05 November 2020
The Legal 500 Country Comparative Guide 2020, Jersey: Fintech
Lawyers from our fintech practice have drafted the Jersey chapter of The Legal 500 Country Comparative Guide, providing an overview of fintech laws and regulations applicable in Jersey.
What are the sources of payments law in your jurisdiction?
The principal sources of payments law in Jersey include:
- Financial Services (Jersey) Law 1998 (the “FSJL“);
- Financial Services (Money Service Business (Exemptions)) (Jersey) Order 2007 (the “MSB Order“);
- EU Legislation (Payment Services – SEPA) (Jersey) Regulations 2015 (the “SEPA Regulations“)(as amended); and
- Community Provisions (Wire Transfers) (Jersey) Regulations 2007 (as amended).
The European Payment Services Directive (“PSD“)¹ and European Payment Services Directive II (“PSD2“)² do not apply directly in Jersey as Jersey is not a member of the EU. However, generally banking institutions in Jersey are part of wider banking groups to which PSD and PSD2 do apply and therefore in practice voluntarily operate at a higher standard.
Jersey has however adopted the SEPA Regulations to ensure its laws regarding Euro payments and payments services in Euros closely align with that of the EU, in particular with elements of the PSD/PSD2.
Can payment services be provided by non-banks, and if so on what conditions?
Yes, non-banks can provide payment services. In Jersey the FSJL classifies this as “money services business”. Money services business (“MSB“) is defined by Article 2(9) of the FSJL and is where a person carries on the business of:
- a bureau de change; providing cheque cashing services;
- transmitting or receiving funds by wire or other electronic means; or
- engaging in money transmission services.
The above relates to fiat money and payments rather than cryptocurrencies.
The MSB Order contains a number of exemptions where certain services will not constitute MSB, including whether a person is registered under the Banking Business (Jersey) Law 1991, or if the person’s turnover is less than the specified amount (currently less than £300,000). Persons carrying out MSB and for which there are no available exemptions are required to apply for registration under the FSJL. Once registered, the persons have a continuing responsibility to adhere to the Jersey Financial Services Commission’s (the “JFSC” (the Jersey regulator)) FSJL Code of Practice For Money Service (last revised on 1 June 2019).
What are the most popular payment methods and payment instruments in your jurisdiction?
The most popular payment methods and payment instruments in Jersey are: BACS³ schemes: BACS direct debits; and BACS Direct credit scheme; Faster Payments Service; CHAPS payments; SEPA payments; and Cheques.
Whilst not a payment method, we note for completeness that SWIFT messaging is used for communications in relation to payments.
GBP is the main currency of payments and so BACS, CHAPS and Faster Payments are used more frequently than SEPA payments.
What is the status of open banking in your jurisdiction (i.e. access to banks’ transaction data and push-payment functionality by third party service providers)? Is it mandated by law, if so to which entities, and what is state of implementation in practice?
As stated above, open banking is not mandated by law in Jersey as PSD and PSD2 have not been adopted in their entirety notwithstanding that elements have been incorporated in the SEPA Regulations in relation to Euro payments and payment services.
A watching brief is being maintained in Jersey on how the UK and its banks and financial institutions respond to open banking. The Jersey response is likely, to some extent, to be a reaction to the success or limitations experienced on the UK mainland. As noted above, many banks in Jersey are part of larger banking groups and may choose voluntarily to operate to the higher standard and observe open banking practices for commercial or operational reasons.
How does the regulation of data in your jurisdiction impact on the provision of financial services to consumers and businesses?
Personal data is critical to the economy of Jersey which has a strong finance industry that holds and processes large amounts of personal data in connection therewith. Whilst Jersey is not a member of the EU, a large proportion of the personal data processed in Jersey relates to EU citizens. Jersey has taken care to ensure its data protection regime provides a standard of protection for personal data equivalent to those in force within the EU and has enacted legislation to mirror the enhanced requirements of the European Data Protection Directive (“GDPR“)⁴.
Jersey has enacted the Data Protection Authority (Jersey) Law 2018 and the Data Protection (Jersey) Law 2018 (the “DPJL“). The DPJL places a number of restrictions on the provisions of financial services by setting standards for data processing (i.e. by banks and financial institutions), and giving certain rights to data subjects (i.e. bank customers) over their information which is held and processed. This limits the types of products offered to customers (including as to their terms and conditions), limits the ability of financial institutions to market to customers and places restrictions on the back office and administrative operations of financial institutions. Whilst there is an overlap with PSD and PSD2, this is only to the extent that banks and financial institutions in Jersey choose to operate at the higher PSD/PSD2 compliant standard (as any data transferred as a result of PSD/PSD2 will also be subject to the provisions of GDPR and the data protection regime). PSD and particularly PSD2, if fully adopted in Jersey, would have a significant impact on the provision of financial services both operationally (in terms of technological infrastructure) and commercially in terms of payments and information services offered. Not unsurprising given the intention of the legislation was to stimulate competition and innovation for payment services through, among other things, data sharing. Jersey will not, however, be alone in being affected by this legislation (even if not enshrined fully into Jersey law) as open banking will impact the provision of financial services beyond Jersey.
What are regulators in your jurisdiction doing to encourage innovation in the financial sector? Are there any initiatives such as sandboxes, or special regulatory conditions for fintechs?
Jersey recognised cryptocurrencies as a separate asset class long before the “ICO Craze” of 2017 when the island’s regulator, the JFSC, licensed the world’s first Bitcoin-focused regulated fund (GABI Plc). In terms of testing products and services, the JFSC has proven itself to be a pro-active and forward-thinking regulator. The JFSC is a member of the Global Fintech Innovation Network (a group of international regulators and observers committed to supporting innovative products and services) and participates in the cross-border testing pilot, which launched in January 2019, offering firms the opportunity to test their products and services in multiple jurisdictions. Jersey also strives to promote fintech development by supporting local fintech talent through a government-backed economic development agency and industry association dedicated to the growth of the digital sector, Digital Jersey. Jersey also operates a sandbox run through Digital Jersey, supporting local fintech firms and fintech firms seeking to relocate to Jersey. For completeness, we note that the window for applications to participate in the January 2020 pilot has now closed. In terms of promoting fintech and thought-leading in Jersey, the Digital Assets Working Group (the “DAWG”) works hard to raise awareness and interest in Jersey. Combining representatives of the States of Jersey, representatives of the JFSC and other interest groups on the Island, the DAWG is a group of individuals knowledgeable in the fintech space promoting digital assets and blockchain technologies in Jersey. Carey Olsen is a founder member of the DAWG and is an active participant and contributor.
Do you foresee any imminent risks to the growth of the fintech market in your jurisdiction?
No, rather we see a growth in the fintech market and increased interest in fintech and credible fintech projects in Jersey. To date, Jersey has not needed to introduce blockchain-specific legislation because the prevalent fintech matters have not necessitated it. This means that Jersey has retained a degree of flexibility, which in turn will allow Jersey to adopt a pragmatic approach as the industry develops.
What tax incentives exist in your jurisdiction to encourage fintech investment?
Jersey is a low-tax jurisdiction and so there are no specific tax incentives for fintechs. There are currently no specific laws regulating the taxation of cryptocurrencies or digital assets, although Jersey’s Comptroller of Taxes has issued guidance on cryptocurrency tax treatment regarding income tax and GST treatment. The guidance shows that such assets will be taxed in accordance with general Jersey taxation principles and provisions.
To read the full guide please use the download link on the right hand side of this page (or at the bottom if viewing on a mobile device).