Supervisory and Licensing Regime
Jersey has an extremely well-developed legal and financial infrastructure for trust management. With such a large established base of trusts, and a growing reliance on corporate work, the volume of trust litigation is becoming significant.
Jersey's Financial Services (Extension) Law came into effect in November 2000. The law extended the remit of the Financial Services Commission (FSC) under the Investment Business (Jersey) Law 1998 over banking, investment funds and insurance activities into trust and company management, if the underlying activity is connected with financial services.
The law's code of practice was applied to relevant financial service providers from 27 November, 2000. Business licensing and qualification regulations came into force from 2 February, 2001, since when firms must have a licence in order to trade, and 28 May, 2001 was the final deadline after which all other businesses had to operate in full compliance with the code of practice. Qualification requirements for most lower category staff had to be fulfilled before November 2003; the deadline for top and middle category employees was November 2005.
The FSC claimed that the extension to the law was an international benchmark and will influence many other tax regimes worldwide. The FSC claims that Jersey will be one of the first jurisdictions in the world to bring trust companies and company service providers into regulation, with the result that international standard setting bodies will encourage other jurisdictions to follow suit.
In April 2008, the Financial Services (Trust Company Business (Exemptions)) (Amendment No. 3) (Jersey) Order 2008 and The Financial Services (Trust Company Business (Exemptions No. 2)) (Amendment) (Jersey) Order 2008 came into force.
The first piece of legislation excludes holders of fund certificates issued under the Collective Investment Funds (Jersey) Law 1988 from the obligation to register under the Financial Services (Jersey) Law 1998 in order to conduct trust company business.
The latter amendment extended the Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000 to apply to the holders of fund certificates issued under the Collective Investment Funds (Jersey) Law 1988, with regard to unclassified funds.
In December, 2006, it was announced that Jersey’s finance industry was consulting with the regulator and authorities on further enhancements to its Trusts Law, which it hoped would be introduced towards the end of 2007.
Finance and legal professionals who attended a seminar on the trust sector in London, organised by Jersey Finance Limited, were given first details of the proposed changes by Advocate Steven Meiklejohn, a member of the Industry Working Party in Jersey, who was one of the speakers at the seminar.
The enhancements under consideration included:
The introduction of a statutory lien in favour of trustees in respect of liabilities the trustees would have been entitled to be reimbursed for, had they still been trustees. This would help clarify the position of former trustees when claims are made against them after their retirement.
The insertion of a provision into the Law stating that in relation to a non charitable purpose trust, the mere holding of the shares of a company represented a valid purpose. This would be beneficial in the context of a purpose trust holding the shares of an underlying private trust company.
The possible reformation and re-statement of Article 21 of the Trusts (Jersey) Law 1984 insofar as it relates to a trustee’s duty in respect of investments, so as to more closely follow what is known as the ‘prudent investor’ rule in the US and in a number of Caribbean jurisdictions.
The insertion of a modern flexible definition under Jersey Law of a ‘charity’ or ‘charitable purpose’.
It is also hoped that consideration can be given to possible amendments to the principle by which beneficiaries are entitled to know they are beneficiaries of a particular trust, such that in respect of minor beneficiaries it would be possible to prevent them from being told they were beneficiaries should a settlor wish it. Such a change would reflect the law in a number of US states.
Commenting on the move to address the issue of liabilities of former trustees, Advocate Meiklejohn noted:
“Without possession of the Trust Fund, a former trustee has no clear right to reimbursement in respect of liabilities for which it could be indemnified if it had remained trustee. The provision of a lien in the trustee’s favour would entitle the trustee to be indemnified in respect of such proper liabilities from the Trust Fund in the new trustee’s, or even a beneficiary’s, hands."
“We are in the early stages of consultation but the intention is to present a Trusts (Amendment No.5) (Jersey) Law to the States of Jersey in 2007 for approval and then obtain Privy Council consent towards the end of the year.”
In October, 2007, the Jersey Financial Services Commission said it was proposing to amend and possibly replace secondary legislation relating to the Trust Company Business and Investment Business laws, in preparation for impending scrutiny of the island's regulatory framework by the International Monetary Fund.
A consultation paper published by the Commission on October 19 followed up a position paper issued in June of that year, which set out the policy proposals that formed the basis for the majority of the legislative changes referred to in the consultation paper.
The consultation paper covers proposed legislative changes in the following areas:
Repealing the Trust Company Business and Investment Business secondary legislation relating to accounts, audits and reports and replacing it with a single piece of legislation designed to cover both business sectors. The majority of the amendments proposed in the replacement accounts, audits and reports legislation are in connection with the Investment Business sector; although the proposals do clarify a number of items for the Trust Company Business sector.
Repealing the secondary legislation that currently places requirements on Trust Company Businesses with respect to safekeeping customer money. The replacement legislation will incorporate the existing requirements relating to customer money, and proposes requirements relating to customer assets taking the form of: investments (as defined by Schedule 1 to the Financial Services (Jersey) Law 1998); and - immovable property.
Publication of new secondary legislation relating to any financial service advertisement in respect of financial service business as defined by the Financial Services (Jersey) Law 1998.
The FSC stated that the amendments to the secondary legislation were being proposed in preparation for the assessment by the IMF of the Island’s regulatory framework (which took place in the second half of 2008).
The subsequent report, published by the IMF in September 2009, heaped praise on Jersey for its regulation and supervision of its financial sector and for its money laundering and terrorist financing defences. The Financial System Stability Assessment also noted that the trust and company services business sector enjoy a "comprehensive" regulatory and supervisory framework.
Jersey is also on the OECD's 'white list' of jurisdictions which have 'substantially implemented' the internationally-agreed tax transparency standard.
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