Jersey remains as a leading fintech, STO and ICO jurisdiction, and its position for being technology friendly can be underlined by the incorporation of global technology companies such as world’s first regulated Bitcoin investment fund, GABI Plc or the world’s largest technology fund – SoftBank in Jersey. Since 2019, Jersey Financial Services Commission (hereinafter referred as – “JFSC”) has become a member of Global Financial Innovation Network, the network of more than 60 organizations across the globe, which collaborate to share the experience of financial innovation in their respective markets.

This article sheds a light on the regulatory developments which placed Jersey at the forefront of nurturing innovation in this sector.

Supervision in Jersey

The JFSC administers the regulation of financial services business on the island, including preparing and issuing policies, guides and codes of conducts. Entities aiming to carry out financial business activities must be registered and authorized by JFSC and are bound to adhere to the requirements set out by the commission.

If the fintech business provides financial services, it will fall under the supervisory regime of Financial Services (Jersey) Law 1998 (hereinafter referred as –“FSJL”) unless an exemption applies. As per the definition of article 2 of the FSJL, financial services business is – “investment business, trust company business, general insurance mediation business, money service business, fund services business or alternative investment fund services business. As far as the entity is conducting activities with digital assets and cryptocurrency, it may also be characterized as a “financial services business”.

Legislative oversight

There is no specific blockchain law in Jersey, owing to the nature of its most predominant activities. But, the JFSC treated dealings with cryptocurrency and digital assets as “sensitive activity” as per the JFSC’s Sound Business Practice Policy. In harmony with EU and UK legislation, the Proceeds of Crime (Jersey) Law 1999 was amended in 2016, which categorized a virtual currency as a currency. In particular, amended regulation describe the virtual currency as “any currency which (whilst not itself being issued by, or legal tender in, any jurisdiction) –

• digitally represents value;
• is a unit of account;
• functions as a medium of exchange; and
• is capable of being digitally exchanged for money in any form”.

AML requirements

The principal reason why Jersey treated virtual currency as a currency rather than commodity is to supervise virtual currency business within JFSC’s statutory regime in order to combat money laundering and terrorist financing (hereinafter referred as – “AML/CFT”). The virtual currency exchangers became subject to existing Money Laundering (Jersey) Order 2008 and to implement policies and procedures to comply with the requirements set out in Jersey AML/CFT Handbook. Meanwhile, entities receiving a payment in virtual currency for the sale of goods costing more than €15,000 per transaction became contingent upon the legislative regime of “high value dealers” under the Proceeds of Crime (Jersey) Law 1999.

Moreover, under the “Proceeds of Crime (Supervisory Bodies) (Virtual Currency Exchange Business) (Exemption) (Jersey) Order 2016, the virtual currency exchange businesses with profit equal or exceeding 150,000 sterling (175 000 EUR) per calendar year are subject to official registration and payment of annual fees to the JFSC. While exemptions apply to companies with annual turnover of less than 150,000 sterling (175 000 EUR), they simply must notify the JFSC that they are involved in the virtual currency exchange business (exempt exchangers). This way, the regulator preserves a power to supervise and investigative exchangers. Whereas this measured regulatory approach created a “safe harbor” for exempt exchangers to test their innovative services and goods without being subject to immediate costs related with AML/CFT registration procedures. 150,000 sterling (175 000 EUR) financial threshold reduced preliminary burden in relation to start-up implementation stages and developing exchange platform for virtual currencies.

To file a regulatory application to JFSC following documents are required:

• a regulatory application form;
• a business plan; and
• a business risk assessment.

Exchange platform businesses are subject to maintaining statutory capital requirement:

• a net liquid assets position of 130% of its projected quarterly expenditure;
• a minimum of 25,000 sterling (29 500 EUR) paid-up share capital; and
• a minimum net assets position of 25,000 sterling (29 500 EUR) at all times.

Tax haven for fintech

Jersey is a tax haven for fintech businesses, companies enjoy zero rated income and capital gain taxes within the jurisdiction. Although there is no explicit tax regulation of cryptocurrencies and digital assets, the state of Jersey has published a guidance on cryptocurrency tax treatment, which stipulates that such assets will be taxed in line with general taxation rules. The guidance further explains following applicable rules:

• the profits and losses of an incorporated or unincorporated business engaged in Bitcoin or similar cryptocurrency transactions must be reflected in any accounts and will be taxable under normal income tax rules;
• transactions in which the payment or receipt is in a cryptocurrency need to be converted to the currency of the accounts (e.g. sterling), in accordance with the existing tax rules applying to conventional currencies;
• accounts are stated in a currency other than sterling, any profit or loss will need to be expressed in sterling for tax calculation and assessment purposes.

Balance of regulation

While there is an on-going debate over the nature of virtual currencies and whether digital assets should be treated as currency, commodity, goods or services, the government of Jersey is treating them as other traditional financial instruments. Jersey is trying to fairly balance the regulation to make sure that virtual currencies are not applied to enable money laundering and terrorism activities, even if this rigmarole might challenge large companies. However, small and medium enterprises can take advantage of working in the virtual exchange industry brought by a balanced and affordable regulatory regime.

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