Jersey – a major fund domicile – is pivoting towards greater expertise in tokenisation and digital assets for its private-assets client base. Industry leaders discuss how the island is maintaining its competitive edge.
Participants:
- Elliot Refson, Head of funds, Jersey Finance
- Lewis Fellas, Head of hedge fund solutions, CoinShares
- Dilmun Leach, Group partner, Walkers
- Christopher Griffin, partner, Carey Olsen
In exploring Jersey’s dynamic role in the financial sector, Elliot Refson, Head of Funds at Jersey Finance, set the stage by underscoring the necessity for financial centres to evolve. Speaking at a Funds Europe roundtable, he highlighted how real assets comprise a significant portion of Jersey’s assets. Some 90% of assets under administration in Jersey are in this alternative investment sector, he said.
The panel discussed the shift towards the growing importance of digitalisation within private markets, highlighting collaborative efforts across various sectors in Jersey to innovate and update legislative frameworks in anticipation of future trends, such as tokenisation and the ‘retailisation’ of private capital.
Dilmun Leach, Group Partner at law firm Walkers, expanded on Jersey’s innovative streak, particularly in digital assets. He reflected on Jersey’s early adoption of regulations for virtual currency exchanges to combat money laundering, a significant step taken in 2016.
Leach said that as founding members of the Jersey Digital Assets Working Group, he and Christopher Griffin, Partner at the law firm of Carey Olsen, lobbied the government and the Jersey Financial Services Commission (JFSC) to establish guidelines for Initial Coin Offerings (ICOs). This effort led to the creation of ICO guidance notes in 2018, adapting Jersey’s regulatory landscape to the burgeoning field of digital assets. Currently, the focus is on refining these guidelines to reflect the evolving application of blockchain technology, including tokenisation in particular.
Not a “free for all”
Griffin highlighted Jersey’s longstanding identity as a financial services jurisdiction, especially in the face of the emerging digital assets sector. He pointed out Jersey’s measured approach to integrating these new asset classes, contrasting it with the aggressive strategies of some other jurisdictions, commenting, “Jersey is open to crypto and digital assets, but we are not a free-for-all,”.
This approach involves assimilating digital assets within Jersey’s existing legal and regulatory framework, which has been a successful strategy and has included introducing virtual currency exchange activity within Jersey’s AML regulations, and requiring a consent from the Jersey Companies Registry for the issue of digital assets, in materially the same way as a consent would be required for the issues of more traditional securities and structured products.
In a discussion focusing on Jersey’s historical development as a financial centre, Refson provided insight into the dramatic shift in the Island’s perception over the past two decades. He began by reflecting on a time when Jersey was considered overly rigid, a perception stemming from its pursuit of setting a gold standard in regulation.
“Jersey was seen as overregulated and inflexible, making business operations challenging,” Refson said. “However, a significant transformation means that today Jersey is acknowledged as a jurisdiction with proportionate regulation and high respectability”. This evolution, as Refson pointed out, is partly due to Jersey’s consistent adherence to high standards in areas such as AML and economic substance, while other jurisdictions have struggled to align with new norms.
Refson noted that the stance Jersey which took years ago has “positioned us advantageously in the current landscape”, and he highlighted this as an example of Jersey’s foresight in regulatory practices.
A more appealing choice
Lewis Fellas, Head of Hedge Fund Solutions at CoinShares, recounted establishing his first hedge fund in Hong Kong in 2016-17. Faced with a choice of domicile between Jersey, Cayman, and Switzerland, Fellas found Jersey most appealing due to its regulatory certainty, collaborative regulatory environment, and cost-effectiveness.
Fellas then discussed his current role at CoinShares, previously known as Global Advisors, a fund management business at the forefront of digital assets investment; indeed, CoinShares launched the world’s first regulated Bitcoin hedge fund, GABI plc, in 2015. Fellas described his role at CoinShares, focusing on developing hedge fund solutions that utilise Jersey’s funds regulatory framework, including the Jersey Private Fund (JPF) regime which facilitates the cost effective launch of new and smaller funds by permitting outsourced compliance functions.
In response to a question about the benefits of Jersey’s ‘tried and tested framework’, Fellas spoke to the advantages of the JPF regime, highlighting the inherent risks and high costs associated with starting a hedge fund and how the JPF regime mitigates these risks.
“The Jersey Private Fund is advantageous for small hedge funds, offering cost-effective solutions like outsourced compliance functions. This is significant for crypto strategies, which typically start on a smaller scale compared to other asset classes like real estate or Private Equity.”
Griffin added to this by highlighting the straightforward nature of Jersey’s funds regime, where the significant threshold is the number of investors (maximum of 50 investors in a JPF), distinguishing the JPF from a more regulated “public” fund. He also stressed Jersey’s logistical advantages, including its excellent connectivity to major airports and the importance of this accessibility in meeting economic substance requirements.
Refson further built on this by noting Jersey’s ongoing development of high-quality office spaces and superior infrastructure, including having the fastest broadband globally. Refson said that these combined attributes make Jersey an increasingly attractive location for fund launches and financial operations.
Refson noted that the Jersey Private Fund regime was introduced in April 2017 and that nearly 700 JPFs had launched to date. Addressing this tremendous uptake in JPFs, Refson observed that while Jersey’s overall assets under management have been on an upward trajectory, the regulatory landscape for funds had evolved considerably in recent years.
“We’ve seen a decrease in more highly regulated “public” collective investment funds by 50% over five years, but an overall increase in funds domiciled in Jersey when including private funds,” he said.
This trend underscores a movement away from more widely marketed collective investment funds towards private funds, marking a shift in Jersey investors’ and fund managers’ preferences for “speed to market” an lighter touch regulation.
Leach added that there were unique advantages of the JPF regime for fund managers, as the regime offers balanced regulation suitable for private funds with professional investors, typically involving a smaller investor base (up to 50 investors).
Leach highlighted the “one-stop-shop” approach offered by “designated services providers” in Jersey, which encompass everything from directorships to anti-money laundering officers, presenting a streamlined approach to fund management and administration. Leach also pointed out the efficiency of Jersey’s regulatory structure, noting that regulatory fees in Jersey are generally lower than competitor jurisdictions, and the unified service model adds to its attractiveness.
As an aside, Leach also mentioned the flexibility of Jersey’s regulatory landscape, with certain investment vehicles operating outside the conventional funds regime, thus offering more versatility compared to other jurisdictions, for example for co-investment vehicles, and single-asset vehicles, including single-asset continuation vehicles. This simplicity and comprehensiveness of services in Jersey make it a favourable choice for fund management, said Leach.
Access to European markets
In discussing the growing trend of investors choosing Jersey for fund launches, Refson observed a notable increase in fund managers from the US, Asia, and Africa opting for Jersey, particularly to access European markets. He pointed out Jersey’s strategic advantage of being able to use the National Private Placement Regime (NPPR) for accessing Europe rather than having to ensure full compliance with the EU’s Alternative Investment Fund Managers’ Directive (AIFMD).
“Jersey’s flexibility with AIFMD, offering an opt-in/opt-out approach on a country by country basis, is a key advantage,” said Refson. He also mentioned EU data, which indicates that a comprehensive AIFMD passport would not be crucial for many managers if it became available, making Jersey’s NPPR a more efficient alternative.
Tokenising traditional investments
In relation to tokenisation projects and products in Jersey, Griffin provided an overview of Jersey’s journey in this space. He began by referencing the Island’s initial framework for token issuance, which started with the JFSC’s publication of the ICO guidance notes.
During the ICO boom of 2017-2018, Jersey navigated the landscape effectively, avoiding many common pitfalls, said Griffin. He cited the success of various token issuances in Jersey, including an innovative asset-backed stablecoin, Arc Reserve Currency and the Vow token, a tokenised discount reward voucher ecosystem. He also highlighted Jersey’s role in launching the XRD token for Radix, the layer 1 defi blockchain protocol and indicated there is a shift towards tokenising a broader range of assets.
Leach detailed a significant tokenisation platform in development, involving a Jersey-based company set to issue virtual tokens on the blockchain, representing conventional financial instruments such as listed company shares, ETFs, and bonds. He said Jersey’s “clear regulatory path and experienced service providers make it an ideal location for this platform”.
The platform is poised to be Jersey’s first major venture into tokenising “real world assets”, in this case traditional financial instruments. Leach said the project was at an advanced stage and he anticipated more details would be released shortly.
He added: “This tokenisation platform showcases Jersey as a competitive jurisdiction for such initiatives.”
He reiterated Jersey’s advantageous position due to its proximity to London and its reputation as a premier financial services centre in Europe, predicting this will enhance Jersey’s standing in the tokenisation field.
Leach also noted the platform’s role in refining Jersey’s regulatory approach. He explained that the project has provided critical insights, leading to updates to the JFSC’s ICO Guidance Notes. Collaboration with the regulator has identified areas in the framework that can be improved to better suit the evolving needs of token issuers. Leach highlighted the project’s significance in positioning Jersey at the forefront of understanding and regulating tokenisation, suggesting a promising impact on the Island’s financial sector in the next few years.
Addressing the potential for tokenising real-world assets in Jersey, Leach discussed the emerging trends and developments in this area.
“There’s growing interest in tokenising real estate in Jersey, where considerable UK and European real estate is held via Jersey structures,” he said, and he acknowledged that while Jersey has not yet embarked on a real-estate tokenisation project, there is expertise in this area from Leach’s colleagues in other jurisdictions. The focus in Jersey meanwhile is on finalising the launch of a platform dedicated to tokenising equities and bonds.
In-depth collaboration
Leach addressed another significant trend in Jersey’s financial landscape: forming securitisation vehicles. He explained that these vehicles extend beyond digital assets to encompass a variety of asset types, including loan receivables, futures and carbon credits.
“Several securitisation vehicles in Jersey are dedicated to digital assets, requiring in-depth collaboration with the regulator,” he said, and added that this trend underscores Jersey’s robust position in debt capital markets and its adeptness in administering complex securitisation platforms, particularly those involving digital assets, showcasing the Island’s adaptability and innovation in financial services.
In the context of the evolving landscape of digital assets and blockchain technology, Leach delineated how Jersey aligns with these global trends. He observed that there is an increasing trend in Jersey towards establishing investment funds focused on digital assets, and noted the influx of funds, particularly from Singaporean managers, utilising the tax treaty between Jersey and Singapore.
Fellas spoke about the broader market, referencing the accessibility of ETPs to European investors and the recent US ETF approval of spot Bitcoin ETFs that has expanded the investor base and provided legitimacy to the asset class.
“The SEC approval of Spot Bitcoin ETFs may serve as a catalyst for institutional investors previously on the fence about crypto,” he said.
Fellas underlined the growing narrative around the tokenisation of real-world assets, suggesting a shift in interest towards this area of digital assets.
Fellas highlighted Jersey’s strategic advantages by responding to a query about the factors influencing companies to choose Jersey over other jurisdictions.
“Jersey’s location in the same time zone as London, a hub for financial innovation, especially in derivatives and structured finance, is a significant draw.”
He stated the ease of connecting with other European financial centres and the efficiency of this time zone alignment. Additionally, Fellas pointed out the benefits of Jersey’s regulatory environment, which is approachable enhancing its attractiveness for novel fund and project launches.
Younger generation
When asked about predictions for Jersey’s future role in the global financial ecosystem, Griffin expressed optimism. He believed that as the market for digital assets matures, the global regulatory landscape will stabilise, mirroring the evolution seen in fund regulations. He anticipated that the choice of jurisdiction for launching digital asset products would increasingly depend on factors like market access and regulatory environment, where Jersey stands strong.
Leach added that Jersey is broadening its investor base, moving beyond institutional capital to include semi-professional and high-net-worth individuals. He remarked on the ‘retailisation’ trend in private-assets investment and said Jersey was proactive in its approach to adapting laws and regulations to this shift.
Griffin concluded the roundtable by commenting on the trend of retail participation in crypto, especially among the younger generation. He contrasted traditional investment options, which may be inaccessible to young investors, with digital assets that offer a more viable option for building a diversified portfolio. He concluded: “The trend towards digital asset adoption, especially among the younger generation, is shaping the global financial landscape and is likely to continue.”
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