16 May 2019

Jersey's trust sector – latest developments and trends

Carey Olsen partner Keith Dixon provides an overview of the island's fiduciary sector, examining the latest developments and why clients continue to choose the jurisdiction.

The challenges now facing all international finance centres (IFCs) are many and varied. Since the financial crisis of 2008 there have been several significant world-wide developments, including Brexit, increasing volatility in key overseas markets, the threat of trade wars and many major international regulatory and fiscal initiatives, which have tested each IFC's resilience and integrity.

For its part Jersey's private client sector has faced up to these challenges by cleverly adapting to change, identifying and investing in opportunities and creating new markets in all parts of the world.  The island's trust industry has sought to provide innovative, industry-friendly products, to make best use of its good reputation and extensive global links, to offer a strong and nimble regulatory framework, and to invest in its digital and physical infrastructure.

Legislative development

Jersey's solid reputation as a leading jurisdiction in the field of private client trusts is due in part to its well-developed legislation.  Not wishing Jersey to rest on its laurels, the island's Government ensures that the main financial statutes are regularly reviewed and updated so that they remain current, up-to-date and in tune with the ever-evolving demands of industry. For instance, the Trusts (Jersey) Law, 1984 was amended in 2018 following a lengthy consultation exercise. The latest round of changes (which include a new provision dealing with the disclosure of information to beneficiaries, the extension of the amount of indemnification which a trustee and its officers and employees are entitled to receive and a revision of the rules governing the accumulation of income) have been warmly received by trust practitioners.

There has been a recent innovation within the employment and pension sector too. On 6th December 2018 the States of Jersey approved the introduction of International Savings Plans (ISPs) by Jersey financial providers with effect from 1st January 2019 and it is hoped that this change will encourage large multinational and international companies to set up tax-efficient savings plans in Jersey for their non-resident employees.

Further, in a ground-breaking move, in late 2018 Jersey's Companies Law was amended to permit the demerger of Jersey companies, that is to say that subject to certain conditions and requirements a Jersey company may now become two or more Jersey companies (which may or may not include the demerging company). Jersey is the first IFC which has a corporate demerger regime and it is hoped that the flexibility afforded by it will attract new corporate business to the island.

There has been more modernisation in relation to charities. Jersey's law was recently overhauled specifically to ensure that the island has a robust and modern legal framework capable of supporting all types of international philanthropic activity. The final sections of the legislation, the Charities (Jersey) Law 2014, came into force in 2018 and Jersey now has its own Charity Commissioner, a register of charities and a new, wide definition of "charitable purposes" which includes community sporting activity.  It is hoped that in time the new regime will encourage high net worth benefactors to establish sizeable charitable structures in the island.

The island's legal framework for international private client services has been bolstered by the coming into force of the Capacity and Self-Determination (Jersey) Law 2016 on 1 October 2018. This statute has introduced lasting powers of attorney to Jersey. The provisions of the law are modelled on the UK's Mental Capacity Act of 2005 and will for the first time enable a Jersey resident to exercise his/her right to self-determination notwithstanding subsequent mental incapacity.

Jersey's Royal Court has played its part too in ensuring that Jersey remains a top-flight IFC. It has determined many novel and interesting trust law points in the past and it has an excellent reputation in this area; Jersey trust law judgments are routinely cited in, and followed by, the courts of several Commonwealth jurisdictions. Most recently a series of cases came before the Royal Court which concerned several so-called "insolvent trusts" (known collectively as the "Z Trusts case", the latest judgment in the series being [2018] JRC 119). The Z Trusts case raised some important issues about the impact of insolvency on trust structures, including the ranking of the different liabilities incurred by former and successor trustees. There was little or no judicial authority on these issues in Jersey or elsewhere. The Royal Court, undaunted by the prospect of a voyage through largely unchartered legal waters, has now produced helpful guidance which will be of great use and comfort to current trustees, former trustees with continuing liabilities, and creditors alike.

An attractive option

Whilst all aspects of the island's private wealth industry continue to expand steadily, practitioners report a noticeable upswing in the number of family offices which are either being established in Jersey or relocating to Jersey. This is perhaps no great surprise as the island has a number of features which make it ideally suited as a location for a family office including the jurisdiction's political stability, tax-neutrality, convenient location, reputable courts, well-established and comprehensive legal system, robust regulatory regimes, and good communications and transportation links. Moreover, it is relatively easy for any high net worth individuals (HNWIs) wishing to establish a family office for himself or herself to find and recruit appropriately qualified staff. The number of Jersey residents working in the island's finance industry now stands at over 13,000 – the largest of any Crown Dependency or Overseas Territory – providing genuine choice, expertise, and substance for potential employers.

Although referrals of work from intermediaries and contacts in the United Kingdom continue to form the backbone of the island's private client industry, in recent times one has seen an increasing amount of interest in Jersey and its private wealth structures from further afield. By way of example, recent figures published by Jersey Finance, the not-for-profit organization which promotes Jersey as an IFC of excellence, suggest that at least 50% of new business attracted to Jersey now originates from outside of its traditional market, the City of London. Over time Jersey is steadily evolving from being a hub for Euro-centric deals into a leading facilitator of business worldwide.

Looking at the current workflow region-by-region, enquiries from HNWIs in the Middle East grow year on year, and anecdotal evidence would suggest that this trend is due in part to heightened concerns on the part of HNWIs about the potential for civil unrest and political instability. The island has also seen a steady stream of new trusts settled by clients based in North America, Asia and sub-Saharan Africa. In recognition that Jersey is now attracts business from a much wider pool of countries than before Jersey Finance has representatives permanently based in Dubai, Hong Kong, London, Mumbai and Shanghai and it is expected to open an office in New York at some point in 2019.

Structure choice

Whilst the most well-known and well-established private wealth holding structures, such as Jersey proper law trusts and Jersey incorporated limited liability companies, remain evergreen and popular, a significant percentage of private clients and their advisors are now willing to consider other, newer vehicles. For example, over 400 foundations have been incorporated in Jersey since 2009 when the Foundations (Jersey) Law was first enacted. Fiscally transparent entities such as limited partnerships are also becoming increasingly popular by dint of the fact that they usually benefit from a simple and straightforward tax treatment in the private client's place of residence. 

Another noticeable trend concerns the number and profile of trust company businesses (TCBs) which operate in Jersey. When the registration of TCBs was first introduced in Jersey in 2001 there were approximately 110 separate regulated businesses. At that time there were a handful of large TCBs owned by banks/major financial institutions and many, much smaller, manager owned enterprises. Since then the market has matured considerably. The number of TCBs has reduced to around 85, mainly through consolidation (for example, in 2018 Ocorian (formerly Bedell Trust) acquired Capco Trust, FCM Trust acquired Guardian Asset Management and JTC Group acquired Minerva Trust & Corporate Services) and the ownership profile has changed dramatically as several TCBs have been purchased by private equity firms.

Lastly, in a rare occurrence there will be several changes within the island's top judicial and regulatory positions over the course of a single calendar year. In September 2018 Sir William Bailhache indicated that he will retire as the Bailiff of Jersey, the president of the Royal Court and the States Assembly of Jersey, in October 2019. He will be succeeded by Timothy Le Cocq, the current Deputy Bailiff. The Director General of the Jersey Financial Services Commission, John Harries retired in July 2018 after a period of twelve years in office. His successor, Martin Maloney, will become the new Director General in February 2019. Lastly, the longstanding CEO of Jersey Finance, Geoff Cook is stepping down to take up a new role in private practice early 2019. These retirements and appointments are not expected to prompt any radical departures from past practice and policies though.

In summary, the general sentiment in Jersey's private client industry is one of cautious optimism. Being a top-flight financial services provider in an ever-changing world will never be an easy task, but nevertheless Jersey's trust practitioners and professionals, by embracing innovation, remains confident about its future.

 

An original version of this article was first published by Offshore Red, April 2019.

© Carey Olsen 2019.