JADO Newsletter - Quorum Spring 2015

Quorum ISS U E

11 2 0 1 5

A newsletter for Jersey Directors

M E M B ERS E D ITION

this issue Political & Credit Risk Practice

P.2

From The Chair’s Desk

P.3

Jersey, Trusts, Tax and The EU

P.3

JADO Annual Black Tie Dinner

P.4-5

Regulatory Update

P.6

The Importance of Data Protection

P.7

Using Social Media?

P.7

Q and A Session

P.8

Committee and Contacts

P.8

Mission Provide members with

regular and fast track information, comment and analysis on matters relating to the broad work of directors in Jersey;

offer a variety of forums for directors to discuss, debate and share information by establishing regular meetings, networking, CPD sessions and JADO web-based discussion forums; and in pursuit of these goals:- become a representative body on local matters that relate to the work of directors in Jersey, be they legislative, regulatory or economic.

by Mark McNicholas

“You’re face to face with the man who sold the world” – David Bowie The above lines were written in the early 1970’s and, as talented as the author is, I doubt that they were conceived as a warning of the potential for a future dystopian world run by recalcitrant hedge fund managers. That said, there is no escaping the fact that we are operating in an ever more globalised market.

As directors, our business ambitions should be focused on achieving a strategic fit with our environment.

This approach to strategy implies a primary focus on looking outside of the immediate business surroundings and considering the external political, social, regulatory, economic and technological environment, identifying changes and trends and acting accordingly.

As such, the theme of this edition of Quorum is the external spheres of influence that affect business strategy. I am delighted to have three excellent contributions from Harriet Brown, Henry Burton and Julian Box that examine the legal, political and technological arenas respectively. In addition and following on from his recent presentation at the Town Hall, as part of our CPD programme, David Oliver from the JFSC has kindly provided us with an informative article regarding regulatory updates for directors.

On the subject of politics, we have the impending General Election looming and whether the prospect of the next two months of incisive political debate / juvenile name calling (delete as appropriate) leaves you excited or bored to the back teeth, there is no escaping the fact that the offshore financial sector should follow the events closely.

On a lighter note, our Annual Dinner at the St Brelade’s Bay hotel in February was well attended and a great success. You will see from the photographs on pages 4 and 5 that everyone had a great night out. The event was generously sponsored by Kendrick Rose and

I must take this opportunity to pay special tribute to Shelley Kendrick and our own Gayle Swanson for taking on the potentially “dignity destroying” challenge of having to scale a table ( in evening dress and heels) to deliver their excellent speeches to the assembled audience. Ladies, I salute you....

I would also like to take this opportunity to thank David Evans for delivering a superb set of photographs from the evening.

I attended the AIC UK conference in London this month and one of the most interesting discussions was on the subject of Getting Your Message Across. The revolution in communication over the last decade does not just relate to the channels people use but also the type of content that investors and stakeholders want and their attitude to companies that are (or are not) willing or able to provide it. On a precautionary note, Shelley Kendrick has kindly contributed an article to this edition highlighting the potential pitfalls of errant social media use.

Members are reminded that the Association continues to run a free Continuous Professional Development programme which is included in the annual membership fee. Details of forthcoming events are contained within this edition and also on our website, www.jado.je.

We have also added a (hopefully) light hearted addition to the Newsletter titled Welcome to your Committee. I volunteered to bare my soul for the first edition but have been assured by my fellow Committee colleagues that they are all chomping at the bit to provide personal exposés in future. Time will tell!

Well that concludes the traditionally difficult second edition under my tenure as Editor. I would like to thank all our contributors to this newsletter and special thanks to Jackie and Joanne at Scott Graphics for their assistance in getting this to print. I would conclude by saying that the success of our Association is very much dependent upon an active membership and therefore would ask you to consider two things; firstly, what can you contribute to JADO and secondly to spread the word to potential new members so that we can can continue to augment our standing in Jersey’s business community.

Any citations or views expressed are the authors own and although believed to be accurate should not be relied on as statements of fact or advice.

Political & Credit Risk Practice

by Henry Burton

Howden Insurance Broker’s Political & Credit risk Practice has seen a significant increase in private equity clients examining the merits of Political Risk Insurance (“PRI”) over the last few years.

In this article, Henry Burton, Director – Howden Channel Islands, explains why this may be the case and gives an overview of the London Political Risk market.

With sluggish economic growth bringing a number of developed economies to the point of deflation, investors and fund managers alike are increasingly turning to emerging or ‘frontier’ economies to invest, offering potentially higher returns.

As always, higher returns are inherently linked to higher risk and in emerging or frontier economies the risks to businesses and, ultimately investors, are often political.

In 2013 Turkey, for example, was showing impressive rates of economic growth large scale construction projects were being approved and the State had paid off its remaining debts to the IMF. Yet only 12 months later violent protests against Prime Minister Erdogan resulting from the continuing fall out of the Syrian crisis led to a slowdown in economic output, making investors increasingly nervous. In January this year EY’s Corporate Finance Director for Turkey suggested that unrest in neighbouring countries, albeit in many cases hundreds of miles away from the Turkish border, has scared away significant potential investment resulting in an estimated $20 billion deficit between what a healthy Turkish economy requires and current annual investment levels.

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The situation in Turkey is by no means isolated. Recent events in Ukraine, Libya and Egypt have also reinforced the risk that investments appearing to offer attractive rates of return can quickly become white elephants as geopolitical events unfold.

Despite investment managers undertaking significant due diligence on emerging market investments, political risks are by their very nature subjective, fluid and difficult to anticipate. As one political risk insurer recently lamented after paying a claim in what had been perceived as a benign jurisdiction, “nobody has a crystal ball”.

Indeed according to EMPEA’s 2014 Global Limited Partner Survey ‘political risk remains the primary deterrent for Limited Partners to begin investing in certain emerging markets’.

These markets include Russia / CIS, Turkey, MENA, LATAM (ex Brazil) and Sub-Saharan Africa.

The challenge faced by managers is simple - how can I benefit from the rates of returns these emerging markets offer, yet mitigate exposure to political risk?

The short answer is Political Risk Insurance (PRI). PRI was developed to provide protection against a number of tangible political risk events; including (but not limited to) war, political violence, expropriation, currency inconvertibility and breach of contracts by government entities. Political Risk insurance policies cover the value of the net investment made by a fund or company when acquiring the asset(s).

The London’s Political Risk market has grown to be largest of its kind in the world, made up of 50 ‘A’ rated insurers. The Lloyds syndicates who make up just over half of the market, have paid over USD $2 billion in claims since 2008. As well as providing fund managers with protection from political risk events, the PRI policy can be used to broaden a fund’s investment horizon by unlocking markets which were previously ‘off limits’ due to country risk, identified through due diligence. Finally, the PRI policy has been used to assist in the initial capital raise process for new funds by providing investors with a level of tangible comfort when deciding whether to invest in funds with an emerging market exposure.

The political risks coverage offered by the London insurance market are constantly evolving to mirror the risks faced in emerging or frontier markets. Currently the market offers protection against: Expropriation and Nationalisation Non-payment by Public Buyers Political Violence (including Business Interruption)

Strikes, Riots or Civil Commotion Forced Abandonment and /or Forced Divestiture Contract Frustration (pre or post shipment)

Recent Examples:

Unfair Calling of Bonds Arbitration Award Default for Government Contracts

Non-honouring of a Guarantee Trade Disruption Insurance

Refund Guarantees on Shipbuilding Contracts

Confiscation of Mobile Assets Inconvertibility / Non-Transfer of Funds

A UK private equity house was seeking to make a $20m investment into the energy sector in Turkey, but were concerned about recent ISIS related political disorder and rhetoric. Political Risk Insurance policy was put in place covering ‘War, Civil War, Expropriation and Political Violence’ affecting the asset. The full value of the asset was insured for 1% of the asset value per annum.

A UK private equity house was seeking insurance protection against a $15m land investment in Myanmar against state expropriation. A Political Risk policy was put in place covering the full value of the investment at 2% of the asset value per annum.

From The Chair’s Desk

There has been a lot of activity since our last edition. We held our Black Tie Dinner at St Brelades Bay hotel on the 6th of February and it was great to see so many members and friends of the Association in attendance. A wonderful night was had by all and special thanks must go to Toni Bracken and Aimee Maskell from the Committee for organising the evening, aswell as Shelley Kendrick of Kendrick Rose for sponsoring the event. From a training and education perspective the last quarter of 2014 was a busy one with the Directors Development Programme in addition to our regular CPD sessions.

by Gayle Swanson

2015 is also panning out to be an active year for your committee, with ‘JADO’ brand awareness and investing in our leaders of tomorrow being key initiatives. Our 2015 CPD calendar is also looking bigger and better than ever, and we already have sessions scheduled covering Pensions, HR, the Macro environment, IT, Insurance and Finance to name but a few. As you are aware our mission is to provide you, our members, with regular and fast track information on matters that impact you, and if there are any topics you think we should cover through our CPD programme, Tracey Bull, our head of Training & Education would be delighted to hear from you.

Jersey, Trusts, Tax And The EU

by Harriet Brown

It is commonly thought that since Jersey has only a limited legal relationship with the EU, that its impact upon Jersey’s trust industry is similarly limited.

The situation is not quite so simple. By understanding this, we can sometimes obtain a more favourable outcome for trusts and trust beneficiaries.

to change its own tax code. The Code is said to apply to “business activity in the Community” but applies to Jersey because of an agreement to be bound by the Code in 2002. This permitted an enquiry into Jersey’s zero/ten regime in 2010, and its subsequent repeal2.

There are two key ways in which EU law is relevant to Jersey trustees:

The second is that EU law may assist Jersey trustees because a number of the fundamental freedoms enshrined in the EU Treaties could apply between EU Member States and third countries (i.e.

Jersey). Certain freedoms include the free movement of capital. Additionally, Article 355(3) potentially brings Jersey within scope of other EU provisions (such as freedom of establishment) as “a European territory” for which the UK has responsibility for external relations. These freedoms are likely to be the most pertinent to Jersey trustees

The first is political pressure applied through institutions of the EU. The EU Code of Conduct on Business Taxation has previously been used to force Jersey

In a tax context, these freedoms can be essential to a Jersey trustee opposing charges made under UK anti-avoidance provisions.

Anti-avoidance provisions

The legal relationship between Jersey and the EU can be simply stated (though it remains somewhat ambiguous1): Protocol 3 of the UK’s Accession Treaty of 1972, and Article 355(5)(c) of the EU Treaties establish that Jersey is part of the Customs Union and is within the Single Market for the trade in goods, but is otherwise a non-member state.

frequently infringe these freedoms, and can render such provisions inapplicable, saving either trustee or beneficiary tax.

Thus EU law cannot, and should not, simply be ignored by Jersey trustees. It can prove a valuable response to Revenue enquiries. In addition, the political climate in the EU can determine Jersey law and trustees should have a good awareness of this too.

About the author: Harriet is a Jersey Advocate and English barrister specialising in trusts and tax law. She is author of the Jersey Law of Trusts (4th Edition, Keyhaven Publications) and a co-author of the Interaction of EU Treaty Freedoms & the UK Tax Code (Keyhaven Publications).

See Mullan and Brown, The Interaction Of EU Treaty Freedoms & The UK Tax Code, paragraph 5-2. 2For further details of this see the Jersey and Guernsey Law Review, October 2011, Brown, Deemed Dividends, Zero/Ten, Jersey And The EU 1

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JADO Annual Black Tie Dinner

The event took place within the splendid surroundings of the St Brelades Bay Hotel.

Guests enjoying a pre prandial drink or two.

Carl Methven, Mark Hucker and Louise Cram.

The Kendrick Rose team ; Lauren Minchinton, Shelley Kendrick and Nicola Pawley.

Our own Vernon Breese in a familiar pose of holding court!!

Our Chair, Gayle Swanson delivering her welcome speech.

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Shelley Kendrick of Kendrick Rose, the events sponsors, addresses the audience.

The evening event was attended by members as well as guests from Jersey and beyond.

Howden Insurance’s gentlemen - only table deciding on who was going to hit the dancefloor first.

Mark Grenyer and Bill Sarre too engrossed in conversation to smile for the camera!

The Pavilion Fiduciary team were out in force for the evening.

Music was provided throughout the evening by two local artists Bossa Baseline and The Collective.

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Regulatory Update by David Oliver

Deputy Director, Trust Company Business Jersey Financial Services Commission

A number of recent matters have arisen in the area of registration criteria/thresholds. This article provides an update for individuals acting as directors.

The following update should be viewed in conjunction with the Guidance Note entitled “Natural persons undertaking the activity of acting as a director under the FS(J)L”.

“By way of Business” refer Article 2(1) FS(J)L Not withstanding the raft of guidance on this subject and the length of time the regulatory regime has been in place, this area continues to be challenging, e.g. the Commission has been in recent dialogue with an individual who has suggested that holding over 100 separate directorships is not by way of business.

The term ‘by way of business’ is not defined within the FS(J)L, and as such is open to interpretation. In the Commission’s view, the definition would exclude those persons conducting any of the activities contained in the subsequent Article 2(4), if they carried out such activities in an honorary, recreational or charitable capacity. The following are factors which could also indicate that a particular activity is being undertaken ‘by way of business’: the amount of time taken to fulfil the responsibility is significant; the individual has no other employment;

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the level of income / benefit received (both in terms of the quantum and as a proportion of the individual’s total income) is significant; the existence of a business relationship through which habitual or frequent or regular appointments are introduced; the individual claiming business expenses within the individual’s Jersey Income Tax return;

“In or from within Jersey” - refer Article 7 FS(J)L The Commission has observed individuals, who have confirmed that they are Jersey resident, argue that as they spend most of the working week overseas (predominantly Switzerland) they do not conduct the activity of being a director in or from within Jersey.

In the Commission’s view, if anything goes wrong clients and the financial press will not appreciate the subtlety of where business is being carried out; the focus will be on the “Jersey resident individual”.

For the purposes of determining whether an individual is required to register under the Law in terms of acting as a director, it is the Commission’s belief that the provisions of Article 7(1)(a) were drafted to capture Jersey resident individuals. There was no intention for this provision to capture non Jersey resident directors that may attend board meetings on a periodic basis in Jersey. Similarly, a Jersey resident individual cannot claim that, as they attend board meeting held outside of the Island, they are not conducting financial services business “in or from within Jersey”.

The Commission would suggest that acting as director is a continuous role which cannot be turned on or off depending on the physical location of the individual when attending board meetings. It is an unremitting responsibility. It would seem inconceivable that a Jersey resident director would refuse, if asked, to engage in that company’s affairs because he/she was in Jersey and not at the Board Meeting. It cannot be the case that acting as a director is confined to attendance at Board meetings, irrespective of the frequency of such board meetings.

The Importance of Data Protection that US companies agreed to adhere to EU data protection laws). The US government issued a warrant for access to a customers emails that resided in Dublin.

by Julian Box

CEO and Co-Founder, Calligo

Data is the new global currency with businesses and jurisdictions striving to be seen as best placed to service this rapidly growing sector which covers anything to do with data, whether that’s storage of personal or sensitive data, data analytics and what’s known as “big data”. All of these data focused services revolve around the ability to store data safely and securely, whilst allowing analytics across data sets to happen super fast and on-demand.

Data is being collected from nearly every device these days; from what we buy online and in shops, how much fuel our cars use, what we like and don’t like, to medical conditions. Our lives are connected in so many ways and the amount of data being created is growing at an exponential rate and this rate of growth is only getting faster. This is adding a huge challenge to organisations when it comes to planning and controlling their data requirements.

So where you store your data should be of primary consideration. Once you have selected your location you should start looking at the service or service provider that will be delivering the data protection service and who has access to your data.

By way of example, following a recent ruling in the US, it is looking likely that a legal precedent will be set allowing the US government to gain access to data that doesn’t reside within the US and will not require them to respect the local data protection laws and comply with the local legal system to request access to the data. This particular case is centred on data held by Microsoft on its Dublin based servers (therefore under EU/Irish Data Protection laws as well as the US/ EU Safe Harbour agreement which states

Microsoft has attempted to challenge the warrant on the basis that the information was stored exclusively on servers outside the US but has so far failed. Microsoft are currently in contempt of court and looking to launch a second appeal.

With all these various issues going on you will not be surprised to hear that the EU are in the final stages of introducing a new Data Protection law that will replace the current EU Data Protection Directive.

Using Social Media?

Senior Executives Be Warned!!

I was privy to an interesting situation recently that should concern anybody in a senior role using Facebook, Twitter, or other social media platforms socially.

A very good client in a large organisation contacted me to discuss a new resourcing project they urgently needed assistance with due to the fact they had taken a last minute decision to withdraw an offer to a candidate for the role of Managing Director. I met with the HR Director and asked what had happened?

In today’s world of stringent employment legislation references don’t usually reflect anything sinister, only dates of employment and salary so that wasn’t likely to be the issue.

I asked did the candidate fail at the last hurdle of what had been a very lengthy interview process, including psychometric assessment.

This new law has many tighter requirements on businesses to ensure the safety and privacy of the data they hold, including new privacy compliance requirements that will require all “applicable” businesses to appoint a Data Privacy Officer who will be required to ensure that the respective organisation complies with the necessary standard of procedures and processes in operation.

Jersey will also be required to align their own Data Protection laws with the new EU Data Protection law. Jersey companies are likely to receive circa two years to meet this requirement. Failure to adhere to this could see Jersey companies prohibited from conducting business with EU citizens and organisations.

There are a lot of important changes that are about to start coming into effect and all Jersey companies will be touched (in some way) by them with the Directors of these companies being held ultimately responsible. My advice is to start researching and planning now.

It was interesting to hear that the company had located and trailed back through the candidate’s social media accounts, including Facebook and Twitter as part of their checking process. They found images of him in a bathtub and some pretty foul commentary between friends relating to a golf trip. Clearly, this could of course be easily dismissed as “boys’ banter” if this conversation had taken place in a bar. However, from a company perspective, senior executives are considered major brand ambassadors in the public arena, negative publicity and association with the company’s brand in the public domain is viewed as extremely damaging and detrimental to reputation.

Whether you like it or not, some employers will review social media. Even if noting “all views are of my own opinion” on your profile is not going to be the “get out of trouble quick” clause! It’s common sense to manage your professional presence across all of the social media channels you use.

Shelley Kendrick is Managing Director of executive recruitment specialist and HR consultancy, Kendrick Rose.

More information about Kendrick Rose can be found at www.kendrickrose.com

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Q + ? A

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session with

NAME: Mark McNicholas

PLACE OF BIRTH: Birkenhead, Merseyside.

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Q Present occupation?

A Principal of JLA Real Estate Finance Limited, a debt advisory

business. Authorised by the JFSC to provide directorship services under a Class G licence.

Q Professional resume?

A Joined RBS straight from University and after the graduate

training programme, moved to London and joined the Bank’s newly formed Property Finance Group in London in 1993.

My interview for this job was conducted over a liquid lunch in the Jamaica Inn, off Cornhill, and was a good intro to City life!!

I have remained in the real estate finance sector ever since.

Q When and what brought you to Jersey?

A Moved here in the late 1990s to head up the real estate finance

team for RBSI. The business culture was completely different but I did not miss the commuting.

Q 3 things that help you relax?

A A good game of squash, a glass or two of a decent red with my wife Alison and doing the ironing with Radio 6 on.

Q 3 things that keep you awake at night?

A Waiting for the alarm to go off for the 7am flight out in the

morning. Liverpool losing to Everton (I generally sleep well) and Nigel Farage.

Q 5 ideal dinner guests?

A Bill Shankly, Brendan Behan, Joe Strummer, Jimmy McGovern, Stan Laurel.

Q Favourite book?

A The Ragged Trousered Philanthropist.

Q Favourite film?

A The Godfather.

Q Saturday night song?

A Streams of Whiskey by The Pogues.

Q Sunday morning song?

A Police and Thieves by Junior Murvin.

Q 3 Things to take with you to a desert island?

A My three teenage children (to see how they cope in a non wifi zone), my iPod and my squash racquet (just in case!).

And finally... “not a lot of people know this” - my Politics tutor at Newcastle University was the late, great Mo Mowlam.

CPD Future Events We are delighted to confirm the Association’s 2015 CPD programme as follows:-

Topic

Presenter

Date

Venue

Time

A Directors Guide to Corporate Recovery

Timothy le Cornu, KRYS Global

2 April

Town Hall

12.30 - 2pm

Investment Outlook for 2015

Oliver Stones, Quilter Cheviot

14 May

Town Hall

12.30 - 2pm

CERTIFICATES OF ATTENDANCE WILL BE ISSUED If you would like to book places for any of the above events, please contact Aimee Maskell, at aimee@amtopmsecretarial.com

An Introduction to Your Committee

Contacts Gayle Swanson, Chairperson email gayle.swanson@je.bnpparibas.com Secretary Aimee Maskell

Treasurer Ewan Spraggon

Legal Counsel Mark Chambers

Events Toni Bracken

Website & IT Karl Anderson

Special Projects Strategy & Miguel Arraya Initiatives Helen Gale

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Chairperson Gayle Swanson

Deputy Chair Vernon Breese

Training & Education Tracey Bull

Aimee Maskell, Secretary email aimee@amtopmsecretarial.com

Regulatory Editor of Memberships Management Quorum Mo Baluchi Antonia Burgess Mark McNicholas