In an Island with limited human resources which is continuing to experience strong growth in demand across a range of its service offerings, the goal of achieving efficiencies through digital transformation is a strategic imperative for most businesses.
The digital ambition is not only spurred by a desire to achieve these efficiencies but, in addition, Jersey has developed world-class expertise in information security, adoption of cloud-based solutions and data management. All of this is built on a core foundation of the Island’s early roll-out of a pure fibre gigabit speed network to all homes and businesses that provides a broadband speed ranked first in the world. These new technologies are transforming the way financial services are delivered.
In this context, the identification of the digital aspiration: ‘To be the easiest international finance centre to do business with remotely, in a digital world’, in Jersey Finance’s 2017 Strategic Review, was prescient.
So why is a lawyer writing about innovation?
Lawyers are sometimes viewed as barriers to innovation, as professionals who can be risk averse, change averse and with traits that can inhibit or even quash innovation. This is not the experience in Jersey.
The development of Jersey’s financial services industry has, from its early beginnings, relied upon innovation and a key aspect of innovation is product development. New products tend to be based upon new legislation or at a minimum, legislative enablers, resulting in the creation of new legal structures or the application of existing structures to new opportunities and markets. In Jersey, new legislation has been used as a tool of innovation and Jersey lawyers have made key contributions to this innovation.
By way of example, one of the cornerstones of the Island’s trust and wealth management sector is the Trusts (Jersey) Law 1984 – an innovative statute that provided the foundations from which the Island developed from an early participant in the nascent global wealth sector through to a sector leader. The late Advocate Keith Baker is recognised as one of the key architects of the legislation and is given much credit for it. This legislation, together with the recognised body of case law arising from judgments issued by the Courts of the Island, has become globally recognised and is followed extensively in other jurisdictions.
In terms of new legal structures, industry professionals have been working extensively with the Government of Jersey over the last 12 months in the final phase of the design and implementation of legislation and regulations to accommodate the establishment of LLCs – limited liability companies – taking the US form rather than the more familiar English form of limited company. The LLC product has been designed to meet the requirements of US investors and structures, reflecting the ever-increasing role that Jersey based entities play in US originated transactions and in the field of fund management.
The comprehensive legislation has created a sophisticated product that amongst other things enables LLCs to merge and demerge, continue to and from an overseas jurisdiction and, in due course, to create separate series each with legal personality. Representatives of The Law Society of Jersey have played a leading role in the technical design of the product and in the finalisation of the relevant legislation.
The design and implementation of a product such as the LLC, requires a significant contribution of time and investment from all stakeholders. Not only does an appropriate regulatory framework need to be implemented to meet the requirements of the Island’s regulator – the Jersey Financial Services Commission (JFSC) – but also the Registrar of Companies needs to invest in systems and processes to ensure the product is ready for launch. The extent of investment in an initiative such as this means that resources need to be focused on a limited number of key new products that are aligned with the strategic objectives of the jurisdiction.
An alternative to the design of new structures based upon new legislation, is the application of existing structures to new opportunities and markets. A key strategic focus of the Island’s financial services industry is that of sustainable finance. The ambition is for the international finance centre to leverage its expertise and capital to support the transition to an environmentally and socially sustainable global economy.
Jersey Finance Limited has developed a new sustainable finance strategy aimed at supporting the embedding of sustainable finance across all the different sectors of the jurisdiction’s financial services offering. The legal profession has been instrumental in developing new services in this space – whether in terms of assurance, regulatory compliance or supporting clients to list on innovative sustainable exchanges, such as TISE Sustainable.
The new technologies described at the beginning of this article are also creating exciting opportunities to provide a whole range of new services, to establish novel structures and to offer
new investible asset classes. The rapid evolution of blockchain technologies and crypto-based applications has provided extensive scope for innovation. Jersey is fast becoming an established market for fintechs and professional investment firms, being home to a number of token issuers, global payment platforms and fintech-focused investment funds. Jersey clients include tech giants, cryptocurrency exchanges, payment platforms and emerging blockchain developer talent.
To date, Jersey has not introduced any fintech specific legislation. The JFSC has sought to cater for the regulation of fintech businesses within the existing regulatory framework. In terms of testing products and services, the JFSC has proven itself to be a proactive and forward-thinking regulator in becoming a member of the Global Financial Innovation Network (a group of international regulators and observers committed to supporting innovative products and services).
Jersey also operates a sandbox which is run through Digital Jersey, supporting local fintech firms and fintech firms seeking to relocate to Jersey. Again, lawyers are playing a key role in this area of innovation, participating in the Digital Assets Working Group – a body of representatives of the Government of Jersey, representatives of the JFSC and other interest groups knowledgeable in the fintech space, promoting digital assets and blockchain technologies in Jersey.
While the design of new products, the development of ESG initiatives and the adoption of fintech solutions have attracted much focus, innovation in Jersey’s financial services industry is not restricted to these activities. The Island undertakes a continuous process of investing in its regulatory framework with a view to ensuring that leading international standards are maintained. The JFSC works closely with policy makers in the Government of Jersey to update legislation and regulations on a continuous basis. Industry representatives are able to engage constructively with regulators both in the consultation phase but also with a view to ensuring the effective implementation of new measures. The participation of the legal profession has been significant, through responding to consultations, joining working parties and engaging with standing industry bodies.
In summary, innovation is alive and well in Jersey’s financial services industry, activities which are significantly supported by members of Jersey’s legal profession. Notwithstanding the onerous demands of business as usual, the importance of continuing to invest in innovation cannot be overstated.
The scale of innovation in financial services is escalating and to satisfy Jersey’s ambition to continue to be one of the world’s leading international finance centres, the importance of innovation needs to be regularly championed. The words of Dr William Brody, former President of The John Hopkins University and a US national champion of innovation, provide an appropriate conclusion on the benefits of successful innovation: “What is the calculus of innovation? The calculus of innovation is really quite simple: Knowledge drives innovation, innovation drives productivity, productivity drives economic growth.”