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Members' News
Monday
06
July 2020

Accessing Europe: an introduction to marketing funds

By JFA member firm Langham Hall

Over the past few months, we have seen the fundraising landscape turned on its head,with many LPs halting any new allocations and instead paying careful attention to their existing portfolios.

In late March we estimated that over half of global LPs had pressed pause on underwriting new private fund investments, either stopping their investment allocations entirely, or only proceeding with in-process investments.

As markets begin to open up again, we are seeing positive sentiment from LPs, who are now starting to look at resuming their investment programmes, albeit with perhaps a different risk appetite to that of 2019.

Looking to Europe in particular, we have seen a sustained increase in the number of non-EU sponsors looking to market to the bloc, where the aggregate AuM now exceeds €23 trillion.

For these sponsors, there are several routes to market, with no “one size fits all” approach. These include reverse solicitation, marketing under National Private Placement Regimes (“NPPR”), or the setup of a European parallel vehicle to access the marketing passport under the Alternative Investment Fund Managers Directive (“AIFMD”):

·        Reverse Solicitation: this refers to the acceptance of subscriptions from investors that actively solicited the manager without any active marketing taking place. Managers that receive genuine inbound enquiries may accept subscriptions via reverse solicitation, but it would be prudent to document that true reverse solicitation has taken place in case of litigation further down the line. Due to its passive nature, reverse solicitation cannot be considered a marketing strategy.

·        Private Placement: for managers using non-EU structures, e.g. Cayman, Delaware or Channel Islands, some countries still retain their National Private Placement Regimes. These can be tricky to navigate but for managers raising in just a handful of countries, this can be a cost-effective way of accessing Europe. For many countries, the manager will be required to complete and file Annex IV reports for each Alternative Investment Fund (“AIF”) being marketed. For countries such as Germany and Denmark, a depositary-lite is required to be appointed. It is important to note that NPPR is particularly difficult in much of southern Europe, including France, Italy and Spain.

·        European Parallel: Under AIFMD, funds which operate within this framework qualify for the European marketing passport, allowing these AIFs to be distributed in all 28 European member states. In this model, the fund will be required to appoint a regulated full scope Alternative Investment Fund Manager (“AIFM”), as well as a depositary. We often see these funds setup in Luxembourg, using a host-AIFM, to avoid the regulatory and substance burden of setting up a sponsor owned Luxembourg AIFM. By having an AIFMD compliant parallel fund, managers can accept capital opportunistically and at short notice. There are also no restrictions on where the fund can be marketed (although there are restrictions on the parties to whom it can be marketed).

Clearly there are pros and cons to each method, and managers will need to review which is the most suitable depending on their marketing strategy. However, with such a large pool of institutional capital in Europe, it is getting harder and harder to ignore the fundraising potential in the region.

JFA member firm Langham Hall takes a look at the options open to managers looking to market funds into Europe...

JFA News
Thursday
25
June 2020

JFA Annual General Meeting

JFA Annual General Meeting to take place on Friday 17 July 2020

2020 Annual General Meeting

Please be advised the 2020 Jersey Funds Association Annual General Meeting will take place on Friday 17 July commencing at 1.00pm via video call.  Any member who would like to attend the AGM is asked to contact Caroline Harrington at enquiries@jerseyfunds.org to obtain the dial-in details.

Below are links to the associated documents relating to the Annual General Meeting.  Any member interested in joining the Committee is asked to complete and return the nomination form to Caroline Harrington by close of business on Friday 10 July.

2020 AGM Letter to Members

2020 AGM Notice & Agenda

2020 Nomination Form

2019 AGM Minutes

JFA News
Tuesday
09
June 2020

Jersey Funds Association Chair delivers virtual update

With this year’s JFA Annual Dinner being postponed until later this year, Chair Tim Morgan gave a webinar update last week (3 June), when he provided an overview of the current funds landscape, the work of the JFA and also outlined future opportunities for the industry.

Resilience in the face of an uncertain market, including the Covid-19 pandemic, and a stable platform designed to provide the perfect ecosystem for alternative funds should position Jersey strongly in the short and long-term, according to the chairman of the Jersey Funds Association (JFA).

With this year’s JFA Annual Dinner being postponed until later this year, Chair Tim Morgan gave a webinar update last week (3 June), when he provided an overview of the current funds landscape, the work of the JFA and also outlined future opportunities for the industry.

 Pointing to the fact that Jersey’s funds industry recorded a new record high of fund assets being administered last year (£346bn), a figure that included a 19% year-on-year jump in private equity business in particular, Tim commented

“In the first part of 2020, we continued to see a steady demand for Jersey funds, including from existing managers continuing to launch, often with larger, successor funds. Just as importantly, we’ve seen a sustained strong take up of the Jersey Private Fund, with managers converting to the structure and a growing number of smaller, start-up and spin-out managers opting for it too where the JPF's scalability and cost effectiveness, combined with Jersey's opt in approach for EU marketing, makes it a particularly strong choice for new structures. There are now more than 350 JPFs, which is a hugely positive story and a great endorsement of Jersey’s reputation as a specialist centre for alternatives.”

In addition, Tim highlighted some key findings from a recent survey of JFA members, which revealed a widespread positivity around key issues such as Brexit:

“The European market is still grappling with Brexit uncertainty, but actually more than 80% of our members consider that Brexit will have either a neutral or positive impact on business flows – due largely to the success of Jersey’s market access model,including private placement into Europe and seamless global access into other geographies.

“Of course, the coronavirus pandemic remains front and centre of minds at the moment too, but Jersey has shown real resilience, flexed its digital muscle and introduced measures such as enhanced digital filing and electronic powers of attorney, as well as guidelines on meetings during the pandemic to help keep business flowing in difficult times. In fact, with 100% of homes and businesses in Jersey connected to a pure fibre gigabit-speed network which is the fastest of any jurisdiction in Europe, Jersey’s connectivity has supported high service levels and has helped launch some notable funds during the course of lockdown.”

Looking to the future, Tim highlighted that Jersey’s strengths in alternatives would position it ideally against global market trends, with PwC forecasting growth of almost 9% across the asset classes over the coming five years*. He said:

“Our core strengths as an alternative funds centre, particularly across private equity, real estate,infrastructure and credit funds remain the same – our stability, experience, expertise,service levels, cost-effectiveness, legal framework, tax transparency and regulatory standards. However, competition from other centres remains strong and the regulatory environment remains highly complex, so we need to keep innovating and adapting to meet the needs of alternative fund managers.

“To that end, we are focused on enhancing our range of structuring options, and we are focused on promoting our capabilities in the ESG space. We’re also anticipating a rise in co-investment and fund finance activity, a resurgence in the use of Jersey property unit trusts to facilitate investment into the real estate market, and opportunities in outsourced work as managers look for specific support expertise such as governance and compliance, areas where Jersey excels.”

 

*PwC Market ResearchCentre

JFA News
Tuesday
14
April 2020

Jersey Finance supports research into future of fund domiciliation

New research published this month by IFI Global and supported by Jersey Finance shows that the introduction of global regulatory initiatives is set to challenge traditional fund structuring models...

The introduction of global regulatory initiatives is set to challenge traditional fund structuring models, make fund domiciliation much more complex, and heighten the importance of investor buy-in, according to new research published this month by IFI Global and supported by Jersey Finance.

Based on the views of alternative managers, law firms, advisors and some of the world’s largest investors in alternatives, the research, which was carried out between October 2019 and January 2020*, seeks to explore the changing face of fund domiciliation and the drivers behind domicile decisions, given the pace of change in the regulatory landscape.

Overall, the survey found that key issues including Brexit, BEPS, substance and transparency have shot up the agenda when it comes to domiciliation and are themes that are likely to influence decision making for some years to come. Amongst its other findings were:

- the most important determinant in domicile selection is whether a jurisdiction is well known and respected by investors that are being targeted by a fund manager.

- investors want to allocate to funds that are domiciled in jurisdictions with good infrastructure, considerable local expertise and knowledge of the asset class in question along with well-established regulations.

- there is some investor dissatisfaction at recent increases in costs in international fund jurisdictions as a whole but especially those in the EU - a common complaint is that the drive to develop local substance has increased costs for no particular benefit to investors.

- BEPS will impact all domiciles with alternatives, especially jurisdictions in the EU whose funds rely upon treaties for their tax exemptions.

- alternative investing is expected to continue to grow in the long-term, with jurisdictions that have the skills and experience in domiciling and     servicing alternative funds expected to facilitate that growth.

Whilst the study was undertaken prior to the coronavirus pandemic, Elliot Refson, Director of Funds at Jersey Finance, believes its findings are more pertinent than ever:

 “It’s clear that, with the fund domiciliation landscape becoming more competitive and more complicated than ever, IFCs need to be alive to key trends and have a thorough understanding of what is driving the long-term future of fund structuring, so they can be equipped to continue to support the alternative fund management community going forward.

“Investor buy-in is absolutely vital.Investors want to do business through familiar, robust, high quality and cost-effective environments that are tried and tested and offer no surprises.In a world that was already defined by uncertainty and volatility and is even more so as a result of the COVID-19 outbreak, managers and investors will be drawn towards stability and certainty. Those IFCs that can focus on that,demonstrate real resilience even in times of mass upheaval, and offer a platform of substance built on expertise, specialist skills, compliance with international standards, innovative solutions and consistent levels of good service will be the winners – and Jersey ticks those boxes.”

The research, entitled ‘The Future of International Fund Domiciliation’, can be viewed and downloaded here.

*the research was conducted prior to theCOVID-19 pandemic.

JFA News
Wednesday
08
April 2020

Sustained private placement rise reinforces Jersey alternative fund market access credentials

New figures from the JFSC show that the number of alternative fund managers choosing to market their funds into the EU through Jersey using private placement continued to grow in the second half of 2019...

The number of alternative fund managers choosing to market their funds into the EU though Jersey using national private placement regimes (NPPR) continued to grow in the second half of 2019, according to the latest figures from Jersey's financial services regulator.

Data from the Jersey Financial Services Commission (JFSC) shows that, as at 31 December 2019, there were 183 Jersey-registered managers opting to market into the EU through NPPR, a figure that has risen 6% since June 2019 and by 9% year-on-year.

Meanwhile, the total number of Jersey alternative funds being marketed into the EU through NPPR also increased to stand at 320, representing a 3% increase since June 2019 and an annual rise of 2%.

 Commenting on the figures, Joe Moynihan, CEO, Jersey Finance, said:

“Reflecting the period in the immediate run-up to the UK’s formal exit from the EU, these are really positive figures reinforcing just how attractive the private placement route to market is for non-EU managers wanting to access EU investor capital. We’ve seen a sustained and consistent rise in the number of alternative managers and funds making use of private placement through Jersey over the past few years. It is a tried and tested route that provides certainty and flexibility and that is cost-effective, and those qualities are hugely attractive – particularly in the current challenging market.”

The figures follow shortly after the publication of the latest quarterly statistics for Jersey’s funds industry. They showed that the total net asset value of regulated funds under administration in Jersey grew by 8% over 2019 to stand at £345.7bn, a new record high, with private equity and venture capital driving growth, increasing by 19% over the year.

 Tim Morgan, Chair, Jersey Funds Association, added:

"Our alternatives sector continued to perform extremely strongly in 2019, reflecting the ideal ecosystem we have created in Jersey, and our market access and distribution capabilities are very much a part of that. The fact that we’ve seen a growing number of private equity, venture capital, real estate,infrastructure and debt funds opt for a private placement route to market through Jersey is testament to just how well it works. We expect this figure to continue to rise as managers look for robust and straightforward solutions to help navigate the complex and uncertain global environment we all now find ourselves in.”

Industry News
Monday
06
April 2020

Covid-19: regular updates for members

Links to Updates

The JFA is planning to issue regular updates to members over the coming weeks, to ensure as much information as possible from the regulator and government relating to the Covid-19 pandemic is issued to the membership during this challenging time.

Please find below some links to recent updates provided by JFSC that should provide you with details on issues that may affect your business:

https://www.jerseyfsc.org/news-and-events/more-information-for-businesses-in-response-to-covid-19/

https://www.jerseyfsc.org/news-and-events/jfsc-allows-more-time-for-meeting-deadlines-in-response-to-covid-19/

Monday
30
March 2020

Closing Date Extended: Consultation Paper on Legislative Enhancements to the Investment Business Regime

Closing date extended on consultation paper on legislative enhances to the investment business regime.

In light of the current challenges and environment, the JFSC have decided to extend the closing date for the Investment Business Regime consultation to the 1st May. Please find the official Industry Update here.

The matters included in the consultation are important and warrant a full response from industry.

Industry News
Saturday
21
March 2020

Government Advice regarding Covid-19

Government advice to businesses surrounding Coronavirus

Click here to read the attached media release which is now also on the gov.je website under the Coronavirus business info section https://www.gov.je/Health/Coronavirus/Pages/CoronavirusBusinessAdvice.aspx

Industry News
Thursday
12
March 2020

Coronavirus & Economic Substance

Revenue Jersey issue guidance on Coronavirus & Economic Substance matters

Revenue Jersey has issued guidance with regards to the implications of Coronavirus for Economic Substance determinations and the impacts on tax residence of companies.  Click here to view release.

Commenting on the guidance, Tim Morgan, Chair of the JFA, said:

"The publication of this guidance is a welcome move and a proportionate response from Revenue Jersey that should provide fund managers with some reassurance and help ensure that they can continue to fulfil their substance obligations.'

JFA News
Friday
06
March 2020

Recent industry figures underline appeal of Jersey’s ecosystem for alternatives

Recent figures illustrating growth in Jersey’s funds industry are reflective of manager and investor confidence in Jersey and provide evidence that Jersey is right at the cutting edge in creating an ideal ecosystem for alternatives, according to the Chair of the Jersey Funds Association.

Recent figures illustrating growth in Jersey’s funds industry are reflective of manager and investor confidence in Jersey and provide evidence that Jersey is right at the cutting edge in creating an ideal ecosystem for alternatives, according to the Chair of the Jersey Funds Association.

The latest figures for Jersey’s finance industry for the period ending 31 December 2019, collated by the Jersey Financial Services Commission (JFSC) and published in February, found that the net asset value of regulated funds under administration in Jersey grew by £25.8bn annually to stand at £345.7bn.  This growth was fueled by the alternatives sector, which rose by 6% over the year.In particular, private equity and venture capital increased by 19% in 2019 to stand at £136bn.

A deeper dive into those figures shows that, over the past five years, overall funds business in Jersey has grown by 51%, with private equity growing by more than 200%, and the value of real estate business growing by some 31%.

Those figures came shortly after the publication of the latest Monterey Jersey Fund Report, also published last month, which found that (as at June 2019) Jersey’s funds sector had achieved sustained annual growth over each of the past three years of 17%, again driven predominantly by private equity, venture capital, real estate and infrastructure funds.

That report also pointed to the growing global appeal of Jersey’s funds environment, with the value of Jersey-domiciled funds with US promoters rising by 20% year on year and funds with Japanese promoters doubling.

Tim Morgan,Chair, Jersey Funds Association, said: “From a funds industry perspective, this is all clear evidence that the focus we have placed on creating a perfect ecosystem for alternatives is hitting home amongst an increasingly diverse manager and investor base. The growth we are experiencing in private equity is impressive, but we’re seeing a strong performance in real estate, hedge and infrastructure too, and with good reason.

“Our ability to enable managers to distribute funds easily and cost-effectively into the EU through private placement and to the rest of the world outside of the constraints of AIFMD is really finding favour with managers, whilst our commitment to nurturing a substance-driven environment and our emphasis on governance, quality service and specific expertise is increasingly attractive.

“It’s particularly pleasing to see our Jersey Private Fund (JPF) product, the AUM figures for which are not included in the JFSC’s overall reported total values, continue to grow in popularity too and surpass the 300 mark, cementing its position as the go-to vehicle for sophisticated investors.”

At the end of last year,the JFA presented the findings of its annual members survey, which found that 85% of members were confident or very confident on their growth outlook.

JFA News
Thursday
13
February 2020

Survey highlights positivity and opportunities for innovation

At the end of last year, we presented the findings of our second annual JFA members survey

At the end of last year, we presented the findings of our second annual JFA members survey – a project that will be instrumental in informing the organisation’s and our industry’s direction and strategy this year and beyond.

Exploring key opportunities and issues for Jersey’s funds industry, the findings painted a generally positive picture as far as the sentiment of practitioners is concerned, and their perceptions of Jersey as a specialist alternative funds jurisdiction.

Amongst its key findings, for example, were that the industry’s approach to the key macro issues were largely optimistic. On Brexit and new economic substance rules, attitudes were balanced but largely positive, with over 80% of respondents saying Brexit would be neutral or increase business and around three quarters saying the same about substance rules.

Members were also very positive in terms of their overall growth outlook for the year ahead, with 84% saying they were confident or very confident of growth over the coming five years, a significant increase from last year.

These responses tally with the performance we saw in our industry over 2019, with NAV figures reaching new record highs of £342bn and private equity in particular being the stand out performer.

We’ve also seen asset managers continuing to commit to relocating to and establishing a presence in Jersey, which is a huge positive in light of the economic substance rules introduced last year, whilst the number of managers making use of private placement through Jersey and into the EU reflects the high regard in which Jersey is held for straightforward, seamless market access.

We really shouldn’t underestimate just how positive the outcome of Jersey’s work around the key issues such as Brexit and substance have been, or just how significant the recognition Jersey received from the EU almost exactly a year ago was for our industry – it signposted that, without doubt, as a jurisdiction we are serious about cooperation and global standards, and that has translated into good business flows.

The fact that practitioners are confident that Jersey can maintain this growth trajectory against what continues to be a challenging global environment is hugely encouraging.

Future

But that’s only really half the story, because what really stands out from the survey findings is that, despite being so positive about the future, our industry is not complacent and is pragmatic and ready to find ways to continue to enhance our proposition and hone our vision to provide the perfect ecosystem for cross border alternative funds – conscious that competition is very real and that the environment around us continues to change.

As an industry, we are very clear that maintaining growth requires a commitment to innovation, continuing to source the best talent, engaging with stakeholders, and differentiating ourselves through service quality, ease of doing business and stability.

In respect of technology, for instance, the survey indicated a clear trend, with over 56% of respondents saying that they had employed automated technology over the past year. That sort of investment is impressive, and will be pivotal in meeting the needs of alternative managers in the coming years in areas like cyber security, reporting and data management – around 95% of respondents said they considered automation will have a moderate or significant impact on them over the coming five years.

Meanwhile, there’s a real appetite to back product development – around three quarters of member firms said they would be willing to contribute ring-fenced fees to the regulator in order to fund product development. Enhancing onboarding procedures for new clients came out particularly strongly in this respect, rather than bringing new products to market – through automation and online portals, and by looking again at significant simplification and clarification of Jersey’s AML regime.

There were also a number of calls amongst respondents to look at ways to further enhance Jersey’s private placement regime and revisit third country passporting, whilst respondents also pointed to the need to be more proactive in meeting the demands of and responding to the needs of an industry that is increasingly engaging on the green finance and ESG agenda.

Outsourcing is another potentially exciting opportunity – around 40% of respondents said they saw outsourcing increasing over the coming three years. But we need to find ways to change perceptions of what outsourcing is all about and how, through embracing technology and understanding risk, we can meet outsourcing demands.

...members are unequivocal – it is simplicity, ease of doing business and clarity that will resonate with fund managers and investors...


The overwhelming message, though, was that our absolute focus should be on providing clarity and simplicity in everything that we do. In a hugely complex environment, our members are unequivocal – it is simplicity, ease of doing business and clarity that will resonate with fund managers and investors, and we should not lose sight of that.

Jersey is not a volume player; we are all about service quality and standards and those, the survey suggests, will be our differentiators.

Over the coming months, we’ll be working hard to engage with industry and key stakeholders both on and off island to respond to the challenges this survey has set out, capitalise on our core identified strengths and look at ways to innovate in order to enhance our funds ecosystem.

With almost 90% of firms indicating that they considered promoters, investors and gatekeepers would give Jersey a four or five star rating, we have a good basis to start from, and with the backing of a clearly very ambitious and focused industry, we are on a good path to maintain and improve on the success we saw in 2019.

JFA News
Thursday
05
December 2019

Jersey Funds Association presents findings of annual member survey

The findings of the second annual survey of the Jersey Funds Association’s (JFA) members will be instrumental in informing the organisation’s future direction and strategy, according to Chair Tim Morgan.

The findings of the second annual survey of the Jersey Funds Association’s (JFA) members will be instrumental in informing the organisation’s future direction and strategy, according to Chair Tim Morgan.

Highlighted to an audience of industry professionals at a presentation held at the Jersey Museum last week (28th November), the survey explored key opportunities and issues for Jersey’s funds industry and the sentiment of practitioners.

Amongst its key findings were that the industry’s approach to Brexit and new economic substance rules were balanced but largely positive, with over 80% saying Brexit would be neutral or increase business and around three quarters saying the same about substance rules.

Members were also very positive in terms of their growth outlook, with 84% saying they were confident or very confident of growth, a significant increase from last year.

In addition, in respect of technology the survey indicated a clear trend, with over 56% of respondents saying that they had employed automation technology over the past year.

Tim commented: “The past year has posed a number of significant challenges, including Brexit and the introduction of substance legislation however we really shouldn’t underestimate just how positive the outcome of Jersey's work around these issues has been for our industry. The recognition from the EU at the beginning of the year has shown without doubt that as a jurisdiction we are serious about cooperation and global standards, and that has translated into good business flows. The fact that our industry now administers in excess of £340bn of assets – a record high - is no accident. That buoyancy really comes through in our survey this year.

“We are pragmatic as an industry too, though. What our survey shows us is that our members are keen to maintain a growth trajectory by looking at innovation, continuing to source the best talent, engaging with stakeholders, and differentiating ourselves through service quality, ease of doing business and stability.

“These findings will be vital in informing how we continue to enhance our funds ecosystem, and I’d like to thank our membership for their time and support in putting their views forward.”

Industry News
Wednesday
27
November 2019

Updates to substance guidance good news for fund managers in Jersey

Updated Guidance Notes published last week (22 November) by Jersey’s government, in conjunction with the other Crown Dependencies, provide further clarity around the interpretation of economic substance legislation.

Updated Guidance Notes published last week (22 November) by Jersey’s government, in conjunction with the other Crown Dependencies, provide further clarity around the interpretation of economic substance legislation which came into play in January this year and reflect Jersey’s focus on maintaining a substance-driven environment for fund managers, according to the Chair of the Jersey Funds Association.

Following the publication of the first iteration of Guidance Notes in April this year, the updated notes contain a number of points of relevance to the funds industry, in particular:

• that collective fund vehicles are out of scope of the law (save where they are carrying out fund management activities themselves, which will be the subject of future legislation) but their subsidiaries could still be in scope if they derive income from a relevant sector
• there is more specific guidance on the treatment of cell companies
• there is further clarification on the basis on which certain isolated decisions can be taken outside the island, provided this does not outweigh decisions taken in the jurisdiction.

Tim Morgan, Chair of the Jersey Funds Association, said: “This additional detail should prove helpful to managers in terms of how the law will be applied, and should give them reassurance that Jersey takes its economic substance commitments seriously. In particular, the notes generally clarify that funds themselves are not caught by the law and also provide more detail about the basis on which governance decisions should be taken.

‍“As a centre for fund management, Jersey has long had a market-leading approach towards substance and these guidance notes reflect Jersey’s approach to governance best practice.”

The JFA welcomed the initial publication of guidance notes earlier this year, as reinforcing the jurisdiction’s proposition for fund management.

JFA News
Friday
22
November 2019

JFA 2019 Member Survey: Presentation and Drinks

We're currently finalising our 2019 JFA Members Survey, which was launched last month. The results are now largely in and are already providing valuable feedback as to the position of the Jersey funds market.

We're currently finalising our 2019 JFA Members Survey, which was launched last month. The results are now largely in and are already providing valuable feedback as to the position of the Jersey funds market.

To mark the completion of the survey, as well as the end of a highly successful year for Jersey's funds industry, we're holding a drinks event from 6.30 - 8.30 at the Jersey Museum on Thursday 28 November.  If you would like to attend, please RSVP to enquiries@jerseyfunds.org.

In addition, if member firms would like to attend a presentation of the survey findings by members of the JFA committee, this will be held just before the drinks at 4pm on Thursday 28 November. Places will initially be allocated on a one place per firm basis – please contact enquiries@jerseyfunds.org for more information.

Industry News
Thursday
24
October 2019

Blog: Why managers can rely on Jersey through Brexit

With much uncertainty persisting around the UK’s departure from the EU, Dilmun Leach, partner at JFA member firm Collas Crill, takes a look at why Jersey’s ability to offer continuity and certainty should be music to the ears of non-EU fund managers…

With much uncertainty persisting around the UK’s departure from the EU, Dilmun Leach, partner at JFA member firm Collas Crill, takes a look at why Jersey’s ability to offer continuity and certainty should be music to the ears of non-EU fund managers…

Q: Jersey is outside of the EU – so how is it affected by Brexit?
DL: Jersey is not a member state (or associate member) of the EU and not part of the UK. Jersey has its own government which is elected locally, makes its own laws (including in respect of taxation) and has its own court system.

As far as its relationship with the EU is concerned, Jersey is currently part of the EU Customs Union by virtue of ‘Protocol 3’. When the UK joined the EU (the European Economic Community as it was then) in 1973, it was agreed that Jersey would benefit from the UK's membership of the EU by bringing it, along with the other Crown Dependencies, within the EU Customs Union for the purposes of trade in certain goods (but not services), whilst preserving its autonomy.  This agreement was set out in Protocol 3.  

The Protocol 3 relationship is dependent on the UK remaining a member of the EU and will cease to exist, simultaneously with all other treaty arrangements between the UK and the EU, once the UK's membership of the EU ceases.

Q: Without Protocol 3, how will Jersey trade with the EU?
DL: Jersey is able to market financial services to the EU because those services currently meet the requirements imposed by the EU – that will not change because of Brexit.  Services have always been outside the scope of Protocol 3.

Jersey has also taken steps to ensure continued market access for Jersey investment funds into the UK post-Brexit. Jersey’s financial services regulator, the Jersey Financial Services Commission, has signed a Memorandum of Understanding (MoU) with the UK’s Financial Conduct Authority which ensures Jersey firms can continue to use the UK’s National Private Placement Regime (NPPR) after Brexit.

That MoU will come into effect if EU law no longer applies in the UK, either through a ‘no deal’ Brexit or at the end of any transitional arrangements (that are agreed as part of a negotiated deal) once the UK leaves the EU.

Q: Will anything change for fund managers with Jersey funds and investors in the EU/UK?
DL: In short, no. It is expected to be 'business as usual' for Jersey funds.

As far as the UK is concerned, the MoU signed with the FCA, outlined above, provides certainty that access by Jersey funds and managers to UK investors will continue uninterrupted and irrespective of any Brexit outcome.

In terms of the EU, Jersey is not and has never been part of the EU. Rather, as a third country, Jersey will maintain access to the EU funds markets as a result of agreements between the Jersey Financial Services Commission (JFSC) and financial regulators in 27 of the 31 EEA States.

Q: Will the ‘NPPR’ route to market continue to operate through Brexit?
DL: Jersey funds are currently eligible to be marketed into the EU and EEA in accordance with the provisions of the AIFMD through NPPR, and that will not change.

In fact, NPPR is set to continue to operate for the foreseeable future, with a report undertaken by KPMG for the EU Commission at the end of last year confirming that NPPR is of added value to the EU, works in the interest of investors, and should remain in place. Certainly it’s a route to market that is proven to work well through Jersey – currently, more than 170 managers are marketing in excess of 300 funds into the EU through Jersey in this way.

NPPR permits the marketing of non-EEA alternative investment funds in the EEA, subject to national law and regulation in force in the relevant country.  In addition, certain conditions set out in the AIFMD must be met.  Those conditions include the need for supervisory cooperation agreements to be entered into between the JFSC and regulators in the relevant EEA countries in which the marketing is to take place.  Jersey benefits from cooperation agreements with regulators in 27 out of the 31 EEA countries.

Q: What about passporting?
DL: AIFMD made provision for "third countries" to be granted the same passporting rights as EU member states, subject to certain conditions being met. ESMA published its assessment of potential "first wave" third countries and, along with Guernsey and Switzerland, found that were no significant obstacles to Jersey becoming a third country jurisdiction.

The EU Commission has not yet pressed ahead with the implementation of the third country passporting regime, but the indications are that if and when the regime is put in place Jersey will be amongst the first non-EU countries to be granted passporting rights.  Until then, and potentially beyond it too, NPPR through Jersey will remain a key route to the EU market for non-EU managers.

As far as the ‘rest of the world’ is concerned, AIFMD is not relevant to Jersey funds with a Jersey manager which markets outside the EU/EEA, and these will continue to be subject to the laws of the countries in which the fund is marketed.  

Q: So is Brexit a good thing for Jersey?
DL: It is generally thought that actually Brexit presents opportunities for Jersey in the funds space. Jersey's NPPR remains best in class for accessing EU investors and there may be additional opportunities for Jersey (rather than our EU competitors, such as Luxembourg) to provide structures via which UK investors can invest in UK assets.

In addition, managers in the UK, US and elsewhere may be able to launch funds in a shorter time-frame and with lighter ongoing regulatory requirements than in an EU member state such a Luxembourg.  

On 12 March 2019, the European Council of Finance Ministers confirmed Jersey's status as a transparent and cooperative jurisdiction, and that Jersey's legal substance requirements are considered compliant with EU requirements.  The effect of this is that the European Investment Fund (EIF), being a specialist provider of risk finance for small and medium-sized enterprises across Europe, backed by the European Investment Bank, EU, and a range of public and private banks and finance institutions, confirmed that there is no impediment to the EIF investing in Jersey private equity or venture capital funds, meaning that Jersey funds continue to be open to billions of Euros of potential investments.

Real-life case studies compiled by the JFA to illustrate how NPPR is proving effective in accessing EU investor capital can be found
here.