Since 2003, the Jersey Financial Services Commission (the "Commission") has been integrating existing regulatory laws into the Financial Services (Jersey) Law 1998 as amended (the "Financial Services Law") in order to provide a "one-stop shop" that will be easier to understand and simplify compliance. A position paper issued in April 2007 by the Commission, sets out how it plans to:
- transfer authorisation and regulation of fund functionaries from the Collective Investment Funds (Jersey) Law 1998 as amended (the "CIF Law") to the Financial Services Law;
- remove the requirement for a functionary to hold appropriate permits under the CIF Law in respect of each collective investment fund for which it carries out work; and
- leave recognised funds untouched so that the requirement for a functionary of a recognised fund to hold a permit under the CIF Law will remain.
The current proposals set out a two-stage process beginning in July 2007 when most of the substantial changes that do not require amendment of the island's primary legislation will begin to be introduced. Notable amongst this first raft of changes, are measures aimed at easing the administrative burden on funds and their functionaries.
To this end, it is intended that there will be an exemption for all functionaries of unclassified funds - apart from the company that is issuing units, the trustee of a unit trust and the general partner of a limited partnership - from the present requirement to obtain a permit under the CIF Law. In a similar vein, it is proposed that an exemption from the requirement to obtain Control of Borrowing Order (COBO) consent where a fund has been issued with a permit under the CIF Law also be introduced.
Another important aspect of the reforms is the proposed introduction of the concept of fund services business into the Financial Services Law within the definition of financial services business. This will mean that all those who conduct fund services business will have to be registered under the Financial Services Law. It is intended that all existing unclassified fund functionary permit holders (other than companies issuing shares) will be "grandfathered" into the Financial Services Law.
Existing functionaries continuing to act for existing funds or acting for new funds that are similar to existing funds that they act for, will be allowed under the grandfathering provisions to transfer to the new arrangements without the need for further registration.
In terms of the activities to be comprised within fund services business, the list will be identical to the list of functionaries contained in the CIF Law in all but two respects. Namely, that a company issuing units will not be counted as a fund services business activity and secondly, that a new fund services business activity of being a "manager of a managed entity" will be introduced.
Once the first stage of the reforms has been successfully completed, the Commission will also issue codes of practice for fund services businesses. These are currently being drafted with the help of industry. Going forward, the Commission's intention is to introduce further orders under the Financial Services Law that would lead to the development of a more consistent and coherent approach to regulation in accordance with international standards. As part of this approach, the Commission is also planning to introduce a requirement that fund services businesses provide a declaration confirming that they have complied with both their statutory obligations and the codes of practice.
The second stage of the implementation process should get underway towards the end of this year and will involve changing the CIF Law to allow for the issue of certificates and a number of further consequential statutory amendments. As currently drafted, the proposal is to introduce a certification regime in respect of unclassified funds as a result of which the company issuing units, trustee and general partner will be required to hold a certificate in place of a permit. Once completed, these amendments should mean that the law governing Jersey funds is more transparent and in particular, the regulations concerning unclassified funds holding certificates will be more clearly distinguishable from those governing recognised funds, which will continue to be controlled by permits as before.
In addition to seeking increased transparency, the Commission is also proposing that its overall regulatory powers be widened to include all funds that have been issued with an unclassified fund certificate. This would be an extension of the present situation where the CIF Law only provides its powers of investigation to extend to a fund company that holds a permit.
The Commission's proposals are still at a consultative stage and the views of industry continue to be sought. However, once implemented these planned regulatory reforms should strengthen Jersey's position as a leading offshore centre for funds business. Full implementation is expected before the International Monetary Fund's visit to Jersey, which is scheduled for next year.
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