Jersey and Brexit: a Q&A with Geoff Cook

October 20, 2016

This Q&A was first published in Real Deals on 20th October 2016.

The head of Jersey Finance discusses what the UK’s vote to Brexit means for Jersey, the long-term future of the private placement regime and the why the outcome of a recent ESMA review is good news for the jurisdiction.

The UK’s vote to leave the European Union caught many in the financial services industry by surprise and created much economic uncertainty. What does the referendum mean for Jersey and its access to the EU?

GC: The fact of the matter is that the vote doesn’t impact Jersey directly at all. There is often a mistaken assumption that Jersey accesses the EU through the UK. Jersey’s access to Europe is not secured through a UK treaty but through bilateral treaties with individual member states or by being deemed to be ‘equivalent’ for specific initiatives. There is cooperation with regulators across Europe and we have equivalent standards in place.

Even though the Brexit vote will not restrict Jersey’s access to the EU, could the referendum have any indirect consequences?

GC: We want Britain to negotiate a successful agreement with Europe as a large number of the investment managers that use Jersey are based in the UK. In some respects you could say that after the referendum Jersey is in a position that that UK will need to get to, so we have been contributing to the regulatory work streams that have been set up in the UK to look into passporting post-Brexit and how the UK can operate as a third country.

Going back to the point you mentioned earlier about the equivalent regulatory standards Jersey shares with the EU, the jurisdiction has recently undergone a review by the European Securities and Markets Authority (ESMA), the EU body that supervises funds activity. What was the outcome of that review and what is its significance?

GC: ESMA provides a pan-European overlay to the bilateral agreements that Jersey has in place and in July it announced that Jersey was one of only five non-EU jurisdictions to have “no significant obstacles” impeding the application of the AIFMD passport. This reinforced ESMA’s initial advice of July 2015 recommending that Jersey should be granted an AIFMD passport.

What this demonstrates is that Jersey’s standards have passed muster. Jersey has transparency checks and balances in place and shares information with regulators and tax authorities globally. Its standards for the prevention of aiding and abetting crime and tax evasion are as, if not more, robust than those in the EU. Jersey engaged with AIFMD early and was the first third country with equivalence selected by ESMA for assessment. In terms of the significance of this, it shows that Jersey is in a very strong position having set up an AIFMD equivalent regime early on.

What does it mean for fund managers?

GC: It means that fund managers can take a lot of confidence in the Jersey platform. It offers a straightforward regulatory regime and the confidence of continued access to the European market, whether that be through private placement or, in time, the passport. The regime also provides a framework for conducting funds activity outside Europe. That flexibility makes the jurisdiction very attractive for fund managers, which is reflected in the growth in the number of fund promoters using Jersey. The number of Jersey-based fund promoters has almost doubled during the last five years. At the end of June 2016, there were 134 Jersey-based fund managers, up fiver per cent annually.

What about the future of private placement? In the long-term will it eventually be overtaken by the passport?

GC: There has been a great deal of conjecture that private placement will be superceded by the passport and phased out, but figures suggest that appetite for private placement is as strong as ever.

At the end of June this year, 115 alternative investment fund managers had been authorised in Jersey to market into Europe through national private placement regimes, up 11 per cent when compared to the period to the end of December 2015. During the same period the number of Jersey alternative investment funds marketed into Europe through national private placement regimes was 9 per cent higher at 251.

Managers do find national private placement appealing and continue to use it. This, and potential for an AIFMD passport in the future, gives managers real confidence in Jersey’s long-term future as a jurisdiction to domicile a fund.