Channel Islands Funds Quarterly Update: Q4 2019

1 Developments in the Channel Islands

1.1 Economic Substance

2 Jersey Developments

2.1 FATF Report: Jersey cited in guide on best practice for Beneficial Ownership Registers

2.2 New Year and new registry fees

2.3 Jersey builds a bridge to New York

2.4 JFSC Consultation on legislative enhancements to the Investment Business Regime

2.5 JFSC announces Supervisory Thematic Programme for the first three quarters of 2020

2.6 Additional activities added to the JFSC's Sound Business Practice Policy (SBPP)

2.7 Update on MDR

3 Guernsey Developments

3.1 Fourth quarter investment statistics

3.2 Handbook on Countering Financial Crime and Terrorist Financing

3.3 Changes to the Online Submissions (OS) Portal and Personal Questionnaire (PQ) Portal

3.4 Update to AML Equivalent Jurisdictions

3.5 Guernsey Green Finance

4 Other News

4.1 Ogier named offshore law firm of the year 2020

 

1 Developments in the Channel Islands

1.1 Economic Substance

On 18 October 2019, the Taxation (Companies – Economic Substance) (Amendment) (Jersey) Law 2019 was registered in the Royal Court and came into force from 1 January 2019. The law amends the Taxation (Companies – Economic Substance) (Jersey) Law 2019, which makes provision for imposing an economic substance test on certain companies regarded as resident in Jersey under Article 123 of the Income Tax (Jersey) Law 1961 and for determining whether the test is met by assessing the extent of certain activities carried out in Jersey by such companies. 

On 25 November 2019, the Crown Dependencies’ tax authorities jointly released updates to the joint guidance notes on the application of economic substance legislation, which were previously issued on 26 April 2019. Notably, additional detail is included on areas including pure equity holding companies, the directed and managed test, fund management and distribution and services center activity. The guidance notes now also confirm that "protected cell companies" are treated as a single vehicle with all its cells, therefore requiring a single tax return, while an "incorporated cell company" and its cells are treated as separate entities and therefore each requires its own tax return.

All tax returns filed in 2019 were required to confirm whether or not a company carries out any relevant activity under the law, with more detailed reporting applying to the tax returns completed in 2020 (relating to the tax year 2019).

Please see below links to our Jersey and Guernsey updates in relation to fund managers:

Jersey update

Guernsey update

Ogier has also created a substance tool for Corporate Service Providers, Administrators, Directors and Asset Managers to use on behalf of their clients and group companies to assess whether a company is in scope of the substance requirements; and if it is in scope, the level of compliance with the substance requirements, producing a clear tick and cross report that identifies where the requirements are met and where they are not.

The intention is to provide a clear, useful and cost-effective way to quickly check compliance for a large number of companies. For further information on this innovative tool, please contact Matt Shaxson or your usual Funds contact.

 

2 Jersey Developments

2.1 FATF Report: Jersey cited in guide on best practice for Beneficial Ownership Registers

The Financial Action Task Force (FATF) has published a new guide on Best Practices on Beneficial Ownership for Legal Persons, which refers to what Jersey does as examples of best practice and identifies common challenges that countries face in ensuring that beneficial owners of companies are identified, and also suggests key features of an effective beneficial ownership transparency regime.

Following publication of the paper in November, the Minister for External Relations, Senator Ian Gorst, commented: "Four examples from Jersey’s beneficial ownership regime were included in the FATF publication. The examples noted our use of regulated trust companies to incorporate most companies and the positive effect this has on the accuracy of Jersey’s register."

"They also noted the work of the Commission in ensuring trust companies uphold the accuracy of beneficial ownership information, and the ease of access which the States of Jersey Police Joint Financial Crimes Unit has to beneficial ownership information, which can be shared with other police forces in the UK and further afield."

Read the Government of Jersey's full release and statement from the Minister for External Relations, Senator Ian Gorst

Read The FATF guide

2.2 New Year and new registry fees

Following an island-wide consultation on registry fees and services, on 30 October 2019, the Jersey Financial Services Commission (the JFSC) confirmed that Jersey registered companies will pay an extra £25 to file their annual return next year.

2.3 Jersey builds a bridge to New York

As assets of US-based fund promoters have jumped by 148% over the past five years, Europe has gained significant attention from US managers, with Jersey now one of the primary beneficiaries.

Building on this momentum, Jersey Finance has opened a New York office to create a link between Jersey and the US and to harness the opportunity for Jersey to be a bridge between the United States and Europe.

Jersey is a gateway for US managers looking to access the UK and Europe, in both the pre and post Brexit environment. Jersey maintains a network of memoranda of understanding to access EU member states via established national private placement regimes and now has an agreement in place with the UK, so Jersey’s access to the UK market is guaranteed under the UK's private placement regime post Brexit.

2.4 JFSC Consultation on legislative enhancements to the Investment Business Regime

The JFSC has issued a further consultation on proposals to enhance the investment business regime and invites comments on this consultation paper by 25 March 2020. This consultation follows on from a consultation in 2018 which resulted in changes to the Investment Business Code of Practice. This consultation now seeks to canvass views on certain legislative changes, that were conceptual only in the 2018 consultation.

The JFSC considers all of the changes to be regulatory enhancements or clarifications, maintaining the alignment of Jersey’s Investment Business regime with international standards, which are summarised below. A number of proposed enhancements respond to facets of MiFID II, but only where relevant and proportionate to the Jersey industry.

The proposed amendments to the Financial Services (Jersey) Law 1998 (FSJL) include:

  • Holding: Extending the provision of advice to include advice on whether to "hold" as well as "buy" and "sell"
  • Arranging: Include the activity of arranging as an investment business activity, and give the JFSC the power to ban the distribution of certain products to retail clients
  • Exchange Business: Include oversight of exchange business
  • Advice on Pension Transfers: Include the oversight of advice on transfers from defined contribution schemes
  • Financial Derivatives: Update the definition of investments to include all financial derivatives
  • Futures: Update the definition of futures, when for commercial purposes

The proposals have the potential to affect certain businesses including those:

  • licensed to carry on investment business pursuant to the FSJL;
  • within the scope of the Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001;
  • providing advice on defined contribution pension transfers;
  • that arrange or bring about arrangements for another person to buy, sell, subscribe for or
  • underwrite a particular investment; and
  • carrying on exchange business.

The JFSC also recently published guidance notes for Investment Business.

Read the JFSC guidance notes

Ogier will be coordinating a response to this consultation. Please reach out to your usual contact in the Jersey investment funds team if you would like your comments or queries on the proposed changes to be reflected in our response.

2.5 JFSC announces Supervisory Thematic Programme for the first three quarters of 2020

With the JFSC's 2019 thematic examinations having focussed on outsourcing, the role of the MLRO and compliance monitoring, regulated businesses should be aware that the JFSC's 2020 programme will continue examining compliance monitoring and then focus on wire transfers and Jersey Private Funds (JPFs). In relation to JPFs, the JFSC will be assessing how the fund administrator (or Designated Service Provider) is meeting its obligations under the Jersey Private Fund Guide and, in particular the annual compliance return.

Further information on the JFSC website

2.6 Additional activities added to the JFSC's Sound Business Practice Policy (SBPP)

The SBPP is designed to highlight activities the JFSC considers sensitive and that have the potential to pose reputational risks to Jersey.

Table 2 of the SBPP sets out activities that, while not within the regulatory oversight of the JFSC, are considered to likely pose a potential reputational risk to Jersey and will therefore be carefully considered by the JFSC when forming an opinion on whether to issue consent under the Control of Borrowing (Jersey) Order 1958 for entities engaging in such activities.

In November 2019, the JFSC amended Table 2 of the SBPP by adding the following activities:

  • Where an activity is regulated in Jersey and not the target market – the starting point is that the JFSC will decline the incorporation of the Jersey entity when it is proposed to conduct such activity, or hold shares in another company that conducts such activity, unless the JFSC is satisfied there are mitigating factors such as:
    • a director of the Jersey holding company being placed on the board of the company incorporated in
    • the other jurisdiction, to help facilitate oversight of the other company;
    • whether the other company is incorporated in a lower risk jurisdiction; and
    • if the ultimate beneficial owner is a well-regarded international financial institution or other institution and/or is operating within a regulated environment.

Where there are such mitigating factors, the JFSC will still designate the activity as a ‘high risk activity’.

  • The cultivation, production and supply of cannabis – the incorporation of a company or entity in Jersey which is seeking to invest in the cultivation, production and/or supply of cannabis in Jersey for medicinal purposes will likely be approved where the activity is licensed or otherwise lawful in Jersey. However, it cannot be guaranteed that any other proposed incorporations of companies seeking to invest in the cultivation, production and/or supply of cannabis outside Jersey would be allowed to proceed, due to a number of factors, particularly in relation to AML/CFT rules. The JFSC notes this is a developing industry and, as regulations develop internationally, the approach may be subject to review in the future.

2.7 Update on MDR

As reported in our previous briefing, the Government of Jersey has been consulting with stakeholders on the introduction of Mandatory Disclosure Rules (MDR). That consultation has now closed and draft regulations were lodged au Greffe on 31 December 2019. The draft regulations closely follow the MDR regime published by the OECD, which is the international standard for MDR. The intention is that these draft regulations will be supplemented by guidance to be published by the Comptroller of Revenue, which will assist industry in making the important "reasonable to conclude" decision when considering whether or not to report specific arrangements or structures.

Under the MDR regime, Jersey promoters and service providers will be required to provide the Comptroller of Revenue information on avoidance arrangements and opaque offshore structures.

 

3 Guernsey Developments

3.1 Fourth quarter investment statistics

Over the past year, the total net value of total funds under management and administration in Guernsey increased by £6.1 billion.

Guernsey domiciled open-ended funds experienced a quarterly increase of £0.9 billion to £48.2 billion, which represents an increase of £4.6 billion over the year since 31 December 2018. Also, Guernsey domiciled closed-ended funds experienced an increase of £8.1 billion over the year since 31 December 2018.

3.2 Handbook on Countering Financial Crime and Terrorist Financing

On 1 November 2019 the Guernsey Financial Services Commission (the GFSC) issued the revised Handbook on Countering Financial Crime and Terrorist Financing (the Handbook), the changes to which came into effect on the same date.

The GFSC has revised the Handbook in order to allow firms to advance work on revising their business risk assessments and policies, procedures and controls to take account of the provisions of Schedule 3 of the Handbook and the corresponding rules and guidance without delay. The amendments to the Handbook are the result of public consultation pursuant to which, rather than prescribe an individual date by which a firm must update its business risk assessments and policies, procedures and controls, there will be one long-stop deadline of 31 May 2020. As such, firms must ensure that they have obtained board approval of their business risk assessments and update and obtain board approval for their policies, procedures and controls within the deadline.

It is envisaged that this change will allow firms the flexibility to determine their own timeframe based on their needs.

Additional amendments to the Handbook include Rules 17.8 and 17.11 which have been amended to clarify that a firm should consider the conclusions of the National Risk Assessment when its business risk assessments and policies, procedures and controls next fall due for review after 31 May 2020 in accordance with the provisions of Paragraphs 3(1) and 3(6) of Schedule 3 of the Handbook.

3.3 Changes to the Online Submissions (OS) Portal and Personal Questionnaire (PQ) Portal

The GFSC is upgrading the portal forms, including notably the Form 145 Investment Quarterly Return, and adding new features to enhance the 'user experience' of the portals.

The changes will make the forms more intuitive, guiding users through the form with the assistance of new features such as the field and tab 'traffic light' progress indicators and better placed information and tooltips. In addition, users will no longer be able to preview the tabs in a form until it is 'created'. The PQ form will still need to be in 'edit mode' in order to update it.

The following forms are now available in the new format:

  • 126a – Fiduciaries – Pension Scheme or Gratuity Scheme Quarterly Return;
  • 132 – Insurance Manager Annual Return;
  • 145 – Investment Quarterly Return;
  • 200 – Other Notification;
  • 220 – Outsourcing; and
  • 226 – Surrender Registration.

3.4 Update to AML Equivalent Jurisdictions

On 28 November 2019 the GFSC removed Iceland from Appendix C (Equivalent Jurisdictions) of the Handbook and issued an instruction for all specified business to ensure that full customer due diligence has been applied to all existing business relationships connected to Iceland by 31 January 2020. This action follows FATF's public statement identifying strategic deficiencies in Iceland's regime for tackling money laundering and terrorist financing.

3.5 Guernsey Green Finance

Guernsey Green Finance in Guernsey received a significant contribution of £300,000 from the States of Guernsey on 6 November 2019.

In 2018 Guernsey made a strategic commitment to green finance within the Financial Services Policy Framework and the formation of Guernsey Green Finance, which is a member of the United Nations' Financial Centres for Sustainability.

Read our briefing on green finance

 

4 Other News

4.1 Ogier named offshore law firm of the year 2020

Ogier has been named Legal 500 UK Offshore Law Firm of the Year 2020, a firm-record fifth time it has received the accolade from a major industry body in one year.

Other industry bodies that have named Ogier offshore law firm of the year in 2019 include Asian Legal Business, The Lawyer, Wealthbriefing and Legal Business.

Ogier Global Managing Partner Edward Mackereth said: "We're very proud to have received recognition from such prestigious industry bodies, and now to have been named Offshore Firm of the Year by Legal 500 UK is the perfect end to an exceptional year for Ogier."

About Ogier

Ogier provides practical advice on BVI, Cayman Islands, Guernsey, Jersey and Luxembourg law through its global network of offices. Ours is the only firm to advise on these five laws. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found at www.ogier.com

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