Back to Index of Cryptoasset Regulations

Jersey has introduced legislation that regulates cryptocurrency exchanges with an annual turnover of £150,000 (approximately US$210,000) or more.  These exchanges are supervised by the Jersey Financial Services Commission and must comply with anti-money laundering and counter-financing of terrorism laws, including know-your-customer requirements.  By excluding exchanges with a turnover below £150,000, Jersey aims to create a means for companies to test various methods of financial technology without being subject to regulation.

I. Introduction

Jersey is a Crown Dependency of the United Kingdom and is a low-tax jurisdiction with a large financial sector. 

Back to Top

II. Regulation of Cryptocurrencies

Jersey issued a consultation paper on the regulation of cryptocurrencies in 2015, noting “[t]he creation of a business-friendly framework that encourages innovation, jobs and growth in both the financial services and digital sectors is a priority for the Government of Jersey.”[1]  The majority response to the consultation paper was that cryptocurrencies should be regulated only insofar as necessary to ensure compliance with anti-money laundering laws and to counter the financing of terrorism.[2]  The government of Jersey rejected “a full prudential and conduct of business regime” for cryptocurrencies, as it considered it was too early to issue such regulations given that cryptocurrencies are in the early stages of development and that doing so could restrict development and innovation.[3]  The legislative framework that applies to cryptocurrencies mirrors these recommendations.

The result of the consultation process was the issuance of a policy document that aims to

further enhance Jersey’s proposition as a world leading Fintech jurisdiction . . . [and] outline Jersey’s commitment to creating an environment that encourages confidence and innovation in the digital sector whilst protecting the Island from the most prominent money laundering and terrorist financing risks that are presented by virtual currencies in their current form.[4]

The Jersey Financial Services Commission (JFSC) has stated that

most ICOs are unlikely to be regulated by the JFSC.  Instead, the JFSC places some conditions on an issuer of an ICO (an ICO issuer) through the powers conferred on the JFSC in the Island’s statutory instrument governing the raising of capital, the Control of Borrowing (Jersey) Order 1958.[5]  

Thus, while there are no specific regulations in Jersey that apply to cryptocurrencies and initial coin offereings (ICOs), certain types of ICOs may fall under the existing financial regulatory regime in Jersey, depending on the form the offer takes.[6]  If an ICO does fall under the Jersey financial regulatory regime,

[a]s a general policy, Jersey based ICO issuers are required to be incorporated as a Jersey company and administered through a trust and company service provider licensed by the JFSC under the Financial Services (Jersey) Law 1998 to carry on trust company business.[7]

To provide clarity the JFSC issued guidance to aid companies in determining whether or not they fall within the legislative framework.[8]  In order to fall within this framework, all ICO issuers in Jersey are required to meet the following criteria:

3.2.1 be incorporated as a Jersey company with its registered office being provided by the TCSP appointed by the issuer
3.2.2 receive consent under the COBO from the JFSC before it undertakes any activity;
3.2.3 comply with the JFSC’s Sound Business Practice Policy;
3.2.4 apply relevant AML/CFT requirements to persons that either purchase tokens from, or sell tokens back to, the issuer of those tokens;
3.2.5 appoint and maintain a TCSP;
3.2.6 appoint and maintain a Jersey resident director who is a natural person and also a principal person of the TCSP appointed by the issuer;
3.2.7 be subject to an ongoing audit requirement;
3.2.8 have procedures and processes in place to (i) mitigate and manage the risk of retail investors investing inappropriately in the ICO, and (ii) to ensure retail investors understand the risks involved;
3.2.9 prepare and submit to the JFSC an Information Memorandum (which may be in the form of a White Paper) which complies with certain content requirements required of a prospectus issued by a company under the Companies (Jersey) Law 1991; and 3.2.10 ensure that any marketing material (including the Information Memorandum) is clear, fair and not misleading.[9]

In cases where the ICO requires consent under the Control of Borrowing (Jersey) Order, the JFSC may impose certain conditions on the company, which

require the issuer of the ICO to take certain measures to manage, amongst other things, financial crime and investor risks. The conditions reflect the guiding principles pursuant to which the JFSC discharges its functions as the Island's financial services regulator (the Guiding Principles) which are to have regard to:

1.3.1. the reduction of the risk to the public of financial loss due to dishonesty, incompetence, malpractice or the financial unsoundness of financial service providers;

1.3.2. the protection and enhancement of Jersey's reputation and integrity in commercial and financial matters;

1.3.3. the best economic interests of Jersey;

1.3.4. and the need to counter financial crime both in Jersey and elsewhere.[10]

While the JFSC may, in some cases, regulate ICOs, it “does not take any responsibility for the financial soundness of any schemes or for the correctness of any statements made or opinions expressed with regard to them.”[11]

Back to Top

III. Anti-Money Laundering Laws

A. Application

Jersey’s anti-money laundering and counter-financing of terrorism (AML/CFT) laws were extended to cover cryptocurrencies, with the changes coming into force on September 26, 2016.[12]  “Virtual currencies” are defined in the Proceeds of Crime Act as a currency rather than a commodity, thus enabling it to fall within the pre-existing regulatory framework and be regulated by the JFSC.[13]  Specifically, the Proceeds of Crime Act defines virtual currency as

(4)      . . . any currency which (whilst not itself being issued by, or legal tender in, any jurisdiction)–

(a)      digitally represents value;

(b)      is a unit of account;

(c)      functions as a medium of exchange; and

(d)      is capable of being digitally exchanged for money in any form.

(5)      For the avoidance of doubt, virtual currency does not include any instrument which represents or stores (whether digitally or otherwise) value that can be used only to acquire goods and services in or on the premises of, or under a commercial agreement with, the issuer of the instrument.[14]

A “virtual currency exchange” is defined in the Act as “the exchange of virtual currency for money in any form, or vice versa,” but “a reference to providing a service to third parties shall not include a company’s providing that service to a connected company.”[15]

Virtual currencies were also brought within the ambit of the Money Laundering (Jersey) Order 2008,[16] which requires individuals operating a “money service business” to register with the JFSC[17] and comply with the jurisdiction’s AML/CFT laws if they have an annual turnover greater than £150,000 (approx. US$210,000).[18]  These laws require such businesses to adopt policies and procedures to prevent and detect money laundering and terrorist financing, appoint a money laundering compliance officer and reporting officer, and ensure that record keeping and customer due diligence measures are implemented,[19] such as know-your-customer measures, prior to entering into a business relationship with a person, or before conducting a “one-off” for all transactions greater than €1,000 (approx. US$1,220).[20]

Businesses that trade in goods and receive payments in cryptocurrency of €15,000 (approx. US$18,500) and above per transaction, or in groupings of transactions, are considered to be “high value dealers” under the Proceeds of Crime Act 1999.[21]  Such dealers must be registered and supervised by the JFSC and comply with Jersey’s AML/CFT laws.[22] 

B. Exemptions

Individuals who operate a virtual currency exchange as a business but have an annual turnover of less than £150,000 are exempt from the Act.  These businesses must notify the JFSC that they are conducting such a business, but that they are exempt.[23]  There is no fee for this notification, but it makes the business known to the JFSC and enables them to “build a good profile of the businesses in this sector”[24] and to investigate the business for any suspected breaches of legislation.[25]  The aim of this exemption is to create “an innovative regulatory sandbox . . . allowing Exchangers with turnover of less than £150,000 per calendar year to test virtual currency exchange delivery mechanisms in a live environment without the normal registration requirements and associated costs.”[26]

Back to Top

IV. Taxation

There do not appear to be specific legislative provisions that apply solely to the taxation of cryptocurrencies.  The government of Jersey has issued guidance on the tax treatment of cryptocurrencies, particularly with regard to the mining of cryptocurrencies, the exchange of cryptocurrencies to conventional currencies, and the use of cryptocurrencies to pay for goods and services.[27] 

The government has stated that income generated from mining cryptocurrencies on a small or irregular scale are generally not to be considered as a trading activity, and that mining alone does not make a person liable for income tax.[28]  Costs associated with mining are also typically not deductible as an expense.  If mining is accompanied by“trading in cryptocurrencies on a sufficiently commercial scale that they would be regarded as trading on application of the ‘Badges of Trade’ principles.”[29] 

Occasional transactions that involve the exchange of cryptocurrencies that result in a gain or loss are generally not taxable.  Exchange of cryptocurrencies to and from conventional currencies by businesses or entities renders them liable to income tax if the activity is considered to be trading, or if features of trading are met.[30]  Businesses that use cryptocurrency transactions are taxable under income tax rules, but must convert the transaction to the local currency (sterling).[31]  In cases where goods and services are paid for in cryptocurrency, the transaction must be converted to the local currency in order to apply the goods and service tax.[32]

Back to Top

V. Consumer Protection

In November 2017, the JFSC issued a warning on ICOs, noting that these types of offerings are speculative, risky and are typically unregulated, and thus not subject to typical investor protection requirements.[33]

Back to Top

Prepared by Clare Feikert-Ahalt
Senior Foreign Law Specialist
April 2019

---

Back to Top

Last Updated: 12/30/2020