Channel Islands Funds Quarterly Legal and Regulatory Update - 1 July 2017 to 30 September 2017

Jersey Developments
Guernsey Developments
UK Developments
Global developments


1 Jersey Developments

1.1 JFSC cyber-fraud warning

Following the Petya/NotPetya ransomware attacks which took place at the end of June, the Jersey Financial Services Commission (JFSC) issued guidance to local financial service providers.

On 17 August 2017, the Commission issued a warning to local businesses and members of the public following a series of targeted attempts to defraud Jersey companies and their clients. The Commission is aware of at least three cases where locally registered businesses have been the subject of an attempted "impersonation attack" whereby fraudsters have registered a domain name that is almost identical to the organisation's domain name and then sent bogus emails to the firm's customers requesting large sums of money. The Commission is asking local companies and Islanders to be extra vigilant.

1.2 Consultation on amendments to the Codes of Practice

On 26 July 2017, the JFSC published a consultation paper detailing proposed amendments to the Codes of Practice. The amendments proposed have the aim of increasing clarity, addressing issues highlighted by supervision activities and ensuring compliance with international regulatory standards. The deadline for responses to the paper is 18 October 2017.

1.3 States of Jersey plans extension of 10% tax rate for certain financial services companies

On 3 October 2017, the Minister for Treasury and Resources presented his final budget before the next election next May. Among the key announcements was a measure proposing an extension to the range of companies liable to the 10% corporate income tax rate in Jersey so that from 2 January 2019, this tax rate would apply to companies with a permanent establishment in Jersey who are registered under the Financial Services (Jersey) Law to carry out general insurance mediation business (classes P & Q only), fund services business (as a registrar) or money service business, companies holding permits under the Insurance Business (Jersey) Law 1996 and 'finance companies' - generally being companies providing credit facilities to 'customers'.

1.4 OECD Multilateral Convention on BEPS

As reported in our last update, Jersey signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) in June 2017. The MLI is one of the outcomes of the OECD/G20 project on BEPS and Jersey is among 76 jurisdictions that have either signed or formally expressed their intention to sign it. On 20 September 2017, the Minister for External Relations lodged a report asking the States of Jersey to ratify Jersey's entry into the MLI. The States of Jersey is due to debate the report on 14 November 2017.

1.5 Consultation on proposals regarding the provision of data to support risk based supervision

In pursuit of its strategic goal of becoming a more agile and risk-based supervisor, the JFSC is proposing to introduce reporting obligations to assist it to obtain the data it requires to assess and understand the risks that exist in the financial sector. This consultation invites comments on the proposals that are likely to represent a material increase in the reporting obligations that currently exist. The deadline for responses is 8 November 2017. 

The JFSC is running a series of seminars for industry on 5 and 6 October to discuss the proposals.

1.6 Jersey adopts pragmatic and proportionate regulatory response to MiFID II

Following the JFSC's publication of its report on responses to its consultation paper on MiFID II in December 2016 (mentioned in our previous update), the JFSC continues to explore its options in terms of adopting elements of the MiFID II framework in Jersey, against a background of BREXIT uncertainties and potential changes to the EU equivalence framework. At this stage, the JFSC does not propose to proceed with the full introduction of the tailored MiFID II equivalent regime but it does propose to make a number of enhancements to the investment business regime which will ensure that the JFSC continues to satisfy its regulatory responsibilities and will contribute to any future MiFID II equivalence assessment. We understand that the JFSC intends to consult on changes to the investment business regime later this year.

2 Guernsey Developments

2.1 Revisions to AML/CFT Framework

In response to the revisions to the international Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) standards issued by the Financial Action Task Force (FATF) in February 2012 and the recommendations made by MONEYVAL in its evaluation report of the Bailiwick of Guernsey's AML/CFT framework issued at the beginning of 2016, the Policy and Resources Committee of the States of Guernsey (the Committee), along with the Guernsey Financial Services Commission (the GFSC), have consulted on revisions to the Proceeds of Crime legal and regulatory framework.

The purpose of the consultation and the related paper was to seek feedback on proposed revisions to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 (the Proceeds of Crime Law), the two sets of Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations (the Proceeds of Crime Regulations) and the rules and guidance in the Handbook for Financial Services Business on Countering Financial Crime and Terrorist Financing and the Handbook for Prescribed Business on Countering Financial Crime and Terrorist Financing (the Handbooks).

The consultation paper proposed that the Proceeds of Crime Regulations be repealed and replaced by schedules to the Proceeds of Crime Law (the Schedules), and that Handbooks be consolidated into one document containing the rules and guidance for meeting the requirements proposed in the Schedules.  In summary the Schedules will contain a new general duty for specified business to understand, assess and mitigate money laundering and terrorist financing, as well as widening existing provisions relating to politically exposed persons (PEPs) to cover domestic PEPs and persons with a prominent function by an international organisation. 

The consultation period closed on 31 July 2017 and we understand that there were a significant number of responses to the consultation.  It is therefore not clear that the draft documents consulted on will be issued in that form.

2.2 Proposed Changes to the Prospectus Rules 2008 and the Registered Collective Investment Scheme Rules 2015

The GFSC has undertaken a recent review of the Prospectus Rules 2008 and the Registered Collective Investment Scheme Rule 2015. 

This review has highlighted the need to change the Prospectus Rules to ensure that a copy of any new Prospectus in circulation is submitted to the GFSC for registration.  It is further proposed that the Prospectus Rules should also contain requirements for significant beneficial ownership in the designated administrator and designated custodian to be disclosed in order to regularise the disclosures across parties to a fund.

In addition, it is proposed that the Registered Collective Investment Scheme Rules are amended requiring any material changes made to a Prospectus to be disclosed to the GFSC immediately for closed-ended and open-ended investment schemes.  Such a revision may be either to a new Prospectus or a supplement.

2.3 Beneficial Ownership and GFSC Disclosure Powers

The Beneficial Ownership of Legal Persons (Guernsey) Law, 2017 (the Beneficial Ownership Law) came into force on 15 August 2017, establishing the office of the Registrar of Beneficial Ownership of Legal Persons and imposing new duties on beneficial owners of legal persons and resident agents relating to the provision of information.

The Beneficial Ownership Law makes amendments to various legislation to ensure that the GFSC has appropriate supervisory powers in respect of persons it regulates.  One such amendment is the introduction of the Disclosure (Financial Services Commission) (Bailiwick of Guernsey) (Amendment) Ordinance 2017 (the Disclosure Ordinance) which came into force in August 2017.

The Disclosure Ordinance amends section 21(2) of the Financial Services Commission (Bailiwick of Guernsey) Law, 1987. permitting the GFSC to disclose confidential information for certain specified purposes.  The effect of the amendment is to allow the GFSC to provide information to different Registrars within the Bailiwick of Guernsey to enable them to carry out their functions relating to the beneficial ownership of legal persons, or to investigate matters relating to those functions.

2.4 Regulatory Fees

The GFSC has published a consultation paper on fee rate proposals for 2018 for each of the regulatory laws.  The consultation period closed on the 8 September 2017, and any amendments to the fees will be agreed by both the GFSC and the States of Guernsey before coming into force on 1 January 2018.

The GFSC's approach to setting fees is based upon the principle that they should be fair and proportionate and should be aligned with the cost of regulation and as such, for the past five years, the average fees increase has been around 2% per annum.  More recently, the GFSC has been asked to undertake new responsibilities and has been involved in identifying a number of regulatory gaps.  As a result the GFSC feels that it is necessary to raise average fees by 3% in 2018, as well as charging flat fees for new responsibilities that they are asked to undertake, such change in controller assessments.

3 UK Developments

3.1 HMRC published final guidance on the corporate criminal offence

On 1 September 2017, HMRC published the final version of its guidance on the corporate criminal offence of failure to prevent the criminal facilitation of tax evasion. The guidance explains the policy behind the new offences and is intended to assist relevant bodies in understanding the types of processes and procedures that can be put in place to prevent associated persons from criminally facilitating tax evasion.

3.2 FCA report on its asset management market study

On 28 June 2017, the FCA published the final findings of its asset management market study. The aim of this study was to understand how asset managers compete to deliver value to both retail and institutional investors. The final report found that price competition is weak in a number of areas of industry, that investors are not always clear what the objectives of funds are and that fund performance is not always reported against an appropriate benchmark. There were also concerns about the way the investment consultant market operates.

The report proposes an overall package of remedies to make competition work better in the market and protect those least able to engage with their asset manager – these include measures to give protection to investors who are less able to find better value for money, measures to drive competitive pressure on asset managers and proposals to improve the effectiveness of intermediaries The FCA is currently consulting on the first set of these remedies.

4 Global Developments

4.1 ESMA publishes ITS and Q&As on Market Abuse Regulation

On 1 June 2017, the European Securities and Markets Authority (ESMA) issued final implementing technical standards (ITS) on the application of the Market Abuse Regulation (MAR). This clarifies how national competent authorities should cooperate with each other.

Further clarification on the implementation of MAR was published ESMA on 1 September 2017 in the form of an updated Q&A document. The updated document includes clarification on the scope of firms subject to the MAR provision to detect and report suspicious orders and transactions and new detailed answers on:

(a) the scope of financial instruments subject to the market sounding regime under MAR; and

(b)the persons subject to the insider list requirements.

4.2 ESMA publishes updated AIFMD and UCITS Q&As

On 11 July 2017, ESMA published updated Q&A documents on the application of the Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for the Collective Investments in Transferable Securities Directive (UCITS). The purpose of the Q&As is to promote common supervisory approaches and practices to the directives.

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