The family office sector continues on its upwards growth trend and Jersey operates a financial services regulatory environment[i] which accommodates a range of family office stuctures.
Of course, as is well appreciated, there is no single accepted definition of what a family office is. The variety of family office structures is huge reflecting diversity in the legal forms adopted through to differences in functions and activities undertaken.
Types of Family Office Presence in Jersey
In the current context I am focussing on family office arrangements which fall into the following two broad divisions: family offices which are domiciled in Jersey in the sense that the core strategic mind and management of the family office structure is located in Jersey; and secondly arrangements where the core family office is located elsewhere than in Jersey and a subsidiary operation of the family office is located in Jersey to hold and manage family business interests or investment portfolios owned or controlled by the family office. I use the term “family office” in this briefing to cover both types of presence in Jersey and the following material deals in broad terms with the financial services registration and business licensing requirements relevant to family offices which set up in Jersey.
Family Office Structures in Jersey
There are three broad options for structuring a family office in Jersey.
Hosted Family Office or Virtual Office
The family office can be hosted by a regulated trust company business in Jersey as a fully-administered client structure. One could refer to these arrangements as Virtual Offices as they generally have no direct employees or real presence in Jersey.
Family Offices which depend on an Outsourcing Model
Secondly, there are partially-administered family offices which have a degree of real presence and independent operation in Jersey but which still use the services of a regulated trust company business or other professional services firms in Jersey to provide essential support to the family office ( for example, all or certain aspects of financial accounting and record keeping or provision of registered office facilities). One might call this the Outsource Model for a family office. Many such family offices will have started out within the first category as fully-administered arrangements which have subsequently spun out from their host trust company business to establish their own operation but remain umbilically linked for the short, medium or long term to the host trust company business which continues to provide services to the family office.
Bricks and Mortar Family Offices
Finally there are family offices which are autonomous and have a real presence in Jersey, operating from their own premises in the island and /or which have their own staffing arrangements in the island. While these family offices will often utilise the services of regulated businesses in Jersey and, for that matter, elsewhere to provide specific services or to undertake transactions for account of the family office, they do not have the ongoing operational dependency that the second category of family offices described above have with their outsource providers. Family offices in this third category can be termed Bricks-and-Mortar family offices.
As ever there are dangers in drawing clear divisions between different categories of family office. Inevitably there will be family offices which inhabit the spaces between the clear-cut divisions I have drawn; which again serves to demonstrate the diversity of the family office space.
Regulation and Business Licences
So what are the broad regulatory consequences for these family office types under the financial services regulation and business licensing rules[ii] operated in Jersey ?
The broad consensus is that, provided a family office confines its activities to administering or investing proprietary funds and only engages in any advisory activities which it may undertake with connected parties and entities within the family office structure, then the family office does not need to be regulated in Jersey under the provisions which relate to trust company businesses or investment businesses[iii].
In this regard reliance is likely to be placed either on the argumant that relevant activities are not being undertaken “by way of business” ( a key element of the requirement to be registered) because services are not provided to the public and the family office does not hold itself out as a provider of services to unconnected third parties. Or that the family office comes within the scope of financial services business exemptions which confirm that there is no requirement to register with the regulator in Jersey where services are provided within the family office structure between connected parties[iv].
Family offices within the first category discussed above, which are fully-administered by a host trust company business, will often structure themselves using the financial services business exemptions available for a Private Trust Company or the parallel exemption that exists for Private Trust Foundations[v]. Bringing themselves within these particular exemptions puts beyond doubt the exempt status of the trustee entity from direct regulation while they remain under administration by a host trust company business and comply with the specified conditions for exemption.
Are Family Office Employees acting as Unlicensed Trust Company Businesses ?
For family offices operating on the Outsource Model and for Bricks-and-Mortar family offices which have personnel resident in Jersey who are engaged to service the family office, the question can sometimes be raised whether, even though the family office entities themselves may be exempt or outside the scope of financial services regulation, such personnel risk being viewed as acting as individual providers of unlicensed trust company business services. The engagement arrangements for these personnel with the family office need to be carefully crafted to ensure that it cannot be argued that these individuals are themselves carrying on trust company business activities by way of business. Provided this is done there should be no exposure for these individuals.
In some arrangements persons who are not full-time employees of the family office and who provide specific services to the family office (such as director services) may be able to rely on exemptions which apply to such service arrangements[vi] or the individuals in question may themselves be licensed individually by the regulator in Jersey to provide their services for reward to the family office[vii].
The arrangements for all personnel involved need to be scrutinised and structured carefully to avoid unnecessary regulatory problems.
Finally, there is the question as to whether the family office needs to hold a business licence from the government in Jersey to enable it to carry on its undertaking in the island[viii]. Fully-administered family offices hosted by a trust company business are exempt from this requirement as they do not have a physical foot print of their own in the island[ix]. By contrast family offices which operate on the Outsource Model or which are Bricks-and-Mortar offices may need to apply for such a licence where they engage staff and/or occupy office premises in their own right in Jersey. However certain exemptions from the need to hold business licences can apply in some circumstances related to the activity levels of the officers of the family office[x] and dialogue with the government department dealing with business licences is then advisable to confirm whether an exemption is available.
Other Regulatory Matters to Keep in Mind
This briefing has focussed at a high level on the financial services and business licensing requirements which can apply to family offices. However when considering commencing a family office in Jersey regard must also be had to a number of other regulatory provisions including employment law provisions and residential entitlements of any employees engaged in the family office; compliance with the Sound Business Practices policy of the regulator in Jersey where Jersey registered entities form part of the family office arrangement; registration requirements under the Not For Profit legislation[xi] in Jersey; and possible application of anti-money laundering and financial crime obligations to family office entities which may require those entities to register with the regulator as Designated Non-Financial Businesses and Professions pursuant to provisions in Part B of Schedule 2 to the Proceeds of Crime (Jersey) Law 1999.
The material and opinions expressed in this briefing note are provided for information and general discussion purposes only and are not intended to be read and acted upon by recipients of this briefing note as legal advice on the matters discussed.
[i] Under the Financial Services (Jersey) Law 1998
[ii] Part 7, Control of Housing and Work (Jersey) Law 2012
[iii] Article 2, Financial Services (Jersey ) Law 1998
[iv] Financial Services (Trust Company Business (Exemptions No.4)) (Jersey) Order 2001; and paragraph 8, Schedule 2, Financial Services (Jersey) Law 1998
[v] Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000
[vi] Natural Persons Undertaking the Activity of Acting as a Director under the Financial Services (Jersey) Law 1998, Guidance Note 2010 published by the Jersey Financial Services Commission
[vii] Class G – Director, Natural Persons Carrying on a Single Class of Trust Company Business, Guidance Note August 2018 published by the Jersey Financial Services Commission
[viii] Control of Housing and Work (Jersey) Law 2012
[ix] Article 3 (1) (d) Control of Housing and Work (Exemptions) (Jersey) Order 2013
[x] See generally Article 3 Control of Housing and Work (Exemptions) (Jersey) Order 2013
[xi] Non-Profit Organizations (Jersey) Law 2008