Jersey has today enacted new legislation to allow English and Scottish limited partnerships with Jersey general partners the option of seeking regulatory authorisation by the Jersey Financial Services Commission (JFSC) so as to demonstrate that they have been "authorised", and are therefore "established", in Jersey for the purposes of being treated as non-EU (Jersey) AIFs under AIFMD.
For the purposes of managing AIFMD compliance costs and operational burdens, it will generally be beneficial to demonstrate that an English or Scottish limited partnership, which might otherwise be treated as an "EU AIF" for the purposes of AIFMD, is actually a "non-EU AIF" where is has a Jersey general partner acting as its Jersey AIFM.
This is particularly the case under Article 37 of AIFMD, which requires that a non-EU (eg Jersey) AIFM of an EU AIF will be required to seek authorisation as a fully-compliant non-EU AIFM and comply with the compliance requirements of AIFMD in full from a future date yet to be determined by the European Counsel under Article 67(6) of AIFMD, notwithstanding the fact that there might have been no EEA marketing of that EU AIF, or that its EEA marketing may long since have ceased. (The setting of that future date may be precipitated by ESMA's imminent delivery of an opinion in relation to third country AIFM pass-porting under Article 67.) The regulatory compliance and cost burdens of seeking such authorisation and achieving such full compliance (eg the appointment of a depositary, the re-organisational upheaval; additional reporting burdens) will not have been factored in when the limited partnership was established and is unlikely, therefore, to be welcomed by its partners.
There are not many common examples of Jersey AIFM entities being appointed to manage EU AIFs, but the one area where this arrangement is commonly seen is in the context of closed ended private equity, real estate or debt funds or carried interest vehicles structured as English or Scottish limited partnerships with a Jersey general partner. It is in this important area where we see most likely interest from relevant limited partnerships opting to be authorised by the JFSC in Jersey.
The UK FCA has already published very helpful guidance on determining the place of establishment of a UK AIF for the purposes of AIFMD, using an English limited partnership with a Channel Islands place of business as its case study. That guidance confirmed the view that, where a UK AIF in the form of an English limited partnership is not authorised by the FCA and it maintains its principal place of business (as registered with UK Companies House) in Jersey (eg at the Jersey registered office its Jersey general partner), it will be regarded by the FCA as a non-EU AIF. In some cases, moving the partnership's principal place of business to Jersey may therefore provide an efficient solution to the regulatory problem, but the option of also having the English limited partnership "authorised" in Jersey by the JFSC provides an important "belt" to the "braces" of having the English limited partnership's principal place of business in Jersey, particularly where investors in the limited partnership are located in non-UK EEA Member States whose the local regulators might not take the same pragmatic approach as that adopted by the UK FCA in determining where the AIF is located. We understand that the position in relation to moving the principal place of business of a Scottish limited partnership to Jersey may be more sensitive, so the taking advice from Scottish counsel is recommended.
The newly enacted Jersey legislation is called the Alternative Investment Funds (Amendment of Regulations No.2) (Jersey) Order 2015, and its effect is to increase the potential range of entities capable of seeking JFSC authorisation as "AIFs" under the existing Alternative Investment Funds (Jersey) Regulations 2012 (the AIF Regulations). At the outset, the only foreign entities capable of opting to be authorised by the JFSC under the modified AIF Regulations will be English or Scottish limited partnerships meeting the following conditions, although it's possible that the AIF Regulations may be further modified in future to permit authorisation of other non-Jersey entities.
The relevant English or Scottish limited partnership must:
- have a Jersey-registered governing body (eg general partner) which is (i) a Jersey company; or (ii) a Jersey limited partnership, incorporated limited partnership or separate limited partnership with a Jersey company as its own general partner; or (iii) a Jersey limited liability partnership at least one of whose partners is a Jersey company, in each case with its registered office or head office in Jersey; and
- not have a registered office, head office or principal place of business outside Jersey; and
- maintain a register of limited partners or a duplicate copy at the registered office or head office of the limited partnership’s governing body or the governing body’s general partner or partner, as the case may be.
WHAT SHOULD YOU DO NEXT - MAKING A JFSC APPLICATION
Contact your usual Mourant Ozannes contact should you wish to explore making an application under the AIF Regulations for JFSC authorisation of your English or Scottish limited partnership as an AIF in Jersey. The application process involves the completion and submission to the JFSC of a standard application form with a cheque for £1k. We recommend that complementary advice from English and Scottish counsel is also sought before any application is made.