to meet investor demand
One of the factors that helps maintain Jersey’s leading position as an International Finance Center is its willingness to refine and enhance its regulations consistently to meet investor needs.
For example, following consultation with the finance industry, the authorities introduced a new law in 2009 to permit the formation of foundations.
This move blended the attractive features of Jersey corporations and Jersey trusts, and widened the choice of options when investors and their advisers consider their wealth management strategies.
Since the introduction of the legislation, more than 260 foundations have been established. They have a particular resonance in common law jurisdictions where the Anglo Saxon concept of a trust is less familiar and they have proved popular with high net worth clients in the Middle East, Russia and Asia.
The creation of Jersey foundations also highlighted another aspect of Jersey’s offering in the private wealth market since more than a third of foundations so far in place are believed to have a charitable or philanthropic purpose, reflecting a growing trend amongst high net worth individuals who wish to use some of their wealth for good causes. Jersey believes it is making good headway in creating a strong product and regulatory infrastructure for charitable and philanthropic work. Trusts and non-profit vehicles such as companies and partnerships are also attractive for such purposes.
Since the introduction of foundations, there have been further effective amendments to Jersey’s ground breaking trust legislation, which was first introduced in 1984, a significant focus on funds regulation in preparation for the introduction of the Alternative Investment Fund Managers Directive (AIFMD) by the European Union (EU) and, most recently, a review of its company law.
The latest change to the trust law was an amendment to incorporate the existing law on mistake and the so called “rule in Hastings-Bass” into the Trusts (Jersey) Law 1984, the latter being a legal first within the international trust arena.
The effect of the amendment is to confirm the Jersey Royal Court’s ability to provide discretionary relief in a number of trust scenarios, e.g. where a settlor has made an error in settling assets into trust, or where a trustee has erred in exercising a power, perhaps failing to take into account matters which should have been considered, or acting on incorrect professional advice.
The ability for the Royal Court to give discretionary relief when a beneficiary finds itself materially prejudiced by a trustee’s decision – made, perhaps, in good faith but unfortunately founded upon erroneous advice – provides a welcome alternative to the uncertainties and costs which surround “classic negligence litigation.”
When responding to the implications of the EU’s AIFMD, Jersey has not looked upon it as an obstacle but rather as an opportunity and has responded to its implementation by offering stakeholders three potential options:
- The “business as usual” option, with no AIFMD impact for Jersey funds marketing outside the EU or whose EU marketing has been completed;
- An EU private placement option with limited AIFMD reporting and disclosure requirements for Jersey funds marketing into the EU; and
- The third option of a fully AIFMD-compliant Jersey fund for marketing throughout the EU as soon as third country passporting becomes available. One key talking point surrounding AIFMD in recent months has been the particularly vexed issue of achieving a management entity’s operational efficiency whilst demonstrating an appropriate degree of substance.
In fact, establishing a Jersey manager entity, with an appropriate degree of substance, can be relatively simple and cost-effective. Jersey’s regulator is able to offer a fast-track licensing process that is the envy of many onshore locations, where there are instances of managers taking months to get an AIFMD licence.
Managers can draw on Jersey’s deep experience in fund administration, asset servicing, tax advice, and accounting, and have fast access to governance expertise. The long-standing ability for Jersey to field local directors and officers of management entities with risk and portfolio management skills, and Jersey’s ever-growing pool of skilled non-executive directors means there is little risk of Jersey management entities being discounted as mere “letterbox entities.” This sort of long-standing expertise has created a genuine offering of substance in Jersey.
While funds have been a priority, Jersey has not neglected its prominent role as a jurisdiction for company formation and later this year will introduce further innovations to its company law, which is intended to make the jurisdiction more attractive for those who structure investments.
The Draft Companies Amendment No. 11 (Jersey) Law has been passed by the island’s parliament, the States of Jersey, and will come onto the statute later this year once it obtains Privy Council approval. The amendments, which are some of the most-wide ranging to have been introduced in recent years, include a measure to make it easier for Jersey companies to be listed on overseas exchanges, an increased flexibility surrounding shareholder resolutions and new regulations which will permit a company to split into two or more surviving companies.
Jersey is already well established as a leading European center for investment structures and has become an attractive choice for institutional investors listing in London and on other international stock exchanges. These amendments, which have been agreed following consultation with the industry, will serve to expand the options and choices for investors and will help maintain Jersey’s leading position in providing company formation services.
Alongside the industry enhancements has been a requirement to respond to the international debate around transparency and information exchange within financial services. The notion of transparency is here to stay and this is something Jersey fully supports, providing it is done through the adoption of sensible workable global standards and a mature approach to balancing transparency with a legitimate right to an appropriate level of confidentiality.
The jurisdiction has rigorously fought tax evasion for many years. It introduced legislation in the late 90’s, making tax evasion a criminal offense and has consistently followed international best practice with enhanced regulations designed to fight financial crime. Jersey has no banking secrecy laws and regulations are in place so that entities, including trusts, are fully accessible under the terms of Tax information Exchange Agreements (TIEAs). Jersey has to date completed more than 40 tax agreements with countries worldwide, signed up to U.S. FATCA (Foreign Account Tax Compliance Act) and an inter-governmental agreement with the U.K., and is one of the early adopters of the OECD model for automatic information exchange.
Jersey was also one of the first jurisdictions to regulate its trust industry, a move which provided reassurance to those using Jersey that the investment structures were being administered by competent service providers. Those who provide trustee services have to be licensed by the island’s financial regulator, the Jersey Financial Services Commission (JFSC), abide by codes of practice and are subject to regular inspections.
Jersey’s world class reputation for the quality of its regulation and the endorsements it has received from key independent bodies such as the IMF, OECD and World Bank, is another important aspect and attractive feature of its offering to international investors