Jersey Funds
Radical changes in Jersey fund services business
Voisin Law in Jersey comments on key change in the jurisdiction's funds industry
The new method of regulating fund services business provided from Jersey is also aimed at simplifying the procedure for setting up new funds. It will also assist when Jersey functionaries provide services to non Jersey fund projects. All financial services business will now be dealt with under the FSJL.
The changes also bring a new term, the manager of a managed entity (MOME). This definition encompasses the business of a Jersey administrator providing services to a managed entity, typically the subsidiary of a promoter. The term includes the provision of directors, money laundering officers, registered office and general administration to such a vehicle. The JFSC wants to make sure that a regulated service provider in Jersey is assisting with the functions of a fund manager. The MOME role does not give the MOME any enhanced voting rights over the managed entity; it just reflects that that MOME provides corporate administration services to the managed entity and is the regulators' first port of call if it has a query with the managed entity.
Existing fund functionaries are being seamlessly moved to the FSJL. Jersey service providers that already provide functions for existing funds will be grandfathered into article 9 of the regulations. Such service providers will have a simple approval mechanism for their services to all future funds which are similar in type and function to the existing approved ones.
Administrators, custodians and other Jersey functionaries will now merely have to note to the regulator that they are acting for additional funds. They will tend to be approved for new funds without extra form filling. All Jersey fund functionaries are now subject to the newly issued codes of practice for fund services business which supplement the law changes.
The codes of practice for registered persons under article 9 are based on seven core principles:
- A registered person must conduct its business with integrity.
- A registered person must have due regard for the interests of the fund.
- A registered person must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems.
- A registered person must be transparent in its business arrangements with the fund.
- A registered person must maintain, and be able to demonstrate the existence of, both adequate financial resources and adequate insurance.
- A registered person must deal with the JFSC and other authorities in the Island in an open and co-operative manner.
- A registered person must not make statements that are misleading, false or deceptive.
Unregulated funds
A substantial change to Jersey's fund culture has also been heralded by the new provisions, introduced in February 2008 on Unregulated Funds. The Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 allows eligible Unregulated Funds merely to notify the JFSC of their establishment, rather than going through a formal fund authorisation process. From a regulatory point of view, the Unregulated Fund set up is akin to the incorporation of a conventional company.
The speed and simplicity of the Unregulated Fund system (allied to the well recognised Expert Fund hedge fund product) provides Jersey with a significant advantage in competing with other European and offshore jurisdictions (notably the Cayman Islands). The aim of the product is to become the funds' jurisdiction of choice, particularly for alternative funds and sophisticated investor funds.
There are two categories of unregulated funds: unregulated eligible investor fund and unregulated exchange traded fund.
Unregulated eligible investor fund
Unregulated eligible investor funds are open to investors who invest a minimum of $1 million and to other sophisticated investors. The fund must take steps to ensure that its investors meet these threshold requirements. Investors will, also, be required to acknowledge in writing their acceptance of the risks involved in the product.
Such unregulated eligible investor funds may be open-ended or closed-ended and may take the form of a company (or cell company), unit trust or partnership (where the general partner is required to be a Jersey company). There is no requirement for an unregulated eligible investor fund to have a Jersey-based administrator or custodian, nor for it to have any Jersey resident directors. There is also no need for an auditor.
Unregulated exchange traded fund
An unregulated exchange traded fund need not be regulated by the JFSC on the basis that it is already regulated by certain stock exchange rules. There is a prescribed list of 50 stock exchanges whose funds may classify as unregulated exchange traded funds. An unregulated exchange traded fund must be a closed-ended fund. However, it may be established as a company (or cell company), unit trust or limited partnership. It will be subject to the same eligible investor criteria as an unregulated eligible investor fund. There is no prescribed minimum investment restriction. As with unregulated eligible investor funds, there is no need for auditors to be appointed.
The introduction of a system that allows unregulated funds to be established in Jersey is a reflection of the island's growing maturity as an offshore funds jurisdiction. It follows the introduction of expert fund, listed fund and non-domiciled fund regimes over the past four years. Each of these products has proved popular with promoters of hedge funds, private equity funds and property funds. The unregulated fund is the next logical extension of the island's focus on providing niche fund products and innovative structures for sophisticated, high net worth and institutional investors.
For further information on Volaw’s fund administration services, please contact Tom Amy, head of Volaw’s Funds & SPV Group, or for further information on the use of Jersey funds generally, contact Bill Gibbon of Voisin.
