Registration of banks in Jersey

Jersey has a well established reputation as an international banking centre and the number of banks registered in the Island remains stable. The authorities, whilst keen to promote the banking industry, are anxious to preserve Jersey’s reputation for financial probity. Any bank wishing to establish a presence in the Island must register under the Banking Business (Jersey) Law 1991 (Banking Law) and the associated Banking Business (General Provisions) (Jersey) Order 2002.

Applications for registration are carefully screened in accordance with the Licensing Policy published by the Jersey Financial Services Commission (Commission) in respect of deposit-taking business. The Code of Practice for deposit-taking business, issued by the Commission and which was last revised in January 2021 (Banking Code), assists the Commission in its on-going consideration of the fitness and propriety of a registered person by setting out standards that the registered person must meet, against which the registered person can be assessed.

Registering under the Banking Law

The Banking Law requires that every person carrying on “deposit-taking business” in or from within Jersey must be registered (with registration being renewed annually). The requirement applies regardless of whether a bank’s presence in Jersey is through a branch or subsidiary or as a “managed bank”;  that is where the bank has no premises or staff of its own in Jersey but is represented by another bank. A Jersey company or Jersey limited liability partnership carrying on deposit-taking business outside Jersey must also be registered.

The Banking Law defines “deposit-taking business” in terms of retail banking, where deposits received are used to make loans or to finance any other activity of the business in the course of the deposit-taker’s business. Activities involving the receipt of monies only from banks or money lenders are not caught. A deposit is defined as a sum paid on terms that it will be repaid at some time in the future, but sums paid pursuant to a contract for the purchase of goods or services or as security are not included. A number of activities which involve the taking of deposits are specifically exempt from the requirements of the Banking Law.  Principal amongst these are investment dealing, the activities of a professional trustee in the course of his business and the activities of a lawyer in the course of his profession. Regulation for such activities will most probably be caught under the terms of the Financial Services (Jersey) Law 1998.

Special registration arrangements may be made for banks licensed overseas wishing to utilise business continuity facilities in the island in the event of any disruption of normal operations in their home jurisdictions.

Bank registration eligibility

An application for registration must be made to the Commission. The Commission has discretion to refuse and revoke registration and to attach conditions to registration. Whilst every application will be considered on its own merits, current policy is to grant registration where (amongst other detailed criteria used to establish whether or not the applicant is a “fit and proper person to be registered”):

• the applicant is part of a financial institution of international stature and reputation within the global “top 1000” banking groups by reference to their Tier 1 capital base, or financial conglomerates of equivalent size;
• the applicant, or the group to which it belongs, carries an “investment grade” equivalent credit rating from an internationally recognised credit rating agency;
• the application must be able to meet the financial requirements established in the Banking Code and the Commission’s liquidity management requirements;
• the applicant is subject to satisfactory supervision in its home jurisdiction and the supervising authority confirms that it has approved the establishment of a banking presence in Jersey;
• the applicant must have sufficient management oversight and control of its activities including comprehensive operational records and financial information readily accessible in Jersey together with a majority of Jersey resident directors and relevantly qualified and experienced staff;
• the applicant is able to demonstrate its ability to fully adhere to the Banking Code;
• the applicant, if it is to be a Jersey incorporated subsidiary, will have the full backing of its parent company and will be able to provide a letter of comfort from the ultimate parent bank, or intermediate owner if that party is an appropriately supervised “Top 1000” bank.

Other key considerations are set out in detail in the Commission’s Licensing Policy in respect of deposit-taking business that requires registration under the Banking Law (Licensing Policy). A detailed examination of each of the key considerations set out in the Licensing Policy is outside the scope of this guide.

REFUSAL TO REGISTER

The Commission is obliged under the Banking Law to refuse registration where the applicant would have no physical presence in Jersey, which includes meaningful decision making and management, and would not be subject to adequate consolidated supervision in the home jurisdiction.

The grounds upon which the Commission may refuse to register (or renew) an applicant are set out in the Banking Law and include:

• the failure to comply with previous conditions or directions given by the Commission or the Banking Code;
• the conviction of the applicant or its employees or associates of certain offences in connection with financial services in Jersey or elsewhere;
• it appears not to be in the best interests of depositors that the applicant be registered;
• it is not in the best economic interests of Jersey or the reputation and integrity of Jersey in financial matters that the applicant be registered.

BANK APPLICATION PROCEDURE

This involves submitting an application form available on the Commission’s website to the Commission together with:

• a business plan including three year forecasts and all resource requirements;
• copies of the applicant’s last three years’ audited financial statements and all parent companies;
• the latest management accounts of the applicant;
• all relevant organisation charts including details of the applicant’s ultimate beneficial ownership and any intermediate ownership; and
• the application fee, currently £28,500.

In addition, any individuals wishing to become a director, controller, manager or key person of an applicant (such as compliance officer) are required to complete and submit to the Commission a personal questionnaire. This is also available from the Commission’s website.

The Commission, however, encourages potential applicants to make early contact with it for initial discussions prior to submission of the application, at which time any necessary clarifications of the Commission’s policy and approach can be provided.

ECONOMIC SUBSTANCE

Jersey has in place economic substance legislation to address the concerns of the EU Code of Conduct Group for Business Taxation that certain Jersey tax resident companies may be used to artificially attract profits that are not commensurate with economic activities and a substantial economic presence in Jersey.  Under the Taxation (Companies – Economic Substance) (Jersey) Law 2019, Jersey tax resident companies carrying on specified activities, in respect of accounting periods beginning after 31 December 2018 (and every following accounting period),are required to demonstrate that they have a substantive presence in Jersey.

The relevant activities are:  banking, insurance, fund management, financing and leasing, shipping, intellectual property, headquartering, distribution and service centres and holding companies (although holding companies are treated separately under the Regulations). The substance requirements vary for each key activity to reflect the different needs of the companies involved.

Essentially, such companies will have to demonstrate that they each have substance in Jersey by (i) being directed and managed in Jersey, (ii) having adequate people, premises and expenditure in Jersey and (iii) conducting core income generating activities in Jersey. A failure to comply could result in substantial penalties and, ultimately, strike-off.

A complete discussion of Jersey’s economic substance requirements is beyond the scope of this Guide, please contact us if you wish to consider this further.

CONDITIONS TO REGISTER AS A BANK

Certain specified general conditions apply either to all registered banks or to all those which come within a particular description under the Banking Business (General Provisions) (Jersey) Order 2002. Under the Banking Law, the Commission may attach additional specific conditions to the registration of a particular bank.

The following conditions are applicable to all registered banks:

1. a registered bank must not commence any new activity in Jersey which may have a significant effect on its business or profitability without the prior consent of the Commission;
2. the Commission can require the removal of any director, controller or manager of a registered bank if it considers that person not to be a fit and proper person;
3. a registered bank must comply promptly with any notice issued by the Commission under the Banking Law requiring the production of documents and information.

The following conditions are applicable to registered banks carrying on business through a branch:

1. a registered bank which establishes a Jersey branch must appoint:
2. a senior officer outside Jersey to fulfil the bank’s obligations under the Banking Law; and
3. a branch auditor.

Both appointments are subject to the Commission’s approval. The appointed senior officer must provide the Commission with the names of the principal and deputy branch manager and must notify the Commission of all changes.

The following conditions are applicable to registered banks which are subsidiaries:

1. the registered bank must not establish or acquire a presence outside Jersey, whether through a representative office, branch or subsidiary or by means of a joint venture, without the prior consent of the Commission;
2. the registered bank must not, without the Commission’s prior consent, enter into an exposure to any one person or group of connected persons which exceeds 25 per cent of its agreed capital resources;
3. the registered bank must provide the Commission with accounts complying with the requirements of the Banking Law and the Companies (Jersey) Law 1991;
4. the registered bank must publish either summary or full accounts for the use of depositors and potential depositors within three months of the date of its balance sheet.

CONCLUSION

Once granted, registration is renewable annually on payment of a fee based on various components prescribed by the Commission and set out in detail on its website. Following registration, all registered banks must observe and comply with the requirements of the Banking Law and associated legislation and the Banking Code. Registered banks must meet the threshold conditions that apply on an ongoing basis in respect of the “fit and proper” assessment, and are subject to on-going supervision by the Commission.

This Guide was last updated in February 2023. It is routinely reviewed by Appleby and updated when changes to the law require it. This Guide is for general guidance only and does not constitute definitive advice. Please contact one of our lawyers if you require more detailed information.