New States Assembly
Improvements to Limited Partnerships Act Approved
Proceeds of Crime Act Update
Government consults on changes to power of attorney law
JFSC publishes comments from prudential risk reviews
Proposed Revisions to Outsourcing Policy
First national risk assessment focused on virtual assets
Digital Solutions for Customer Due Diligence terms
Proposed Fee Updates for Fund Services Businesses
This quarter’s update is a little lighter on the new legislation thanks to the imposed pre-election purdah period from mid-May.
Election night on June 22, 2022 brought, as always, a handful of surprise results, although it is also clear that there will be great continuity in the composition of the new States Assembly, continuing the long reputation of political stability of the island. The increased diversity among member states is also welcome, including the island’s first female chief minister.
It is heartening to see that the vast majority of elected officials have reaffirmed in their manifestos the importance of the financial industry, and in many cases sustainable finance, for the island.
The States Assembly has approved a package of amendments to the Limited Partnerships (Jersey) Act 1994, the culmination of a cross-sector project to modernize and clarify aspects of the law.
This significant overhaul will be well received for a number of reasons. The majority of the changes are aimed at providing additional flexibility in drafting partnership agreements or ensuring that Jersey’s regime remains competitive as “best in class” among major fund jurisdictions.
In short, the main changes include, among others:
- expansion of the (non-exhaustive) list of “safe harbour” activities that limited partners can undertake without risking their limited liability status. The expanded list includes activities such as voting on a wider range of issues and convening and participating in partner meetings, among others. A limited partnership agreement may, however, provide for specific circumstances in which a limited partner will be liable beyond his agreed contribution to the partnership;
- the possibility for partnership agreements to modify the statutory six-month “clawback” period during which limited partners must repay monies received when the partnership has proven insolvent;
- additional protection for investors (or their representatives) who serve on committees of limited partners, who will benefit from an express declaration that they have no obligation to the company, its partners, other committee members or third parties ; and
- the ability for a partnership agreement to limit or restrict the limited partners’ legal right to inspect or take copies of partnership records. This will be beneficial where such information is deemed commercially sensitive (as is often the case, especially in carry partnerships).
The amendments also relate to various administrative matters. Chief among these is the streamlining of the process for terminating and dissolving a limited partnership. Similar to the summary liquidation of a solvent company, the general partner or other liquidator of a limited partnership will first liquidate the affairs of the partnership before filing a declaration of dissolution as the final act.
In addition, where the General Partner continues to default in its legal obligations, the Registrar may, after giving 30 days’ notice, cancel the registration of the Partnership and require the liquidation of the affairs of the Partnership (this process, however, will not change the status limited liability of investors).
The amendments are expected to come into effect in the third quarter of 2022, following Privy Council approval. For details, see “Amendments to the Limited Partnerships (Jersey) Act 1994“.
Proceeds of Crime Act Update
Following a consultation (for more details, see “Channel Islands Funds Quarterly: Q4 2021″), the States Assembly has approved a redrafting of Schedule 2 to the Proceeds of Crime (Jersey) Act 1999.
The revised Annex 2 will be drafted to more clearly and fully reflect the latest Financial Action Task Force (FATF) recommendations on activities that give rise to anti-money laundering and counter-terrorist financing obligations ( AML/CTF). It will also remove references to the various automatically exempt activities – linked to exemptions under the Financial Services (Jersey) Act 1998.
These exemptions – such as the exemptions for officials of a “professional investor regulated scheme”, which are commonly invoked in private fund structures in Jersey – will continue to exempt individuals from registration under the Act. on financial services, but will no longer exclude these activities from the scope of AML/CFT obligations.
In practice, these obligations tend to be fulfilled by the administrators of the structure, although once the changes come into effect in the coming months, steps will be necessary to ensure that these officials formally comply with the requirements. Further guidelines should follow in due course.
Proposals have been published to amend the Powers of Attorney (Jersey) Act 1995. The government consultation takes into account industry feedback on how this law applies in practice to international financial transactions and suggests a series of clarifying and otherwise beneficial amendments.
In an investment fund context, particularly relevant propositions include that:
- the law will confirm that an attorney can, in certain circumstances, sign a power of attorney on behalf of a donor; and
- a power of attorney may be given for more than one year when it guarantees the performance of an obligation owed to the donee. This would be broader than the current provision which specifically relates to Jersey security interests or security interests under foreign law.
The law, if amended, will also specifically define the formalities for the execution of powers of attorney by entities with separate legal personality but which are not legal persons.
Regulatees should ensure that they are aware of the findings of Latest Jersey Financial Services Commission (JFSC) Supervisory Risk Reviewsmade in 2021.
Among the main results are:
- instances where companies had not established and maintained adequate policies and procedures, or where these had not been reviewed and updated in light of changes in the regulatory framework;
- deficiencies in the reports of the Money Laundering Compliance Officer to the Board of Directors; and
- shortcomings in the area of business risk assessments, including not keeping them up to date.
Regulatees should consider the findings in relation to their own businesses and determine whether they need to take action.
Companies should also consider the detailed findings of the 2021 JFSC financial crime examinations report.
The JFSC has published a draft revised outsourcing policy for consultation.
Before the election, the government of Jersey published the results its review of the money laundering and terrorist financing risks associated with the various facets of the virtual asset industry.
The report acknowledges that the sector is changing rapidly. It concludes that while the risks are currently limited given the small size of the virtual asset industry in Jersey, the improved data that will be collected in the future regarding virtual asset service providers will be beneficial.
This data (including data obtained as a result of the changes to the Proceeds of Crime Act covered above) will enable Jersey authorities to deepen their understanding and ensure that Jersey’s regulatory framework is comprehensive as the sector develops.
A joint consultation between the JFSC and the Government of Jersey aims to leverage digital technologies to facilitate effective customer due diligence while ensuring that the information obtained remains reliable.
The concept of digital ID is promoted by the FATF, whose globally accepted AML/CFT standards Jersey seek to implement. Given this, Jersey has examined the barriers that exist to the wider adoption of digital ID systems and seeks to understand where the solutions to these might lie.
The JFSC is consultant on the proposed fee increases for fund services businesses. Existing fees would be subject to a 5% increase over the retail price index, although this is linked to a reduction in the parameters used to calculate fees.
It is also proposed to introduce a fee for applications that relate to the acquisition of a registered person (in its entirety, rather than small changes in ownership), which require regulatory intervention but are currently not subject to any fee.
Additionally, the JFSC has confirmed fee increases linked to the fund vehicles themselves.
For more information on this subject, please contact Emilie Haithwaite, Niamh Lalor, Sophie Reguengo Where Matt McManus in Ogier by phone (+44 1534 514 000) or email ([email protected], [email protected], [email protected] Where [email protected]). The Ogier site is accessible at the address www.ogier.com.