Mourant Ozannes had another great year, with a number of existing clients and new clients raising new funds. We continue to be ranked in band one by the key legal directories, namely Legal 500, Chambers & Partners and IFLR. The recent Monterey Insights 2017 report also demonstrated a strong year for both Mourant Ozannes and the Jersey fund industry as a whole;

• Market growth for the funds industry in Jersey, with fund assets serviced in Jersey up 14.7% from 2016
• Mourant Ozannes was legal advisor to 49% of all new Jersey funds
• Mourant Ozannes is the No1 legal advisor in Jersey for Funds for over 18 consecutive years
• We advise 54% of all funds in jersey

We were delighted to have Amy Bryant, Deputy Chief Executive Officer from Jersey Finance, as our guest speaker, covering a number of topics. To view Amy's slides please click here.

In April last year, the European Union introduced a new piece of legislation, the General Data Protection Regulation, which aims to modernise and reform data protection. Although the GDPR itself will not become part of Jersey law, it will extend to a number of organisations that process the personal data of EU citizens in order to offer goods and services to, or to monitor the behaviour of those citizens.

In addition to the GDPR, Jersey will implement its own new data protection legislation which is equivalent to the GDPR to ensure that it has modern data protection standards and maintains its adequacy status with the European Commission. The Jersey legislation will be similar to the GDPR in its scope and will apply to all data controllers and data processors in the Island that are processing the personal data of any living individuals. However, there will be differences between the Jersey legislation and the GDPR.

From a funds perspective, individual investors provide personal data in respect of themselves and provide personal data relating to individuals connected with the investor as part of their application. Some of that information will constitute personal data. GDPR and our own new legislation will be relevant to the Jersey fund industry and we need to start preparing for it now.

In terms of timeframe, GDPR will come into force on 25 May 2018; Jersey's legislation is also expected to come into force around that time. The Jersey legislation was lodged with the States on 5 December with a view to it being debated by the States on 16 January 2018. Our data protection experts have been closely involved with the steering group invited to comment upon the draft legislation.

What are some of the key changes?

The GDPR will have wider scope than the current EU directive for data protection and Jersey's current data protection legislation. The GDPR will apply directly to certain businesses in Jersey, for example those that process the personal data of EU citizens in order to offer them goods or services or to monitor their behaviour. Other ways that the scope has been widened – the definition of personal data has been broadened, data processors now have increased accountability.

Consent remains one of the legal bases that may be relied upon for the processing of personal data. However, both the GDPR and Jersey's legislation require that consent must be "freely given, specific, informed and unambiguous". Consent requires clear affirmative action. This is a high bar. Businesses will not be able to rely on silence or pre-ticked boxes and will need to be able to prove that consent has been validly obtained. Individuals will have the right to withdraw their consent and it must be as easy to withdraw the consent as it was to give it. Many organisations that have relied on consent historically are looking to move away from this as a basis for their processing.

The rules regarding privacy notices are much more detailed and specific under the new legislation. Transparency is key and data controllers must provide information to individuals at the point of data collection about how the individual's personal data will be processed and about their rights (which gives those individuals greater control over the processing). Those doing fundraising will need to revisit the data protection language in their offer document and subscription documents to ensure that they comply with the enhanced requirements.

There are significantly enhanced rights for individuals – access to data, rectification of data, the right to be forgotten, data portability and transparency.

Unlike the current legislation, the GDPR and the local legislation will apply to data processors (i.e. those that process personal data on behalf of a data controller). To ensure compliance, data controllers must ensure that their processors provide sufficient guarantees that they will comply with the GDPR.

There is currently no legal requirement in Jersey to report data breaches to the Information Commissioner. That will change. When a data breach occurs, there will be an obligation to make an early report to the Information Commissioner unless the breach is unlikely to result in a risk to the rights and freedoms of individuals. Under the GDPR, that time frame is 72 hours.

Finally, there is potential for large fines under the new regimes. The maximum level of fine under the Jersey legislation will likely be less than those that can be ordered under the GDPR which is up to €20 million or 4% of global annual turnover. However, that is not to say they will be insignificant.

What should you be doing?

A number of actions should be taken as a consequence of GDPR, including:

1. Conduct a data protection audit, identifying the types of data that you hold (do you hold any special category data?), why you hold it, where is it from and where is it sent, what retention periods apply to it, whether you hold the data of EU citizens and if so, are you offering them services or goods.
2. Analyse the bases on which you process data – are you relying on consent or some other basis? Will you take the same view going forward given the test to be applied to consent under GDPR?
3. Review your privacy notices, particularly from a funds perspective, in your offer documents and subscription documents and make sure that they have all the necessary information
4. Review your policies and procedures – make sure that (1) you are complying with them and (2) they will meet the requirements of the new legislation and in particular in relation to data breaches. Make sure your risk management systems address data protection.
5. If you are a data controller, check whether your contracts with your data processors have sufficient guarantees that they implement appropriate technical and organisational measures so that processing complies with the GDPR and protects the rights of the data subjects
6. Assess your technical systems. Are there any gaps in your technical capabilities to protect data? Data protection and cyber security are two sides of the same coin and you need to be sure that your systems are able to protect the personal data you hold and process.

Despite the hype surrounding GDPR many of the key principles are just an extension of the existing data protection regime – it could perhaps be described as evolution rather than revolution. If your business is already complying with the current regime, you are a good way to complying with the new legislation.

The JFSC published a consultation paper in July 2017 proposing a range of amendments to the various Codes of Practice, including the FSB Code and the Certified Funds Code. These amendments come from 3 sources – routine maintenance to improve the clarity of the Codes, changes identified during JFSC supervisory visits and finally, changes to bring the Codes in line with international regulatory standards including the Global International Finance Centre standards.

Most of the changes apply to all or most of the Codes and there are some additional changes only applicable to particular Codes.

The changes applicable to all Codes are as follows:

• Registered persons must regularly review their corporate governance arrangements, including to carry out a periodic self-assessment of the effectiveness of its board of directors;
• Registered persons have to notify the JFSC of any decision by its auditor to qualify its audit report on the Registered Person's financial statements or to raise a matter of emphasis on those statements
• Perhaps it was implicit already but the Codes will be updated to state that adequate, orderly and up to date records have to be maintained.
• Due to some disagreements between the JFSC and registered persons on what constitutes a complaint, the JFSC are now proposing to include a formal definition – "any oral or written expression of dissatisfaction whether justified or not from or on behalf of a person about the provision of, or failure to provide a service that relates to the type of business carried on by the registered person."
• It will be made clear that risk management systems cover all risks that a registered person faces or may face as a business, not just AML risks or risks relating to terrorist financing
• Dealing with the JFSC in an open and co-operative manner includes in relation to the timely provision of regulatory fees due and the timely payment of those fees
• Before implementing a cessation of business plan, registered persons need the JFSC confirmation of no objection to the plan.
• Where specified, information has to be submitted through the JFSC's online portal.

There are no additional changes to the Certified Funds Code but there are a couple of extra changes to the FSB Codes:

• Custodians and depositories to closed ended funds must have paid up share capital and non-distributable reserves and a minimum net assets position of not less than £250,000 (not £10,000 as is currently the case);
• A registered person must notify the JFSC in writing within 10 business days of ceasing to act for a non-Jersey domiciled fund.

Certain changes to the TCB codes also affect FSB providers who are acting as formation agents as there will be an explicit requirement to understand and document the rationale for the formation of companies, partnerships, foundations and establishment of trusts and to document the rationale, for providing registered office facilities.

The consultation closed on 18 October and we are waiting for the feedback paper.

Another consultation paper was issued by the JFSC in November proposing various miscellaneous amendments to regulatory legislation, mostly to tidy up inconsistencies, including:

• Allowing the JFSC to disclose restricted information to certain supervisory bodies which are not currently included in the legislation – these are Lloyds, certain pension supervisors and certain professional bodies without the current limitations;
• Liquidators of regulated businesses and administrators of bankrupt regulated businesses will be included in the definition of 'principal persons';
• Complaints against functionaries of recognized funds now to be made to the Channel Islands Financial Ombudsman, not the JFSC;
• Making the AIF Regulations consistent with the CIF Law in relation to certain powers of the JFSC and the Royal Court, plus
• Some minor corrections.

Mourant Ozannes has been involved in the JFSC consultations and formed part of the working group on MIFID II late last year. We can confirm further updates to the IB codes will be made, particularly around areas such as transaction reporting and best execution. MiFID II reforms are proving onerous for UK regulated advisors and also managers, therefore providing a relatively competitive advantage for Jersey structuring. MiFID II is one to be watched longer term as it is likely there will be more consultation around the interplay between IB exemptions for fund managers, and whether an opt in approach (similar to AIFMD) will be pursued.

After a hiatus of some months, the working group on the amendments to the LP Law is getting under way again with a view to having a draft law circulated for consultation in the early part of next year.

The UK Budget announced by UK Chancellor Philip Hammond on 22 November 2017 revealed a number of areas impacting non-UK resident (including Jersey) persons and vehicles holding UK property. It is intended, with the effect from April 2019, that non-UK resident investors ('NRIs') should become taxable on gains made on UK real estate, whether residential or commercial in nature. This is a significant change for the UK, which to date (since 1965) has not taxed NRIs gains on UK commercial real estate investments. This will have an impact on Jersey, with over 32,000 UK properties held by Channel Islands persons and entities alone.

The detail is set out in a Consultation document found here, seeking responses by mid-February.

The proposal will involve Capital Gains Tax (CGT) charges on direct and (some) indirect UK commercial property disposals by NRIs from April 2019. Certain classes of exempt investors (eg pension funds) will continue to be exempt or out of scope. Broadly, the proposal is designed to level the CGT playing-field between UK and non-resident investors. The lack of CGT has been one of the advantages of NRIs using Jersey structures to hold UK commercial property.

Other Budget announcements included the move of non-resident landlords of UK property to corporation tax and changes to EBITDA interest deductibility limits, limitations on loss carry forwards and anti-hybrid rules but these changes shouldn't apply to Jersey entities until 2020.

Focussing on the CGT changes, the proposals will also apply to certain "indirect" disposals by NRIs of their interests in structures (such as Jersey companies or unit trusts) which hold UK property. In particular, an indirect disposal of UK land will be subject to tax where the holding vehicle is 'property rich' (ie at least 75% of its value is attributable to UK property) and where the relevant non-resident owner holds or has held at least a 25% interest in that holding vehicle at some point within the five years prior to the sale of the entity. There may be possible exemptions for some tax-exempt vehicles such as pension funds, SWFs etc., but the detail of whether exemptions for their direct disposals will also apply to their indirect disposals needs to be confirmed.

Anti-avoidance provisions will apply from 22 November 2017 which are designed to diminish opportunities to "structure around" the new CGT charge (eg by transferring interests to Luxembourg companies with potential DTA benefits).

As regards fund vehicles, it is important to note that UK CIV's (REITs, PAIFs etc.) are not subject to CGT on direct disposal but under the Consultation it is proposed that overseas CIVs (e.g. JPUT funds) will become subject to CGT on direct disposals – this is a strange disparity likely caused by the perceived difficulty of collecting UK tax from foreign entities.

There are a number of areas of uncertainty, which will need to be clarified though the consultation process. Some key areas from a Jersey perspective are;

• Why should UK and overseas CIVs be treated differently on direct disposal?
• Can investors in widely-held overseas CIVs get same treatment as investors in UK CIVs (ie no indirect CGT charge if interest is smaller than 25%)
• Does the CGT exemption offered to exempt entities such as pension funds, SWFs etc. apply at all structural levels where they hold interests indirectly?
• Are JPUTs transparent or opaque for CGT purposes – a recently implemented UK statutory instrument found here, appears to have the effect of making them transparent for CGT. Clarifying this is important in working out whether an indirect charge may arise where NRIs hold interests in JPUTs.

Expectations in relation to the Consultation should be managed, though: some may push for delayed implementation (given Brexit) and/or point to lost foreign direct investment into the UK, but the policy appears to be settled. Hopefully, though, we can expect some clarification on these key areas.

In terms of commercial market impact, it is possible that these CGT changes will depress UK commercial property prices just as Brexit is taking place, with foreign investors having lost one of the relative advantages of targeting UK commercial property. Those lower prices may, however, present good buying opportunities for tax-exempt investors taking a long term view. In Jersey, the loss of CGT advantages over time may put pressure on administration fees and reduce the requirement for Jersey management and control of structures holding UK property.

Whilst some may be worried about UK Budget impact, there are still good reasons for investors to hold their UK property interests through Jersey structures:

• There is no significant or immediate impact: some structures for some investors will become subject to CGT from April 2019, although this will only apply on future gains, which may be limited in the immediate post-Brexit environment
• There will be continuing CGT advantages in Jersey structures to April 2019 (and some investors will be exempt anyway)
• There are limited reasons for investors to restructure
• Anti-avoidance provisions restrict restructuring opportunities to DTA jurisdictions beyond 22 November 2017
• There are continuing SDLT advantages in holding UK property through JPUTs
• There are continuing income/corporation tax advantages for Jersey NRLs, through to 2020 and possibly beyond
• JPUTs still offer Baker Trust transparency for income tax and income is a key component of long term property investment
• Jersey real estate servicing/fiduciary expertise – Jersey has long been the "go-to" structuring centre for foreign investment into UK commercial property
• JPUTs are likely to be cheaper and easier to run than UK LPs (ie multiple-use trustees versus SPV GPs)
• No Jersey VAT on fees
• Jersey's political stability, flexible holding vehicles, pragmatic regulation and strong rule of law will continue to appeal to investors needing to put their UK property interests in an otherwise tax neutral holding vehicle
• Positive Moneyval, OECD information sharing, and EU black-listing outcomes highlight Jersey's sustainability as a structuring centre

The States of Jersey published a consultation paper on 20 November 2017 in relation to a proposed new Limited Liability Companies (Jersey) Law 201-. It is proposed that this new type of vehicle will sit alongside Jersey companies (including PCCS and ICCs), limited partnerships (including SLPs and ILPs) and limited liability partnerships. The consultation paper can be found on the Sates of Jersey website and feedback must be given by 12 January 2018.

LLCs - what are they?

The features of the proposed Jersey LLC is described more fully in the consultation paper, however its characteristics and how they compare to a Jersey limited company (“LTD”) and a Jersey LLP can be summarised as follows. A Jersey LLC:

• will essentially be a hybrid of a LTD and an LLP, with some similar and some different features to each;
• will have separate legal personality like a LTD but, like an LLP, will not be a body corporate - it has the ability to hold assets and enter into contracts in its own name (akin to both an LTD and an LLP);
• offers an unusually high level of Tax flexibility: it will be treated as tax transparent in Jersey, but can elect to be taxed as a company;
• will have a private constitutional document (LLC agreement), unlike the publicly-filed M&As for a LTD;
• will offer flexibility as regards the contributions of members (more akin to a partnership) – there is no obligation to contribute but a contribution can be in cash, property or services;
• will offer an ability to create "series" within a Jersey LLC (like PCC)

In terms of the likely impact of Jersey LLCs on the Jersey fund industry, they will be a helpful additional structuring tool but it remains unclear whether LLCs will be able to conduct regulated financial services business (including FSB). If so, it is likely that they can ultimately expect similar treatment to Jersey LLPs with an equivalent special JFSC licensing policy. It is currently anticipated that, like LLPs, LLCs will not permitted to be authorised as Jersey fund vehicles. Looking at Cayman (with 600 new Cayman LLCs since it introduced LLCs in July 2016), there has been some, but very limited, use of LLCs as fund vehicles, with exempted company hedge funds and exempted limited partnership private funds already working well. The uses of Cayman LLCs so far have included:

• general partners of both Cayman and U.S. limited partnerships
• management companies
• carried interest distribution vehicles
• investment holding vehicles
• joint venture vehicles

A key rationale for Jersey LLCs is that they are very familiar vehicles in the U.S. market, with widespread U.S. use of Delaware LLCs and, since 2016, Cayman and Bermudan LLCs. They should make Jersey a more attractive and familiar jurisdiction for U.S. and equivalent RoW business. The U.S. market continues to grow, as does Jersey's exposure to it, with North American assets and funds administered in Jersey totalling approximately £169bn in 2017. Jersey LLCs will be considered useful in jurisdictions, like the U.S., that can treat LLCs as transparent tax entity, although certain jurisdictions (such as the UK) will likely not recognise them as transparent.