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Alternative Investment Fund Managers Directive (2011/61/EU): Various related Orders

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A decision made 5 July 2013:

Decision Reference: MD-E-2013-0069

Decision Summary Title :

Orders relating to the Alternative Investment Fund Managers Directive 2011/61/EU

Date of Decision Summary:

5 July 2013

Decision Summary Author:

Director, Finance Industry Development

Decision Summary:

Public or Exempt?

Public

Type of Report:

Oral or Written?

Written

Person Giving

Oral Report:

 

Written Report

Title :

Orders relating to the Alternative Investment Fund Managers Directive 2011/61/EU

Date of Written Report:

5 July 2013

Written Report Author:

Director, Finance Industry Development

Written Report :

Public or Exempt?

Public

 

Subject:

 

Approval of the following draft Orders:

 

  1. Alternative Investment Funds (Amendment of Regulations) (Jersey) Order 201- pursuant to Regulations 5 and 29 of the Alternative Investment Funds (Jersey) Regulations 2012;

 

  1. Alternative Investment Funds (Jersey) Order 201- pursuant to Regulations 3, 6, 16 and 29 of the Alternative Investment Funds (Jersey) Regulations 2012;

 

  1. Collective Investment Funds (Certified Funds – Prospectuses) (Amendment) (Jersey) Order 201- pursuant to Articles 14 and 20 of the Collective Investment Funds (Jersey) Law 1988;

 

  1. Financial Services (Amendment of Schedule 2 to Law) (No.4) (Jersey) Order 201- pursuant to Articles 4 and 42 of the Financial Services (Jersey) Law 1998; and

 

  1. Financial Services (Financial Service Business) (Amendment) (Jersey) Order 201- pursuant to Articles 8 and 42 of the Financial Services (Jersey) Law 1998.

 

Decision(s):

 

The Minister for Economic Development made the following Orders:

 

  1. Alternative Investment Funds (Amendment of Regulations) (Jersey) Order 201-
  2. Alternative Investment Funds (Jersey) Order 201-
  3. Collective Investment Funds (Certified Funds – Prospectuses) (Amendment) (Jersey) Order 201-
  4. Financial Services (Amendment of Schedule 2 to Law) (No.4) (Jersey) Order 201-
  5. Financial Services (Financial Service Business) (Amendment) (Jersey) Order 201-

 

(together the “Orders”)

 

The Orders were proposed pursuant to the relevant powers under the Alternative Investment Funds (Jersey) Regulations 2012, the Collective Investment Funds (Jersey) Law 1988, and the Financial Services (Jersey) Law 1998.

 

Reason(s) for Decision:

The Orders are necessary to finalise the implementation of the European Union’s Alternative Investment Fund Managers Directive 2011/61/EU (the “Directive”) into Jersey law, which will allow Jersey funds to continue to be marketed in the European Union and any other state within the European Economic Area to which the Directive applies after 22 July 2013, being the date that the Directive comes into force in the European Economic Area.

 

The Jersey Financial Services Commission has provided its recommendation to the Minister that the Orders be made.

 

Resource Implications:

 

There are no financial or manpower implications for the States of Jersey arising as a result of this decision.

 

Action required:

 

The Minister to sign, date and seal each Order and for the signed Orders to be returned to the States Greffe without delay.

 

Signature:

 

 

Position:

 

Minister for Economic Development

 

Date Signed:

 

 

Date of Decision (If different from Date Signed):

 

 

Alternative Investment Fund Managers Directive (2011/61/EU): Various related Orders

MINISTER FOR ECONOMIC DEVELOPMENT

 

Orders relating to the Alternative Investment Fund Managers Directive 2011/61/EU

 

Written Report in relation to:-

 

  1. ALTERNATIVE INVESTMENT FUNDS (AMENDMENT OF REGULATIONS) (JERSEY) ORDER 201-
  2. ALTERNATIVE INVESTMENT FUNDS (JERSEY) ORDER 201-
  3. COLLECTIVE INVESTMENT FUNDS (CERTIFIED FUNDS – PROSPECTUSES) (AMENDMENT) (JERSEY) ORDER 201-
  4. FINANCIAL SERVICES (AMENDMENT OF SCHEDULE 2 TO LAW) (NO.4) (JERSEY) ORDER 201-
  5. FINANCIAL SERVICES (FINANCIAL SERVICE BUSINESS) (AMENDMENT) (JERSEY) ORDER 201-

 

(together the “Orders”)

Issue and Recommendation

1.             The Minister is asked to make the Orders which prescribe changes to Jersey’s law that are necessary to enable Jersey investment funds (alternative investment funds or AIFs) as well as certain managers and depositaries that are established in Jersey to continue to manage, market and provide other services to AIFs that are marketed in the European Union or any other state within the European Economic Area (EEA) to which the Directive applies on and from 22 July 2013.

2.             The Orders are proposed under the Alternative Investment Funds (Jersey) Regulations 2012 (the Regulations), the Collective Investment Funds (Jersey) Law 1988 (the CIF Law), and the Financial Services (Jersey) Law 1998 (FS(J)L) and will come into force on 22 July 2013.

3.             It is recommended that the Minister signs each of the Orders in order to bring them into force and instructs his officers to undertake the necessary formalities.

Background to the Directive

4.             The Directive came into force on 21 July 2011.  It was supplemented during March 2013 by a Delegated Regulation (Level 2).  Member States of the EEA must ensure that their national laws comply with the Directive from 22 July 2012.

5.             The aim of the Directive and Level 2 is to create a comprehensive and effective regulatory and supervisory framework for alternative investment fund managers (AIFMs) within the EEA.  The basic regulatory approach of the Directive and Level 2 is to specify a prescriptive regime of regulation to be applied in each member state of the European Union (as well as those members within the EEA who elect to implement the Directive) which is to apply to AIFMs as well as other service providers associated with AIFs, including depositaries, valuers and prime brokers.

6.             Whilst the Directive does not impose any obligations directly on Jersey, the Directive does set out requirements that must be complied with if AIFs established or having an AIFM outside the EEA (ie AIFs and AIFMs established in Jersey) are to be capable of being lawfully marketed into any member of the EEA. 

 

 

Background to the Regulations and Amendment to Law

7.             Towards the end of 2012, there was a pressing need to enact the Regulations and certain consequential amendments to the FS(J)L pursuant to the Financial Services (Amendment of Law) (No.4) (Jersey) Regulation 2012 (the Amendment to Law) in order to demonstrate that Jersey was ready to implement the Directive.

8.             The Regulations provide the Jersey Financial Services Commission (the “Commission”) with additional powers in relation to a significant group of Jersey funds.  These powers relate to the regulation and supervision of Jersey Very Private Funds, Jersey COBO funds and Jersey Private Placement Funds (together the Private Funds) – powers that the Commission already had over Jersey funds that are authorised under the CIF Law (Public Funds).  The effect of the Regulations is that the Commission now explicitly has the powers it needs in relation to all Jersey funds (both Private and Public Funds) that may be marketed into the EEA.

9.             The purpose of the Amendment to Law was to create a new class of financial services business under the FS(J)L, namely AIF services business.  From July 2013, this new class of financial services business will apply to Jersey based managers who manage Private Funds being marketed into the EEA.  Without the Amendment to Law, such managers would not hold the appropriate authorisation under the FS(J)L in relation to managed Private Funds and the Commission would not have the appropriate supervision over those managers.

10.         At the time the Regulations and Amendment to Law were made, Level 2 had not been published by the European Securities and Markets Authority (ESMA) and, accordingly, the detail and implications of Level 2 for Jersey were not known at that time.  For this reason, the Regulations were made in a way that required further detail to be prescribed by Orders at a later date. 

11.         Now that Level 2 has been published, Jersey is able to prescribe those further details and can do so under the draft Orders being proposed.

Summary of the draft Orders

 

12.         The Orders are necessary to finalise the implementation of the Directive in Jersey and will come into force on 22 July 2013.

13.         The Alternative Investment Funds (Amendment of Regulations) (Jersey) Order 201- substitutes Article 3 of the Regulations which defines an “AIF” (or alternative investment fund) for the purposes of the Regulations.  Those funds that meet the definition of an “AIF” must obtain a certificate if they are being (or are to be) marketed in the EEA after 22 July 2013.  This Order also sets out a transitional period which provides that an AIF will not need to obtain a certificate for so long as the national laws of the EEA State in which the AIF is being marketed do not require compliance with the Directive.

14.         The Alternative Investment Funds (Jersey) Order 201- makes provisions that supplement the Regulations and exempts AIFs that are Jersey funds regulated by the CIF Law from the application of the Regulations since they are already considered appropriately authorised under the CIF Law.  This Order also prescribes two specific types of service providers that require approval by the Commission pursuant to the Regulations; namely depositaries providing services to Private Funds and AIFMs who meet the conditions of Article 3(2) of the Directive.  This Order also has transitional arrangements whereby an AIFM who meet the conditions of Article 3(2) of the Directive will not need to be approved for so long as the national laws of the EEA State in which the AIFM is marketing or managing that AIF do not require compliance by the AIFM with the Directive.

15.         The Collective Investment Funds (Certified Funds – Prospectuses) (Amendment) (Jersey) Order 201- exempts certified funds (ie funds that have received a certificate pursuant to the CIF Law) whose investors meet the definition of an “eligible investor” as set out in the new Schedule 2 of the draft Order from having to comply with the Collective Investment Funds (Certified Funds – Prospectuses) (Amendment) (Jersey) Order 2012.  Generally, an “eligible investor” is a highly sophisticated investor whose minimum investment in the fund must be at least US $1 million.  The disclosure requirements to investors set out in the Directive will apply to such eligible investor funds and it is considered, given the type of investor that these funds are involved with, that the Directive’s disclosure requirements to investors are sufficient for these funds. 

16.         The Financial Services (Amendment of Schedule 2 to Law) (No.4) (Jersey) Order 201- exempts persons from having to be registered to carry on the new class of AIF Services Business where they are registered to carry on fund services business.  In addition, a person will not have to be registered to carry on investment business or trust company business where that person is already registered to carry on AIF services business.  Finally, a person will not have to be registered to carry on AIF services business if the person is carrying on the marketing or management of an AIF in an EEA State, provided that, and for so long as, that EEA State’s national laws do not require compliance by that business with the Directive.

17.         The Financial Services (Financial Service Business) (Amendment) (Jersey) Order 201- is necessary to amend the definition of financial services business to include the new class, being AIF Services Business.  

Consultation

18.         The Finance Industry Development team has worked closely with the Commission, a specialist group of funds practitioners and Jersey Finance Limited (“JFL”) in preparing these Orders.

19.         A summary of the Orders was presented to industry at the Commission’s Funds Seminar held on 16 May 2013 at Hotel de France, St Helier, and a further presentation took place at Town Hall in St Helier on 14 June 2013 at which both the Commission and the specialist group of funds practitioners discussed the draft Orders with industry.

20.         Pursuant to the requirements of the Regulations, the CIF Law and the FS(J)L, the Commission has recommended to the Minister that he makes each of the Orders.

Scrutiny

21.         Officers from the Finance Industry Development team within the Economic Development Department updated the Scrutiny Panel on 25 June 2013 in relation to the need to make the Orders.  The Panel were satisfied with the need for the Orders and appreciated the update.

Financial and Manpower Implications

22.         There are no financial or manpower implications for the States.


Recommendation

23.         It is recommended that the Minister approve the draft Orders and that the Minister sign, date and seal each Order and for the signed Orders to be returned to the States Greffe without delay.

 

 

Director, Finance Industry Development

5 July 2013

1

 

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