Jersey: Law of Offshore
Collective Investment Funds are supervised by the Financial Services Commission under the Collective Investment Funds (Jersey) Law 1988, and if 'recognised' are allowed to be marketed in the UK. This has been a stimulus for the growth of a substantial managed funds sector on the island. Other types of fund, both public and private, are also licensed and supervised by the Financial Services Commission, and are usually directed at professional investors since public marketing would not be allowed in most countries, particularly not in the EU. Indeed the ability of Ireland and Luxembourg as EU members to host funds for public distribution in the member states of the EU has created strong competition for Jersey.
In February, 2004, the Jersey Financial Services Commission launched the "Expert Funds" regime in the jurisdiction, which aims to streamline the authorization process for new funds whilst maintaining rigorous compliance criteria.
"Expert Funds are a significant new business opportunity for Jersey," commented David Carse, then Director General of the Commission. "To protect less experienced investors, we have laid down strict criteria so that these funds will only be offered to investors with the expertise and resources to accept any extra degree of risk involved as a result of the nature of the investment."
Expert Funds are designed as flexible investment vehicles that can take any form recognised under the laws of Jersey. They may be open-ended or closed-ended, there are no investment or gearing restrictions, and for the majority of Expert Funds there are flexible requirements in respect of custody or prime brokerage arrangements.
The JFSC noted that the new funds regime is particularly suited to hedge funds and other more sophisticated investment products aimed at the more experienced investor.
Investors in the funds must certify that they qualify as 'expert' - meeting strict criteria laid down by the Commission - and sign their agreement to an investment warning before investing, explains the Commission.
According to the JFSC, it is possible to establish Expert Funds in a matter of days. The Commission's proposals enable 'authorised functionaries' on the Island - for example, administrators, fund managers and trustees- to self-certify Expert Funds which meet criteria set down by the Commission in its Expert Fund Guide.
Every Expert Fund must appoint a functionary, who must be part of a Jersey regulated entity, and whose duties include taking steps to satisfy themselves that the actions of the Expert Fund's investment manager are in accordance with the investment and borrowing restrictions set out in the prospectus.
In addition, such functionaries are also required to maintain adequate records in the Island should they be needed for regulatory purposes. Licensed functionaries are also subject to visits by the Compliance Division of the Financial Services Commission.
The first fund authorised under the Expert Fund regime was launched in March 2004 and there were more than 400 such funds by the end of 2008.
In June 2004, the JFSC unveiled the Non-Domiciled Fund Guide, which streamlines the approval process for Jersey functionaries acting for non-Jersey funds.
According to the Financial Services Commission, the streamlined approval process for non-domiciled funds can be applied to funds materially equivalent to Jersey Expert Funds, Jersey Recognised Funds or those compliant with the latest EU UCITS Directive.
In 2007, ministerial approval was given to new proposals involving the regulation of collective investment funds. These proposals:
- provide a mechanism for the regulation of collective investment funds;
- implement international standards in the regulation of collective investment funds in Jersey – in preparation for the IMF assessment in 2008;
- improve compatibility with the European Convention on Human Rights;
- enhance the ability of the Commission to co-operate with supervising authorities in countries and territories outside Jersey; and
- make other minor drafting changes
The proposals were embodied in the Collective Investment Funds (Amendment No. 4) (Jersey) Law 2008.
In 2008, Jersey launched two new classes of investment fund which can be established without regulatory approval under Jersey’s funds legislation. There are two types of unregulated fund:
- Unregulated Eligible Investor Funds, which may be open or closed ended and are restricted to sophisticated investors (including those who make a minimum initial investment or commitment of USD1 million or equivalent).
- Unregulated Exchange Traded Funds, which must be listed on one of 50 pre-approved stock exchanges including London, New York, the Channel Islands Stock Exchange, AIM, Nasdaq and Euronext.
Within the new regime, there is no audit requirement, no limit on the number of investors, no investment or borrowing restrictions and no requirement for Jersey service providers. Promoters are offered a choice of fund vehicle including company, protected cell or incorporated cell company, unit trust or limited partnership.
Details of the new fund regime were first announced in late 2007. Commenting at the time, Geoff Cook, Chief Executive of Jersey Finance Limited, said that: “This is a significant step forwards for the Funds Industry in Jersey and is seen as a natural progression in our goal to become the European jurisdiction of choice for the Alternative Funds sector. Fund promoters of high net worth, sophisticated investors and institutions will have greater flexibility when choosing Jersey and will be able to structure their funds to suit both commercial and tax requirements.”
Robert Kirkby, Technical Director, Jersey Finance, commented upon the launch of the new fund classes: “Jersey is now a much more attractive prospect for the typical hedge fund or private equity manager who invariably wants a fund set up and ready to trade in short timescales with no local minimum regulatory input. When combined with Jersey’s convenient time zone and its existing reputation for funds business, we believe the new regime is a welcome addition to our capabilities as a funds jurisdiction and will be particularly attractive to European managers and promoters.”
The Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 came into force on February 19, 2008.
In June 2009, the Jersey Financial Services Commission published a consultation paper in respect of prospectuses for collective investment funds issued with a certificate in accordance with the Collective Investment Funds (Jersey) Law 1988.
Currently regulations relating to the contents of prospectuses are split between the Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995 and the Companies (General Provisions) (Jersey) Order 2002 depending on whether the fund is constituted as a company or a unit trust, and whether it is open-ended or closed-ended.
There are no formal regulations covering certified funds constituted as limited partnerships, limited liability partnerships or closed-ended unit trusts. Hitherto, the Commission has imposed requirements on those funds based upon the two existing Orders, although there is no formal basis for doing so. The intention is to remedy that situation by having just the one Order covering all types of certified fund no matter how the fund is constituted and irrespective whether it is open-ended or closed-ended.
The Commission has therefore proposed the Collective Investment Funds (Certificated Funds – Prospectuses) (Jersey) Order 200- as an amalgam of the two existing Orders together with some new prospectus requirements. For example:
- The prospectus must make clear what happens to any funds raised if the launch of the fund does not proceed.
- The prospectus must state any limitations on the custodian’s duty to safeguard fund assets.
According to a statement from the Commission, many of the new provisions have been required for some time as a matter of best practice. The Certified Funds Prospectuses Order puts these requirements on a formal footing for the first time. Following the change, the Companies (General Provisions) (Jersey) Order 2002 applies only to public companies that are not collective investment funds, and the Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995 was be revoked.
The new Order was published on April 2, 2012 and, from that date, all Certified Funds are required to comply with new Codes of Practice for Certified Funds (“CF Codes”). The definition of Certified Funds includes Expert Funds, Listed Funds and OCIFs. The CF Codes are in similar form to the FSB Codes introduced in November 2007 for fund services businesses. The CF Codes establish a regulatory framework containing fundamental principles and practical guidance for all Certified Funds. They include international standards and requirements.