Period covered: 31 December 2012 to 31 March 2013

  1. AIFMD

The level 2 regulations pursuant to the AIFMD issued by the EU Commission entered into force on 11 April and will apply from 22 July 2013.

The UK FCA has published a second consultation paper on implementing AIFMD in the UK.  The paper includes draft guidance which will be of interest to Jersey fund managers planning to privately place their funds in the UK.

Of particular interest to Jersey fund managers and their advisers are the views expressed in relation to the "letter box entity" test.

The test appears likely to be that where a manager delegates so much that it effectively ceases to provide the services, then it will be a "letter box entity".  This could result in an onshore adviser being characterised as the manager, resulting in a requirement for full compliance with AIFMD.

Jersey is well placed to satisfy the requirements of AIFMD, the level 2 regulations and the FCA's guidance in demonstrating that its managers are not letter box entities for a number of reasons, including:

  • existing regulatory policies restricting the extent to which regulated entities can outsource their functions
  • high corporate governance standards imposed on fund services providers
  • professional infrastructure and fund administration expertise

Managers need to be aware that the FCA guidance provides that only those performing both portfolio management and risk management will constitute a "manager" for the purposes of AIFMD. This is likely to lead to revision in many cases of the basis on which management agreement terms, as well as investment advisory agreement terms, are negotiated.

The JFSC continues to work with industry in finalising revisions to existing codes of practice and related regulatory orders to accommodate the structuring of Jersey funds and Jersey managers in conjunction with marketing into the EU beyond July 2013.

  1. US Foreign Account Tax Compliance Act (FATCA)

FATCA is intended to create a new information reporting and withholding regime for payments made to certain Foreign Financial Institutions (FFIs) and other ‘foreign’ persons. The definition of FFI is very broad and includes funds.

Approximately 50 countries, including the UK Crown Dependencies, are now in the process of negotiating Intergovernmental Agreements (IGAs) with the US, and, in part, these are intended to overcome the legal barriers to FATCA compliance, and simplify some of the requirements.

The UK government approached the Crown Dependencies and the Overseas Territories to discuss a mechanism for applying FATCA-type principles more widely to an exchange of information with the UK.  As part of its commitment to combat global tax evasion, the States of Jersey has accordingly announced its intention to sign an agreement with the UK aimed at furthering tax transparency.  The "UK FATCA" agreement includes an alternative reporting arrangement for UK residents who are categorised as non-domiciled for tax purposes and a disclosure facility that will allow eligible investors with assets in Jersey to disclose their tax arrangements prior to information on their accounts being automatically exchanged.

The finalisation of UK FATCA will allow Jersey to move forward with finalising an IGA with the US on FATCA.

  1. Regulatory Updates - managed accounts

The JFSC has issued a consultation paper in relation to the regulatory treatment of managed accounts.

Under the current regulations, managers of managed accounts are required to be regulated for fund services business in relation to management services provided to the investment fund (referred to in the consultation paper as the "flagship fund") and for investment business in relation to management of the managed account.

The aim of the consultation is to simplify the regime by creating a new category of fund services business (that of managing a managed account) and exempting such managers from the requirement to be regulated for investment business.

One area of consultation is the extent to which a manager of a managed account would need to be a standalone entity, with reliance on MoME arrangements only being permitted for 12 months.

The JFSC has suggested a minimum account size of US$5 million.  Together with other industry representatives, Ogier will make a formal response to the consultation paper.  In particular, we would propose resisting a minimum account size of US$5 million as presenting an unnecessary barrier to entry for start-up managers.