A new exemption from the requirements of Jersey's Financial Services (Jersey) Law 1998 ("FS(J)L") has been introduced which will enable Jersey-regulated fund managers to service qualifying segregated managed accounts ("QSMAs") without the need for further regulation in Jersey while continuing to benefit from Jersey's 0% corporate income tax rate.It is anticipated that the exemption, implemented by the Financial Services (Investment Business (Qualifying Segregated Managed Accounts – Exemption)) (Jersey) Order 2014 (the "Order") will prove popular with many managers who are already seeing a boost in managed account business due to a combination of investor demand and the potential ability to provide investment management services to EU/EEA-resident clients without the need for AIFMD compliance.
Overview of how the exemption works
Previously, managers of managed accounts in Jersey were considered to be carrying on 'investment business' rather than 'funds services business' for FS(J)L purposes, and accordingly these managers were potentially subject to a more onerous regulatory burden and the 10% rate of Jersey income tax.
Compliance with the Order will enable any eligible manager to take two simple steps which will trigger exemption from the requirement to be regulated for investment business when managing a QSMA – first, they must file a notice (together with an initial fee) with the Jersey Financial Services Commission ("JFSC") confirming that they will manage the QSMA and intend to take advantage of the exemption. Secondly, they must send a prescribed form of investment warning to each investor (receipt of which must be acknowledged in writing).
Once the exemption is triggered, there are some light ongoing reporting requirements and an annual fee must be paid, but there is no need to make any further notification or application to the JFSC when additional managed accounts are taken on.
What is a QSMA for the purposes of the Order?
Under the Order, a QSMA has four key characteristics:
- the minimum amount committed for investment must be at least US$1,000,000;
- there must be a single investor who has received and signed the prescribed investment warning (ie the account must be in the name of a single legal person save in certain scenarios where a) members of the same family or b) employees of the manager are jointly investing);
- the account is managed in accordance with defined hedge-fund strategies which replicate (or are comprised of material elements from) one or more hedge-fund strategies currently employed by the manager in respect of one or more existing funds that they manage; and
- the Jersey manager must the only manager of the managed account and cannot hold or otherwise have custody of the assets under management.
Which managers can use the exemption?
In order to trigger and maintain the benefit of the exemption, the manager must:
- be regulated under FS(J)L for funds services business as a manager, investment manager, trustee or general partner;
- be appointed to undertake the investment management of one or more hedge-funds and either hold itself out as being a hedge-fund manager or be generally perceived as such;
- file a notice with the JFSC confirming that it intends to take advantage of the exemption together with payment of an annual fee;
- ensure that all its clients (ie funds under management and investors in QSMAs) are, as between each other, dealt with fairly and that no client is given any unfair advantage; and
- report to the JFSC on an ongoing basis the number of QSMAs managed pursuant to the exemption and the value of the investments under management in connection with those QSMAs (reported as a single aggregated figure only).
Importantly, managers established in Jersey who are themselves 'managed entities' (ie they are provided with infrastructure and support by a locally regulated administrator) can utilise the new exemption. This will enable many existing Jersey managers to start offering managed account services without the need for additional infrastructure or expense, and new managers wishing to establish a presence in Jersey and utilise the exemption will typically benefit from a quicker and more economic set-up process.