With effect from 18 April Jersey is introducing a new regime in respect of private funds – simplifying the regulatory regime, and extending the benefits of flexibility and speed across Jersey’s private funds space.
Under the Jersey private funds regime:
Alongside the various elements of flexibility, appropriate regulatory oversight will be maintained. This will be achieved through a requirement for a Jersey-regulated ‘Designated Service Provider’ to be appointed to all Jersey private funds, following the trend of focusing regulation on a key service provider, rather than the product.
The private funds regime will apply to all ‘private funds’. A ‘private fund’, for the purposes of the Jersey regime, is defined by reference to the number and type of investors.
Maximum of 50 investors
A fund is considered to be a vehicle involving the pooling of capital and which operates on the principle of risk spreading, and a Jersey ‘private fund’ (“JPF”) is defined as a fund with no more than 50 investors.
In addition to the 50 investor limit, the regime prescribes that a JPF cannot be formally offered to more than 50 prospective investors. In this regard, there is some helpful guidance making it clear that the limit applies to formal offers, rather than, for example, pre-marketing material.
Helpfully, it is clear that when calculating the number of investors there is no need to ‘look through’ to the number of underlying investors if a discretionary investment manager is investing in the JPF on behalf of such investors. However, it is also made clear that one would look through a dedicated feeder vehicle deliberately structuring to circumvent the 50 investor limit.
Type of investors
Both professional and other eligible investors are able to invest in a JPF. These categories are relatively broad, and include, for example:
Retail investors cannot invest in a JPF, although a discretionary investment manager can make an investment on their behalf, provided that they are satisfied as to the suitability of the investment to the investor. Provision is also made for investment in a JPF by the promoter and other related persons by way of founder interests and for the purposes of carried interest participation.
Out of scope
Certain vehicles which may involve the pooling of capital, or the spreading of risk, remain expressly out of scope of the private funds regime. The rules in respect of such vehicles (which in a number of instances are the rules that apply to forming a private company in Jersey) will remain unchanged. Vehicles which are out of scope include holding companies, joint venture arrangements, special purpose and securitisation schemes, and vehicles with a relevant family or employment connection.
The features of the regime
The Jersey private funds regime has a number of beneficial features, as follows:
There are some conditions imposed, as follows:
Process and regulation
A fast track 48-hour regulatory approval process will apply in respect of JPFs.
No prior approval of the promoters of JPFs will be required, and Jersey’s promoter policy, which applies to more widely marketed funds and those promoted to retail investors, will not apply. In addition, the individual regulatory approval process in respect of key persons connected with the fund, which can apply to other fund types in Jersey, does not apply. Similarly, other aspects of Jersey’s regulatory framework which govern the ongoing activities of the fund have also been relaxed for JPFs, including the fund codes of practice and outsourcing policy, all in an effort to streamline the operational efficiency of JPFs.
Certain core regulatory rules will continue to apply, however, such as AML rules, sound business practice policy and, if marketing in the EEA, relevant marketing rules. In addition, and in order to ensure effective but proportionate regulation, certain reliance is placed on the Designated Service Provider in Jersey in respect of oversight and reporting.
Designated Service Provider
In overview, the JPF regime endeavours to provide flexibility and ease for those structuring private funds through Jersey, but with some constraints so as to ensure that there is still an appropriate degree of regulation of such vehicles. In large part, this is achieved through the requirement that every JPF must appoint a Designated Service Provider in Jersey. The Designated Service Provider must be a regulated Jersey business with substance in Jersey. This function will ordinarily be undertaken by the fund administrator appointed by the JPF, but may also be undertaken by a Jersey manager, investment manager or trustee. The Designated Service Provider will have certain due diligence, compliance, monitoring and reporting obligations in respect of the JPF. In keeping with regulatory trends, the principle behind the requirement is for regulation to be focussed on a key service provider, rather than on the JPF as the product.
The objective of the Jersey private funds regime is clear: a simplified, and streamlined, regime, allowing Jersey to compete in the fast-evolving international funds landscape, but with appropriate regulatory supervision being maintained.