The Jersey Financial Services Commission (JFSC) has announced its commitment to supporting the financial services industry in the design of a shared 'know your customer' (KYC) tool.
The report, 'Exploring smart regulation: An assessment of the options for developing a shared KYC utility for the Jersey financial services sector', includes the main findings of a JFSC working group set up in 2019. The working group, which included financial services industry representatives, concluded that there was scope for a shared KYC platform in Jersey for verifying customers' identity.
The intention is for there to be a shared tool, designed for industry, for verifying customers' identity. This could in theory result in reduced costs and increased efficiency when taking on new clients, whilst introducing an enhanced degree of assurance for the JFSC as to the quality of these processes.
The JFSC has announced its intention to engage in the design of a Jersey-based KYC utility together with a broad base of financial services businesses to create a tool that conforms to global standards and expectations and which reinforces Jersey's reputation as a jurisdiction determined to fight financial crime.
The main findings from the working group are:
- there appears to be scope for a shared KYC utility based in Jersey which will underpin effective island-wide combatting of financial crime, while helping the sector to control costs, provided the utility is designed to meet the complex global client base of Jersey's international financial sector;
- a successful utility will need a strong financial, governance and resource commitment from a core group in the finance sector. This group should preferably cover multiple sectors, for example a bank, a major trust company and a major funds services provider;
- the opportunity for such a core group to form and be successful is optimised if the JFSC commits up front to participate in the design of the utility; and
- a period of reflection before the Government of Jersey initiates a further forum or bilateral discussion would be helpful. This will allow the rapid changes in technology to be assessed by the financial sector and for businesses to conduct informal discussions.
1.2 Digital Registry as of 1 December and the introduction of the Financial Services (Disclosure and Provision of Information) (Jersey) Law 202-
The Financial Services (Disclosure and Provision of Information) (Jersey) Law 202- (the DPI Law) was adopted by the Government of Jersey in July this year and is due to come into force on 1 December and brings new regulations in relation to beneficial ownership and controlling interests requirements.
The DPI law, which was adopted following a public consultation, aims to implement in Jersey the requirements set out by the Financial Actions Task Force (FATF) (the inter-governmental body that sets standards for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system). The law follows a recently updated FATF recommendation which emphasised the need for member governments to have clearer transparency requirements and to take a more rigorous approach to fighting corruption, including financial corruption.
In summary, the DPI Law includes:
- a requirement for the basic regulating powers (i.e. foundation documents) of all entities to be filed with the JFSC and made publicly available;
- the introduction of the enabling provisions to introduce a public register of officers;
- the timely updating of information held by the JFSC;
- a requirement that information be provided by a natural personal resident in Jersey or by a Jersey regulated trust and company service provider;
- the prevention of misuse of bearer shares; and
- controls on nominee shareholders and directors.
Further clarity is expected when the JFSC publishes its guidance notes on the application of the DPI Law. Read our full briefing on the DPI Law here: Financial Services (Disclosure and Provision of Information) (Jersey) Law 202-
To coincide with the introduction of the DPI Law, the JFSC will also be launching its new digital registry to make the service more accessible, efficient, and easier for its customers to manage their own information while enhancing the JFSC's capabilities in countering financial crime.
For more information about the digital Registry go to the JFSC website: New digital Registry
1.3 Consultation on regulations under the Limited Liability Companies (Jersey) Law 2018 (the LLC Law)
As reported in our previous briefing (Channel Islands Funds Quarterly Update: Q2 2020), we are anticipating that limited liability companies will be available for use in Jersey by the end of the year.
Work to ensure that an appropriate framework of regulations is introduced to support the establishment in Jersey of limited liability companies has been ongoing since the adoption of the LLC Law. As a result of that work, the Government of Jersey had sought views on three sets of draft regulations. The consultation on regulations under the LLC Law closed shortly after the end of the third quarter and Ogier was involved in responding to that consultation on behalf of the funds industry.
Jersey Finance has now published its response to the consultation, which highlights the findings of its working group and feedback from members.
The Jersey Finance response to the Government of Jersey consultation is available to members on its website.
As also reported in our previous briefing (Channel Islands Funds Quarterly Update: Q2 2020) the JFSC has issued a consultation on proposals to enhance disclosure and governance requirements for investment funds committing to sustainable investments.
The consultation period has now closed and Jersey Finance received seven responses, which have been shared with the JFSC. A feedback paper will be issued by the JFSC in due course.
Read our briefing here on ESG and the consultation: JFSC consults on environmental sustainable and socially responsible investing for funds
The Taxation (Implementation) (International Tax Compliance) (Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures) (Jersey) Regulations 2020 were adopted in September but have yet to come into force.
We anticipate that this legislation will come into force by the end of the year and industry will need to make changes to their systems in order to be ready for the new reporting obligation, which will require Jersey promoters and service providers to provide the Comptroller of Revenue with information on avoidance arrangements and opaque offshore structures.
As previously reported, the intention is that the Comptroller of Revenue will publish supplementary guidance to assist industry in making the important "reasonable to conclude" decision when considering whether or not to report specific arrangements or structures.
We will continue to watch this space for further developments.
Further to updated guidance from the JFSC, supervisory examination, including meetings and interviews with stakeholders, will continue remotely for the remainder of 2020. The JFSC will review this position before year end and provide an update with regards to planned activity for 2021. Please find link to the updated guidance published on 1 October here: Updated guidance for examinations
The following JFSC webinars took place in August and are available to watch here:
Reliance and its importance and the main findings from the reliance thematic examination with Hamish Armstrong and Amanda Reilly, link here: Reliance update and webinar recording
How to make online outsourcing notifications with Sarah Kittleson and Kate Primrose, link here: Outsourcing notifications
The net asset value of regulated funds under administration in Jersey stood at £361.7bn as at the end of Q2 2020, with strong performances in private equity (£149.1bn) and hedge (£55bn). The figure of £361.743bn is up by nearly £20bn from £342,076bn as at 30 June 2019.
Currently, figures for the increasingly popular Jersey Private Fund are not included, meaning the actual net asset value figure is much higher.
Following on from the introductions of exit interviews for individuals who held the position of Money Laundering Reporting Officer (MLRO) and/or Money Laundering Compliance Officer (MLCO) within a bank or fiduciary firm (please see here for further information - Channel Islands Funds Quarterly Update: Q1 2020), the Guernsey Financial Services Commission (the GFSC) has decided to extend the pilot initiative until the end of December 2020.
The total net asset value of Guernsey funds has increased in the last quarter by £5.5 billion to £233.2 billion, which represents an increase of £16.4 billion over the year since 30 June 2019.
Guernsey domiciled open-ended funds experienced an increase of £2.2 billion over the year since 30 June 2019. Also Guernsey domiciled close-ended funds experienced a quarterly increase of £7.1 billion, which represents an annual increase of £14.2 billion.
Within the totals for Guernsey funds, Guernsey Green Funds held a total net asset value of £3.3 billion at the end of the quarter and non-Guernsey open-ended schemes, for which some aspect of management, administration or custody is carried out in the Bailiwick of Guernsey, had a net asset value of £339 billion at the end of the first quarter.
On 4 August 2020, the GFSC launched a consultation paper on proposals for increasing the licence fees paid by firms.
The proposals are for an increase of 2.1% across all sectors, based upon Guernsey's RPI, together with the introduction of a £500 fee for fast track applications.
The GFSC has not raised its fees for the past two years and has sought to absorb its increased costs during such period from its reserves.
With regards to fast track applications, the GFSC applies the same level of regulatory scrutiny to all applications but over a shorter timeframe, but for no additional fee. The GFSC is therefore of the view that those who wish to have their application 'fast tracked' should be prepared to pay an additional fee in recognition of the special treatment at the expense of all other applications.
The consultation period closed on 15 September 2020.
At the beginning of July 2020, the GFSC published a discussion paper making proposals aimed at ensuring that the Guernsey funds framework remains fit for purpose including: broadening the options available for certain categories of fund formation; introducing efficiencies in the current framework; and seeking to clarify current areas of uncertainty. It is envisaged that these changes will ensure that investors and the reputation of the Bailiwick of Guernsey continue to be protected while also helping to create opportunities for further growth.
The discussion paper proposes, amongst other things, widening the formation options for private investment funds.
The closing date for respondents to submit their comments was 2 September 2020.
On 20 August 2020 the GFSC issued two discussion papers on proposals concerning rules to be made following the States of Deliberation's approval of the Regulation of Fiduciaries, Administration Businesses and Company Directors etc (Bailiwick of Guernsey) Law, 2020 (the New Fiduciary Law) and the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (the New POI Law).
The first discussion paper proposes making rules and guidance under the New POI Law for the notification to the GFSC of certain activity which is ancillary to controlled investments business, which currently requires the granting of a discretionary exemption under the Fiduciary regime. The New Fiduciaries Law introduces a new statutory exemption from licensing for such activity where this has been notified to the GFSC under the POI regime. The proposal will introduce a more streamlined approach with consideration of this investment-related activity under the more appropriate umbrella of the POI regime.
The second discussion paper provides for the making of rules around the re-categorisation of fiduciary licensees as primary and secondary licensees. This formalises an existing approach under the current regime where joint licensees are set up to support a lead licensee.
The closing date for respondents to submit their comments was 5 October 2020.
The Revenue Service in Guernsey has extended the deadline for 2019 income tax returns from 30 November 2020 to 28 February 2021, in recognition of the impact and disruption the COVID-19 pandemic will have caused for residents and businesses in the Bailiwick of Guernsey.
While the 2019 tax return deadline has been extended, individuals and businesses need to be aware that those who fail to provide their returns by the new deadline will face penalties. Furthermore, 2020 returns will not be made available until later than normal and a new date will be announced before the end of the year.
From January 2021 all businesses (including sole traders) in the Bailiwick of Guernsey who are dealing with personal data in any way are legally required to register with the Office of the Data Protection Authority in Guernsey (ODPA), and pay an annual fee.
The annual fee will be determined on how many full-time equivalent employees a business has:
£2,000 per year for organisations with 50 or more full-time equivalent employees; or
£50 per year for all other organisations.
Should you need assistance registering with the ODPA or have questions on how Guernsey's data protection regime may be applicable to you, find out more here: GDPR - get data protection ready.
The States of Guernsey has recently approved The Income Tax (Substance Requirements) (Implementation) (Amendment) Regulations, 2020 (the 2020 Amendment Regulations) which confirm that:
- Guernsey registered and authorised collective investment schemes are not subject to the Guernsey Substance Regulations, except where they constitute a 'self-managed collective investment scheme' as defined in the 2020 Amendment Regulations; and
- as flagged in the guidance notes published in November 2019, if a fund constitutes a self-managed collective investment scheme, that fund will be deemed to carry on the restricted activity of fund management and will be deemed to have income arising from such activity. As such, a self-managed fund will fall into the scope of the Guernsey Substance Regulations and will be required to demonstrate its nexus to Guernsey as if it were a fund manager licensed in Guernsey under the Substance Regulations.
For these purposes, a self-managed collective investment scheme is defined as:
- a company;
- which is a registered or authorised collective investment scheme; and
- has no other person or body conducting 'fund management' in respect of it.
The 2020 Amendment Regulations came into force on 1 October 2020.
For further information, please refer to our briefing: Bulletin on the 2020 Guernsey Substance Amendment Regulations
It is anticipated that Jersey will also follow suit and adopt changes to its economic substance law to bring self-managed funds (i.e. corporate funds which do not appoint an external manager but which are managed internally by their board of directors) within the scope of the economic substance rules, with such changes expected by the end of 2020.
Various international supervisory bodies have reaffirmed over the past few months the planned timelines for transition away from LIBOR to alternative reference rates, such as SONIA (Sterling Overnight Index Average) or SOFR (Secured Overnight Financing Rate). Firms should therefore continue to assume that they will be unable to rely on LIBOR being published beyond the end of 2021 and should make provisions for transition to alternative rates in advance.
Guernsey and Jersey regulated firms should consider if and how they will be affected by the transition away from LIBOR and what actions they should be taking in order to mitigate these risks.
The States of Guernsey has adopted regulations permitting foreign limited partnerships to migrate or continue into Guernsey using the statutory migration process set out in the Limited Partnerships (Guernsey) (Migration) Regulations 2020. In conjunction with the fast track process for the licensing of managers (further information can be found here: Channel Islands Funds Quarterly Update: Q2 2020), Guernsey now provides an expedient and streamlined process for migrating fund structures into the jurisdiction.
For further information, please refer to our briefing: Migration of foreign limited partnerships into Guernsey
By way of reminder, the States of Jersey adopted regulations permitting foreign limited partnerships to migrate (continue) into Jersey using the statutory migration process set out in the Limited Partnerships (Continuance) (Jersey) Regulations 2020, which came into force on 17 July 2020. To read the Jersey briefing on migration of foreign partnerships, please click here: Migration of foreign limited partnerships into Jersey
In a recent Court of Justice of the European Union (CJEU) judgment, the EU-US agreement for data transfers, known as the Privacy Shield, has been struck down. This decision will affect all businesses who transfer personal data outside of the Channel Islands and the European Union (EU).
The ODPA has warned companies in the Bailiwick of Guernsey to be aware of the judgement and to ensure that they have proper safeguards around any data transfers they make that rely on the Privacy Shield. Affected companies will now have to sign EU Standard Contractual Clauses (SCCs), a set of terms and conditions organisations use to protect personal data transferred outside the European Economic Area. SCCs are already used by some companies, such as Microsoft, who have issued a statement saying that due to the use of SCCs they are unaffected by this judgment. However, as a result of this judgment, SCCs will be much more closely scrutinised.
Originally published by Ogier, October 2020
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