MINISTER FOR ECONOMIC DEVELOPMENT (“THE MINISTER”)
FOUNDATIONS (JERSEY) LAW 200- (“THE DRAFT LAW”)
1 THE ISSUE AND RECOMMENDATION
- It is recommended that the Minister for Economic Development (“the Minister”) should approve the Draft Law and the report attached to it, sign the Decision Summary and the statement of human rights compliance and that the documents should be lodged au Greffe by 9 September 2008 so as to be debated by the States on 21 October 2008.
- Jersey is one of the world’s leading international financial centres. To have achieved this position it has maintained over more than thirty years a legislative framework that has kept it at the leading edge of financial services. Jersey was one of the first finance centres to develop modern legislation in the areas of banking, funds and trusts, and this legislation underpins the Island’s vibrant financial industry. From the basis of a sound legislative framework, entrepreneurial business is given the certainty it needs to develop its own business initiatives.
- This process is not static. Over the last decade, as the nature of financial services, capital markets and inter-institutional business has changed and developed, the finance industry in Jersey has proved time and again its ability to develop new products and services to meet international demand.
- Neither is the process static in terms of international standards. Jersey has always been, and remains, committed to meeting international standards in respect of co-operation, regulatory oversight and anti money laundering provisions.
- The Draft Law will introduce a new type of wealth-management vehicle, to be known as a “foundation” which is intended to achieve the following:
a) opening up business opportunities with clients from parts of the world where the concept of a trust is alien;
b) meeting the legitimate needs of clients who want to retain more directional power over their assets than trustees of discretionary trusts can normally permit settlers; and
c) improving the transparency of the wealth holding structure. Transparency is now frequently required by tax authorities or courts, as well as increasingly by bodies concerned with high standards of transparency in respect of their senior executives. In many jurisdictions where the concept of trust is not recognised at law, foundations would be a more transparent and acceptable vehicle.
- Foundations achieve these three objectives by creating a legal entity, with easily recognised liabilities and accountabilities, openly recorded on a public registry in the same way as a company. A foundation is a distinct legal entity, but, unlike a company, it has no shareholders. It is an entity that holds assets in its own name for the purposes set out in its constitutive documents. For clients and authorities originating in jurisdictions not familiar with the concept of trust, a foundation can be a more acceptable offering.
- As well as being used for wealth management and estate planning, foundations may also have applications in more specialized areas, such as long-term charitable aims or securitizations, where it is desirable that property be given to a legal entity and applied for specific purposes. As with companies and trusts, the use of foundations will be subject to compliance with the Commission’s policy on sensitive activities.
- Foundations are well established in other jurisdictions. They have existed in Europe since the Middle Ages, when they were used for charitable or religious purposes. They are increasingly used for wealth management purposes and there is therefore an existing market for this product which Jersey is seeking to access with this new law.
- THE PROPOSED NEW LAW
- A Jersey foundation will be a legal entity, registered with the Registrar of Companies. It will be governed by the Law, its charter and its regulations (if any). All foundations will have a charter. The charter is a public document which must include certain specified details. The detailed provisions applicable to the foundation can be included in the public charter or in the regulations, which will be a private document. It is expected that the majority of foundations will have both a publicly registered charter and a set of private regulations, though there may be cases, such as, for example, foundations established for wholly charitable purposes, where it is desirable for the entire constitution of the foundation to be public.
- A foundation will be required to have a council, which is the body responsible for fulfilling the aims of the foundation in accordance with the law, charter and regulations. The council must have at least one “qualified” member, who will be a Jersey based finance professional, regulated by the Jersey Financial Services Commission under the Financial Services (Jersey) Law and Codes of Practice published under that Law. A foundation must also have a guardian, who will oversee the work of the council and to whom the council will be accountable.
- The qualified member, under the supervision of the Commission, will ensure that the foundation is not abused for money laundering or terrorist financing purposes.
- Foundations will be endowed by assets with the founder (or possibly by some other person). They will invest these assets and either distribute them to beneficiaries or use them for some purpose, which can be either charitable or non-charitable.
- The Draft Law introduces a new well-regulated product, which will help Jersey finance industry, particularly the trusts sector. It is hoped that foundations will be attractive to investors from non-trusts jurisdictions and will attract additional business to the Island as well as potentially opening up new markets.
5.1 It is recommended that the Minister should approve the Draft Law and the report attached to it, sign the Decision Summary and the statement of human rights compliance and that the documents should be lodged au Greffe by 9 September 2008 so as to be debated by the States on 21 October 2008.
Finance Industry Development Director
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