ABOUT THE AUTHOR: David Dorgan TEP is Senior
Associate at Collas Crill in St Helier, Jersey
The Channel Islands, notably Jersey and Guernsey, are
often seen as a single pool of service providers by the
international financial services community. Their geographical
proximity and common time zones, stable constitutions, flexible
legal regimes and sophisticated service infrastructures clearly
make them sister isles. However, the Channel Islands consist of
distinct and separate sibling jurisdictions, each with their own
laws, finance industries and characters. These differences are key
to the long-standing success of Jersey and Guernsey. They encourage
each to be better than the other, to innovate and create products
and structures.
Trusts and foundations
A great example of this innovation was the trusts law of Jersey.
Historically, Jersey law did not include trusts, as we know them
today, and it was doubted whether it recognised the concept of
equity as known under English law. The French concept of
equité, which was known to Jersey law and which embraces
some of the same general principles, does not share the same detail
as the law of equity, evolving as it did through a particular
historical context in England. Yet, as a testament to the
flexibility and willingness of Jersey law to grow and adapt, the
Royal Court of Jersey incorporated the English concept of equity
into Jersey law. This bold innovation of the Royal Court allowed
Jersey to explore the possibility of building a new trust industry,
and Jersey introduced the Trusts (Jersey) Law 1984, which
formed the template trust statute for many other offshore
competitive jurisdictions, including Guernsey, which later
introduced its Trusts (Guernsey) Law 1989. Both Jersey and
Guernsey have consistently updated and improved their trusts laws
to maintain their competitive edge.
The same motivation saw Jersey enforce foundations in 2009. The
Island recognised that markets were changing, and that its future
clients were further afield and did not necessarily understand or
recognise trusts. The foundation idea was not entirely alien to
Jersey law, but it was, and is, proving to be an invaluable tool in
the financial planning toolbox for the Island. And Guernsey is
following suit this year. The result is that, together, the Channel
Islands can offer a choice to enable a range of requirements to be
met or bespoke structures to be devised in one or other place.
‘Jersey and Guernsey update their trusts laws to
maintain their competitive edge’
Cell companies
Another innovative move happened in 1997 when Guernsey
introduced the world to the cell company. Originally intended for
collective investment funds and insurers, cell companies were soon
being used for diverse purposes, including, for example, commercial
property developments. Ten years on, Guernsey introduced the
incorporated cell company, with the advantage that each cell has
separate legal personality, providing a lower cost-base and the
ability to ‘spin off’ or convert a cell into a stand-alone company.
Jersey, not to be outdone, then introduced both protected and
incorporated cell companies, so each Island can now offer similar
products.
Partnerships
Jersey also introduced two partnership types. Traditionally,
Jersey and Guernsey have both offered, and used for their clients’
benefit, the limited partnership structure, providing limited
liability to investors, but remaining unincorporated and
tax-transparent. Such partnerships have, for example, been used for
private equity and venture capital schemes, and estate planning and
asset protection. In 2010, Jersey responded to market demand by
bringing in the ‘separate limited partnership’ (where the
partnership is regarded as a legal person but is not expressly
regarded as a body corporate) and the ‘incorporated limited
partnership’ (where the partnership has separate legal personality
from its members). The latter has been used, for example, for
Shari’a asset-backed certificates as part of a Shari’a-acceptable
structure and funding arrangement.
Funds regulation
Developments in the investment funds industry also show the
competitive spirit between Jersey and Guernsey. Both have been at
the forefront of establishing investment funds, but recently
Guernsey has been slightly more successful than Jersey. In
response, Jersey launched a private placement funds regime in
January. This made it quicker and easier to establish closed-ended
funds, including property funds and private equity funds, which are
offered to not more than 50 persons, all of which are professional
investors or sophisticated investors.
As well as being of general value to clients, the private
placement funds regime is expected to provide a useful structure
for fund managers marketing into the EU in compliance with the
private placement regime under the Alternative Investment Fund
Manager Directive.
E-gaming
And there’s e-gaming, notably in Alderney, a smaller Channel
Island, which has a long-standing reputation as a centre of
excellence in the remote gambling industry. Its robust and
innovative regulation and regime has attracted the biggest
operators and players in the world. The dedicated Alderney Gambling
Control Commission remains commercially pragmatic and keeps step
with the ever-changing market. In essence, it strikes the balance
that operators and players are looking for.
Jersey is starting to provide Alderney with some strong
competition. The Jersey Gambling Commission was established in 2010
and in January, Playtech, one of the world’s leading e-gaming
software and content specialists, applied for a remote gambling
licence showing that Jersey’s positive reputation for regulation,
infrastructure and professional services can develop industry
opportunities.
‘The Islands take a responsible approach to cooperation
in tax matters’
Financial regulation
In support of their respective finance industries, both the
Jersey Financial Services Commission (JFSC) and the Guernsey
Financial Services Commission (GFSC) supervise and implement high
standards in financial regulation and anti-money laundering and
anti-terrorism measures, earning recognition from the Organisation
for Economic Cooperation and Development and the International
Monetary Fund. The Channel Islands have, for many years, taken a
proactive and responsible approach to international cooperation in
tax matters and are dedicated to transparency in such matters.
Jersey has 27 and Guernsey has 31 tax information exchange
arrangements in force with countries including the UK, China and
the US.
There’s already substantial cooperation between the JFSC and the
GFSC and it may be that in the future Jersey and Guernsey will
together establish a Channel Islands Financial Services Commission
to take advantage of economies of scale. The Islands are still
consulting on introducing a single financial services ombudsman to
serve both finance industries.
Team effort
Many professionals have recognised the strength of presenting a
Channel Islands offering for the benefit of their clients, while
many clients have recognised the benefits of service providers
working across the two jurisdictions. Jersey and Guernsey are
working closer than ever to present a united front: since 1998, the
Channel Islands Stock Exchange has served business in both Jersey
and Guernsey; the Channel Islands Brussels Office was opened in
2010 to present a single, coherent message about the advantages of
Jersey and Guernsey to Europe as well as emphasise their
specialties; and both Islands are looking to develop a clean energy
source using the strong tides around them.
Although Jersey and Guernsey remain competitors, there is real
potential for the Islands to work even closer together, to promote
themselves and increase a joint competitive edge. The Channel
Islands’ quality, innovation, exploration of opportunity (many
Channel Islands-based professionals have recently established
presences in Asia), and depth of skills, experience and commitment,
which has provided them with success in the past, should propel
them forwards. Consequently, Jersey and Guernsey must, and do,
stand side-by-side on the international stage, singing in harmony
if not to the same tune.