Class G trust company business: the regulation of natural persons acting as directors under the Financial Services (Jersey) Law 199822 Jul 2011
This briefing is of interest to Jersey resident individuals who act as company directors, in Jersey or elsewhere, or whose employment (other than by a licensed trust company) requires them to act as company directors to other entities.
Individuals who provide the service of acting as a director are, unless exempted, required to register for Class G trust company business pursuant to the Financial Services (Jersey) Law 1998 (the "Law"). There are a number of exemptions to the requirement to register, however, which, historically, have given rise to conflicting interpretations.
The expectations of the Jersey Financial Services Commission (the "JFSC") have been clarified in the November 2010 revision of its Guidance Note on the subject of "Natural Persons Undertaking the Activity of Acting as a Director under the Financial Services (Jersey) Law 1998" (the "Guidance Note"). The Guidance Note is designed to (i) clarify when individuals need to register to act as a director; (ii) acknowledge the value of individuals acting as a director in their own capacity (as opposed to a regulated trust company) and their expertise in particular areas, such as, hedge funds or property funds; and (iii) give the JFSC's interpretation of certain specific areas of the legislation and its expectation of such individuals.
Bedell Cristin has advised a number of individuals on their registration requirements. Some are exempt from the requirement to register. There is an acceptance, however, that any individual who is conducting this activity by way of business does need to consider carefully whether he or she ought to register.
The JFSC is currently encouraging further registrations. Now is the time, therefore, for individuals who are acting as directors to consider and seek advice on their position.
When is a person required to register?
The Law requires a person to register if that person carries on the activity of:
- acting as a director - the meaning of which covers executive as well as non-executive directors;
- by way of business;
- in or from within Jersey - the intention is to capture Jersey resident individuals, not individuals resident elsewhere who sit on the boards of Jersey companies.
One element which has caused some confusion is that of "by way of business", as this is not defined within the Law and so is open to interpretation. What is clear is that it is not intended to include activities carried out by individuals in an honorary, recreational or charitable capacity. Equally, it should not catch activities which an individual carries out in a private capacity, such as directorships of companies owned by the individual or family members.
The act of receiving payment for a service in terms of fees or benefits in kind does create a strong argument that the individual is acting as a director by way of business. However, the JFSC's view is that the receipt of income alone is not the only indicator of what might be considered "by way of business". The Guidance Note suggests that the number of directorships held could be another significant factor. Other factors are: that the individual has no other employment; the level of income received; the existence of a business relationship through which regular appointments are introduced; the individual providing more than one type of trust company business activity; or the frequent turnover of engagements. The analysis of whether an individual is acting as a director "by way of business" may not, therefore, be a straightforward matter.
The Law also treats any individual who "holds him/herself out" as carrying on financial services business in or from within Jersey, as though they were, in fact, carrying on financial services business. There is no interpretation of what constitutes "holding out" under the Law. However, it certainly would include an individual advertising his or her services or soliciting business verbally or in writing or generally representing to third parties that he or she is willing to act.
The JFSC has not, to date, prescribed an upper limit on the number of directorships an individual can undertake. It is acknowledged that the type of company of which the individual is a director and its levels of activity make such a prescription difficult. However, the JFSC does intend to review an individual's capacity to effectively carry out the responsibilities commensurate with his or her engagements and this may involve on-site examination.
Most common exemptions
It is appreciated that, as a consequence of the wide definition of trust company business within the Law, certain directors might inadvertently be caught by the requirement to register. For that reason a number of exemptions were created, and set out below are those most commonly relied on:
- Directorships of local businesses and trading companies (for example, a director of a local garage), where the director does not have an arrangement for the provision of services with a trust company in Jersey or elsewhere and does not hold himself out as carrying on trust company business.
- Directorships of registered persons – (for example, directors of companies registered under the Collective Investment Funds (Jersey) Law 1998 or the Banking Business (Jersey) Law 1991), the rationale being that such individuals have already been vetted as "principal persons" by the JFSC.
- Experienced personal advisers ("EPAs") - individuals who already acted as directors as of 11 December 2000 and were, effectively, "grandfathered" into the new regulatory regime by way of exemption. However, what is frequently overlooked is that EPAs should not take on any new directorships without the prior approval of the JFSC.
- Connected persons - individuals who are directors of their own or jointly-owned or family owned companies are generally not required to register.
- The "de minimis" exemption - this exemption, which was introduced with effect from February 2011, permits an individual to hold up to 6 directorships (in addition to any that would otherwise be exempt) without triggering the need to register under the Law.
How to register?
The registration process involves the completion of a comprehensive application form. In addition to the questions one might ordinarily expect to find in such an application, there is a requirement to submit a business plan, to provide evidence of unencumbered financial resources and to hold professional indemnity insurance of at least £1 million (where cover is held personally rather than through a corporate policy). Applicants are also assessed in terms of their qualifications and experience against the requirements of the Codes of Practice for Trust Company Business (the "Codes of Practice"), and an up to date personal questionnaire is also required. An application fee (currently £550) is also payable.
Ongoing requirements and ongoing supervision
Registered individuals are required to complete an "Information Update Questionnaire" annually. This questionnaire requires confirmation of the directorships held, remuneration received from such directorships and a declaration confirming that the individual has undertaken training for the purposes of the anti-money laundering and countering of financing of terrorism legislation and is cognisant of his or her responsibilities.
Registered individuals must comply with the stated continuing professional development requirements set out in the Codes of Practice, and keep adequate records.
Annual fees of, currently, £600 are also due.
The JFSC has commenced a programme of on-site examinations of those individuals who are registered for Class G trust company business. Such examinations will focus on the nature of the individual’s activities, record keeping, financial resources, CPD and anti-money laundering training. The message is clear that the JFSC intends to take a more active role in relation to the supervision of directors and expects high standards to be maintained. As is the case with the JFSC's onsite examinations in relation to other classes of trust company business, the JFSC will provide a written report of its findings to the individuals concerned and a series of recommendations in relation to any shortcomings.
To conclude, individuals should now review their portfolio of directorships and, if in doubt, seek professional advice in relation to registration under the Law and compliance with the required standards for registered persons.