posted 10 Aug 2007 in Volume 10 Issue 3

Country report: Recent developments in Jersey funds

By Simon Pascoe, consultant, Bedell Cristin Jersey

A key part of the recent efforts to promote Jersey’s funds industry was the introduction of the Expert Funds Guide in 2005, which offers both speed and regulatory flexibility for those wishing to domicile funds in Jersey for ‘expert’ investors. The regime has been very successful, and has contributed to a period of accelerated growth in the Jersey funds sector. This was closely followed by the introduction of the Non-Domiciled Funds Guide – designed to make the administration of funds from Jersey simpler and more efficient.

Some figures recently released by the Jersey Financial Services Commission (the “Commission”) for the quarter to March 2007 illustrate the impact of such initiatives as follows:

The Net Asset Value (NAV) of funds under administration in Jersey grew by £15.4bn (8.6 per cent) during the period to reach £194.5bin. Since March 2006 the NAV of funds under administration has risen by £38.5bn (24.7 per cent);
The number of expert funds increased by 9.4 per cent and the NAV of expert funds grew by £4.6bn (15.7 per cent) during the quarter. During the year the number of expert funds grew by 43.7 per cent and the NAV increased by £16.3bn (47.6 per cent) to £34.1bn.

Revisions to the expert fund guide

Late in 2006 the Commission produced an updated Jersey Expert Fund Guide which made a number of minor enhancements to further improve the Expert Fund Regime. These enhancements included clarification that expert funds may be listed on a stock exchange, subject to certain safeguards regarding the introduction of new investors through the stock exchange; and the extension of permissible jurisdictions in which the investment management of an expert fund may take place. As well as any OECD member state, this included any other state or jurisdiction with which the Commission had entered into a Memorandum of Understanding on investment business.

The non-Jersey domiciled fund guide

In February 2007, the Commission issued the revised non-Jersey domiciled fund guide which, again, made a number of enhancements as regards the regime applying in Jersey for administration of non-Jersey domiciled funds. In general, several important clarifications were introduced including the removal of the requirement for a non-Jersey domiciled fund to hold a permit under the Collective Investment Funds (Jersey) Law 1988 (the “Collective Law”), provided that it does not have an established place of business in Jersey. The established place of business test was also clarified by an amending order under the Collective Law, meaning that a foreign company should not have an established place of business in Jersey by reason only that the directors meet in Jersey, or a manager, director or administrator of the company is ordinarily resident in Jersey.

The Jersey listed fund guide

A new guide as regards Jersey-incorporated funds, which are intended to be listed on a stock exchange, was introduced in January 2007. The guide introduces a fast-track procedure for the establishment of closed-end collective investment funds that are to be listed on certain well-regulated stock exchanges or markets. The main advantage of the listed fund procedure is speed, in that such funds should be approved by the Commission within three working days. Also, such funds are not restricted only to expert investors.

The investment manager of a listed fund must be of good standing and established in an OECD member state, or in a jurisdiction with which the Commission has entered into a memorandum of understanding. All listed funds must have at least two Jersey resident directors and a Jersey-based monitoring functionary to ensure due diligence and compliance with the listed fund guide.

Future regulation of funds and functionaries of funds

In April 2007, the Commission issued its updated position paper relating to the implementation of the proposed change of regulation, so that fund functionaries will be licensed under the Financial Services Law rather than under the Collective Law. This new method of regulating “fund services business” is important and should simplify the procedure required when setting up a new fund in Jersey. In particular, once a Jersey monitoring functionary has been licensed under the Financial Services Law as a fund-services business, it will be allowed to take on new fund-administration business without the need for additional licences/permits (as is currently the case) under the Collective Law. Although the fund itself will require a regulatory permit under the Collective Law, the majority of the requirements imposed by the Commission will be placed on the Jersey monitoring functionary, rather than on the fund itself. It is expected that those who currently carry on fund services businesses in Jersey will be “grandfathered” into such a regime. There will then be a new Code of Practice for fund-services business and, thus, in some instances, there will need to be compliance with higher regulatory standards in the conduct of all fund-services business in Jersey.

International co-operation

The Commission is seeking bi-lateral agreement with other jurisdictions for regulatory purposes. In this respect, during the past year Memoranda of Understanding have been entered into with the Netherlands and Cyprus establishing a formal framework for mutual assistance and exchange of information between regulators.

In the case of the Netherlands, this is an important development, as it permits Jersey-listed funds to be recognised as an appropriate vehicle for listing on EURONEXT I Amsterdam. The use of a EURONEXT listing for permanent capital vehicles in connection with property funds, private-equity funds and hedge funds has been an area of growth for the Channel Islands over the past 12 months

Registered funds?

In addition to the above measures, serious consideration is also being given by the Jersey funds industry to the creation of a ‘registered fund’ product. The broad plan is to introduce a fast-track self-certification regime like the Expert Fund regime, allowing the rapid establishment of funds in Jersey without the need for any formal authorisation from the Commission. These plans, coupled with the initiatives described above, demonstrate the Jersey funds industry’s desire to develop new products and services, in order to keep Jersey at the forefront of the offshore funds world.

Simon Pascoe is a consultant at Bedell Cristin. He can be contacted at simon.pascoe@bedellgroup.com