Jersey has been leading the way in its approach to digital assets. The Island’s forward-thinking attitude, coupled with its broad range of corporate vehicles, means Jersey has naturally developed an exceptional pool of resident expertise to deal with funds and digital asset innovation.
Jurisdictions have scrambled to get up to speed with token launches, with varying degrees of risk appetite. While some regulators have prohibited them entirely, as others have given carte blanche to almost any token promoter, the Jersey Financial Services Commission (JFSC) has recognised there is a middle ground; token generating events with proper substance, which are backed by a credible promoter, should be nurtured as an alternative means of fundraising.
Against this backdrop, in December 2017 Jersey saw the launch of its first token, the asset-backed stablecoin ARC Reserve Currency.
Since then, a number of promoters have launched tokens from Jersey as a result of the Island’s reputation as a well-regulated and reputable jurisdiction.
The JFSC have adopted a pragmatic approach to such launches, focussing on investor protection and anti-money laundering/KYC. In 2018, the regulator formalised its approach to token launches in its sensibly drafted Guidance Notes.
At a very early stage, the JFSC saw a huge increase in the volume and value of trading in cryptocurrencies, as people sought to convert their crypto into real world fiat currency and vice versa. The JFSC recognised there was a regulatory gap and, in 2016, brought enterprises providing so-called ‘virtual currency exchange’ (VCE) services under Jersey’s regulatory umbrella, requiring that VCEs comply with Jersey law and regulation aimed at preventing and detecting money laundering and terrorist financing.
At the same time, the JFSC recognised that many promoters of VCEs need time to road test their product. They therefore allowed VCEs with turnover per calendar year below a certain threshold to test VCE delivery mechanisms in a live environment, without the normal registration requirements and associated costs.
As such, Jersey’s VCE regulation balances the need to provide robust regulation with a desire to foster the development of the Island’s burgeoning crypto credentials.
In January 2019, Jersey saw the launch of Binance Jersey providing secure and reliable fiat-to-cryptocurrency trading of the Euro and British Pound with Bitcoin and Ethereum in Europe and the UK.
Jersey has seen several entities looking to offer custody solutions for digital assets. Crypto assets can be subject to ‘cold’, ‘warm’ or ‘hot’ storage, each of which could be provided from Jersey. It is important to note that anyone looking to provide custody solutions would need to be appropriately regulated in Jersey.
Jersey has also recently seen an influx of potential security token exchange platforms. The Island is particularly attractive for the launch of such exchanges as there is no requirement to have electronic clearing and settlement, or for clearing of security tokens to be carried out by a clearing house or central depositary.
In 2014, Jersey set itself apart from its competitor jurisdictions as a crypto-friendly jurisdiction when the JFSC approved the launch of the world’s first regulated bitcoin investment fund. Since then, Jersey has seen the successful launch of several digital asset funds, including CoinShares, a venture capital fund denominated in Ether investing in token launches.
With a sliding scale of regulation and cost, Jersey’s flexible funds regime caters for all investor requirements.
The Jersey Private Fund (JPF) offers up to 50 professional investors a speedy establishment (48 hours) and an appropriate regulatory approach, with regulation concentrated around the Jersey-based designated service provider as opposed to the JPF itself.
Jersey’s expert fund regime is the sweet spot of Jersey’s regulatory regime for more widely marketed alternative funds. This type of fund can be marketed to an unlimited number of expert investors, the most common category of which is any person investing a minimum of US$100,000.
Jersey offers easy and cost-effective marketing into the EU through National Private Placement Regimes (NPPRs), providing fund managers with an attractive alternative to the Alternative Investment Fund Managers Directive (AIFMD) passport.
The AIFMD passport allows EU investment funds to be distributed across the EU. However, the EU investment fund market is still predominantly a national market. In fact, only 3% of EU alternative investment funds (AIFs) are registered for sale in more than three EU Member States.
NPPRs clearly work for fund managers thanks to bilateral agreements between Jersey’s financial regulator and those in each EU Member State, and Brexit will not affect them.
Crucially, marketing through NPPRs has a lighter regulatory burden, often resulting in a lower cost to managers than the AIFMD passport.
The Island offers 0% corporate tax for fund managers, as well as low personal income tax rates and no capital or inheritance taxes.
Jersey offers tax neutrality to funds – so all types of investment fund established on the Island can benefit from the absence of Jersey income tax on non-Jersey source investment income and profits.
Funds established as companies will pay no Jersey income tax and there is no requirement to withhold tax on interest or dividends payable by corporate funds. As limited partnerships are tax transparent vehicles, they are not subject to income tax in their