Regulatory updates
Legislative updates


Regulatory updates

AIFM Directive
The long-awaited Level 2 regulations pursuant to the EU Alternative Investment Fund Managers (AIFM) Directive were issued by the European Commission on December 19 2012 and appear to provide a clear indication of the likely final position (for further details please see "Alternative investment funds: impact in Jersey of new EU regulations").

AIFMs of funds based in so-called 'third countries' (of which Jersey is one) will be able to continue to market third-country funds to professional investors in EU member states by using the existing private placement rules until at least 2018, subject to the following conditions:

  • The jurisdiction must not be on the Financial Action Task Force blacklist - Jersey is not, and never has been, on the blacklist.
  • The fund must comply with certain transparency and reporting requirements set out in the directive - Jersey will be satisfying this condition through enhancements to existing codes and regulations.
  • A supervisory cooperation agreement must be in place between the relevant EU member state in which the fund is to be marketed and the third-country regulator of the AIFM - Jersey is on the European Securities and Markets Authority priority list of third countries in terms of agreeing a standard form of cooperation agreement and the expectation is that there will be a single form of cooperation agreement to which all EU member states will sign up. A key condition for a cooperation agreement is that all relevant categories of fund to be marketed into the European Union are subject to an appropriate degree of regulatory supervision. Legislation containing the requisite supervisory powers in relation to all fund types (including eligible investor funds and private placement funds) has recently been passed in Jersey.

Foreign Account Tax Compliance Act
The US Foreign Account Tax Compliance Act is intended to create a new information reporting and withholding regime for payments made to certain foreign financial institutions and other 'foreign' persons. The definition of 'foreign financial institution' is very broad and includes funds.

On October 24 2012 the US Internal Revenue Service released an announcement changing several of the previously published dates for compliance with the act, including:

  • The deadline for institutions to enter into a foreign financial institutions agreement has been moved from June 30 2013 to December 31 2013.
  • Withholding agents generally will be required to implement account opening procedures that comply with the act by January 1 2014, instead of January 1 2013.

Jersey is now in the process of negotiating an intergovernmental agreement with the United States - in part, this is intended to overcome the legal barriers to compliance with the act and simplify some of the requirements. Detailed guidance notes addressing interpretation of requirements in line with the act are expected to be published in Jersey shortly after such intergovernmental agreement has been signed.

Furthermore, the UK government has approached Jersey to discuss the possibility of applying similar principles more widely to an exchange of information with the United Kingdom. The International Finance Centre in Jersey is working closely with the States of Jersey to present the views of industry throughout this process and will seek to ensure that the implementation of such legislation is introduced on a level playing field.

Review of Financial Advice
In 2011 the Financial Services Commission published a position paper relating to its Review of Financial Advice (similar to the UK Financial Services Authority's Retail Distribution Review). In November 2012 the commission published a feedback paper setting out the policy conclusions that it has arrived at in light of the consultation exercise. The commission has agreed to draw a distinction between professional and non-professional (or retail) clients.

The main issues identified in connection with the proposals in relation to the review are as follows:

  • From January 1 2014 financial advisers must hold an appropriate qualification at degree level or above, in order to be able to give financial advice in or from within Jersey to retail clients.
  • Remuneration for giving financial advice by way of commission will not be permitted in respect of advice given to retail clients resident in Jersey after December 31 2013.

The implementation date for the review is January 1 2014. Although the detailed draft is not yet available, indications at this stage are that the review will be confined to persons providing investment advice within the context of investment businesses, as defined in the Financial Services Law. On this basis, given that fund services business providers (as well as permit holders for recognised funds) are exempt from the requirement to register for investment business, the introduction of the review is not expected to have a noticeable impact on Jersey's funds industry.

Codes of Practice for Certified Funds
Confirmation has been received from the commission that all certified funds will have the choice of preparing standalone policies and procedures to demonstrate compliance with the codes or acceding to the policies and procedures of its administrator.

Fund boards must ensure that any procedures manual they adopt is accurate, comprehensive and accessible. If a fund proposes acceding to its administrator's procedures manual, the directors must demonstrate that they have carefully considered that manual and considered what, if any, supplemental procedures will be required to cover any fund-specific terms. Each fund must formally adopt this procedures manual as its own and periodically review such procedures to ensure that they remain appropriate.

Legislative updates

An amendment to the Limited Liability Partnerships (LLP) (Jersey) Law 1997 came into force on January 17 2013 (for further details please see "New law increases flexibility of Jersey limited liability partnerships").

The amendment removes the requirement for the £5 million bond which previously had to be maintained by LLPs but could not be used as security for lending. The bond has been replaced by a requirement to file a solvency statement on an annual basis by the partners of the LLP, confirming the solvency of the LLP and its ability to pay debts over the coming year.

LLPs are a popular alternative structure to the use of a company for trading partners. No other jurisdiction requires a bond as a means of creditor protection and it is hoped that the amendment will provide some welcome flexibility to fund structuring.

For further information on this topic please contact Nick Kershaw, Niamh Lalor, Michael Lombardi or Tim Morgan at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected], [email protected], [email protected] or [email protected]).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.