Period covered: 30 September 2012 to 31 December 2012
The long-awaited level 2 regulations pursuant to the AIFMD were issued by the EU Commission on 19 December and they appear to provide a clear indication of the likely final position.
Third Country AIF Managers will be able to continue to market Third Country funds to professional investors in EU Member States by using the existing private placement rules until at least 2018, subject to the following conditions:
- The Third Country must not be on Financial Action Task Force (FATF) blacklist. Jersey is not, and has never been, on the FATF blacklist.
- The Third Country fund must comply with certain transparency and reporting requirements set out in the AIFMD. Jersey intends to satisfy this condition through enhancements to existing codes and regulations.
- A supervisory co-operation agreement must be in place between the regulator of the EU Member State in which the fund is to be marketed and the Third Country regulator of the AIF Manager. Jersey is on ESMA's priority list of Third Countries in terms of agreeing a standard form of co-operation agreement. A key condition for a co-operation agreement is that all relevant categories of funds to be marketed into the EU are subject to an appropriate degree of regulatory supervision and, by way of update on last quarter's briefing, legislation containing the requisite supervisory powers in relation to all fund types (including eligible investor funds and private placement funds) has recently been passed.
We are continuing to work with the JFSC on the relevant regulations in tandem with monitoring developments from an ESMA and member states perspective.
2 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.
On 24 October 2012, the Internal Revenue Service released an announcement changing several of the previously published dates for FATCA compliance, including:
- The deadline for FFIs to enter into an FFI Agreement has been moved from 30 June 2013 to 31 December 2013.
- Withholding agents generally will be required to implement FATCA compliant account opening procedures by 1 January 2014, instead of 1 January 2013.
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.
Detailed guidance notes addressing interpretation of FATCA requirements are expected to be published in each IGA jurisdiction shortly after an IGA has been signed.
The UK government has approached the Crown Dependencies and the Overseas Territories to discuss the possibility of applying FATCA-type principles more widely to an exchange of information with the UK. Jersey Finance is working closely with the States of Jersey to present the views of industry throughout this process and will seek to ensure that the implementation of such legislation is introduced on a level playing field.
3 Regulatory Updates
3.1 Review of Financial Advice (RFA)
In 2011, the JFSC published a Position Paper relating to its Review of Financial Advice (essentially its own version of the FSA’s Retail Distribution Review) and in November 2012 it published a feedback paper setting out the policy conclusions that the JFSC has arrived at in light of the consultation exercise.
The JFSC has agreed to draw a distinction between Professional Clients and non-Professional Clients (or retail clients).
The main issues identified in connection with the proposals in relation to the RFA are:
- The qualifications of individuals who are to be permitted to give financial advice. Advisers are, from 1 January 2014, required to hold an appropriate qualification at QCF level 4 or above in order to be able to give financial advice in or from within Jersey to retail clients.
- The method of remuneration for giving financial advice. Remuneration by way of commission will not be permitted in respect of advice given to retail clients resident in Jersey after 31 December 2013.
The implementation date for RFA is 1 January 2014. Although the detailed drafting is not yet available, indications at this stage are that the RFA will be confined to persons providing investment advice within the context of investment business as defined in the Financial Services Law. On this basis given that fund services business providers (as well as permit holders for recognized funds) are exempt from the requirement to register for investment business, we do not anticipate that the introduction of the RFA will have a noticeable impact on Jersey's funds industry.
3.2 Codes of Practice for Funds
Further to our note in relation to the introduction of the Codes last quarter, we have now had confirmation from the JFSC that all certified funds have the choice of preparing stand-alone policies and procedures to demonstrate compliance with the Codes or acceding to the policies and procedures of its administrator.
Fund boards must ensure that any procedures manual it adopts is accurate, comprehensive and accessible. If a fund proposes acceding to its administrator's procedures manual, the directors will need to demonstrate that they have carefully considered that manual and considered what, if any, supplemental procedures will be required to cover any fund-specific terms. Each fund is required to formally adopt such procedures manual as its own, and ensure it periodically reviews such procedures to ensure they remain appropriate.
4 Legislative updates
A proposed amendment to the Limited Liability Partnership (Jersey) Law 1997, (the LLP Law) was lodged in December and is expected to come into force on 17 January 2013.
The amendment will remove the requirement for a £5 million bond which currently has to be maintained by LLPs and which cannot be used as security for lending. The bond will be replaced by the requirement for a solvency statement to be filed on an annual basis by the partners of the LLP, confirming the solvency of the LLP and its ability to pay debts over the coming year.
LLPs are a popular alternative structure to the use of a company for trading partners. No other jurisdiction requires a bond as a means of creditor protection and it is hoped that the proposed amendment will provide some welcome flexibility to fund structuring.