Jersey foundations – the impact of the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020
02 November 2020
The Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the "Law") is expected to come into force on 1 December 2020 and it will affect a number of entities, including Jersey foundations.
General overview of the Law
This briefing focuses on the impact of the Law on foundations.
Please see our separate briefing for a general overview of the Law.
The Law is intended to address recommendation 24 of the International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation issued by the Financial Action Task Force.
Recommendation 24 requires jurisdictions to "ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities."
In addition to the Law, secondary legislation will be passed. This will take the form of regulations and an order:
- The draft Financial Services (Disclosure and Provision of Information) (Jersey) Regulations 202- (the "Regulations") have been lodged with the Jersey legislative assembly for approval and are expected to be passed on 1 December 2020.
- The Financial Services (Disclosure and Provision of Information) (Jersey) Order 202- (the "Order") is also expected to be made on 1 December 2020. A draft of the Order has previously been issued for public consultation.
This briefing assumes that the Regulations are passed in their current form and that the Order will be made in the form circulated for public consultation.
How will the Law affect foundations?
The Law requires information relating to a foundation's beneficial owners to be disclosed to the Jersey Financial Services Commission (the "JFSC") on its incorporation. Please see below for further discussion on who would be regarded as beneficial owners. It is important to note that information on beneficial ownership will not be made available to the public.
In addition, on incorporation, a foundation will have to disclose to the JFSC details as to its significant persons. A significant person is defined in relation to a foundation as being a member of the council. This information will be made available to the public.
The Law defines beneficial owner as "an individual who ultimately owns or controls the entity, or the individual on whose behalf a transaction is being conducted by the entity, including an individual who exercises ultimate effective control over the entity."
The Law confirms that "ultimate effective control over an entity, includes ownership or control exercised through a chain of ownership or by means of control other than direct control."
In the context of a foundation, it is likely that the beneficial owners would be the following: the person who ultimately settles funds on the foundation (although this person may not be the same person as the founder), the guardian, the council members and any beneficiaries. More details should be available once JFSC guidance is published.
The JFSC already collects beneficial ownership information from a range of Jersey entities using the Control of Borrowing (Jersey) Order 1958 (the "1958 Order"). Foundations are not caught by the 1958 Order and therefore foundations have previously not been obliged to disclose beneficial ownership information to the JFSC. The Law now requires such disclosure.
Amendments to the Foundations (Jersey) Law 2009 (the "Foundations Law")
The Law amends the Foundations Law.
Currently, the regulations of a foundation are not made publicly available. The regulations of a foundation may be likened to the articles of association of a company and detail the internal administrative arrangements relating to a foundation.
Under the new arrangements, "abridged regulations" will be submitted with an application for incorporation of a foundation and these "abridged regulations" will be made publically available.
Under Articles 12-14 of the Foundations Law, the regulations of a foundation must provide for the following:
- The establishment of the council.
- The appointment, retirement, removal and remuneration of council members.
- The decision making process and functions of the council (including whether such functions may be delegated).
- The procedure for the appointment of a qualified person to the council.
- Provisions relating to the guardian.
Under the new arrangements, the above information must be contained in the "abridged regulations". However, the "abridged regulations" are defined so that they do not include (i) any information by which a person can be identified or (ii) any other information prescribed by secondary legislation.
Therefore, a foundation will have:
- a set of "full regulations" which are not made publicly available; and
- a set of "abridged regulations" which:
- are made publicly available;
- contain key elements taken from the full regulations;
- but which are prepared to exclude information by which a person can be identified.
The Foundations Law is also being amended to allow the JFSC to publish guidance on the information that should be included in, or excluded from, "abridged regulations".
Foundations will need to carefully review "abridged regulations" to ensure that all information by which a person can be identified is excluded. By not identifying persons in this way, the confidentiality of foundations can be maintained and respected. Pending guidance from the JFSC, it is likely that information can be excluded from "abridged regulations" by simply redacting the relevant provisions.
What happens if there is any change in information?
If there is any change in beneficial owner information or significant person information, this has to be notified by the foundation not later than 21 days after the foundation becomes aware of it.
Annual confirmation statements
Every foundation must file an annual confirmation statement with the JFSC.
The annual confirmation statement must be filed between the 1st January and the end of February in each year.
It will verify that the beneficial owner information and significant person information remains accurate.
Every foundation must appoint a nominated person.
A nominated person acts as the main interface with the JFSC for the purposes of the Law. The nominated person is authorised by the foundation to provide the information required under the Law to the JFSC (including annual confirmation statements).
The nominated person is also authorised to provide other information to the JFSC or the Companies registrar under the Foundations Law.
The Law regulates who may be a nominated person. The following could be appointed:
- a trust company regulated by the JFSC;
- a significant person who is ordinarily resident in Jersey; and
- a lawyer or accountant who is ordinarily resident in Jersey (and who is regulated by the Proceeds of Crime (Jersey) Law 1999).
A member of the council who is ordinarily resident in Jersey could therefore be appointed to this role.
Existing foundations – transitional provisions
The Law does not just apply to newly incorporated foundations.
Under the transitional arrangements of the Law, all existing foundations will need to do the following:
- notify the JFSC of the appointment of a nominated person;
- file "abridged regulations"; and
- notify the JFSC of the information that will be contained in the annual confirmation statement (i.e. the foundation's beneficial owner information and significant person information).
This has to be done not later than 3 months after the Law coming into force.
Beneficial owner information: private information
Jersey has committed as a jurisdiction to adhere to international standards on the disclosure of beneficial ownership information. Pending international standards being settled, there are no proposals to make any beneficial ownership information publicly available.
Beneficial owner information and other information may be disclosed to combat money laundering and terrorism.
Under the Law, a local competent authority may at the request of a foreign competent authority:
- facilitate access by the foreign competent authority to information held by the local competent authority;
- exchange information with the foreign competent authority on shareholders, including nominee shareholders; and
- obtain beneficial owner information on behalf of the foreign competent authority.
A “local competent authority” includes the JFSC, the Joint Financial Crimes Unit of the States of Jersey Police Force, the Attorney General and the Minister for External Relations.
A "foreign competent authority" is a public authority exercising functions or having responsibility for anti-money laundering and counter terrorism measures in a jurisdiction outside Jersey.
The Law also allows disclosure of information in other situations. These include disclosure to a law enforcement agency for the purpose of the investigation or prosecution of an offence.
Significant person information: public information
As regards a significant person who is an individual, it is envisaged that the following details will be made publicly available:
- the name of the person;
- the month and year of the person’s date of birth;
- an address for correspondence to the person;
- the person’s nationality, and
- the person’s occupation.
It should be noted that for security purposes, the full date of birth of a significant person will not be made publicly available. In addition, the address for correspondence may be different from the significant person's residential address.
Under the Law, a nominated person may apply to the JFSC for information about a particular person (the "subject") to be kept private. The grounds for the application are as follows:
- if the subject considers that there is a serious risk that the subject, or a person who lives with or is related to the subject, will be subjected to violence, intimidation or physical or mental harm as a result of the information being made available for public inspection;
- if the subject considers that there is a serious risk of damage or threat to property as a result of the information being made available for public inspection;
- if the information relates to a subject who lacks capacity to manage their own affairs; or
- if there are exceptional circumstances that justify the making of the application.
Depending on the circumstances, it may be appropriate to make such an application in relation to a significant person of a foundation.
Existing foundations will have until 1 March 2021 to:
- appoint a nominated person;
- provide the required beneficial owner information and significant person information to the JFSC; and
- provide their abridged regulations to the JFSC.
Whilst guidance on the "abridged regulations" has not yet been released, we recommend that existing foundations should begin the process of preparing their "abridged regulations" now given the imminent deadline of 1 March 2021. Thought should be given as to whether any redaction will be necessary or whether any other amendments may be required. Our team of experts would be very happy to assist you with this process and can advise on the solutions that are available.