Jersey for Securitising Real-World Assets

Dilmun was one of the founding members of a working group, which worked on producing the guidance notes with the Jersey Financial Services Commission (JFSC) in 2018 and has worked with the JFSC to issue the recently released new guidance notes specifically around tokenisation, titled Real World Asset Guidance 2024.

Download the Interview

How does Jersey’s landscape support tokenisation businesses?

Dilmun Leach:

Jersey’s base case is one of stability and world class infrastructure, for example we have the fastest broadband in the world.

Jersey also has almost 14,000 financial services professionals and more than 50 regulated corporate services providers who are able to provide supporting services, many of whom have quite deep experience in digital assets both in relation to investment funds, but also token issuers and tokenisation platforms.

The Jersey corporate services provider, usually a regulated administrator, can provide directors, company secretary, a money laundering reporting officer, a money laundering compliance officer, as well as accounting and administration services.

Elliot Refson:

So, there is a good environment and pool of talent to both support the industry.

You mentioned tokenisation platforms – Walkers were involved in the creation of the first one in Jersey as well as the launch of a platform involving the securitisation of virtual assets and the issuance of Swiss Actively Managed Certificates.

I’m really interested to discuss their structuring. Let’s start with the securitisation of virtual assets. Why did they pick Jersey and how does this structure look in Jersey and does it differ from other jurisdictions?

Dilmun Leach:

As you mentioned, we have recently worked on a new white labelled securitisation platform using a Jersey company to hold underlying assets such as listed shares, bonds futures as well as digital assets and potentially crypto assets. The Jersey company is a simple securitisation vehicle.

How are securitisation vehicles treated under the Alternative Investment Fund Managers Directive (AIFMD)?

Dilmun Leach:

A securitisation vehicle is not an Alternative Investment Fund (AIF) under the EU AIFMD, meaning it does not need to comply with the directive.

Is there a limit in Jersey to the number of people that these securitisation vehicles can be sold to as there are in other jurisdictions?

Dilmun Leach:

No there is not a limit. A securitisation vehicle issuing notes is not a collective investment fund there is no limit on the number of investors in Jersey. However, restrictions are based on the jurisdiction where the investors are based. For example, if the investors are based in the EU, then the product will need to fit with the EU legislation.

Consideration would be given to what kind of investors are permitted to acquire the securities (i.e. retail or professional only), minimum investment amount and minimum denomination, regulatory treatment and whether they are structured products or securities, which jurisdictions they will be marketed to, whether they need a license under Markets in Financial Instruments Directive (MiFID) or whether there are other EU legislation as to how they’re marketed.

From a Walkers Jersey perspective, noting we only advise on Jersey law, what we have seen with various products is an approval via one lead EU member state as the primary regulator, and then those products can be sold across Europe.

(Note: At Walkers from our Jersey office, we can only advise on the Jersey regulation and procuring the Jersey consents for the Jersey company to issue those notes).

What is the platform structure of a tokenisation?

Dilmun Leach:

A tokenisation is effectively a securitisation from a Jersey legal and regulatory perspective, it is effectively the same.

How it works:

A Jersey tokenisation may involve a Jersey company with shares held by a purpose trust, if the client wants to keep it off-balance-sheet. If the client is not concerned about the tokenisation being an orphan, off-balance-sheet structure, then a Jersey tokenisation could be held by the client’s group.

Acquire assets

The Jersey company will then acquire underlying assets and it will issue ‘a note’ – using blockchain technology a token – to the investors.

Referable

That token is referable to the underlying real-world asset.

Preferable

That token is preferable to holding the underlying real-world assets, for example because the tokens are divisible, it may allow high value assets such as real estate, fine art, or rare wine be accessed by a wider group of investors therefore ‘democratising’ investment in those asset classes. It may also be easier to sell the tokens on the blockchain or via an exchange, potentially with lower fees and less friction, as opposed to otherwise acquiring those assets directly and selling in the traditional manner.

What will be the implications of the tokenisation of Real-World Asset Guidance 2024?

Dilmun Leach:

What is very exciting about the new RWA Tokenisation Guidance Notes is that they will offer enhanced regulatory clarity and execution certainty that tokenisation is possible from Jersey – a well-regarded international financial centre in a London time-zone. In practice, there will be a form to fill out and the JFSC will grant its consent in relation to the issue of those tokens.

This differs from competitor jurisdictions where you might not need a consent from a regulator to issue those tokens and rather the issuance is based on a legal opinion as opposed to proactive consent by a regulator; and this differs still from other jurisdictions where you might need a full-blown licence to carry out a tokenisation, and my view is that the requirement for a consent from the JFSC is a proportionate regulatory requirement and good middle ground for Jersey to take.

Digitisation terminology

In 2023, Jersey adopted the Financial Action Task Force (FATF) definition of ‘Virtual Assets’ (VAs) and ‘Virtual Asset Service Providers’ (VASPs), which ensured that VASPs were brought within scope of our Anti Money Laundering (AML), countering the financing of terrorism (CFT), and countering proliferation financing (CPF) regulation. Alternative definitions and language, including digital assets and crypto assets, are used widely in the international financial services industry and are included here, and this also serves to ensure that the content is accessible to all.