With Jersey's trust laws unchanged since 1984 and the expert fund regime needing a revamp, an overhaul is long overdue to enable the island to compete head on with other offshore centres
With the growth of its finance centre paramount to the economy, Jersey has implemented a number of regulatory reforms to help it compete on an international level with other offshore centres.
Outdated trust and fund laws are being overhauled to meet the demands of the industry, as it looks to a new era of financial services where sophisticated international wealth management solutions are the norm.
While many of the proposed changes - which include amendments to existing trust law, the introduction of foundation structures and super expert funds together with a more streamlined regulatory process - are still in their preliminary stages, many believe that once implemented they will help Jersey's profile as a leading offshore centre.
playing catch up
Clive Jones, managing director of Citibank (Jersey), says the changes to Jersey's trust law are long overdue.
"Jersey's trust law has not been amended significantly since 1984 and the expert fund regime needs to be updated to keep up with the growth of the industry," he explains. "These changes will help the island grow its business in the future and keep up with changes in other international jurisdictions."
Paul Patterson, vice-president and regional head at Royal Bank of Canada Global Private Banking, agrees, adding that Jersey is playing catch up to the Cayman Islands and Bahamas when it comes to specific trust law. One such area is settlor-reserved powers, which gives a settlor certain authorities over a trust, removing the need to go through the court system to administer any changes.
"Both these jurisdictions introduced this type of legislation quite some time ago and it is essential Jersey does the same," he adds.
Jones says the amendments to the settlor-reserved powers will provide greater statutory certainty regarding the level of control and influence a settlor exercises.
"Settlors will now have the ability to appoint and remove trustees, to amend or revoke the terms of the trust and to appoint or remove an investment manager or investment adviser," he explains. "The laws will also enable a trustee to delegate the trust powers if the trust permits."
David Wild, technical director at Jersey Finance, believes the new settlor-reserved powers are likely to be implemented by 2007 and are the most significant since the law came into force in 1984.
He says: "We have removed a number of provisions in the principal law that were perceived by some practitioners and potential settlors as limiting the attractiveness of Jersey as a centre for very high net worth private family trust business."
Alongside its settlor-reserved powers, Jersey Finance is also looking to revamp its foreign law provisions, which will protect a trust governed under Jersey law from overseas law. An example of this is the case of CI Law Trustees v Minwalla (2004), where an English court argued in a matrimonial proceeding that the trust was a sham because one of the parties was contemptuous of the obligations within the trust. The Royal Court of Jersey recognised and enforced the English judgment so the foreign claim could be made on the trust.
Charles Pitter, a lawyer at Investec Trust, believes the amendments, which will resist such foreign claims, will help in succession planning. He adds: "It is not favourable for the trust industry in Jersey if a structure can be impacted by foreign law."
Other changes to Jersey trust law include plans to remove the personal guarantor provision for directors of corporate trustees. Under a guarantor provision, the director must have personal indemnity and insolvency protection in place, however, many believe this requirement is redundant because directors are now subject to codes of trust business to protect against any liabilities.
In a bid to attract more business from civil law countries, Jersey is also looking at the viability of foundation vehicles. The proposals, put together by Jersey's economic development department, are currently being reviewed by the industry. If introduced, the foundation structure will be aimed at investors in civil law countries, such as Argentina, Brazil, France, Italy and Spain, who are familiar with these types of structures.
Pitter adds: "In a foundation vehicle a client has direct control over the assets in the vehicle and when they are distributed to beneficiaries. Whereas in a trust structure the control of the assets are governed by a trustee not the client and before assets are distributed the beneficiary's circumstances must be considered."
Another area of strategic focus for Jersey is its funds sector. Beverley Le Cuirot, director of marketing and communications at Jersey Finance, says the funds sector continues to perform strongly, surpassing the previous record levels reached at the end of 2005.
The net asset value of funds under administration in Jersey has risen by almost 50%, compared to the same period last year, to reach £156bn, while the total number of funds serviced on the island broke through the 1,000 barrier in the first quarter of 2006.
According to Le Cuirot, this growth is being driven by alternative investment classes, including property, private equity and hedge funds. "Many of these have been established under the Jersey expert fund regime," she adds.
Gary Clark, chairman of the Jersey Fund Association, believes this growth provides the perfect backdrop to launch a super expert fund regime, which will target sophisticated investors looking for less regulatory intervention in exchange for greater disclosure.
He says: "The super expert fund regime is in its draft stages and will be based on the lessons learned from the expert fund regime. In the past, when an expert fund has been established, a number of administrators have outsourced the work to subsidiary companies, which some believe has led to an extra layer of costs. We would like to give the super expert fund regime more open architecture so administrators from outside the island can be used. It is still in discussion on how these outside companies will be regulated and if Jersey will accept the regulation of the other country."
The minimum investment is also yet to be determined, however, Andrew Weaver, advocate at Bailhache Labesse, predicts it will be at least £500,000.
He says: "Most managers require a minimum investment of $1m (£542,697) in alternative vehicles and do not want smaller investors with $100,000 because the fund becomes much harder to market."
According to Clark, the new regime will be established in early 2008, when the new rules governing service providers will also be introduced. Clark believes the service provider regulation will create a one-stop shop for fund managers and will put Jersey on a level playing field with Ireland, which implemented this form of regulation in October 2003.
He explains: "Under the changes, providers will be licensed only once, rather than repeatedly each time a fund is authorised."
banking on growth
On top of its funds business, Jersey has also initiated plans to boost its international banking presence and as a result has seen banking deposits grow by £3.3bn (1.8%) to £188bn over the first quarter of 2006.
Martin Scriven, president of the Jersey Banking Association, anticipates further growth as it continues to work with developing financial centres in the Middle East.
He says a number of Middle Eastern banks have already expressed an interest in Jersey as a gateway to the international corporate business market in the UK, following its decision earlier this year to sign memorandums of understanding with Dubai Financial Services Authority and Qatar Central Bank.
The next two years will no doubt be a period of transition for Jersey, but one that is welcomed by professionals based on the island as well as international investors looking for greater flexibility and lighter touch regulation.
Changes, not only to its trust law but also to funds with the establishment of a super expert regime, will allow Jersey to compete head on with Guernsey and the Isle of Man, as well as the Caymans and Bahamas, as all seek to reform their offerings to meet the changing international nature of financial services.
Jersey to overhaul outdated trust and fund laws to allow it to compete with other offshore centres
Settlor reserved powers and foreign law provisions to be revamped
Launch of foundation vehicles and super expert fund regimes being considered
International banking presence to be boosted
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