Issue No.2
Finance Update For international investors and their advisors
Jersey’s enduring strengths reassure clients At times of crisis in financial markets, investors and their advisers seek reassurance that their investments are in a safe and stable environment Read Article
Jersey wins the ratings battle Read Article
Jersey Finance
Finance Update: For international investors and their advisors
Contents
Contents Jersey's enduring strengths reassure international clients Read Article Jersey wins the ratings battle Read Article Jersey Finance opens Greater China office Read Article Hong Kong Stock Exchange listings and IPO update Read Article The Russian connection Read Article Growing business in Russia Read Article Looking out for Jersey from London Read Article Building Wealth Management business with India Read Article Continuing innovation attracts Islamic finance Read Article Becoming a Jersey Foundation Read Article The Alternative Investment Fund Managers Directive Read Article Jersey introduces measures to protect investors Read Article Disclosure facilities targeting offshore assets Read Article Increased interest in Jersey Property Unit Trusts Read Article Operating around the clock Read Article
Jersey Finance
Finance Update: For international investors and their advisors
Introduction
Jersey’s enduring strengths reassure international clients Jersey has weathered the “financial storm extremely well and has demonstrated the strength and stability of its economy By Geoff Cook Chief Executive, Jersey Finance
”
At times of crisis in financial markets, investors and their advisers seek reassurance that their investments are in a safe and stable environment. A priority for them is to have their assets in a jurisdiction which has proven high standards of regulatory oversight and corporate governance. Although it has been a dramatic 18 months for Western economies, Jersey has weathered the financial storm extremely well and has demonstrated the strength and stability of its economy. Jersey has shown that it remains an attractive jurisdiction for international investors and despite all of the financial turbulence, almost £400 billion of value remains booked and managed here. In economic terms in Jersey, there have been no banking failures, no financial stability issues and no major headline
fund failures. Such a track record has been helped by the authorities consistently maintaining a careful and prudent approach to granting banking licences, including a policy of only permitting banks within the top 500 to operate in Jersey. At the same time, while financial jurisdictions have been under undoubted pressure to demonstrate their commitment to further regulation and transparency, Jersey has obtained renewed independent endorsement for the quality of its legal and regulatory regime and its willingness to enter into Tax Information Exchange Agreements. As a result, Jersey’s finance industry has emerged stronger and with enhanced international recognition as a co-operative, transparent and well regulated centre. More news on recent endorsements from international bodies can be found in the next article. continued...
“Jersey’s finance industry has emerged stronger and
with enhanced international recognition as a co-operative, transparent and well regulated centre
”
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page 1
Jersey Finance
Finance Update: For international investors and their advisors
Introduction
“Jersey has proven that it has stable financial institutions with deep pools of advisory expertise and administrative experience ” Strength and resilience In participating in various reviews of its financial services industry most notably by the IMF and HM Treasury in the UK, Jersey has proven that it has stable financial institutions with deep pools of advisory expertise and administrative experience. It enjoys political and fiscal stability with high levels of reserves and the ability to stimulate the economy without the recourse to borrowing, which I believe is the envy of many larger jurisdictions. The Jersey Government has no debt and had reserves of over £500 million at the end of 2008. Its finances are strong and there have been considerable efforts to build resilience into the Jersey economy through long term strategic planning. Jersey also has a clear fiscal stimulus strategy in place to support the economy during the current downturn. This year the Government launched a £44 million stimulus package (10% of annual public expenditure) to support the economy through the recession and has identified many savings in public spending in its Business Plan for 2010. It is therefore clear that while there has been comment and speculation about the status of other jurisdictions, who have either admitted to budget difficulties as a result of the recession or who have failed to reach certain standards on
information exchange as laid out by Western Governments through the OECD, Jersey does not fall into that bracket and has remained largely unaffected. The industry has been concentrating much of its effort on bringing further innovation to its legislative regime and on promoting the breadth and depth of its services, as well as the quality of its regulatory and compliance regime. The introduction in 2009 of new limited partnership structures for example, provided more choice for fund promoters in how they structure their investment vehicles. In the wealth management sector, the new foundation vehicle, also introduced into Jersey Law in 2009, offers more financial planning options for intermediaries who advise clients and wealthy families worldwide, but with additional regulatory oversight than has been the norm with foundation vehicles in other jurisdictions. Alongside this, visits have taken place to the traditional centres for acquiring international business such as London and the powerful new economies in China and India and other emerging markets. As financial markets emerge from the worst crisis in living memory, I believe that Jersey’s enduring strengths and its appeal as a financial centre give our industry practitioners an ideal platform from which to offer corporate clients, international investors and their advisers the specialist financial services they require. ■
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page 2
Jersey Finance
Finance Update: For international investors and their advisors
News
Jersey wins the ratings battle When compared with any “other financial jurisdiction, Jersey’s finance industry standards rank at the highest level
”
By Geoff Cook Chief Executive, Jersey Finance
It has been a year in which compliance with approved global standards and international co-operation in tackling fiscal crime have been at the top of the agenda for all financial jurisdictions. At the outset we were confident that Jersey’s mature and well regulated financial services industry would meet any international requirements as it has done so successfully in the past. When earlier this year, Jersey was included in the ‘white list’ of jurisdictions which had substantially implemented the internationally agreed tax standard, it was arguably long overdue recognition from the leading nations of Jersey’s high standard of regulation and transparency. Shortly afterwards, the UK Treasury publicly acknowledged Jersey’s commitment to the tax information exchange process and called on other jurisdictions to follow its lead. Even though we have this recognition, we also appreciate that there is no room for complacency and that maintaining high standards requires investment and a willingness to understand the global demands of the marketplace. In Jersey we intend to continue to endorse the need for appropriate regulation and we will support our authorities in their discussions with international bodies to ensure that we move quickly to a global level playing field on compliance and information exchange. Additional assessments and developments during the course of this year have further cemented Jersey’s position as a top drawer jurisdiction on regulatory matters and international co-operation. Most notably, the IMF has given Jersey’s finance industry a ringing endorsement for the quality of its regulation
and legislation, the transparency of its regulatory processes and the robustness and resilience of its banking system. In addition, the IMF Review has reaffirmed a number of features of Jersey’s regulatory and supervisory regime, referring to Jersey as one of the pioneers of the Tax Information Exchange Agreements. It highlights that financial institutions and trust company businesses in Jersey are well supervised to counter terrorist financing and money laundering and that the finance industry has continued to maintain open and co-operative relationships with regulatory authorities overseas. When compared with any other financial jurisdiction, Jersey’s finance industry standards rank at the highest level. For example Jersey is one of only seven jurisdictions complying with 15 of the 16 Financial Action Taskforce (FATF) ‘key’ recommendations, the top rating so far attained. Jersey is also the only jurisdiction that has been assessed as compliant with 44 of the general FATF recommendations, closely followed by Singapore (43) and the United States (43). Top rated offshore jurisdiction Jersey was also the highest rated offshore jurisdiction in the latest Global Financial Centres Index (GFCI) published by the City of London (Sept. 2009), ranked 14th just below Frankfurt, Toronto and Sydney and ahead of Luxembourg, Dubai and Dublin. The Index measures competitiveness and takes into account a range of factors such as reputation and business climate, infrastructure, skills available and the tax regime.
“Even though we have this recognition, we also
continued...
”
appreciate that there is no room for complacency
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page 3
Jersey Finance
Finance Update: For international investors and their advisors
News
“Jersey was the highest rated offshore jurisdiction in the latest Global Financial Centres Index (GFCI) published by the City of London ” The ‘white list’ classification was particularly welcome in reassuring clients around the world with regards to Jersey’s status within the G20 nations and it is interesting to note that those competitor jurisdictions that failed to make the ‘white list’ first time around, fared badly in the GFCI study. At its recent Global Forum, the OECD set up a new body designed to assess how effectively the international standards of transparency and exchange of information for tax purposes are being implemented by individual jurisdictions. France is chairing the body and we are delighted that Jersey has been invited to have a leading role as one of the vice chairs with India, Japan and Singapore. It is another indication of the status that Jersey has achieved within the international community for the quality of its financial services business.
STEP has this year awarded Jersey the accolade of ‘International Finance Centre of the Year’ in its annual awards, and praised Jersey for ‘putting themselves back at the forefront of international finance with a number of important legislative and practical initiatives and a stronger framework for government and industry dialogue.’ Flight to quality Internationally, the financial crisis is prompting a flight to quality for assets. Jersey’s outstanding record of compliance, the recognition it has subsequently achieved in meeting agreed standards and its positive contribution to the global economy are key features that will help it remain a significant destination in the evolving marketplace for financial services business. ■
There has been further independent endorsement from HM Treasury in the UK through the findings of the Foot Review of the British Offshore Financial Centres. The independent report concluded that Jersey had performed well in managing the effects of the global downturn and that it had implemented the latest international standards for regulation and information exchange. The Review also highlighted Jersey’s financial contribution to the UK indicating that in the second quarter of 2009 alone, through its deposit taking activity, Jersey provided in the region of $218.3 billion to UK banks. Jersey’s economic contribution was also pinpointed in an independent study conducted by the Society of Trust & Estate Practitioners, which concluded that offshore jurisdictions such as Jersey contribute positively to the global economy, playing a vital role in the international financial system, improving the availability of credit and encouraging competition in domestic banking systems.
If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
page 4
Jersey Finance
Finance Update: For international investors and their advisors
Greater China
Jersey Finance opens Greater China office main role of the office is “toThe act as a hub for Jersey Finance to communicate the breadth and depth of Jersey’s financial services across the region
”
By Zhaoan Li Head of Greater China Business Development, Jersey Finance
Jersey Finance has opened an office in Hong Kong to support the promotion of Jersey as an international finance centre in the Asia Pacific region. The main role of the office is to act as a hub for Jersey Finance to communicate the breadth and depth of Jersey’s financial services across the region. It is also a permanent base for Jersey’s finance industry to develop its contacts with leading financial intermediaries, regulators and Government officials both in Hong Kong and mainland China. Zhaoan Li, Head of Jersey Finance’s Greater China Business Development, is based in the new Hong Kong office, which is located at Suite 46, 21st Floor, ICBC Tower, Citibank Plaza, 3 Garden Road, Central. Zhaoan Li has previous experience in sales, marketing and management roles for leading international banks, including UBS Investment Bank, Commerzbank and Bank of Boston in London, Hong Kong and Shanghai. Rob Kirkby, Technical Director, Jersey Finance, commented ‘Hong Kong is a key global finance location and we are delighted that we now have a permanent presence to help spearhead our increasing participation in financial services in the region. Jersey Finance has visited the area since 2005 with delegations from Jersey, and the opening of a formal office is a natural extension of those growing commercial links with the region. We are also delighted that, following close liaison with the Hong Kong Stock Exchange, Jersey companies have been approved for listings. This is excellent news for Jersey’s finance industry
Zhaoan Li Head of Greater China Business Development
Jersey Finance Limited Suite 46, 21st Floor, ICBC Tower, Citibank Plaza 3 Garden Road Central Hong Kong
and a further significant step forward in our ability to attract new business from the region. The move by the Exchange authorities adds weight to Jersey’s reputation as a rigorously supervised, highly regarded jurisdiction and demonstrates how the market in Asia views the quality and robust nature of Jersey company law.’ Yet another welcome development for Jersey was the recent official visit by Her Excellency Madam Fu Ying, Ambassador of the People’s Republic of China to the UK and Madam Jiang Fan, Minister-Counsellor for Economic and Commercial. The purpose of the delegation’s trip was to learn more about Jersey, including its history and economy, with a view to developing closer ties. Jersey’s finance industry provides comprehensive corporate listings, fund structuring, debt issuance services and trust services in the Greater China region. To date more than 25% of the 60 Chinese companies listed on AIM are incorporated in Jersey, and there are 86 businesses using Jersey companies for listing purposes on worldwide stock exchanges from London to New York, representing a combined market capitalisation of over £16 billion. Contact details for the Greater China office are given below. If you would like further information, please email Zhaoan Li at zhaoan.li@jerseyfinance.je ■
E-mail: zhaoan.li@jerseyfinance.je Tel: +852 22735519
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page 5
Jersey Finance
Finance Update: For international investors and their advisors
Greater China
Hong Kong Stock Exchange listings and IPO update The Hong Stock Exchange has “recently approved Jersey as a jurisdiction of incorporation for admission to the Exchange
”
By Guy Coltman Partner, Carey Olsen
The Hong Stock Exchange (HKEX) has recently approved Jersey as a jurisdiction of incorporation for admission to the Exchange, bringing it into line with some other competitor jurisdictions. The background to the decision can be found on the HKEX website, where the technical issues that arose in respect of the approval are set out in detail. Essentially, while Jersey and Hong Kong company law are largely based on English company law, where there are differences between the two the HKEX will expect any issues to be bridged by way of amendments to a Jersey company's articles of association (its key constitutional document). To all intents and purposes, the protections and control afforded to shareholders and the company's internal management will therefore largely reflect the norm under Hong Kong law and will be in line with market expectations. This is a welcome development for Jersey. It now allows potential applicants for listing in Hong Kong to use Jersey and to benefit from the advantages of incorporating a listing vehicle in this jurisdiction, and it opens up the growing Asian market to Jersey vehicles. Typically, Jersey companies are mainly used for listing on the London market (both Main Market and Alternative Investment Market), although listings of Jersey
companies have also been made on Euronext, NASDAQ, the Australian Stock Exchange and other exchanges both in Europe and North America. The ability to list in Hong Kong, together with the advantages of using Jersey companies to list on the London market (Takeover Code application, CREST settlement, no stamp duty, tax neutrality and a flexible yet recognised company law regime), now opens the possibility of dual listings on those markets on a basis that is not open to many other competitor jurisdictions. The announcement from the HKEX follows on from increased activity in the Initial Public Offering market (IPO), which has directly affected business levels in Jersey. Carey Olsen, along with other law firms, is experiencing an increase in transactions in this sector across a variety of markets. The pick-up in global equity markets has led to increased appetite for IPOs from which Jersey has benefitted, not just in Europe but in other markets as well - including a live application to the HKEX. Jersey therefore continues to be a popular jurisdiction in which to incorporate listing vehicles - a trend which it is hoped will continue with access to the Hong Kong market going forward. ■
“The pick-up in global equity markets has lead to increased appetite for IPOs from which Jersey has benefitted ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Russia
The Russian connection Jersey explores finance industry ties with Moscow
growth and a desire “toSustained safeguard against political domestic risk have led Russians to look at international markets for the efficient raising of capital By Christine Whitfield Head of Special Projects, Jersey Finance
”
Jersey’s proven reputation for probity and its broad range of financial services appeal to Russian based professionals where over recent years there has been increasing demand for capital raising and wealth generation requiring international financial and legal expertise. International accountancy and legal firms, together with branches of some of the global banks in Russia, have for some time referred business to Jersey. To build on this, Jersey Finance recently sent a delegation to Moscow to meet with senior representatives from some of the key accountancy and law firms including Deloitte, Ernst & Young, KPMG, Linklaters and PricewaterhouseCoopers. Meetings were also arranged with the Financial and Legal section of the British Embassy and with major banks such as HSBC and Standard Chartered Bank. Geoff Cook, Chief Executive of Jersey Finance, was encouraged that Jersey was already well regarded among professionals and authorities in Russia. He commented ‘It was evident from our visit that the contacts we met were well acquainted with Jersey as a well regulated and respected jurisdiction. Our political and economic stability, favourable time zone and the accessibility and range of products available from our industry providers, means that Jersey is an attractive option for many Russian legal and finance professionals.’
In 2006 one third of the initial public offerings completed on the London Stock Exchange were for Russian firms raising more than £8 billion. Sustained growth in wealth and a desire to safeguard against political domestic risk have led Russians to look at international markets for the efficient raising of capital and to set up holding companies for international and financing structures. Jersey has a successful and sustainable track record for this type of work using Jersey Company Law in other emerging markets including China, where Jersey companies have frequently been used in investment holding structures and for listing on European exchanges. It is apparent that Russian professionals have a preference for English Law with up to 90% of Russian corporate deals based on it. Trust vehicles are also understood and accepted as tax efficient vehicles for employee share ownership schemes, the holding of international investments and for wealth preservation schemes generally. Despite the global financial crisis, Russia’s economic growth is forecast to be 4% in 2010 and it remains a market in which Jersey is keen to be involved. Jersey Finance plans to continue meeting with leading intermediaries and business organisations of international standing in Russia and to encourage increasing contact between Government officials and regulatory authorities to help smooth the flow of business. ■
“It is apparent that Russian professionals have a preference for
English Law, with up to 90% of Russian corporate deals based on it If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
” page 7
Jersey Finance
Finance Update: For international investors and their advisors
Russia
Growing business in Russia
Jersey’s newly introduced “Foundations are of great interest in Russia as an alternative to trusts, which are not a familiar concept
”
By Jane Dolby Section Head, Moore Stephens Jersey
Moore Stephens Jersey is a member firm of Moore Stephens International Limited an accounting and consulting network with a significant presence in the Russian Federation. Having first established a presence in the late 80’s, when they assisted a major state company with its restructuring programme, Moore Stephens now has offices across the country, including two in Moscow. Thanks to these local connections, Moore Stephens Jersey has seen a dramatic increase in the number of new enquiries from Russia. Jane Dolby, who is responsible for the day to administration of Moore Stephens’ Russian based clients and is a regular visitor to Russia, explains ‘They [the new enquiries] include Russian companies that, despite difficult conditions, are looking to increase their share of market capital by listing a Jersey holding company that would ultimately own the underlying Russian based assets. The listing would usually be in London and would either be on the Alternative Investment Market or on the main Stock Exchange. Our role would be to assist with the actual company formation, all matters leading up to the listing and the subsequent day to day administration’.
Jersey’s newly introduced Foundations are of great interest in Russia as an alternative to trusts, which are not a familiar concept. In addition to Foundations being incorporated bodies and holding the assets in their own name, they tend to be attractive as they are easier to understand, setting out in plain English the contract upon which they are based, explaining who’s who and what their rights and duties are – unlike the complex language of a trust instrument. Jane Dolby explains ‘The thinking behind a Foundation emphasising the need to give true effect to the wishes of the Founder, rather than the fiduciary obligations upon Trustees or the rights of the Beneficiaries, is of particular interest. In addition, Russian individuals are attracted by the fact that Foundations offer a greater sense of certainty and control to international investors, as the Founder may maintain greater control over the affairs of the Foundation’. ‘This is an exciting region in which to develop business, and whilst it is early days, there will be significant growth in the requirement to set up Foundations’. ■
This is an exciting region in which to develop business, and “whilst it is early days, there will be significant growth in the
”
requirement to set up Foundations
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page 8
Jersey Finance
Finance Update: For international investors and their advisors
United Kingdom
Looking out for Jersey from London The view from London is of “Jersey as a confident jurisdiction held in high regard by the professional community
”
By Clive Boothman London Representative, Jersey Finance
Jersey Finance opened its London office, based in Tower 42 in the City, in February 2009. London has always been a vital conduit for business to and from Jersey and the decision to have a permanent presence here was taken with the objective of having someone permanently focused on supporting Jersey’s finance industry. International Finance Centres have been the focus of considerable political and media attention throughout 2009. One part of the role has therefore been to explain to those responsible for choosing offshore jurisdictions why Jersey should rank at the top of their list as a well regulated, transparent and co-operative location. This is a task that has become easier as the year has progressed, with Jersey avoiding the banana skins that have afflicted some of the other jurisdictions and, in consequence, achieving “white list” status from the OECD and scoring highly in the recent IMF review. This matters because the kind of advisors Jersey wants to do business with will not jeopardise their or their clients’ reputations dealing with centres whose standards are in question. Aside from these vital environmental factors, there have been a number of changes, actual or pending, which have interested the professional community in London and the
regions. The new Jersey Foundation has attracted particular attention from those advising UK resident / non-domiciled clients in the UK, as well as from those advising wealthy clients based outside the UK, providing an attractive alternative to Liechtenstein and Panama. Conferences in London, Bristol, Birmingham, Manchester, Leeds and Edinburgh with a private client theme have been well supported both by our Members and attendees. In the funds arena, there is a new EU Directive under consideration and Jersey is working alongside other organisations to seek changes to make this workable whilst at the same time supporting advances in good regulation. The brief of the London Representative extends to fielding queries of a technical and new business nature, and here the expertise of our Members and the team in Jersey are vital in providing prompt answers to facilitate further business for Jersey. It also means that there is seldom a dull day, with questions on banking, funds, private clients, listings, tax, Europe or any one of a number of other topics. The view from London is therefore rosy but not rose-tinted: of Jersey as a confident jurisdiction held in high regard by the professional community but where challenges remain and good communication can only help in encouraging better business flows. ■
“London has always been a vital conduit for business to and from Jersey ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
page 9
Jersey Finance
Finance Update: For international investors and their advisors
India
Building Wealth Management business with India Jersey’s expertise as a wealth “management location means that it is ideally placed to service clients in India
”
By Christine Whitfield Head of Special Projects, Jersey Finance
Representatives from Jersey’s finance industry have visited India frequently in the last 2 years to develop business links. Jersey’s close proximity and strong commercial relationship with the City of London, its flexible yet robust legal and regulatory regime, and the breadth of expertise on offer position it extremely well for business emerging from the powerful new economies in Asia. Through this ongoing programme of visits, Jersey based professionals have gained experience in terms of how they can assist Indian firms with their international expansion plans and wealth creation. Relationships are being built with representatives from India’s leading lawyers and accountants, trade bodies and associations such as the Indian Angels Network, Confederation of Indian Industry, Federation of Indian Chamber of Commerce and Industry and the UK India Business Council. Jersey's regulator is liaising with the Indian finance industry regulators, the Reserve Bank of India and Securities Exchange Board of India to assure them of Jersey’s exemplary and internationally endorsed regulatory standards. Alongside private client work, Jersey is experiencing increasing interest from Indian corporations wanting to list on the European exchanges, such as AIM and Euronext, to develop a foothold in Europe. Jersey has a track record in supporting corporate listings business through the formation of Jersey holding companies, particularly in the emerging markets of the world. There are currently over 90 Jersey domiciled companies listed on world-wide exchanges with a combined market capitalisation of more than £20 billion.
Jersey’s proximity to London and the European Union and its renowned expertise in company listings are key factors at present, and the finance industry is keen to develop this work on behalf of Indian clients. Legislation in Jersey is evolving to permit repatriation of profits back to India in a merger of Jersey and India businesses by amending Jersey’s Company Law and the Tax Information Exchange Agreement between Jersey and India is also being progressed by the respective governments. Jersey’s expertise as a wealth management location means that it is ideally placed to service clients in India. The recently introduced foundation vehicle is proving attractive to high net worth families and non-resident Indians seeking to effectively plan their international finances for future generations. Featuring some of the attractions of a trust vehicle, foundations also have several of the benefits of a company structure, including separate legal status. The finance industry in Jersey is well aware that it must constantly modify and adapt its offering and recognises that it needs to maintain its programme of regular visits. Trips to Mumbai and Delhi will continue on a regular basis so that the needs of Indian entrepreneurs and their advisers are closely understood. Jersey is committed to delivering a commercial environment that best suits India’s wealth generation strategies and objectives and is confident that it has a key role to play in terms of both inward and international investment. ■
“Alongside private client work, Jersey is experiencing increasing interest
from Indian corporations wanting to list on the European exchanges, such as AIM and Euronext, to develop a foothold in Europe
”
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page 10
Jersey Finance
Finance Update: For international investors and their advisors
Islamic Finance
Continuing innovation attracts
Islamic finance As Islamic finance continues to innovate “with competitive and cost efficient products and services, Jersey as a jurisdiction has the ideal regulatory, legal and tax regimes to enable such structures to work
”
By Simon Hodges Managing Director, Minerva (Middle East) Limited
Jersey is best known in the Middle East and North Africa region for its private wealth management and trust services. It has long been used by the Islamic finance industry for establishing trusts as part of the Sukuks (or Islamic bonds) structures. This reputation is now set to grow as a result of some recently established structured finance vehicles located in Jersey with UK and Dubai connections, which are starting to capture the attention of Islamic institutions and investors. Dar Capital, an Islamic finance institution based in London, has established two Jersey limited partnerships administered by Minerva Financial Services Limited, designed to engage in Islamic structured products, starting with ‘Murabaha’ trades using commodity contracts traded on the London Metal Exchange. The aim is to allow other Islamic investors to join as limited partners as the investment opportunities grow. These partnerships provide the ideal solution by exploiting the little known ‘Very Private Fund’ category in Jersey to create platforms for conducting Shariah compliant investment or financing transactions. Jersey offers fast-track establishment for private fund structures open to a maximum of 15 sophisticated or professional investors. These vehicles can be established in such a way that they simultaneously qualify as private limited partnerships and comply with the Shariah principles of ‘Mudarabah’ contracts, whilst not being subject to ongoing supervision or regulation in Jersey. Accordingly these private funds operate within a regulated environment but are not themselves encumbered with direct regulatory controls from the Jersey Financial Services Commission.
Mansur Mannan, Shariah Adviser and Consultant to Dar Capital, commented ‘We were surprised and pleased to discover how quickly these two structures could be set up in Jersey - and that the necessary financial services exemptions already existed to enable commodity Murabaha trades to be conducted without the partnerships needing to seek regulatory licences. We are now looking at developing this structure further, as well as seeking to provide innovative solutions for Islamic transactions that could ideally be wrapped into Jersey private fund structures.’ According to Advocate Simon Howard from Howard Law, who advised on the structuring of both entities, there are also interesting opportunities to use Very Private Funds as family limited partnerships to manage private asset allocation arrangements for family offices, or as estate and succession planning tools. A further area of commercial usage is in relation to the setting up in Jersey of retakaful schemes to bridge the reinsurance needs of takaful operators in the Middle East and Far East into the reinsurance market in London. These schemes can also be used to create private pools of insurance capital, which can be established as licensed captive vehicles in Jersey, or, with appropriate structuring, can operate as private mutual insurance syndicates without the need for direct licensing in Jersey. As Islamic finance continues to innovate with competitive and cost efficient products and services, Jersey as a jurisdiction has the ideal regulatory, legal and tax regimes to enable such structures to work. ■
“Jersey has long been used by the Islamic finance industry for
”
establishing trusts as part of the Sukuks (or Islamic bonds) structures If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
page 11
Jersey Finance
Finance Update: For international investors and their advisors
Wealth Management
Becoming a Jersey Foundation A significant level of “interest in migrating foundations to Jersey is expected
”
By Marc Guillaume Advocate, Appleby
In July 2009 regulations were passed in Jersey to enable certain foreign entities (“Entities”) to become Jersey foundations. The key questions are: ■
Which foreign vehicles may become Jersey foundations?
■
How cumbersome is the process of making the change?
■ How
much is it likely to cost?
as a foundation. The Notice must be published by a Qualified Person, who will then go on to make the formal application. Copies of the Notice must be sent to the Entity’s significant creditors and to the Registrar of companies in Jersey. It must state: ■ That ■
Eligible entities
the Entity wishes to be incorporated as a foundation
The Entity’s current home jurisdiction
■ The
type of vehicle that it is currently
The Foundations (Continuance) (Jersey) Regulations 2009 state that a “recognised entity” may continue as a Jersey foundation and a “recognised entity” is defined as “a body corporate incorporated or established outside Jersey that is within a class of bodies corporate designated by the Minister [for Economic Development]”.
Where a Notice cannot state that the Entity will be solvent following its continuation, specific approval for the migration must be obtained from the Royal Court of Jersey.
Currently, the bodies so designated are:
Application
■ Panama
The Qualified Person must then make the application for continuance. The application must be accompanied by, inter alia, the charter which the Entity will have once it is incorporated as a foundation and a certificate confirming a number of points including that:
■
Private Interest Foundations
Bahamas Foundations
■ Liechtenstein
Stiftungs
■ Liechtenstein
Anstalts
■
St Kitts Foundations
■ Nevis ■
Multiform Foundations
Malta Private Foundations
The Process Notice of intention
■ Whether,
on incorporation, the new foundation would be
solvent
■ A specific Qualified Person will act as the Qualified Member
on the Council of the new foundation ■ Regulations
for the foundation have been approved by both the Entity and the Qualified Member
■
A guardian has been chosen for the foundation
■ The
The first step is the publication of a notice (the “Notice”) stating the Entity’s intention to apply for continuance in Jersey
making of the application is not prohibited by the laws of the Entity’s home jurisdiction continued...
“The migration process itself is relatively straightforward and the costs involved are not prohibitive ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Wealth Management
“The migration process itself is relatively straightforward and the costs involved are not prohibitive ” ■ Any
authorisations required by the laws of the Entity’s home jurisdiction to the making of the application have been obtained
■ Following
incorporation as a foundation, the Entity will cease to be a duly incorporated or established Entity under the laws of its home jurisdiction
■ The
interests of the creditors of the Entity will not be unfairly prejudiced by the application
Incorporation Should the application be approved, the new foundation will be entered into the foundations register and a registration number will be issued in respect of it. The Entity will then continue as a Jersey foundation, albeit that it will retain all of the property, rights and obligations it had immediately prior to its incorporation as such.
Costs will also be incurred in preparing and publishing the notice, in drafting the charter and regulations to be adopted by the new foundation and in the work done by the Qualified Member in gathering the information required to produce the Certificate. These costs will, inevitably, vary greatly depending on the nature and complexity of the original entity. Jersey - an attractive choice A significant level of interest in migrating foundations to Jersey is expected. As a leading international finance centre and internationally recognised for its service levels and high standard of regulation and supervision, Jersey is an attractive choice. The migration process itself is relatively straightforward and the costs involved are not prohibitive. ■
Costs The Jersey Financial Services Commission’s standard fee to consider an application is £500, although it has power to ask for security for its expenses beyond this sum where it considers it likely that the cost of processing the application will exceed this.
Characteristics of a Foundation ■
It can hold assets in its own name
Key advantages of a Foundation ■
■ I t
can enter into a contract, it can sue and be sued in its own name
■
I t has a Council of Members to administer the business of the Foundation
■
here are no shareholders, hence some refer to it as an T Orphan Entity
■
It can have one or more objects which can be either charitable or non charitable and/or be for the benefit of one or more beneficiaries
I t can be used for general commercial transactions provided that they are incidental to the attainment of its objects
■ It
can be seen as an alternative to Trusts, particularly in parts of the world where the concept of Trusts are unknown or alien
■
Charities and Philanthropic organisations can use Jersey Foundations as a vehicle for distribution
From 'Jersey Foundations: a new string to Jersey’s bow’ by Oliver Donagher, Horizon Group (Finance Update, Issue 1)
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Jersey Finance
Finance Update: For international investors and their advisors
Funds
The Alternative Investment Fund Managers Directive How is it shaping up? As a third country with “a significant Alternative Investment industry, Jersey has been closely monitoring events in Brussels
”
By Nick Silvester Senior Manager, PricewaterhouseCoopers Channel Islands
Released in April 2009, the European Commission’s draft Alternative Investment Fund Managers Directive (the Directive) has caused waves of consternation across the industry in Europe and in ‘third countries’ such as the United States and indeed Jersey . The key issues are currently being addressed during the co-decision negotiations between the Council of Ministers and the European Parliament. In the coming months, the shape of the legislation that eventually comes into play is likely to be determined. What this will be is still unclear, although some indications of the direction that the Directive will take have begun to emerge. It is evident that some form of legislation impacting the Alternative Investment industry very broadly will be introduced. Jersey – a significant Alternatives Industry As a third country with a significant Alternative Investment industry, Jersey has been closely monitoring events in Brussels. Jersey’s funds industry plays in an important role in the flow of investment into and around Europe. At June 2009, Jersey businesses were servicing 1,322 Funds with a total estimated value of nearly £200 billion1. Of these, Alternative Investment funds, and in particular Private Equity and Real Estate funds, were the most prevalent. The draft Directive proposes significant reforms particularly in respect of the service providers to Alternative Investment Funds marketed to investors from EU member states. Those proposals include specific requirements where the fund entities or their service providers are domiciled in a third country. Progress of the legislation The Council working group has held many meetings since June 2009 to discuss the proposal and has homed in on some particularly controversial areas. After considerable efforts to arrive at a consensus, the Swedish Presidency issued a revised draft Directive, which has become known as the ‘Swedish Compromise’. The Swedish Compromise represents a substantial advance over the original draft produced by 1
the Commission in a number of key areas, particularly those affecting third countries. Overall, the Swedish compromise shows a more pragmatic approach and a much greater appreciation of the structure of the industry. In the European Parliament, the key committee for financial services legislation – the Economic and Monetary Affairs Committee (ECON) – was formed in Spring 2009. Following an initial period of deliberation, a first exchange of views on the Directive proposal took place in September 2009. That meeting confirmed Jean-Paul Gauzès (EPP, France, and a veteran MEP and ECON member) as the lead rapporteur on the dossier. M. Gauzès released a working document setting some key issues as the basis for discussion at ECON’s second exchange of views in October. ECON recently held a workshop to discuss the issues with a broader range of stakeholders. M. Gauzès presented his draft report on the dossier on 25 November 2009; this will form the basis for amendment suggestions from ECON members generally. Looking forward Jersey must continue to pay close attention to developments, even though recent signs from Brussels appear more positive. The legislative process still has a long way to go and, in particular, it needs to be born in mind that the Swedish Compromise is only the view of one of the three entities that has a voice in this debate. It remains to be seen whether the European Parliament and the Commission will get into line behind the Council of Ministers, or whether, for example, third country issues will re-surface. The outcome of the debate over the Directive itself is obviously crucial but it is also important now to begin focusing on the more detailed, technical issues which may be left to ‘Level 2’ implementing measures. When the draft Directive was published in April, Jersey’s instinct was to engage quickly with local industry, with its clients and at the political level. This approach will likely pay dividends when the shape of the Directive becomes clearer and the time comes to respond to its requirements. ■
www.jerseyfsc.org
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Jersey Finance
Finance Update: For international investors and their advisors
Legal
Jersey introduces measures to
protect investors In the current climate “depositors are naturally seeking reassurance regarding their savings
”
By Alison McFadyen Chief Executive Officer, Standard Chartered (Jersey) Limited
In the current climate depositors are naturally seeking reassurance regarding their savings. Jersey’s Depositors Compensation Scheme (DCS) was introduced in November 2009 to provide protection up to a maximum of £50,000 per depositor per Jersey banking group. This matches the protection offered elsewhere in the British Isles and the scheme covers both resident and non-resident depositors.
A depositor with more than £50,000 with a failed bank would receive compensation from the DCS only up to the limit (i.e. £50,000), however they could also receive a proportion of any higher balance from the liquidation of assets of the failed bank. Which deposits/depositors are protected? ■
eposits held by private individuals (i.e. retail deposits) D and charities with Jersey bank accounts are protected
■
rotection does not P partnerships or trusts
■
eposits held by sole traders in their own name D are protected
■
I n keeping with international standards, protection extends to deposits held by residents and non-residents
■
Deposits in foreign currencies are also protected
How does the scheme work? In the unlikely event that a Jersey bank should fail, compensation to depositors would be paid as follows: ■
o claim compensation a depositor would need to apply T to the DCS and provide proof of their deposit with the failed bank
■
ompensation would be paid up to a maximum of £50,000 C per depositor (£100,000 for joint account holders), per Jersey banking group
■
he DCS would assume that the money in a joint account T is split equally between the named account holders, unless evidence showed otherwise
■
t he first £5,000 of a valid claim would be paid within 7 working days
■
The balance would be paid within 3 months
extend
to
corporations,
SMEs,
Deposits must be held in Jersey with banks regulated by the Jersey Financial Services Commission in order to qualify. A list of these banks can be found on the Commission’s website. The introduction of the Depositor Compensation Scheme is an important step forward for Jersey - it provides protection for local depositors and it also keeps Jersey in line with other financial centres. ■
“Deposits must be held in Jersey with banks regulated by the Jersey Financial Services Commission in order to qualify ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Tax
Disclosure facilities targeting offshore assets
The world is seemingly “awash with disclosure initiatives designed to encourage taxpayers to fully disclose their financial affairs By Dawn Register Senior Manager, BDO
”
The world is seemingly awash with disclosure initiatives designed to encourage taxpayers to fully disclose their financial affairs to enable tax administrations to maximise their tax take. So what are they all about?
places the onus on service providers, such as banks and trust companies, to ask UK-based or resident customers to prove that all relevant matters are appropriately declared to HMRC, before they can continue providing services to the client.
New Disclosure Opportunity
The key aspects are as follows:
The New Disclosure Opportunity (NDO) is the second, and supposedly final, ‘amnesty’ initiated by the UK’s HM Revenue and Customs (HMRC), following on from the Offshore Disclosure Facility (ODF) initiative held during 2007. HMRC remains concerned that a significant loss of tax to the UK Exchequer through non-disclosure involving offshore bank accounts and structures still exists, and therefore this NDO is open to those who hold, or have held, either directly or indirectly, an offshore account or asset connected to a loss of UK tax.
■ Open
from 1 September 2009 until 31 March 2015
■ Penalty
of 10% in most cases, and interest on the tax liability
■ Liechtenstein
financial intermediaries will request that all relevant clients provide confirmation of their UK tax position within a specific timeframe
■ The
financial intermediary must withdraw their services if the client is unable to provide the relevant confirmation
■ Liability
HMRC issued Notices under Schedule 36 of the Finance Act 2008 to over 300 financial institutions, enabling an Inspector of Taxes to require a third party to deliver documents without naming the taxpayer to whom the notice relates. The NDO was formally launched on 1 September 2009, registration was required by 30 November 2009 (later extended to 4 January 2010) and a final disclosure deadline of 12 March 2010 was given. The penalties are as follows: ■ 10%
penalty, including interest on the outstanding tax liability, for those making a complete and accurate disclosure
■ 20%
penalty for those contacted by HMRC as part of the ODF but who did not make use of that facility
■ At
least 30%, rising to 100%, for those taxpayers who have not come forward but are found to have unpaid tax liabilities, including an increased likelihood of prosecution. A ‘name and shame’ policy will also be introduced.
Liechtenstein Disclosure Facility Potentially more significant is the agreement made with Liechtenstein, the Liechtenstein Disclosure Facility (LDF), which
assessed restricted to the period after April 1999
■ Taxpayers can elect to apply a special Composite Rate of 40%
to cover all taxes ■ Immunity
from prosecution for anyone who makes a complete and accurate disclosure
The objective of this agreement, and the associated disclosure facility is to ensure that, by the end of this specific disclosure agreement, no individuals liable to UK tax are using Liechtenstein without accounting for any tax that may be due. Eligibility The NDO is open to offshore bank account holders who opened accounts through a UK branch or agency of that bank. This is the distinguishing factor between qualification for the disclosure opportunities. The special terms of the LDF are not available to those with offshore accounts opened via a UK branch or agency. This article is only intended to provide a brief summary of these disclosure initiatives and is not intended to provide advice or guidance, therefore professional tax advice should be sought where considered relevant. ■
This article is only intended to provide a brief summary of these disclosure initiatives and is not intended to provide advice or guidance, therefore professional tax advice should be sought where considered relevant.
If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
page 16
Jersey Finance
Finance Update: For international investors and their advisors
Property
Increased interest in
Jersey Property Unit Trusts With the increased interest in UK “property, there has been an upsurge of enquiries relating to the establishment of JPUTs
”
By Carl O'Shea Advocate, Crill Canavan
Despite the removal of the seeding relief exemption from UK Stamp Duty Land Tax in March 2006, Jersey Property Unit Trusts (JPUTs) have remained popular with individuals, fund promoters and investment groups worldwide for the purchase and holding of UK property.
■ Inheritance
With the increased interest in UK commercial property and London residential property, following the rallying call that we have finally reached the bottom of the market, there has been an upsurge of enquiries relating to the establishment of JPUTs. In addition, with the proposed income tax increase for UK based top earners, such persons are now seeking new ways of generating wealth in a tax efficient manner.
2. Loans/Financing/Security
What is a JPUT?
JPUTs are extremely flexible and tend to be less restrictive than their cousins in other jurisdictions (such as UK Real Estate Investment Trusts). A few examples of this are:
A JPUT is a specialised trust, with the trustee holding the assets on trust for the unit holders (the investors). The trust instrument sets out the terms of the trust and particularly the rights of the unit holders in relation to both capital and income. What are the benefits and why have they remained popular?
Tax - another tax planning advantage is that units in the JPUT are considered to be non-UK situs assets for UK inheritance tax purposes
■
A unit, for the purposes of the Security Interests (Jersey) Law 1983, is equivalent to a share in a company and, as such, if required can be subject to a security interest arrangement for the purposes of securing a loan. 3. Flexibility
■
o restriction on the percentage interest of a unit holder or N the number or type of classes of units
■
No limit on gearing
■
I t is possible to make distributions from the capital of a JPUT without the need to meet solvency or other tests
1. Tax advantages Jersey Provided that the JPUT has no Jersey resident unit holders, it will not be subject to any tax in Jersey. There are no taxes, registration fees or duties payable in Jersey in respect of the establishment or administration of a JPUT.
■
■ No
portfolio restrictions - the portfolio can consist of a single property or many properties
■
an be open ended or closed ended and may easily be listed C on the London Stock Exchange or the Channel Islands Stock Exchange
■ Procedure
UK ■
tamp Duty Land Tax - the sale of the units can be made S free of any UK Stamp Duty Land Tax
I ncome - if the JPUT is structured as a 'Baker Trust' it will be transparent for UK income tax purposes. The benefit is that any income of the JPUT will be directly attributable to the unit holders (pro rata) and they will be able to set off any expenses of the JPUT against such income. Distributions by the unit trust can usually be paid gross to non-Jersey resident unit holders apital Gains Tax - where the JPUT is managed and C controlled in Jersey and the trustee is based offshore, the trustee will be exempt from UK capital gains tax on the sale of UK real estate
for winding up of a JPUT is straightforward and relatively quick
4. Tried and tested JPUTs are regularly structured as collective investment funds. UK advisers and clients are familiar with and understand the structure and are therefore happy to replicate it for new investments. Since administrators in Jersey have being working with the structure for years now they have established significant expertise in this field. From a regulatory consent point of view, this is determined by the number and type of investors. For the more private structure, it is possible to obtain consent within 3 days. ■
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page 17
Jersey Finance
Finance Update: For international investors and their advisors
Technology
Operating around the clock Thanks to a robust communications infrastructure
business continuity industry “inThe Jersey is constantly adapting and changing its solutions in order to support the needs of its clients in the face of new challenges By Dr Ian Jauncey Chairman, Itex
”
Business continuity plans are a mandatory requirement in many jurisdictions. Business continuity has therefore become an increasingly central part of business planning and Jersey has experienced a continued growth in demand for service provision, with cross-jurisdictional solutions to aid the prevention of disasters and to mitigate risk. There is no way of running systems or communicating without risk; it is how an organisation approaches the risk that increasingly determines its success. Not only must businesses cope with predictable developments such as changes in legislation and advances in technology, but they must also cope with unexpected events such as power outages, network failure, fire, flood and even the loss of key personnel. The great majority of business disruptions that require some sort of recovery invocation are due to everyday matters such as virus attacks, utility failure or fire. For many organisations today, the greatest risk to business continuity is Swine Flu.
its clients in the face of new challenges. These solutions are possible because of Jersey’s excellent telecommunication links, which are founded on fibre optic connectivity both in Jersey and externally to other jurisdictions. The reliability of the network enables the industry to provide resilient business continuity solutions that are dispersed across different jurisdictions, further reducing the risk of disruption. Technology businesses become involved at the outset helping clients during the planning phase, as well as providing complete outsourced solutions. They are also called upon to test business continuity plans and to train staff in their implementation. There are many solutions that not only aid the prevention of disasters and mitigate risk but that are increasingly vital as businesses move towards providing global, 24hour, uninterrupted services. With a robust and innovative communications infrastructure and an extremely high level of technical expertise, Jersey is well placed to deliver those solutions around the world. ■
The business continuity industry in Jersey is constantly adapting and changing its solutions in order to support the needs of
“Jersey has experienced a continued growth in demand for service
provision, with cross-jurisdictional solutions to aid the prevention of disasters and to mitigate risk
”
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