1. Pan-Channel Island developments
1.1. UK Register of Overseas Entities now in force
The UK's Register of Overseas Entities took effect on 1 August 2022.
Certain overseas entities owning UK property (including legal persons established in Jersey or Guernsey, or the trustees of Jersey or Guernsey law trusts, such as property unit trusts) will need to register with Companies House and provide information on beneficial owners, i.e. any individual or entity having significant influence or control over the entity. Entities that have made relevant disposals of land since 28 February 2022 must also provide information about their beneficial ownership immediately prior to the disposal.
The register is a requirement of the Economic Crime (Transparency and Enforcement) Act 2022, which is aimed at improving transparency in ownership of UK real estate and allowing for more effective investigation of suspicious wealth.
Entities already holding UK property should be aware that they must file the required information during the six month transitional period, which is open now and runs to the end of January 2023.
The overseas entity and its officers will be responsible for providing information for registration purposes and annual updates or confirmations that no reportable changes will be required.
Failure to comply with the Act's requirements (unless in limited circumstances exemptions apply) is a criminal offence and will affect an entity's ability to deal with UK property.
For more information see our briefing here.
2. Jersey developments
2.1 Feedback and further consultation on 'arranging' in investment business
The Jersey Financial Services Commission (JFSC) has published feedback on its recent consultation regarding proposals to bring the activity of 'arranging' into the scope of 'investment business' under the Financial Services (Jersey) Law 1998.
Under the proposals, making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for or underwrite investments will be a regulated activity (unless an exemption applies). The aim is to enhance regulatory protection for investment activity brought about by an arranger in respect of retail investors. The 'professional investor regulated scheme' exemptions on which many functionaries rely in a private funds context will also apply to the new activity of 'arranging' investments.
The JFSC's feedback and further consultation paper can be found here. The revised proposals attempt to address industry comments, ensuring the scope reflects the policy intention without any unintended consequences. As a result, the regime will be more aligned with the UK's and scope of the 'arranging' activity more clearly limited by exemptions.
It will also be clearer that:
- only retail investors will be in scope;
- the 'arranger' must be remunerated;
- in order to be in scope, any deal brought about must not have been possible without the involvement of the arranger;
- 'arranging' will not include 'introducing only' activity; and
- a person will not be within scope if investment advice is provided by a JFSC-regulated investment business in relation to an arranged deal.
Further feedback on these proposals is sought by 21 October 2022.
2.2 Enhancements to Jersey's limited partnership framework now in force
Amendments to the Limited Partnerships (Jersey) Law 1994, which we reported in our last briefing had been adopted by the States Assembly, came into force on 12 August 2022.
The amendments provide welcome enhancement, modernisation and clarification to the law. Existing limited partnership agreements do not need to be revised to take account of the changes, although GPs may wish to consider whether amendments may be beneficial to take advantage of additional flexibility in the regime.
Our detailed briefing on the changes can be found here.
2.3 Follow-up consultation on AML/CFT scope exemptions
As reported last quarter, Schedule 2 to the Proceeds of Crime (Jersey) Law 1999 has been 'recast' to better align the businesses in scope for AML/CFT obligations with standards set by the Financial Action Task Force (FATF).
In brief, the activities are now framed using FATF's own definitions of financial institutions, virtual asset service providers and designated non-financial businesses and professions, which will enable clearer parallels to be drawn with international standards. In addition, exemptions are only sustainable where there is a proven low AML risk, meaning that various 'blanket' exemptions that had previously applied will no longer do so (though there is potential for exemptions to be reintroduced in specific circumstances, if supported by data on the risks posed).
For instance, general partners, trustees and other functionaries of private fund or non-fund structures will no longer be able to rely on the common 'professional investor regulated scheme' exemption in respect of AML/CFT obligations (though this exemption will continue to apply in respect of regulatory requirements under the Financial Services (Jersey) Law 1998).
As a result, a large number of additional businesses (referred to as 'previously exempt supervised persons' or 'PESPs') will now have direct AML/CFT obligations.
In the context of these PESPs, AML/CFT obligations have generally been conducted by the regulated Jersey administrator. Given this fact, industry and the JFSC are discussing how the role of the administrator can be formalised in order to support PESPs with their new AML/CFT obligations. In broad terms, it is likely that businesses will be able to engage administrators – referred to as 'designated service providers' or 'DSPs' – to perform the AML/CFT function.
The follow-on consultation paper issued on 14 September 2022, which can be found here, seeks feedback on the proposals and other matters concerning implementation of the revised regime.
Businesses should, at this stage, identify whether they are PESPs and, if so, be ready to take action once the proposals are implemented. Regulated administrators of PESPs should also ensure they will be in a position to support their clients with the finalised requirements.
2.4 Update on proposed revisions to JFSC Outsourcing Policy
As mentioned in our last quarterly briefing, the JFSC has consulted industry on its proposals for a revised Outsourcing Policy. Among other changes, the revised policy will set parameters for PESPs (see previous section) looking to outsource their new formal AML/CFT obligations. Ogier contributed to the industry's response on the proposals and will continue to engage with the JFSC to assist with formulating the revised policy.
We will provide further updates on the proposals as they develop.
2.5 Closed consultations
Various JFSC and Government consultations have closed since last quarter. These include:
- The JFSC's consultation on who should be regarded as 'senior managers' of financial institutions and other businesses subject to its extended civil financial penalties regime.
- The Government consultation relating to the Powers of Attorney (Jersey) Law 1995 (which sought feedback from industry on how this law applies in practice to international finance transactions and suggested a series of clarifying and otherwise beneficial amendments).
- A joint consultation between the JFSC and Government concerning how digital technologies might be used to facilitate efficient but robust customer due diligence.
Feedback on the above consultations is expected shortly and we will provide a further update in our next quarterly briefing.
Lastly, following consultation in June 2022 and effective from 1 July 2022, the fees for Alternative Investment Funds, Collective Investment Funds, Jersey Private Funds and Qualifying Segregated Managed Accounts, and fees under the Control of Borrowing (Jersey) Order 1958, have all been increased by 11%. Additionally, the fees for fund services business were increased by 11.1%.
2.6 Key documents published in Jersey's fight against financial crime
The Government of Jersey has published two important documents further advancing the island's efforts to fight financial crime.
The first is a national strategy, covering the next five years, to identify and deliver on key actions to combat financial crime. The document builds on the Government's national risk assessment, published in 2020, and draws on recommendations from the FATF to ensure that international standards continue to underpin Jersey's efforts and priorities.
The national strategy comprises seven strategic priorities, with detailed actions contributing to each:
- Understanding the threat and performance metrics
- Better information sharing and co-ordination
- Powers, procedures, preventative measures and tools
- Enhanced capabilities of law enforcement, the justice system and private sector
- Risk-based supervision and risk management
- Transparency and ownership
- International strategy
The national strategy can be viewed here. Businesses should consider the strategy when preparing or updating business risk assessments (BRAs).
Linked to the strategy is a statement on Jersey's approach to risk within the finance sector. This will be a developing document, to be revised annually and updated to reflect any changes in circumstances. It details the risks main risks to which Jersey's financial services industry is subject and articulates both Jersey's tolerance for, and framework for managing, that risk. Again, businesses should be aware of and play close attention to this statement.
The statement can be found here.
3. Guernsey developments
3.1 Guernsey launches Natural Capital Fund regime
The Guernsey Financial Services Commission (GFSC) has launched its Natural Capital Fund framework, which creates a regulatory designation for funds to help channel investment into biodiversity and natural capital projects that make a positive contribution and/or significantly reduce harm to the natural world.
The Natural Capital Fund framework will complement the Bailiwick's existing regulated Guernsey Green Fund regime, which now channels more than £4.9 billion into green investments The new framework also marks the completion of a pledge made as part of COP26 to extend the commission's regulatory regime to include sustainable funds. More information is available here.
3.2 GFSC expands green criteria in the Guernsey Green Fund regime
The commission has expanded the green criteria in the Guernsey Green Fund regime to include the EU Taxonomy for Sustainable Activities' technical screening criteria for activities contributing to climate change mitigation and adaptation. The new rules and guidance came into effect on 20 September 2022.
3.3 New anti-greenwashing guidance for investment sector
The GFSC has published anti-greenwashing guidance for the investment sector to ensure that adequate disclosures are made to investors in respect of any environmental sustainability claims made. The new rules and guidance came into effect on 20 September 2022. Read the full guidance here.
3.4 Sustainable Finance Week showcases Guernsey's commitment to sustainable finance initiatives
Guernsey hosted its third Sustainable Finance Week, bringing together industry leaders to discuss topics including the race to net zero, biodiversity and energy transition. The three topics were developed in consultation with Guernsey's finance industry as well as sustainable finance global leaders and associations, including the UN FC4S and discussions at COP26.
The programme of events included keynote speakers, panel discussions and fringe events, including a seminar organised by Ogier Global's Sustainable Investment Consulting team – Where Wall Street Meets Wildlife - which was moderated by Ogier partner and investment funds specialist Tim Clipstone. The panel included the founders of Coast4C, Posaidon Capital, ADM Capital and LumiVoce.
3.5 GFSC consults on fees for 2023
The GFSC has launched a consultation paper on proposals for increasing the licence fees paid by firms - an overall increase in fees of 9% has been proposed. Other specific proposals to change fees are outlined in the consultation paper and include application and annual fees in respect of firms to be licensed under the Lending, Credit and Finance legislative framework.
3.6 Guernsey Finance report identifies roadmap for transition to net zero
A new report commissioned by Guernsey Finance, in association with Baringa Partners, identifies the vital role that the financial services industry can play in achieving the transition to a net zero future. The research highlights the opportunities that exist for various financial services industry sectors and outlines a potential roadmap highlighting key steps spanning the next three decades.
The report provides sector-specific guidance that different industries within the financial services sector could follow to support the transition and decarbonise the economy. It outlines key opportunities, risks and mitigations for insurance, investment funds and management, trusts and companies, private banking and pensions.
3.7 Consultation paper launched on The Lending, Credit and Finance Law, 2022
Following the recent publication of its consultation paper, setting out the draft rules and approach for regulating the sectors covered by The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022, the GFSC will be hosting a series of meetings with the various sectors which will be affected by the legislation.
The purpose of the new law, which was passed by the States of Guernsey on 14 July 2022, is to protect customers in the Bailiwick who make use of consumer credit in all its forms, including individual loans, home finance and credit for the purchase of goods and services. In addition, the law and accompanying rules cover fintech platforms operating crowdfunding and peer to peer platforms as well as virtual asset service providers (VASPs).
The law will replace the existing Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008.
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