Jersey Unreported Judgments

Banking - application for court sanction of a proposed scheme of transfer.

[2014]JRC117

Royal Court

(Samedi)

27 May 2014

IN THE MATTER OF THE REPRESENTATION OF BARCLAYS PRIVATE BANK & TRUST LIMITED AND BARCLAYS PRIVATE CLIENTS INTERNATIONAL LIMITED

AND IN THE MATTER OF AN APPLICATION PURSUANT TO ARTICLE 48D OF THE SCHEDULE TO THE BANKING BUSINESS (JERSEY) LAW 1991

Advocate G. S. Robinson appeared for the Representors.

judgment

the commissioner:

1.        Barclays Private Bank & Trust Limited ("BPB&T") has applied for Court sanction of a proposed Scheme of transfer ("the Scheme") under the provisions of the Banking Business (Jersey) Law 1991 ("the Banking Law"). 

2.        BPB&T currently provides both trustee and private banking services in Jersey.  The Barclays Group wishes to re-organise its business in Jersey, so that all trust company business (as defined under Article 2(3) of the Financial Services (Jersey) Law 1998 ("the Financial Services Law") will continue to be undertaken by BPB&T and all banking, investment business (as defined in Article 2(2) of the Financial Services Law) and funds services business (as defined in Article 2(10) of the Financial Services Law (the "Transferring Business")) currently carried on in Jersey will be carried on by the Jersey branch of the Isle of Man company Barclays Private Clients International Limited ("BPBC").  All assets and liabilities relating to the Transferring Business with very limited exceptions will be transferred to BPBC including over £2.7 billion client deposits, £388M loans and advances and over £2.1 billion assets under management. 

3.        At a directions hearing before me on 25^th April, 2014, I granted the representors certain dispensations from the requirements of paragraph 4 of the Schedule to the Banking Law, which pursuant to Article 48D of the Banking Law regulates any transfer of any deposit taking business and adjourned the application to a hearing on 5^th June, 2014.  

4.        I also confirmed that on the basis of the factual matrix put forward the Court had jurisdiction to sanction the Scheme and I now set out my reasons. 

5.        The width of the jurisdiction of the Court under Article 48D was recently considered by the Court in the case of Representation of Standard Chartered (Jersey) Limited [2013] JRC 172.  In that case, the Court considered a transfer to Standard Chartered Bank's Jersey branch of a full-service private banking business which included investment management services and its associated accounts.  The Court concluded that it had jurisdiction on either one of two bases.  It concluded that a Scheme under Article 48D does not need only to transfer a deposit-taking business, provided that the non-deposit-taking activities are integral to the business and have not been artificially grafted on to the deposit taking activity to get within the jurisdictional gateway (paragraphs 20-26) and accordingly, the Court had jurisdiction.  It further concluded that the investment banking services and associated accounts could be transferred pursuant to the powers of 9(e) of the Schedule enabling the Court to make orders "with respect to such incidental, consequential and supplementary matters as are, in its opinion, necessary to secure that the Scheme is fully and effectively carried out".  (Paragraphs 27-31). 

6.        Turning to the facts of this application, Ashley Stuart Cox, a director of BPB&T, explains in his affidavit of 16^th April, 2014, that BPB&T is authorised by the Jersey Financial Services Commission ("the JFSC") to carry on deposit-taking business under the Banking Law and to carry on investment business under Classes A, B and C of the Financial Services Law.   It has notified the JFSC for the purpose of carrying on money services businesses under the Financial Services Law.  It is licensed to act as a distributor of funds under Class Z of its funds services business licence under the Financial Services Law.  It is also authorised by the JFSC to undertake certain categories of trust company business under the Financial Services Law. 

7.        The inter-connectivity between deposit-taking business, investment business and funds services businesses is set out in paragraphs 38 - 41 of his affidavit in this way:-

"38.     Whilst the deposit-taking and Investment Business, along with the Funds Services Business, are regulated under different legislation, the activities in relation to these businesses are inherently intertwined in BPB&T's business.  As part of its private banking business offering, BPB&T provides both deposit-taking and Investment Business services to its clients;  as part of its activities as an investment adviser, it also acts as a distributor of funds, pursuant to which it provides clients with information in respect of certain funds for which it acts as distributor.

39.      When a client of BPB&T uses BPB&T's Investment Business services, a deposit account with BPB&T is automatically opened in order to receive any dividends or income generated from the client's investments and hold settlement funds in respect of those investments.  In addition BPB&T also provides Investment Business services to certain clients of BPCI ("BPCI Clients").  Pursuant to an intra-group services agreement made between BPB&T and BPCI on 24 December 2013, BPCI has delegated to BPB&T the provision of Investment Business services to BPCI Clients, as permitted by the account opening terms and conditions between BPCI and BPCI Clients.  The investment business services delegated to BPB&T are undertaken by the same operating staff who provide services directly to BPB&T clients, and internally, the investment services provided to BPCI Clients and BPB&T clients are treated as a single service unit for reporting, strategic and budgetary purposes.  Whilst the related client bank account ultimately receiving any dividends or income generated would be opened with BPCI rather than BPB&T, a memorandum account in the name of the BPCI Client is automatically opened with BPB&T.  This memorandum account is reported as a deposit account for prudential reporting purposes and is brought to nil at the end of each Business Day.

40.      All dividends and other income generated for clients through the Investment Business services are paid into the BPB&T deposit account of BPB&T clients, or in the case of BPCI Clients, first into their memorandum account held with BPB&T, and subsequently into their BPCI bank account.  BPB&T deposit accounts can also be used by clients as collateral and to fund margin calls when clients utilise Investment Business services.

41.      All clients of BPB&T sign standard account opening mandates which govern both provision of the Investment Business service and opening of the related deposit accounts.   They also provide for the regulation of BPB&T's relationship with clients in terms of both the Investment Business and deposit-taking business.  Contractually, Section A23 of the general terms and conditions permit BPB&T to transfer all of its rights and obligations under the terms and conditions to any member of the Barclays Group at any time, without the prior written consent of the client, subject to an obligation on the part of BPB&T to give notice (two months for banking accounts and 30 days for any investment produce or service unless that is impractical in the circumstances).  BPCI's general terms and conditions likewise permit BPCI to transfer its rights and obligations to any member of the Barclays Group and specifically to delegate the provision of Investment Business services, namely execution and custody services to BPB&T."

8.        At paragraph 42 of his affidavit, he concludes as follows:-

"42.     From a practical perspective, and for the reasons outlined at Paragraphs 38-41 above, it is not possible to separate the deposit-taking business carried on by BPB&T from the Investment Business which is undertaken for those clients that benefit from both types of services, and with which the Funds Services Business is inextricably linked.  The Investment Business and Funds Services Business carried on by BPB&T are integral to the deposit-taking business carried on by it which is to be transferred.  Neither the Investment Business nor Funds Services Business have been artificially grafted onto the deposit-taking business of BPB&T.  They are integral to each other and could not be separated without fundamentally altering the business proposition model.  Accordingly it is proposed that, save in relation to the Excluded Assets and Excluded Liabilities, all of the Businesses as more particularly defined as the Transferring Business in the Scheme would be transferred to BPCI, Jersey Branch pursuant to the Scheme."

9.        The factual position, therefore, differs from those in the Standard Chartered case in that (a) investment business services include BPB&T acting as a distributor of funds as described by Mr Cox and (b) BPB&T also provide investment management services to clients of BPCI, who are not required by the Service Agreement to have an account with BPB&T rather than BPCI. 

10.      Appleby have obtained a helpful opinion from Martin Moore QC, who assisted in the Standard Chartered case, and in his opinion, with which I concur, the slightly different factual pattern described above does not require the Court to take a different view from the view it took in the Standard Chartered case.  The test as set out in paragraph 26 of the Standard Chartered case is whether the non-deposit taking activity is integral to the business, and it does not make any difference that a BPCI client is not required by the Service Agreement to have an account with BPB&T rather than BPCI for two reasons:-

(i)        As a matter of fact, such clients do have accounts with BPB&T, even if they are zero at the end of each banking day, and

(ii)       The requirement to have an account was not part of the ratio of the Standard Chartered case.   At paragraph 26 of the Standard Chartered case, I said this:-

"In my view, provided the non-deposit taking activities are integral to the business to be transferred and have not been artificially grafted on to a deposit-taking activity in order to get through the jurisdictional gateway, the Court can exercise its discretion to sanction the scheme. From the description of the business of Standard Chartered Jersey given to me, which is distilled above, it is clear that the deposit-taking and investment management services are integral to each other, managed on a unitary basis and could not be separated without fundamentally altering the business proposition and model. On that basis there does not seem to be any good reason for the Court to decline to sanction the scheme on structural grounds."

That test seems to me to be satisfied in this case.  The funds services business is inextricably linked to the provision of investment advice as part of the overall proposition to clients of BPB&T and BPCI.  The activity delegated to BPB&T is undertaken by exactly the same operational staff as the direct investment management business.  It is all part of Barclays Wealth Management from the market-facing perspective and internally the investment management business for clients of BPB&T and of BPCI is treated as a single unit for reporting, strategic and budgetary purposes.  There is no suggestion that the services provided for clients of BPCI have been artificially grafted on to the business of BPB&T and there appears no good reason for it to be left behind in BPB&T with the trust company business. 

11.      It will be for the Court, on 5^th June, 2014, to consider the evidence of Mr Cox but on the assumption that it accepts the factual position as presented by him and is satisfied that the non-deposit-taking activities are integral to the business to be transferred and have not been artificially grafted on to a deposit-taking activity in order to get through the jurisdictional gateway, the Court will have jurisdiction under Article 48D to include in the transfer of the deposit-taking business of BPB&T both its investment business and its funds services business.   

Authorities

Financial Services (Jersey) Law 1998.

Representation of Standard Chartered (Jersey) Limited [2013] JRC 172.