achieved by bolstering risk warnings in the white paper which purchasers must specifically acknowledge (usually by checking a box on the token portal) prior to purchase.
More generally, in the past, the JFSC has published announcements warning the general public about the risks of investing in cryptocurrencies.
Jersey
Answer ... The Jersey tax authorities have not issued any formal statement in relation to the taxation of cryptocurrencies. However, Jersey has a zero rate of corporate income tax and a personal rate of income tax of 20%. There are no capital taxes in Jersey.
Jersey
Answer ... An exchange which facilitates the exchange of fiat money for (non-security tokens) cryptocurrencies must register with the JFSC as a virtual currency exchange (see question 3.2).
Any person or exchange that facilitates the exchange by third parties of fiat money for security tokens will need to obtain an ‘investment business’ licence from the JFSC under Jersey’s financial services legislation, the Financial Services (Jersey) Law 1998, and will be subject to the full regulatory regime.
Jersey
Answer ... The JFSC’s basic position regarding token launches is that it welcomes properly thought-out token launches with a good governance structure. Its two principal concerns are consumer protection and anti-money laundering/combating the financing of terrorism.
To address these issues, the JFSC imposes a set of conditions on a Jersey company that issues a utility token or security token, which are summarised below and can be found in the JFSC’s ICO Guidance Note. The conditions are imposed on the consent issued to the Jersey issuer (so-called ‘COBO consent’) under the (oddly named) Control of Borrowing (Jersey) Order 1958 – the island’s principal regulation controlling the raising of capital by Jersey entities.
The JFSC does not like tokens or Jersey companies which issue the tokens to be described as ‘regulated’. However, some language may be included in any marketing material (as set out in Appendix 1 of the ICO Guidance Note) to give potential token purchasers the comfort that a Jersey issuer has been scrutinised by the JFSC (and which might not be available in other jurisdictions.)
In addition to obtaining COBO consent from the JFSC, the other major item on the critical path is for the Jersey issuer to appoint a Jersey-regulated administrator to provide certain services. In essence, if things go wrong with the token issuance, the JFSC will go after the administrator.
The conditions imposed on a Jersey issuer by the JFSC are as follows:
- to appoint and maintain a Jersey resident director on the board of the Jersey issuer;
- to appoint a Jersey-regulated administrator to act as administrator to the Jersey issuer;
- not to change either the Jersey issuer’s administrator or the Jersey resident director without the JFSC’s prior approval;
- to prepare and file annual audited accounts with the Jersey Companies Registry irrespective of whether the Jersey issuer is a public or private company;
- to maintain and adopt systems, controls, policies and procedures for the customer take-on, profiling and transaction monitoring at enhanced levels, ensuring reporting of suspicions and money-laundering and financing of terrorism activities (this obligation effectively falls on the Jersey licensed administrator);
- to prepare and issue an information memorandum which complies with certain content requirements required of a prospectus issued by a company under the Jersey Companies Law;
- to include in any marketing material (including the information memorandum) clear consumer warnings highlighting that the token is unregulated; and
- if and to the extent that any crypto-to-fiat exchange (or vice versa) takes place in Jersey, to require the Jersey issuer to register as a virtual currency exchange pursuant to the POC(J)L (see question 3.1), which imposes certain additional anti-money laundering obligations on the exchange.