Jersey: Jersey Funds Legal And Regulatory Update - 30 June 2016 To 31 December 2016

Last Updated: 9 January 2017
Article by Niamh Lalor

Most Read Contributor in Jersey, August 2018

1 Jersey Financial Services Commission (JFSC) updates

1.1 Jersey's Private Fund consultation paper

In August 2016, the JFSC issued a consultation paper in relation to the proposed rationalisation and consolidation of Jersey's private fund and unregulated fund regimes. The paper is the result of work undertaken by a funds working group comprised of members from the Government, the JFSC, Jersey Finance, the Jersey Funds Association and industry experts, including Ogier partner Niamh Lalor. Its aim is to simplify Jersey's funds legislation and regulation process whilst retaining flexibility and innovation.

In summary, the consultation paper proposes to:

  • introduce a new Very Private Placement Fund Guide intended to provide greater certainty of the eligibility conditions and regulatory approach to the authorisation process for a Very Private Fund (to be re-branded subject to consultation);
  • introduce a new and universal "Professional Investor" definition, intended to avoid the uncertainty that is created by having multiple non-retail investor definitions spread across the Private Placement Fund Guide, the "professional investor regulated scheme" Orders, the Expert Fund Guide, the Restriction of Scope Order and the Unregulated Funds Order;
  • introduce modern regulatory powers in the COBO Law, including supervision, enforcement and co-operation powers in line with powers available to the JFSC under the Collective Investment Funds (Jersey) Law 1988;
  • phase out COBO-Only Funds, which have seen a decline in applications since the introduction of the Private Placement Fund in 2012; and
  • phase out Unregulated Exchange-Traded Funds, which the JFSC has seen being misused, given that they can be established simply by giving notice to the Companies Registry (as long as they are listed on a prescribed exchange) with no restrictions in relation to the number or types of investors or a minimum investment amount.

Industry and the JFSC continue to work together closely to streamline this critical aspect of Jersey's funds offering and revised proposals are expected to be published early in 2017.

1.2 Outsourcing consultation

As we mentioned in a briefing last summer, in July 2016 the JFSC issued a consultation paper in relation to proposed amendments to the outsourcing policy. Its aim is to eliminate the confusion historically caused by the distinction between outsourcing and delegation, and amend the scope to include all outsourced activity that may have a material impact on 'regulated activity'.

One of the issues with the proposed revised outsourcing policy is that it now requires a registered person to provide notice to the Commission of its intention to outsource any "material activities" or to make material changes to any existing arrangements. Registered persons must procure a 'no-objection' from the Commission in respect of the outsourcing, with a restriction on proceeding with the outsourcing until the 'no-objection' is received. In addition, as part of any arrangements sought to be put in place, the registered person is required to conduct due diligence on any service provider that may be appointed. This will undoubtedly increase the corporate governance required (and evidence to be maintained thereof) in terms of internal arrangements to be put in place to ensure adherence with the revised policy, and may potentially require the re-negotiation of existing contracts, with costs of additional warranties that may be requested, etc. It appears that the proposed policy will result in an increase in the costs associated with outsourcing and make an already highly regulated entity subject to additional procedural burdens. The consultation closed at the end of September and it is hoped that feedback on the policy (including by Ogier's funds and regulatory team) with respect to areas which require further clarity will be considered prior to the issue of the revised policy.

The intention is that the revised outsourcing policy will come into force in Q1 2017, although no response to industry feedback has been issued by the JFSC since the end of the consultation period, so timing remains uncertain.

1.3 AML consultation

This Consultation, published on 23 September 2016, sought input on the proposed new Funds section to the AML/CFT Handbook for regulated financial services business. The new section is aimed at providing additional clarification and guidance on certain aspects of the AML/CFT regime and as such it would not amend any existing statutory or regulatory AML/CFT obligations for funds or fund operators nor would it contain any new codes of practice. The proposed guidance contains examples and welcome clarity in a number of specific areas of complexity. Following a briefing session on the proposals hosted by the JFSC for individuals working in the funds sector on the consultation on 15 November, the consultation closed on 25 November. Ogier submitted a response to the JFSC and looks forward to the publication of feedback on the consultation paper.

1.4 Amendments to Registry Fees

In October 2016, the Registry announced that it will impose new fees, as set out in a public consultation issued in May 2016, which apply as of 1 January 2017. In summary, the Registry will:

  • increase the annual return fee from £150 to £210;
  • apply new penalties in relation to late filing fees, commensurate with the length of time the filing is overdue; and
  • introduce a new five tier system for the incorporation of companies, with the charge for a five day incorporation being £150 (£50 less than the current two day incorporation cost).

1.5 Information on Beneficial Ownership

In April 2016, the States of Jersey signed an agreement with the UK Government in relation to the sharing of beneficial ownership information between the law enforcement authorities of both jurisdictions, which will come into effect by 30 June 2017.

As a result of the commitments made under the agreement, the Registry is requiring all Jersey corporate and legal entities (apart from foundations) to confirm their current beneficial ownership and control by 30 June 2017. For such corporate and legal entities administered by a licenced trust company service provider, there is then an ongoing obligation to notify the Registry in respect of any changes to the beneficial ownership and control within 21 days of the change. Those corporate and legal entities that are not administered by a trust company service provider will, going forwards, need to seek the prior consent of the Registry before any change in beneficial ownership of 25% or more takes place.

The information provided will not be available on any public register – it will be stored on a secure and private register held by the Registry and will only be exchanged on request with law enforcement and tax authorities.

The Registry will replace the COBO consent for each corporate and legal entity with a new form of COBO consent issued on the JFSC website on 1 January 2017 containing the additional notification requirements. A replacement COBO consent in that form applicable to each corporate and legal entity will be sent out with the annual return receipts (except for certain more complex COBO consents which will be issued on review and on a case by case basis), but will be effective from 1 January 2017. The new COBO consent will automatically replace any existing COBO consent, notwithstanding that a replacement copy has not yet been received. Although the introduction of these notification requirements for corporate and legal entities can be viewed primarily as a change in policy, we understand that legislative amendments will follow in the second quarter of 2017.

The States has also committed to creating a centrally held register of directors, meaning that all companies will need to notify the Companies Registry of the identity of all directors and ensure that this information is kept up to date and accurate. The JFSC will commence work on this project in 2018.

A link to the Commission's FAQs for TCB administered entities can be found here and those for non-TCB administered entities can be found here

1.6 Brexit funding approved

In September 2016, the Treasury Minister approved growth funds for three initiatives, including for the establishment of a governmental Brexit planning unit. It is hoped that this will enable the government to understand and deal with issues arising out of the UK's decision to exit the EU. A high-level working group across all government departments has been established to identify all potential implications and opportunities of Brexit for Jersey. In addition, a range of other work to assess the scale and nature of economic opportunities resulting from the UK's changed circumstances will also be undertaken.

Allocations have also been provided to enable Jersey to respond to the introduction of the EU's General Data Protection Regulation which increases regulatory requirements and to help develop on-island digital business skills.

1.7 Feedback on JFSC MiFID II Consultation

In December 2016, the JFSC reported on responses received to its consultation paper published in April 2016 which, as discussed in our previous update, sought input as to whether Jersey should introduce a MiFID II equivalent regime and set out certain potential benefits and costs of doing so. The JFSC received 27 responses in total and, on the question of equivalence, nine were in favour of the proposal for Jersey to seek MiFID II equivalence while twelve disagreed or expressed considerable concerns about doing so (and six had no strong opinion either way).

The reasons provided for those in favour included the benefits gained by addressing perceived regulatory gaps in Jersey, improving the ability to control non-compliant behaviour and generally improving consumer protection. However, the main concern raised by the proposal was the potentially negative impact on Jersey's funds sector, including additional costs and disruption to the existing business models of fund functionaries that currently rely on exemptions from regulation.

In its analysis of responses, the JFSC has recognised that the core question comes down to a consideration of costs and benefits and as such it would be beneficial for the JFSC to provide more clarity on, and where possible quantify, such costs and benefits. The JFSC has said that it will explore a broad range of options in terms of pursuing an approach that generates more benefits than costs. However, it has recognised that "a full 'cut and paste' of MiFID, MiFIR and EMIR" would not be the best approach for Jersey.

2 CISE listing rule changes

With effect from 1 September 2016, chapter 7 of the Channel Islands Securities Exchange Authority Limited (the CISE) listing rules applicable to investment vehicles and its model code for securities transactions underwent changes, with the CISE adopting a principles and guidance based approach.

The intention is that the amended chapter will provide more flexibility to introduce new product types. The accompanying guidance notes are intended to explain the implications of the listing rules and indicate possible means of compliance and/or recommend a particular course of action or arrangement. The introduction of the guidance element to the listing rules allows the CISE to change the guidance more rapidly to reflect industry changes and norms.

Please click here to access a copy of our briefing summarising the revisions to chapter 7.

3 AIC Code applying to Jersey companies

A new AIC Code of Corporate Governance (the AIC Code) relating to Jersey companies was adopted in July 2016. The AIC Code is 'principles' rather than 'rules' based and aims to provide boards with a framework of best practice in respect of the governance of investment companies by setting out 21 principles, each with detailed recommendations. The JFSC has made a statement of support in respect of the AIC Code, emphasising that there are particular issues that directors need to address in the context of investment companies that go beyond the usual governance topics for trading business.

The "fundamentals" behind the AIC Codes are as follows:

  • Directors must put the interests of shareholders above all others.
  • Directors must treat shareholders fairly.
  • Directors should be prepared to resign or take steps that could lead to a loss of office at any time in the interest of long-term shareholder value.
  • Directors should ensure that they address all issues of relevance and that they disclose the outcomes of those deliberations in a way that shareholders with limited financial knowledge can understand.

The AIC Code recognises that investment companies have particular characteristics and require additional corporate governance considerations. Most notably, an investment company's customers and shareholders are often the same and it typically has no employees; such that roles in respect of CEO, portfolio management, administration, accounting and company secretarial are often provided by a third party fund manager (or outsourced by it), meaning that the fund manager is more important than a typical company supplier. Accordingly, the AIC Code deals with matters such as board independence and the review of management and other third party contracts. It considers that most of the time spent by a board of a well-functioning investment company should be spent on matters of general corporate governance, for example, investment strategy and performance monitoring.

We expect that the NED community in particular will be most interested in the introduction of the AIC Code, given the JFSC's commendation of it to Jersey-domiciled investment companies.

4 Global Developments

4.1 Brexit Crown Dependencies Inquiry

In October 2016, the UK Justice Select Committee (JSC) launched an inquiry with respect to the impact of Brexit on the Crown Dependencies. The inquiry began with a call for evidence inviting submissions on the potential opportunities and risks, its constitutional impact, what the UK Government should prioritise in its negotiations with the EU and how the UK Government is engaging with the Crown Dependencies.

The Jersey Government has responded to the questions raised and, while it has welcomed the inquiry, it has emphasized the importance of ongoing consultation, including following the triggering of Article 50, so that the Crown Dependencies' interests can be taken into account when tough decisions arise. It is expected that the JSC report will be published around the time that Article 50 is expected to be triggered.

4.2 FCA issues consultation papers on MiFID II Implementation

In September 2016, the Financial Conduct Authority (FCA) published a third consultation paper on the implementation of MiFID II in the UK. MiFID II, which comes into effect on 3 January 2018, will aim to make financial markets more efficient, transparent and responsible by updating rules governing the way capital markets function, contributing to the reform of derivatives markets and strengthening transparency of trading.

Key proposals of the consultation paper, which focuses on conduct of business issues to increase protections for retail investors, include:

  • Strengthening inducement and research rules to drive better competition and ensure research is only produced and consumed where it adds value to investment decisions.
  • Implementing requirements of full disclosure of costs and charges.
  • Guidance on the responsibilities of providers for the fair treatment of customers.
  • Extending the requirement of telephone taping to financial advisers, with the aim of providing benefits to both firms and their clients in resolving disputes in a quick and cost effective manner.

The FCA has previously confirmed it would apply the same conduct rules to third country firms as it does to MiFID investment firms, to ensure they are treated no more favourably than branches of EEA firms. The conduct proposals in this consultation paper for MiFID investment firms should therefore also apply to branches of third-country firms.

A further consultation paper issued in December deals with a series of broadly technical Handbook changes not covered in the previous MiFID II consultations, including specialist conduct of business regimes, tied agents and SME growth markets.

4.3 Proposals regarding new corporate offence of failure to prevent the criminal facilitation of tax evasion

In October 2016, HMRC published a summary of responses to the April 2016 consultation on a new corporate offence of failure to prevent the criminal facilitation of tax evasion. The legislation aims to introduce a new offence, which will be committed where a relevant body fails to prevent an associated person criminally facilitating the evasion of a tax, and this will be the case whether the tax evaded is owed in the UK or in a foreign country.

The new offence does not radically change what is "criminal"; rather it focuses on who is held to account for acts contrary to the current criminal law. It does this by focussing on the failure to prevent the crimes of those who act for, or on behalf of, a corporation, rather than trying to attribute criminal acts to that corporation. There shall be a defence where the relevant body has put in place 'reasonable prevention procedures' to prevent its associated persons from committing tax evasion facilitation offences, or where it is unreasonable to expect such procedures.

4.4 HMRC consults on tackling offshore tax evasion

In December 2016, HMRC issued a consultation paper entitled "Tackling offshore tax evasion: A requirement to notify HMRC of offshore structures" containing a proposal to require businesses that create certain complex offshore arrangements to notify HMRC of the details of such arrangements, and to provide HMRC with a list of clients using them. Although it is recognised that many such structures are legitimate, the aim is to target those that could easily be used for tax evasion purposes. Businesses would be provided with a notification number that they will in turn provide to their clients to include on their self-assessment tax return/personal tax account. Those that fail to comply with these requirements would incur civil sanctions. The deadline for comments is 27 February 2017.

Similarly, in August 2016, HMRC issued a consultation paper entitled "Tackling offshore tax evasion: A Requirement to Correct", relating to proposals to introduce new legislation requiring any person who has undeclared UK tax liabilities in respect of an offshore interest to correct that situation by disclosing the relevant information to HMRC, with new sanctions for those who 'fail to correct'. The deadline for comments has passed.

4.5 IOSCO paper on good practices for investment funds

In August 2016, the International Organisation of Securities Commissions (IOSCO) issued a consultation paper seeking feedback on a proposed set of good practices on the voluntary termination process for collective investment funds. The report recognises the importance for investment funds to have termination procedures in place from an investor protection perspective because the decision to terminate can have a significant impact on investors in terms of cost and their ability to redeem their holdings in a timely manner. The deadline for responses has passed.

IOSCO also issued a report setting out common examples of good practice that can be applied to collective investment scheme fees and expenses, with the aim of promoting greater fairness and transparency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions