Fintech 2021

Last Updated March 18, 2021

Jersey

Law and Practice

Authors



Walkers is a leading international firm that provides legal, corporate and fiduciary services to global corporations, financial institutions, capital markets participants and investment fund managers. Its clients are Fortune 100 and FTSE 100 companies as well as some of the most innovative firms and institutions across the financial markets. The firm has ten offices, in Bermuda, the British Virgin Islands, the Cayman Islands, Dubai, Guernsey, Hong Kong, Ireland, Jersey, London and Singapore. It advises businesses partnering with or investing in fintech firms, as well as financial institutions and asset managers developing their own fintech products and services. The fintech group, comprising over 60 lawyers, also works closely with policymakers, regulators and governments to facilitate appropriate legislation and regulation that keeps pace with innovation. Walkers covers fintech's core financial industry sectors – asset management, investment, banking, finance, insurance, trading and exchanges, and payments – with particular expertise in advising businesses specialising in blockchain, digital assets and alternative model finance.

Jersey has been a leading international finance centre for more than 50 years. Thanks to a forward-thinking approach, Jersey is at the forefront of wealth management, funds, capital markets and banking, plus the specialist areas of fintech, philanthropy and socially responsible investing. 

Recent Jersey initiatives have spearheaded innovation and disruption in the fintech sector. 

  • Electronic Communications (Jersey) Law 2000 ("Electronic Communications Law") – blockchain platforms operating in Jersey benefit from the Electronic Communications Law which confirms that, subject to limited exceptions, a contract cannot be denied legal effect, validity or enforceability solely because the contract was made in an electronic form or by electronic means. The Electronic Communications Law is technology agnostic and can be applied to all forms of digital technology. 
  • Initial Coin Offering (ICO) Guidance Note – in July 2018, the Jersey Financial Services Commission (JFSC) issued a guidance note titled Application Process for Issuers of initial coin offerings (ICOs) ("ICO Guidance Note"), which deals with the path to regulatory approval for ICOs in Jersey. The ICO Guidance Note represents an innovative and balanced approach to the treatment of ICOs, enabling them to be launched in Jersey with a number of controls in place to help reduce some of the risks associated with them. Under this framework, the JFSC does not regulate the ICOs or the companies that issue them; however, it does require the companies to satisfy certain minimum standards and to appoint a regulated Trust and Company Service Provider to administer the company. 
  • Global Financial Innovation Network (GFIN) – formally launched in January 2019 by an international group of financial regulators and related organisations (including the JFSC), the GFIN seeks to provide a more efficient way for innovative firms to interact with regulators, and aims to create a new framework for co-operation between financial services regulators on innovation-related topics, sharing different experiences and approaches. 

The industry and regulators are also expected to continue to balance the opportunities and challenges of cryptocurrencies and fintech, including in relation to anti-money laundering, investor protections, and maintaining Jersey's reputation as a first-class international finance centre. 

With respect to blockchain, Jersey vehicles' involvement is typically as digital assets funds, such as the world's first regulated bitcoin investment fund, GABI (formerly the Global Advisors Bitcoin Investment Fund), funds investing in blockchain projects, and token issuers in the context of ICOs (such as Jersey's first ICO, the AAA Reserve Currency (formerly the ARC Reserve Currency), and joint-venture vehicles developing blockchain projects. 

The JFSC is responsible for the regulation, supervision and development of the financial services industry on the Island of Jersey, including banking, collective investment funds, fund services businesses, and trust and company service providers, amongst others. 

In summary, the regulatory laws provide for a licensing process whereby entities and individuals conducting regulated activity are required to obtain a licence or be registered with the JFSC in order to conduct regulated activities. 

In addition to the regulatory laws generally applicable for regulated activities, Jersey also has specific regulation and/or guidance applicable to the fintech sector.

The 2008 Law

Where a person who, by way of business, meets the definition of carrying on a "virtual currency exchange" (VCE) business, defined in paragraph 9, Part B of Schedule 2 to the Proceeds of Crime (Jersey) Law 1999 (POCL), that person is required by the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 ("2008 Law") to make an application to the JFSC for level 1 registration.

Sound Business Practice Policy

A company engaged in the business of being a VCE would be subject to the JFSC's Sound Business Practice Policy (SBPP) (under Table 2, Activity 8: "Involvement, directly or indirectly, in initial coin offerings or crypto exchanges or providing other services related to cryptocurrencies"). The SBPP sets out principles regarding the activities that fall within the regulatory framework in Jersey, or which the JFSC considers to be potentially sensitive and a company that falls within the scope of these principles is required to provide additional information and detail to the JFSC.

ICO Guidance Note

While not regulating initial coin offerings, the JFSC's ICO Guidance Note places certain conditions on ICO-issuing companies, including their compliance with relevant anti-money laundering and countering the financing of terrorism (AML/CFT) requirements, and a requirement for ICO-issuing companies to have their annual accounts audited and filed with the Registrar of Companies in Jersey (irrespective of their status as either a public or a private company). 

Furthermore, in 2018 the JFSC amended its SBPP to reflect that ICOs (while not regulated by the JFSC) do constitute a "sensitive activity". Accordingly, ICO-issuing companies are required to maintain and adopt systems, controls, policies and procedures for customer take-on and redemption, profiling and transaction monitoring at enhanced levels, ensuring internal and external reporting of suspicions of AML/CFT activity. 

There are no prescribed models for charging customers in Jersey. However, industry participants are typically required to disclose to their customers in writing all fees and charges, together with the basis of their calculation, before entering into an agreement with customers to provide services. Industry participants may also be required to disclose any remuneration to be received in connection with a transaction prior to the execution of the transaction. If the amount of the remuneration is not known, the basis of its calculation should be disclosed. 

The JFSC does not differentiate between fintech participants and legacy participants. The applicability of the JFSC's licensing structure centres on the activities conducted by the participant. A fintech participant falls within the JFSC's regulatory scope if it conducts a licensed activity. 

An exemption to the Level 1 registration requirement is available if a person meets the conditions set out in Article 2(1) of the Proceeds of Crime (Supervisory Bodies) (Virtual Currency Exchange Business) (Exemption) (Jersey) Order 2016 ("Exemptions Order"). In brief, this requires that a VCE's turnover should be less than GBP150,000 in the calendar year immediately preceding the notification of its exemption to the JFSC and in each complete calendar year preceding the current year (if any). 

Once the conditions of the Exemptions Order are met, such a person is: 

  • not required to make a Level 1 registration application; 
  • not required to pay any fees to the JFSC; but 
  • is still considered to be a registered person for some parts of the 2008 Law, most notably Part 5. 

Part 5 of the 2008 Law addresses the supervision of Schedule 2 business and provides the JFSC with its supervisory powers, such as the power to issue a code of practice, make public statements and issue directions to a person requiring anything to be done, or not done. 

The conditions set out in Article 2(1) of the Exemptions Order require a person to notify the JFSC: 

  • that the person intends to carry on VCE business; 
  • that the turnover of that business was less than GBP150,000 in the calendar year immediately preceding the notification date (current year) and (where applicable) in each complete calendar year preceding the current year; and 
  • the amount of turnover. 

The JFSC reserves the right to request additional information as it thinks fit under its general powers provided by the 2008 Law. Jersey's sandbox approach fosters innovation by lowering the compliance burden on start-ups, and allows such VCEs to test their exchange mechanisms without a heavy regulatory burden.

The JFSC is responsible for the regulation, supervision and development of the financial services industry on the Island of Jersey for the following: 

  • banking; 
  • collective investment funds; 
  • fund services business; 
  • insurance business; 
  • general insurance mediation business; 
  • investment business; 
  • money service business; and 
  • trust and company service providers. 

The JFSC has entered into Memoranda of Understanding (or statements of co-operation/letters of intent) on regulatory matters with a number of fellow regulatory authorities. These memoranda cover regulatory assistance to be given in the context of: 

  • new applications for licensing by financial institutions; 
  • investigations into regulatory offences such as insider dealing; and 
  • general enquiries that are relevant to the fitness and properness of registered institutions. 

The JFSC does not require a Memorandum of Understanding to be in place with an overseas regulatory authority before it will co-operate with, or share information with, that authority. The purpose of a Memorandum of Understanding is to establish an agreed mechanism under which the signatories commit to using their statutory powers of co-operation to assist each other. 

The JFSC's Outsourcing Policy and Guidance Notes ("Outsourcing Policy") provide guidance to regulated entities ("Registered Persons") on the establishment of outsourcing arrangements and the outsourcing of material functions or activities. 

The Outsourcing Policy is based on the basic premises that: 

  • a Registered Person remains fully responsible and accountable to the JFSC for any outsourced activity; and 
  • a Registered Person must not, as a consequence of any outsourcing arrangements, become devoid of functions to the extent that it becomes a “letter box” entity. 

The Outsourcing Policy operates on the basis of six core principles, as follows: 

  • fit and proper service provider – a Registered Person must satisfy itself that any service provider to whom it outsources activities is fit and proper and will perform the outsourced activities in a responsible, professional and suitable manner; 
  • written outsourcing agreement – a Registered Person must have appropriate written agreements in place with any service providers to whom it outsources activities; 
  • monitoring and assessing of service provider – a Registered Person must maintain the capacity, resources, policies and procedures to ensure that any outsourced activities are being performed adequately and the service provider remains fit and proper; 
  • termination of outsourcing arrangements – a Registered Person must put arrangements in place that allow it to terminate its outsourcing arrangements without undue delay and manage the consequences of any such termination appropriately; 
  • prior approval of JFSC – a Registered Person must provide the JFSC with adequate prior written notice of its intention to outsource activities or make material changes to any existing outsourcing arrangements; a Registered Person must not enter into any outsourcing arrangement until it has received prior written confirmation from an officer of the JFSC that the JFSC has no objection to such outsourcing arrangements; and 
  • exercise of JFSC's regulatory powers – a Registered Person must ensure that nothing in any of its outsourcing arrangements prevents or restricts the JFSC’s ability to exercise its legal or regulatory powers. 

A Jersey-regulated fund administrator has certain reporting obligations to the JFSC regarding the operation of a fund that it administers. A licensed fund administrator must immediately give the JFSC written notice if it knows or has reason to believe that a fund for which it provides services: 

  • is, or is likely to become, unable to meet its obligations as they fall due; 
  • is carrying on business other than in accordance with any laws; or 
  • is carrying on business in a manner that is, or is likely to be, prejudicial to investors or creditors of the fund, giving its reason for that knowledge or belief. 

Jersey’s defences against the laundering of criminal funds and terrorist financing rely heavily on the vigilance and co-operation of the finance sector. Specific financial sector legislation is therefore also in place, covering a person conducting financial services business in or from within Jersey, and a Jersey body corporate or other legal person registered in Jersey conducting financial services business anywhere in the world. 

Jersey's key primary legislation on countering money laundering and the financing of terrorism includes: 

  • the Proceeds of Crime (Jersey) Law 1999; 
  • the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008;
  • the Terrorism (Jersey) Law 2002; 
  • the Money Laundering (Jersey) Order 2008; and
  • the Money Laundering and Weapons Development (Directions) (Jersey) Law 2012. 

As digital assets are currently not regulated, the JFSC does not have enforcement powers over digital assets, unless they fall within the scope of a regulated activity. 

Jersey has anti-money laundering legislation in place requiring entities that conduct "relevant financial business" to comply with the anti-money laundering requirements. This legislation does not differ between legacy participants and fintech participants. 

Entities conducting relevant business are required to comply with certain AML/CFT requirements, in accordance with the POCL, the Money Laundering (Jersey) Order 2008 ("Money Laundering Order") and the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism ("AML/CFT Handbook"), known together as the AML/CFT Laws.

The Money Laundering Order

This ensures that the obligations that are imposed on financial services businesses to prevent and detect money laundering take account of changes in money-laundering methods and techniques, and protect and enhance the reputation and integrity of Jersey in commercial and financial matters.

The AML/CFT Handbook

This establishes standards that match the international standards issued by the Financial Action Task Force in relation to anti-money laundering and countering the financing of terrorism.

The Data Protection Law

In addition, Jersey also has data protection legislation – the Data Protection (Jersey) Law 2018 ("Data Protection Law") requires entities within scope to comply with the data protection principles defined in the legislation. 

The Data Protection Law is based around the following six principles of "good information handling": 

  • fair, lawful and transparent processing – personal data is to be processed lawfully, fairly and in a transparent manner; 
  • purpose limitation – personal data must be collected for specific, explicit and legitimate purposes and, once collected, not further processed in a manner incompatible with those purposes; 
  • excessive data collection – personal data collected must be adequate, relevant and limited to what is necessary in relation to the purposes for which it is processed; 
  • accuracy of data – personal data must be accurate and, where necessary, kept up to date, with reasonable steps being taken to ensure that personal data that is inaccurate, having regard to the purposes for which it is processed, is erased or rectified without delay; 
  • storage limitation – personal data must be kept in a form that permits the identification of data subjects for no longer than is necessary for the purposes for which the data is processed; and 
  • data security, integrity and confidentiality – personal data must be processed in a manner that ensures the appropriate security of the data, including protection against unauthorised or unlawful processing and against accidental loss, destruction or damage, using appropriate technical or organisational measures.

Jersey-based service providers (eg, auditors or administrators) to digital assets entities are required to comply with Jersey law. If any person who is resident in Jersey has a suspicion that a transaction involving a Jersey entity is financed, even partially, with the proceeds of criminal conduct, that person is required to report such suspicion, in accordance with the POCL. 

In addition, ICO-issuing companies are required to have their annual accounts audited and filed with the registrar in accordance with Article 108 of the Companies (Jersey) Law 1991, irrespective of their status (whether a public or private company). 

The offering of digital assets is not currently regulated, unless the activity falls within the definition of a financial services business that is currently regulated. Where an entity's activities fall within the scope of regulated activities, its operations will be subject to supervision by the JFSC. 

While ICOs are not regulated by the JFSC, ICO-issuing companies are required to comply with certain conditions (as set out in the JFSC's ICO Guidance Note and such companies' consent certificates) that are designed to ensure that they meet specific standards in terms of governance, investor disclosure and AML/CFT compliance. 

Jersey legislation does not expressly contemplate robo-advisers. To the extent that a legal entity holds software that provides robo-adviser functions and that legal entity is a Jersey entity or a non-Jersey entity registered in Jersey, it may be required to be registered or licensed by the JFSC. 

As far as is known, no Jersey service providers are introducing robo-advisers at this stage. 

This is not applicable in Jersey. 

Banking business in Jersey is governed by the Banking Business (Jersey) Law 1991, as amended. The provision of loans is also within the scope of Jersey's AML/CFT legislation, which does not distinguish between the recipients of the loans. 

The underwriting process is currently not regulated in Jersey. Instead, the JFSC will require lenders to be in compliance with the laws of the jurisdiction in which the underwriting is taking place (which is typically onshore). 

This is not applicable in Jersey.

The syndication of loans typically takes place onshore rather than in Jersey. Accordingly, to the extent that the Jersey lending vehicle is involved in a syndication onshore, it must be in compliance with the laws of such onshore jurisdiction. 

Payment processing is not currently regulated in Jersey. Payment processors must use existing payment rails at this stage. 

Jersey participates in the Single Euro Payments Area and has implemented the requirements of the Payment Services Directive (EU) (2015/2366) and the Single Euro Payment Area (SEPA) Migration Regulation (260/2012) into local law. Jersey has also adopted the Wire Transfer Regulation (EU) (2015/847).

Jersey-based administrators must hold a licence, in accordance with the Financial Services (Jersey) Law 1998, as amended ("FS Law"). 

The conducting of administration business by an administrator requires examination of the nature of the services which will be provided, as well as the classification of the person to whom services will be provided. Both are key in assessing the regulation to which the administrator will be subject and whether a relevant exemption will apply, as set out below: 

  • Trust Company Business (TCB) – 
    1. an administrator who carries on TCB will require registration under the FS Law (unless an applicable exemption applies); and 
    2. such administrator must also comply with the JFSC's Code of Practice for Trust Company Business ("TCB Code"). 
  • Fund Services Business (FSB) – 
    1. an administrator who acts in relation to certain funds (ie, services provided to a collective investment fund or an unregulated fund) would be conducting fund services business under the FS Law and, accordingly, would require registration under the FS Law for this purpose. In this case, the administrator would also be required to comply in full with the JFSC’s Code of Practice for Fund Services Business ("FSB Code") and any related requirements. 
  • Investment Business (IB) – 
    1. an administrator who carries on IB will require registration under the FS Law (unless an applicable exemption applies); and 
    2. such administrator must also comply with the JFSC's Code of Practice for Investment Business ("IB Code"). 

There are exemptions from the need for certain functionaries to be regulated for the provision of IB or TCB services to an entity which constitutes a "professional investor regulated scheme", pursuant to the Financial Services (Investment Business (Restricted Investment Business – Exemption)) (Jersey) Order 2001 and the Financial Services (Trust Company Business (Exemptions No5)) (Jersey) Order 2000, respectively ("Exemption Orders"). There is no applicable exemption in respect of FSB. 

To qualify as a professional investor regulated scheme, the entity must have received relevant consent under the Control of Borrowing (Jersey) Order 1958, and each investor in the scheme must have made a minimum commitment of GBP250,000 (or currency equivalent), or be a professional investor (as defined in the Exemption Orders), and have signed an investment warning. 

A number of provisions are being incorporated into fund administration documents, many of which stem from regulatory obligations and, in particular, Jersey's AML/CFT legislation. Essentially, fund administration agreements must include provisions requiring the administrator to provide either the regulated fund itself, or the JFSC, with information and documentation that is relevant to anti-money laundering requirements. 

Jersey's AML/CFT legislation also requires the fund administrator to maintain records of anti-money laundering documentation for at least five years after the end of the calendar year in which the relevant transaction was concluded. These agreements also require the administrator to report any suspicions it may have in relation to money laundering potentially occurring through the fund to the fund's money-laundering reporting officer. 

In addition to AML/CFT requirements, Jersey fund administration agreements often contain provisions requiring the administrator to safeguard and treat personal data in accordance with certain prescribed standards, including the Data Protection Law.

The TISE

The International Stock Exchange in the Channel Islands (TISE) permits trading in listed securities. 

Trading is conducted every weekday, excluding public holidays, and takes place on a continuous basis during normal trading hours. Trading members of TISE may also trade outside these hours.

Trading Members

Orders and quotations can only be entered into the trading system by a trading member, and may be added, deleted or amended on the trading system by a member in the hour prior to normal trading hours. While there are no restrictions on viewing the information contained in the trading system, investors and issuers who wish to trade at a price displayed must do so through a trading member. 

A trading member may register as a market maker in any number of listed securities and, if they do so, must enter and maintain two-sided quotations on the trading system, with quotations reasonably related to prevailing market conditions and within allowable spreads, while also at least in the specified minimum quoted size for the security. They must also actively offer to buy from and sell to an enquiring trading member at the price and in an amount up to that which is displayed.

Settling of Shares

Trading in shares may be settled via Euroclear (incorporating CREST and CREST Residual), Clearstream or an alternative settlement system approved by TISE before listing. 

Debt securities are listed on TISE under chapter 6 of the Listing Rules. Equity securities are listed on TISE under chapter 2 of the Listing Rules. 

The VCE regulations make VCEs subject to Jersey's AML/CFT legislation. 

The extension of Jersey's current AML/CFT regulations to cover virtual currencies, treating them like any other currency, demonstrates Jersey's ability to adapt quickly to the disruption posed by fintech innovations within existing frameworks. 

The VCE regulations balance the risks of this nascent industry with the opportunity it provides by bringing such currencies within the remit of Jersey's existing AML/CFT regulations while also providing an innovative regulatory sandbox for VCEs with a turnover of less than £150,000 per calendar year, without the usual registration requirements and associated costs. 

Debt securities and equity securities can be listed on TISE. The Listing Rules of TISE contain the application procedures and the listing document requirements. 

An issuer must produce a listing document in relation to the application, and must comply with the requirements relating to listing documents set out in the Listing Rules. 

TISE may waive, modify or not require compliance with Listing Rules in individual cases.

The Listing Process

The listing process essentially involves the review and approval of an offering document, which is referred to as listing particulars, and certain ancillary documents, which must demonstrate compliance with the Listing Rules. The listing particulars must include all the information necessary for an investor to make an informed decision on its investment. 

In unusual transactions, TISE can be contacted at an early stage, to provide informal and confidential guidance as to the suitability of a proposed listing application. 

This is not applicable in Jersey. 

This is not applicable in Jersey.

This is not applicable in Jersey. 

This is not applicable in Jersey. 

Part 3A of the FS Law provides that a person who has information as an insider is guilty of an offence if the person deals, or encourages another person to deal, in securities that are price affected securities in relation to the information where:

  • the acquisition or disposal in question occurs on a securities market; or
  • the relevant person relies on a professional intermediary or is acting as a professional intermediary themselves.

There are currently no regulations in Jersey specifically regulating the creation and usage of high-frequency and algorithmic trading; however, such activities fall within the definition of financial services business and are therefore subject to supervision by the JFSC in the manner described in 6.1 Regulation of Fund Administrators.

This is not currently applicable in Jersey. 

Jersey-domiciled investment funds that engage in these activities may need to be registered under the Collective Investment Funds (Jersey) Law 1988, as amended ("CIF Law") if they make an offer to the public or are open-end funds. Alternatively, they may need to be authorised under the Jersey Private Fund regime in relation to specified offers to 50 or fewer professional investors. Jersey-domiciled investment managers for such funds need to be registered or licensed under the FS Law unless they are eligible for an exemption (in the case of Jersey Private Funds only).

This is not currently applicable in Jersey.

The Jersey-domiciled operators of such research platforms are currently not subject to registration, unless such platforms also conduct financial services business, in which case, the operator of the platform needs to be registered or licensed under the FS Law, unless a relevant exemption applies. 

The spreading of rumours and other unverified information is currently not regulated in Jersey. The JFSC would require the Jersey-domiciled operator of such platform to comply with the laws of the jurisdiction in which the platform is operating. 

See 9.2 Regulation of Unverified Information.

As far as is known, there are no specific and material insurtech underwriting initiatives or developments in Jersey. 

Any person conducting insurance business in Jersey is required to hold a valid licence issued for that purpose under the Insurance Business (Jersey) Law 1996, as amended. 

The regulation of regtech providers is dependent on their activities. Where an entity's activities fall within the scope of regulated activities, its operations will be subject to registration with and supervision by the JFSC. 

A number of provisions are being incorporated into contracts with technology providers, generally related to data protection, the protection of IP rights and confidentiality. The contracts often have provisions requiring the technology providers to safeguard and treat personal data in accordance with certain prescribed standards under the Data Protection Law. 

Jersey is one of the jurisdictions at the forefront of fintech innovation. Jersey's funds regime has been used to establish innovative alternative funds, including: 

  • GABI – the world's first regulated bitcoin investment fund, established as a Jersey Expert Fund in 2014; 
  • CoinShares Fund – investing in ICOs and other digital assets, established as a Jersey Private Fund; and 
  • SoftBank Vision Fund – with in excess of USD100 million in commitments for technology-focused investments, ranging from the internet of things and mobile apps to cloud technology and artificial intelligence (AI), initially registered as a Jersey Private Fund and later converted to an Expert Fund. 

The above funds are testament to Jersey's well-tested structures, with which both managers and investors are familiar.

The VCE regulations (effective since 2016) require virtual currency exchanges to comply with Jersey AML/CFT legislation. The JFSC's ICO Guidance Note (published in July 2018) also provides guidance on the approval process for companies' issuing of ICOs. 

There is no formal guidance on whether the JFSC considers blockchain assets to be a form of regulated financial instrument. 

The JFSC's ICO Guidance Note highlights that there is no universally recognised terminology for the classification of crypto-tokens, either in Jersey or internationally. However, for the purposes of Jersey law, tokens issued in accordance with an ICO must be classified either as a "security" or not. In determining whether tokens will be classified as a security for the purposes of Jersey law, the JFSC will consider the economic function, underlying purpose and transferability of such tokens. In summary: 

  • a security token would typically have the characteristics associated with an equity or debt security, including a right to participate in the profits of the ICO issuer, a claim on the ICO issuer's assets and/or an expectation of a return on the amount paid for the tokens; and 
  • a non-security token would typically either confer a usage right to a product or service and have no economic rights (ie, a utility token), or be designed to provide a store of value and medium of exchange (ie, a cryptocurrency token). 

The JFSC's ICO Guidance Note provides guidance on how ICOs will be approved in Jersey through existing laws and regulation. 

Although ICOs in Jersey are not regulated by the JFSC, the JFSC has established certain conditions that any issuer of an ICO registered in Jersey is required to satisfy. These are implemented through a consent granted by the JFSC, which any Jersey entity wishing to issue an ICO must obtain. 

The consent requires ICO issuers to take certain measures to manage financial crime and investor risks, reflecting the principles of the JFSC, which have regard to: 

  • the reduction of the risk to the public of financial loss due to dishonesty, incompetence, malpractice or the financial unsoundness of financial service providers;   
  • the protection and enhancement of Jersey's reputation and integrity in commercial and financial matters; 
  • the best economic interests of Jersey; and 
  • the need to counter financial crime both in Jersey and elsewhere. 

The JFSC recognises the innovative potential of distributed ledger/blockchain technology and fintech more generally, and supports efforts to responsibly innovate in fintech in Jersey. However, the JFSC has also issued a public advisory to warn of the risks associated with ICOs, including their highly speculative nature and price volatility. 

Where a Jersey ICO issuing company has been granted a consent by the JFSC under the Control of Borrowing (Jersey) Law 1947, it must be understood that the JFSC does not take any responsibility for the financial soundness of any schemes or for the correctness of any statements made or opinions expressed with regard to them. 

The VCE regulations (effective since 2016) require virtual currency exchanges to comply with Jersey AML/CFT legislation, subject to a regulatory sandbox for start-ups, which allows those VCEs whose turnover does not exceed GBP150,000 per annum to test their mechanisms without the burden of full regulatory compliance.

Jersey offers a wide range of fund products, of which the following are the most commonly formed. 

Jersey Private Fund (JPF)

The Jersey Private Fund (JPF), launched in April 2017, simplified and streamlined Jersey's fund offering. Based on industry feedback and an analysis of competitor products in other jurisdictions, the regime represents a welcome development in the product range offered by Jersey, and recognises the need for regulatory flexibility for private funds targeted at investors at a professional level of sophistication. JPFs can be marketed to a maximum of 50 professional or eligible investors, such as those investing a minimum of USD250,000 (or currency equivalent) each.

Jersey Expert Fund

The Jersey Expert Fund is attractive to promoters wishing to establish funds aimed at sophisticated, institutional and high net worth investors. A collective investment fund will qualify as a Jersey Expert Fund if each investor signs an acknowledgement of receipt of a prescribed form of investment warning and the Expert Fund is only offered to investors falling within one of the categories of "Expert Investor" (including investing a minimum of USD100,000, or currency equivalent, or having a net worth exceeding USD1 million, excluding that person's principal place of residence, among others).

Differences

Although Jersey Expert Funds are subject to a higher degree of regulation than Jersey Private Funds, Expert Funds are open to an unlimited number of investors, whereas JPFs can only be marketed to a maximum of 50 potential investors. 

The JFSC has demonstrated that Jersey is open to innovative, cutting-edge investment structures, thereby standing out from other competitor jurisdictions, using Jersey's existing funds product range. 

See 12.5 Regulation of Blockchain Asset Trading Platforms.

The impact of existing Jersey regulatory requirements upon decentralised finance ("DeFi") products will depend upon the nature of each product, eg, whether it constitutes an investment fund or lending for Jersey legal and regulatory purposes.

Although Jersey is not a member of the European Union, it has introduced the EU Legislation (Payment Services – SEPA) (Amendment) (Jersey) Regulations 2015 ("Jersey SEPA Regulations") in order for Jersey banks to be able to participate in the Single Euro Payments Area (SEPA). This means that payments in euros can be made by Jersey banks to and from banks in the SEPA that are subject to the protections and support of the SEPA rules. 

By participating in the SEPA, Jersey aims to increase the efficiency, and lower the costs, of cross-border payment processing within the EU/EEA, through the development of common standards, procedures and infrastructure. 

The Jersey SEPA Regulations position Jersey to maximise the opportunities that the Payment Services Directive (PSD 2) – which extends the SEPA to new types of payment services to create a digital single market within Europe – will bring for fintech and the wider industry. 

Jersey's Data Protection Law (largely) applies the requirements of the EU's General Data Protection Regulation (GDPR). 

The transparency and immutability of data stored on the blockchain is potentially incompatible with the data protection requirements of the Data Protection Law/GDPR, and therefore careful consideration must be given to the interaction between the blockchain and the Data Protection Law/GDPR. 

However, blockchain technology also provides potential solutions and opportunities to comply with such new data protection requirements, including: 

  • a hybrid of public and private blockchains to provide for data privacy; 
  • the encryption and pseudonymisation of data held on the blockchain; and/or 
  • the encryption of entries and the subsequent deletion of the relevant decryption keys in order to comply with the GDPR's right to be forgotten. 

Blockchain may be disruptive but that does not mean it cannot be compliant with legal and regulatory requirements – indeed, it is in such innovation that new, disruptive solutions to legal and regulatory requirements may be found.

Walkers

PO Box 72
Walker House
28-34 Hill Street
St Helier
Jersey JE4 8PN
Channel Islands

+44 (0)1534 700 700

+44 (0)1534 700 800

info@walkersglobal.com www.walkersglobal.com
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Authors



Carey Olsen has one of the largest dispute resolution and litigation teams in Jersey, representing clients across the full spectrum of contentious and semi-contentious work. The firm is recognised for its expertise in both international and domestic cases, including investment funds; corporate, commercial and civil disputes; banking, financial services and trusts litigation; restructuring and insolvency; fraud and asset tracing claims; regulatory investigations; employment disputes; and advisory work. From mediation to trial advocacy, the dispute resolution and litigation team guides clients through the full range of disputes, from multi-party, cross-jurisdictional corporate litigation to domestic claims before the local courts, and has also represented clients before the Privy Council. Many of its cases have established precedents that are referred to in jurisdictions around the world. Carey Olsen advises on Bermuda, British Virgin Islands, Cayman Islands, Guernsey and Jersey law across a global network of nine international offices.

Jersey is fast becoming an established market for fintechs and professional investment firms, being home to a number of token issuers, global payment platforms and the world’s largest investment fund (The SoftBank “Vision Fund”, which raised USD97 billion over two years). Jersey enjoys a sophisticated legal, regulatory and technological infrastructure, supporting development and innovation in fintech. In the past few months alone, Jersey has seen multimillion-pound investments and capital raises structured using Jersey vehicles and advisers. Jersey clients include tech giants, cryptocurrency exchanges, payment platforms and emerging blockchain developer talent.

One reason for Jersey's growth in this area is the supportive approach of the Jersey regulator, the Jersey Financial Services Commission (the JFSC), which continues to embrace fintech. The JFSC is seen by many as both fintech-friendly and a pragmatic and approachable regulator. The JFSC is a member of the Global Fintech Innovation Network and participates in the cross-border testing pilot.

Jersey has assembled talent with exceptional fintech expertise, and has innovated using its flexible range of corporate vehicles and favourable tax regime. Examples of fintech activity in Jersey include:

  • payment services and online payment solutions;
  • Jersey funds investing in digital assets;
  • custody services and arrangements for holding digital assets;
  • fintech funds and other vehicles;
  • cryptocurrency exchanges (Virtual Currency Exchanges – VCEs);
  • security token and non-security token issuances and initial coin offerings/security token offerings (ICOs/STOs);
  • staking of tokens;
  • security token exchanges;
  • custody of digital assets;
  • electronic identification (e-ID);
  • automation; and
  • legal tech and regtech.

All deals mentioned in this article were advised on by Carey Olsen.

This article summarises:

  • Jersey's recent fintech deals and the legal trends observed in the Jersey market;
  • how Jersey supports innovation; and
  • likely future developments in the Jersey fintech market.

Recent Trends and Deals in Jersey

Trends over the past year include increased use of and enquiries about online payment solutions, and continued interest in the establishment of cryptocurrency and security token exchanges and related token issuances.

Payment services

The past year has seen Jersey lawyers advise a number of established and upcoming payment services providers and payment platforms providing services to Jersey customers. As Jersey is not subject to PSD or PSD2 (save for limited provisions relating to SEPA payments), the Island has light touch regulation for payment services for those entities not carrying out a "deposit taking" business under the Banking Business (Jersey) Law 1991 and who can avail themselves of one of the exemptions for money services business under the Financial Services (Jersey) Law 1998 (FSJL).

Early advice should be sought as to whether a specific payment service comes under regulation by the FSJL, as much will turn on the nature of the specific payment services being offered. Any cryptocurrency or crypto-wallet element to a payment service will require a more in-depth analysis to be undertaken as there are additional regulatory considerations (including in relation to crypto-custody).

In January 2021, leading global payment solutions provider Checkout.com undertook a USD450 million Series C fundraising round. The transaction gave the company a post-money valuation of USD15 billion, making Checkout.com the fourth largest fintech globally and the EMEA's most valuable venture-backed business.

VCEs and STEs

Jersey has seen an influx of potential VCE and STE platforms. A number of VCE launches have occurred, including by Binance Jersey and more recently the launch of Criptyque's Jersey cryptocurrency exchange platform, PryvateX, which opens for registration soon. VCEs benefit from light regulatory treatment, being required only to maintain a registration under the Proceeds of Crime (Jersey) Law 2009 as a "supervised business". This approach to regulation balances the need for Jersey to provide robust regulation with a desire to foster the development of Jersey's fintech industry.

In terms of STEs, however, the JFSC has indicated that security token exchange businesses will be required to be regulated under the FSJL in order to undertake “investment business”; none have yet received regulatory approval. Crucially, in Jersey, there is no requirement to have electronic clearing and settlement, nor for the clearing of security tokens to be carried out by a clearing house or central depositary. This enables exchanges to provide on-chain settlement, and makes Jersey an attractive domicile for such exchanges.

Crypto-backed funds

CoinShares (Europe's largest digital asset investment firm with USD3 billion in AUM) recently used Jersey for the establishment of its new institutional-grade cryptocurrency-backed exchange traded product (ETP). CoinShares Physical Bitcoin (Ticker: BITC) launched on 19 January 2021 with USD200 million in AUM, and is the first CoinShares product to be listed on the SIX Swiss Exchange. The ETP programme's physically backed structure provides institutions that are experienced in trading similar commodity-based investment securities with a familiar structure for cryptocurrency investments.

CoinShares previously used Jersey for the launch of both the world's first regulated, crypto-denominated investment fund (2017), which provided investors with exposure to the liquid digital asset ecosystem, and the 2014 launch of the first ever regulator-approved Bitcoin investment fund.

Token issuances

Jersey continues to see a number of high-quality token issuances, with the JFSC recognising that token issuers with proper substance and backed by a credible promoter should be nurtured. This has enabled investment firms and fintechs alike to build investment products and services domiciled in Jersey. In the past few months alone, Jersey has seen various token issuances, including:

  • Jersey-based token issuer Vow using Jersey for the launch of its Vow token ecosystem, a solution for distributing debt-free liquidity into local communities through a customer loyalty mechanic; and
  • Radix, a decentralised finance platform, using Jersey for the launch of its utility token. The platform allows users to transact with each other over a fast, secure blockchain-based platform without the need for intermediaries. Tokenholders are able to use the tokens to pay transaction fees and/or to participate in the platform's "proof of stake" consensus mechanism to validate transactions.

Other fintech developments in Jersey during COVID-19

As a result of COVID-19, there has been a surge in the uptake of technology and new entrants to the market. Whilst not fintech as such, Jersey has witnessed a sharp increase in the use and adoption of electronic signatures (including witnessing) and a general shift towards the digitisation and automation of manual procedures consistent with a widespread move to remote working. This trend is expected to continue in the coming months, and will bring welcome opportunities in terms of increased usage of smart contracts, automation and AI in Jersey.

Supporting Fintechs and Innovation in Jersey

In terms of supporting innovation, Jersey is striving to promote fintech development by supporting local fintech talent and innovation and facilitating existing companies in relocating to Jersey. Digital Jersey, a government-backed economic development agency dedicated to the growth of the digital sector, aims to promote local talent, whilst Locate Jersey is a Jersey Government team that facilitates the relocation of businesses and high net worth individuals to Jersey.

As mentioned above, the JFSC also assists fintechs by offering the opportunity to test their products and services in multiple jurisdictions through the cross-border testing pilot run via the Global Fintech Innovation Network (a group of international regulators and observers committed to supporting innovative products and services).

Jersey also has a number of industry working groups focused on promoting thought-leadership in fintech in Jersey, including the Digital Assets Working Group (DAWG) and the VIWG, a working group focused on managing Virtual Assets Risk in relation to Virtual Assets and Virtual Assets Service Providers. Both working groups involve States of Jersey (government) representatives, JFSC representatives and other interest groups on the Island. Each is made up of individuals knowledgeable in the fintech space, the promotion of digital assets and blockchain technologies.

COVID-19 has also brought about pragmatic developments in Jersey's legal practice. Both The Law Society of Jersey and the Jersey Law Commission are actively engaged in reviewing Jersey legal practices, which would benefit from modernisation. Recent guidance from The Law Society of Jersey in relation to the signing of certain powers of attorney by electronic signature demonstrates Jersey's willingness to adopt technological developments. In addition, research soon to be published in the Jersey and Guernsey Law Review has concluded that smart contracts may be enforceable under Jersey law (subject to satisfying the ordinary rules of forming a contract), laying the foundation for the formation and use of smart contracts in Jersey.

Future Developments

As fintech and the underlying technologies of blockchain, AI, cloud technology and internet of things are still in their nascent stages, Jersey industry practices around fintech, the treatment of virtual assets services providers and data management are still evolving. To maintain its place as a respected well-regulated international finance centre, Jersey is cognisant, and encouraging, of the advantages the fintech industry brings to Jersey’s finance industry.

As a long-established and well-regulated international finance centre, Jersey boasts a host of industry experience and local expertise, making it an ideal jurisdiction for innovation. Leveraging this existing expertise and its low-tax environment, Jersey and Jersey vehicles are likely to continue to be used in both established areas of finance as they embrace fintech solutions (including proptech, online settlement solutions, e-ID and regtech, etc) and new areas of finance and other sectors as use cases are established.

Indeed, Jersey and its service providers have decades of experience in establishing and financing structures that share many similarities with structures used for tokenised assets (such as Jersey property unit trusts and Jersey share transfer properties (and companies)), making Jersey an obvious choice to domicile tokenised assets and specifically tokenised real estate assets.

The JFSC’s considered and measured approach to fintech regulation to date (Jersey has no specific blockchain or AI-enabling legislation, preferring to flex existing concepts to accommodate new technologies instead) should equip Jersey to be a leading jurisdiction of the future for innovation by ensuring that regulation in Jersey remains mainstream, appropriate and commensurate to the product or service in question.

Carey Olsen

47 Esplanade
St Helier
Jersey
Channel Islands JE10BD

+44 (0) 1534 888900

+44 (0) 1534 887755

jersey@careyolsen.com www.careyolsen.com
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Law and Practice

Authors



Walkers is a leading international firm that provides legal, corporate and fiduciary services to global corporations, financial institutions, capital markets participants and investment fund managers. Its clients are Fortune 100 and FTSE 100 companies as well as some of the most innovative firms and institutions across the financial markets. The firm has ten offices, in Bermuda, the British Virgin Islands, the Cayman Islands, Dubai, Guernsey, Hong Kong, Ireland, Jersey, London and Singapore. It advises businesses partnering with or investing in fintech firms, as well as financial institutions and asset managers developing their own fintech products and services. The fintech group, comprising over 60 lawyers, also works closely with policymakers, regulators and governments to facilitate appropriate legislation and regulation that keeps pace with innovation. Walkers covers fintech's core financial industry sectors – asset management, investment, banking, finance, insurance, trading and exchanges, and payments – with particular expertise in advising businesses specialising in blockchain, digital assets and alternative model finance.

Trends and Development

Authors



Carey Olsen has one of the largest dispute resolution and litigation teams in Jersey, representing clients across the full spectrum of contentious and semi-contentious work. The firm is recognised for its expertise in both international and domestic cases, including investment funds; corporate, commercial and civil disputes; banking, financial services and trusts litigation; restructuring and insolvency; fraud and asset tracing claims; regulatory investigations; employment disputes; and advisory work. From mediation to trial advocacy, the dispute resolution and litigation team guides clients through the full range of disputes, from multi-party, cross-jurisdictional corporate litigation to domestic claims before the local courts, and has also represented clients before the Privy Council. Many of its cases have established precedents that are referred to in jurisdictions around the world. Carey Olsen advises on Bermuda, British Virgin Islands, Cayman Islands, Guernsey and Jersey law across a global network of nine international offices.

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