Jersey: Servicing Non-Jersey Funds And The Circulation Of Non-Jersey Fund Prospectuses

Last Updated: 16 October 2009
Article by Ben Robins, Edward Devenport and Gareth Rigby

Since the introduction of the FSB Codes and related changes to the funds legislation in Jersey, in most cases, a Jersey entity that wishes to carry on Fund Services Business in relation to a publicly-offered non-Jersey fund will be able to do so entirely under its FS Law registration acting in accordance with the FSB Codes.

As an entity would only be carrying on Fund Services Business in respect of a non-Jersey fund if the fund is publicly-offered, this briefing distinguishes between non- Jersey funds which are publicly-offered and those which are not.

Key features from a regulatory perspective of servicing a publicly-offered non-Jersey fund

  • Any entity proposing to carry on Fund Services Business in Jersey in respect of a publicly-offered non- Jersey fund must be registered to conduct Fund Services Business under the FS Law.
  • A Fund Service Provider acting for a publicly-offered non-Jersey fund must comply with the full FSB Codes unless it is a Managed Entity acting for a non-Jersey fund "materially equivalent" to a Jersey expert fund in which case it need only comply with the core principles of the FSB Codes plus the standard conditions attached to its registration under the FS Law.
  • A Fund Service Provider is required to notify the JFSC that it has been appointed to act for a new publicly offered non-Jersey fund.
  • Fund Service Providers of non-Jersey funds no longer require a CIF Permit nor do non-Jersey funds need a Fund Certificate.
  • COBO consent may be required (see below).
  • The prior approval of the JFSC is only required in limited circumstances.

Non-Jersey funds "materially equivalent" to a Jersey expert fund

As mentioned above, if a non-Jersey fund is "materially equivalent" to a Jersey expert fund, a Managed Entity acting for such non-Jersey fund will not need to comply with the full FSB Codes. To be classed as "materially equivalent" to a Jersey expert fund, a non-Jersey fund must satisfy the following requirements set out in section 2.1.2 of the JFSC's Non-Jersey Domiciled Fund Guide:

  1. The fund must describe itself as only being suitable for a specific class of investors. This class may be described as expert, experienced, institutional, sophisticated or in some other way, but the fund must clearly not be aimed at the retail investor.
  2. The fund must impose a minimum initial investment requirement of at least US$100,000 (or currency equivalent) in the fund. This requirement need not apply to investors who fall within classes defined on the basis of substantial net worth, professional knowledge, a relationship between investor and either the fund or any entity appointed to be a functionary of the fund, or of carried interest arrangements.
  3. The offer document must contain a clear investment warning. The exact nature of the warning is not prescribed, but the warning must indicate that the fund is not suitable for all investors, be commensurate to the risks involved in investing in the fund and sufficient to give investors a true understanding of the total potential losses that may occur.
  4. The offer document must contain all the material information that investors would reasonably require and reasonably expect to have drawn to their attention for the purposes of making an informed judgement about the merits of participating in the fund.
  5. The fund must produce independently audited accounts on at least an annual basis that are made available to all investors in the fund.

Other than this section, since the introduction of the FSB Codes and related changes to the funds legislation in Jersey, the Non-Jersey Domiciled Fund Guide has very limited application.

Liaising with the JFSC in relation to a publicly-offered non- Jersey fund

Registration under the FS Law to carry on Fund Services Business:

Each Jersey Fund Service Provider of a publicly-offered non-Jersey fund must be registered under the FS Law to carry on Fund Services Business.

All registered Fund Service Providers are required to comply with the FSB Codes which consist of seven core principles together with detailed requirements in respect of each of these principles. However, Managed Entities acting in relation only to expert funds, related expert funds or "materially equivalent" funds (including non-Jersey funds "materially equivalent" to a Jersey expert fund) are subject only to the seven core principles and a set of standard conditions attaching to their registration under the FS Law unless they have elected to comply with the FSB Codes in full.

Notification:

A Fund Service Provider is required to notify the JFSC that it has been appointed to act in respect of a new publiclyoffered non-Jersey fund by submitting Form FSB/NDF. This allows the JFSC to record details for statistical and fees purposes. The notification form must be submitted within 28 days of acceptance of the appointment unless COBO consent is required in which case the form must be submitted five days prior to acceptance of the appointment.

COBO consent:

This may be required if it is proposed to raise money in Jersey by the issue of interests in the non-Jersey fund, or if interests in the non-Jersey fund are to be registered in Jersey or, in certain circumstances, where the offer document is to be circulated in Jersey (see below).

Prior JFSC approval:

The prior approval of the JFSC to the appointment of an entity to act for a publicly-offered non-Jersey fund is not required unless COBO consent is required; and/or, in the case of an existing Managed Entity, pursuant to a standard condition on its registration under the FS Law which requires the Managed Entity to obtain the prior approval of the JFSC to act for new or further funds.

Statutory Fees

Statutory fees are payable by Jersey Fund Service Providers. A fee of £1,000 is payable for a Fund Service Provider's application for registration under the FS Law. The annual fees payable by a Fund Service Provider depend on the number of pools of assets in all the collective investment funds in relation to which it is a Fund Service Provider. This ranges from £2,000 to £20,000. From 1 July 2009, a Fund Service Provider is required to pay the minimum annual fee of £2,000 even if the number of pools of assets in all the collective investment funds in relation to which it carries on Fund Services Business is zero.

If the Fund Service Provider registered on a day after 1st July the annual fees are calculated pro rata for each complete month of the year to the following 1st July.

Key features from a regulatory perspective of servicing a non-Jersey fund which is not publicly-offered

  • Any entity proposing to provide services in Jersey to a non-Jersey fund which is not publicly-offered does not need to be registered under the FS Law for Fund Services Business. However, such an entity may need to be registered under the FS Law for Trust Company Business and/or Investment Business (as such terms are defined in the FS Law) unless an exemption applies.
  • Non-Jersey funds do not need a Fund Certificate.
  • COBO consent may be required if it is proposed to raise money in Jersey by the issue of interests in the non-Jersey fund, or if interests in the non-Jersey fund are to be registered in Jersey or, in certain circumstances, where the offer document is to be circulated in Jersey. The COBO consent may form a vital part of the relevant Jersey Fund Service Provider's exemption from the requirement to register under the FS Law for Trust Company Business or Investment Business.
  • The prior approval of the JFSC to the appointment of an entity to act for a non-Jersey fund which is not publicly-offered is not required unless COBO consent is required; and/or in the case of an existing Managed Entity, pursuant to a standard condition on its registration under the FS Law which requires the Managed Entity to obtain the prior approval of the JFSC to act for new or further funds (this would include a new non-Jersey fund which is not publiclyoffered).

Non-Jersey fund prospectuses

Corporate and unit trust funds

COBO consent is required to the circulation in Jersey of the prospectus of a non-Jersey corporate or unit trust fund unless the offer:

  • does not constitute an offer to the public; or
  • is valid in the UK or the Bailiwick of Guernsey (An offer is valid in the UK if an identical offer to that made in Jersey is for the time being circulated in the UK without contravening, inter alia, the Financial Services and Markets Act 2000 or the Companies Act 1985 in the UK); and
  • the offer is circulated in Jersey only to persons similar to those to whom and in the manner similar to that in which it is for the time being circulated in the UK or the Bailiwick of Guernsey, as the case may be.

The exemptions set out above are disallowed if the non- Jersey corporate or unit trust fund has a relevant connection with Jersey. A relevant connection arises in the following circumstances (in summary):

  • management or administration is wholly or partly carried on in Jersey;
  • control is exercised in or from within Jersey;
  • at the time of the offer, one or more of every three members of the board of directors of the corporate fund or company providing services to the unit trust fund is resident in Jersey;
  • the corporate fund or a company providing services to the unit trust fund has entered into, or is about to enter into, an agreement with a person resident in Jersey material to the offer;
  • a business material to the offer is carried on directly or indirectly by the corporate fund or a company providing services to the unit trust fund in or from within Jersey; or
  • the offer is an offer for exchange of securities of the corporate fund or unit trust fund for the securities of a company incorporated in Jersey or units of a unit trust governed by Jersey law or the units of which are or are to be registered in Jersey.

If it can be established that there is no offer to the public and the non-Jersey corporate or unit trust fund does not have a connection with Jersey, then no Jersey regulatory consent to the circulation of the offer will be required.

Limited partnership funds

COBO consent is always required to the circulation in Jersey of a prospectus of a non-Jersey limited partnership fund. There are currently no exceptions to this rule but most applications for approval (involving submission of the draft prospectus for review) are dealt with swiftly by the JFSC.

Contents of a non-Jersey fund prospectus

While the JFSC has no set requirements as to the contents of a non-Jersey fund prospectus, it would expect the offer document to meet best international practice in providing information to investors. In particular, the JFSC would expect the offer document to contain:

  • a responsibility statement which is in accordance with published policy;
  • in the case of a non-Jersey fund "materially equivalent" to a Jersey expert fund, a clear investment warning; and
  • all the material information that investors would reasonably require and reasonably expect to have drawn to their attention for the purposes of making an informed judgement about the merits of participating in the non-Jersey fund.

Non-Jersey funds are only required to file their prospectus or any amendments thereto with the JFSC if a condition attaching to a relevant COBO consent or registration under the FS Law requires them to do so.

Other relevant briefings

The following briefings are also available:

  • Holding board meetings in Jersey or Guernsey of funds not domiciled there
  • Exemption for distributors in Jersey of certain foreign regulated funds

Glossary

CIF Law: the Collective Investment Funds (Jersey) Law 1988

CIF Permit: a permit issued by the JFSC pursuant to the CIF Law

COBO: the Control of Borrowing (Jersey) Order 1958

FSB Codes: the Codes of Practice for Fund Services Business

FS Law: the Financial Services (Jersey) Law 1998

Fund Certificate: a certificate issued by the JFSC pursuant to the CIF Law

Fund Services Business: a person carries on fund services business if by way of business the person is:

  1. a manager, manager of a managed entity, administrator, registrar, investment manager, or investment adviser;
  2. a distributor, subscription agent, redemption agent, premium receiving agent, policy proceeds paying agent, purchase agent, or repurchase agent;
  3. a trustee, custodian, or depositary; or
  4. a member (except a limited partner) of a partnership, including a partnership constituted under the law of a country outside Jersey;

in relation to an Unclassified Fund or an Unregulated Fund.

Fund Service Provider: a person who carries on Fund Services Business within the meaning of the FS Law

JFSC: the Jersey Financial Services Commission

Managed Entity: a Fund Services Business which relies upon the services of a third party service provider in Jersey to satisfy any part of its regulatory obligations

Publicly-offered: a fund is considered to be publiclyoffered where the offer is not addressed exclusively to a restricted circle of persons. An offer is not considered to be addressed to a restricted circle of persons unless:

  1. the offer is addressed to an identifiable category of persons to whom it is directly communicated by the offeror or his agent;
  2. the members of that category are the only persons who may accept the offer and they are in possession of sufficient information to be able to make a reasonable evaluation of the offer;
  3. the number of persons in Jersey or elsewhere to whom the offer is so communicated does not exceed 50; and
  4. the units which are the subject of the offer are not to be listed on any stock exchange within one year of the offer being made.

Unclassified Fund: a collective investment fund (as defined in the CIF Law) that is not a recognised fund

Unregulated Fund: a Jersey domiciled fund which is either offered to certain eligible investors only or is listed on an approved exchange or market and opts out of regulation as a fund in Jersey

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.

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