This guide outlines the legal and regulatory issues related to the carrying on of investment advisory or management business in or from within Jersey. This is intended as a general guide, however, specific reference to fund structures is included.
There are two key issues to consider in relation to a person carrying on investment advisory or management business in or from within Jersey (“IB Person"), the first being the substance of the services which will be provided, and the second being the regulation (if any) to which the person to whom the services will be provided is subject. This analysis will determine which type of regulation will be applicable to the IB Person, and gives rise to a distinction between an IB Person who will be regulated for “investment business” and/or “fund services business”, in each case as defined below.
The Financial Services (Jersey) Law 1998 (“FSJL"), regulates the carrying on of financial services business by any person in or from within Jersey. The FSJL also covers the carrying on of financial services business by a company incorporated in Jersey, in any part of the world.
Article 2 of the FSJL provides that a person carries on financial services business if by way of business the person carries on investment business, trust company business, general insurance mediation business, money service business or fund services business.
The FSJL provides that:
A person carries on investment business if the person:
- deals in investments, that is, the person buys, sells, subscribes for or underwrites investments, either as principal or as agent;
- undertakes discretionary investment management, that is, the person decides as agent to buy, sell, subscribe for or underwrite investments on behalf of a principal;
gives investment advice, that is, the person gives to persons in their capacity as investors or potential investors advice on the merits of:
- the purchase, sale, subscription for or underwriting of a particular investment; or
- the exercise of a right conferred by an investment to acquire, dispose of, underwrite or convert the investment.
An IB Person who carries on investment business under the FSJL will require registration under the FSJL for this purpose unless an applicable exemption applies. Further, the IB Person would be required to comply in full with the “Codes of Practice for Investment Business” (the “IB Code") issued by the Jersey Financial Services Commission (“JFSC") and any related requirements. The definition of investments is contained in Schedule 1 to the FSJL.
It may appear from the definition of investment business that every IB Person who carries on investment business, on the basis described above, would fall to be regulated for investment business under the FSJL. However, not every IB Person providing services which fall within this definition will be carrying on investment business. This is due to specific exemptions which either exclude the activity from being regulated or deal with the regulation in an alternative manner. This is dealt with under the part of this note entitled “Important Exemptions Relevant to Investment Business”.
Important Exemptions relevant to Investment Business
The following is a summary of certain exemptions (in whole or in part) to the carrying on of investment business.
Part 1 of Schedule 2 to the FSJL
- Newspapers, broadcasting and information services
- Executors and administrators, tuteurs and guardians
- Certain persons regulated under the Collective Investment Funds (Jersey) Law 1998
- Persons registered to carry on fund services business (see below for further detail)
- Certain overseas distributors
- Company that is general partner or trustee of Unregulated Fund (defined below)
- Dealing as principal
- Dealing as agent by professionals and non-investment businesses
- Giving advice in the course of noninvestment business
- Instruments creating or acknowledging indebtedness
- Connected companies and joint enterprises
- Employee’s share schemes
- Issuing of shares, debentures, etc.
- Sale of company
- Dealing as bare trustee
- Investment advice given by trustees
- Discretionary investment management by company directors
- Investment advice between directors
- Investment advice given by protectors
- Long-term insurance business by insurance companies
The Financial Services (Investment Business (Special Purpose Investment Business – Exemption) (Jersey) Order 2001, provides an exemption in the case of special purpose investment business provided to a special purpose regulated scheme.
Fund Services Business
Apart from Recognised Funds (highly regulated retail funds), fund type structures in Jersey may be broadly classified as follows:
- Unclassified funds, which would include Expert Funds and Listed Funds, established pursuant to the Collective Investment Funds (Jersey) Law 1988 (“CIF Funds”);
- Unregulated funds, being either Eligible Investor Funds or Exchange Traded Funds, established pursuant to the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 (“Unregulated Funds”); and
- Private Funds, Private Placement Funds and Very Private Fund type structures governed solely by the Control of Borrowing (Jersey) Order 1958 (“COBO Funds”).
Paragraph 3A of Part 1 of Schedule 2 to the FSJL excludes from the ambit of investment business the carrying on of fund services business by a person who is registered under the FSJL to do so.
An IB Person who acts as investment advisor or manager in relation to a fund which falls into paragraphs (a) or (b) above (ie. services provided to a CIF Fund or Unregulated Fund), would be carrying on fund services business under the FSJL and, accordingly, the IB Person would require registration under the FSJL for this purpose. If so, the IB Person would also be required to comply in full with the JFSC’s “Codes of Practice for Fund Services Business” (the “FSB Code”) and any related requirements. This excludes regulation for investment business for the provision of those services.
An IB Person who acts as investment advisor or manager in relation to a fund which falls into paragraph (c) above would not be carrying on fund services business under the FSJL. Instead, the services provided would have to be evaluated with reference to the definition of investment business under the FSJL. This is because the definition of fund service business only applies in the case of services provided to CIF Funds or Unregulated Funds (as per paragraphs (a) and (b) above).
Although Unregulated Funds may only be constituted under the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008, CIF Funds may be located worldwide and reference should therefore be had to the Collective Investment Funds (Jersey) Law 1988, for further information of the definition of CIF Fund should this be required.
Professional Investor Regulated Scheme
The Financial Services (Investment Business) (Restricted Investment Business – Exemption) (Jersey) Order 2001 (“Exemption Order") contains an important exemption in relation to the provision of “restricted investment business”, as defined in the Exemption Order, in relation to an investment scheme which is a professional investor regulated scheme.
Restricted investment business includes the provision of investment advice and investment management to a professional investor regulated scheme.
An investment scheme is a professional investor regulated scheme if: (1) relevant consent has been granted pursuant to the Control of Borrowing (Jersey) Order 1958 (“COBO”) (this means that the Exemption Order may not be relied on in the case of CIF Funds as they are carved out of COBO); and (2) each investor in the scheme either has made a minimum subscription of £250,000, or is a professional investor as defined in the Exemption Order, and has signed an investment warning.
There are a number of categories of professional investor, which includes any person whose ordinary activities involve the person in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of the person’s business or who it is reasonable to expect will acquire, hold, arrange or dispose of investments (as principal or agent) for the purposes of that business.
Certain overseas distributors
This is a key exemption as it arises frequently in practice in relation to a foreign entity which is promoted as a potential investment to a person in Jersey. In cases where the transaction is a specified transaction as defined
Manager of a Managed Entity
Barring a substantive presence in Jersey, an IB Person would usually discharge the majority of its functions, and comply with the requirements of the FSJL and FSB Codes, through a person appropriately regulated for the services locally (the “Manager"). In this sense, the IB Person would comprise a Managed Entity and the Manager would comprise a Manager of a Managed Entity in accordance with the requirements of the JFSC. In all cases, the IB Person would remain ultimately responsible for the discharge of the regulatory requirements applicable to it.
In the case of a Manager providing services to an IB Person carrying on fund services business, the provision of services would be subject to the requirements as set out in the JFSC’s “Guidance Note for a Manager of a Managed Entity and Certain Managed Entities” (the “Mome Guide”).
In the case of a Manager providing services to an IB Person carrying on investment business, the provision of services would be subject to the requirements as set out in the JFSC’s “Policy Statement: Licensing Policy in respect of those activities that require registration under the FSJL” (the “Licensing Policy”).
The Financial Services (Trust Company and Investment Business (Accounts, Audits and Reports)) (Jersey) Order 2007, applies among others to a person registered for investment business and prescribes certain requirements in relation to the appointment of an auditor, as well as the maintaining of reports and audited accounts for a period of at least ten years.
The Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001, governs the manner in which a person registered for investment business under the FSJL holds money or property on behalf of clients.
A person who is not regulated for investment business but instead fund services business will not be covered by the above Orders, but instead will be covered by the FSB Code and related provisions.
The regulation in Jersey of an IB Person carrying on of investment advisory or management business requires examination of the nature of the services which will be provided, as well as the classification of the person to which services will be provided. Both are key in assessing the regulation to which the IB Person will be subject and, furthermore, whether a relevant exemption will apply. It is possible for circumstances to arise where an IB Person providing investment advisory or management services in or from within Jersey to be required to be regulated for financial services business and/ or fund services business as outlined in this note.