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A decision made 17 April 2012:

Decision Reference: MD-E-2012-0047
Decision Summary Title:	Draft Collective Investment Funds (Amendment and Validation) (Jersey) Law 201-		Date of Decision Summary:	April 2012
Decision Summary Author:	Director, Finance Industry Development		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title:	Draft Collective Investment Funds (Amendment and Validation) (Jersey) Law 201-		Date of Written Report:	April 2012
Written Report Author:	Director, Finance Industry Development		Written Report : Public or Exempt?	Public
Subject: Draft Collective Investment Funds (Amendment and Validation) (Jersey) Law 201- (the “Draft Law”)
Decision(s): The Minister agreed to lodge the Draft Law and attached report, and signed the declaration of compatibility with the European Convention on Human Rights. The Minister directed that the documents be lodged au Greffe so as to allow the Draft Law to be debated by the States at the earliest opportunity.
Reason(s) for Decision: To amend the Collective Investment Funds (Jersey) Law 1988 relating to the payment of fees.
Resource Implications: There is no effect on the financial or manpower resources of the States of Jersey
Action required: To approve the Draft Law and the attached report; to sign the statement of compatibility with the European Convention on Human Rights; to direct that the documents be lodged au Greffe so as to allow the Draft Law to be debated by the States at the earliest opportunity.
Signature: Senator AJH Maclean		Position: Minister for Economic Development
Date Signed:		Date of Decision: (if different from date signed)

Collective Investment Funds (Amendment and Validation) (Jersey) Law 201- Draft

Report to the Minister of Economic Development on

COLLECTIVE INVESTMENT FUNDS (AMENDMENT AND VALIDATION) (JERSEY) LAW 201- (the “Draft Law”)

1 ISSUEs

1.1 The Draft Law addresses two issues.

1.2 Firstly, it amends those provisions in the Collective Investment Funds (Jersey) Law 1988 (the “CIF Law”) that still refer to “prescribed” fees. The effect of the amendment will be for fees in respect of fund certificates to be published in accordance with Article 15 of the Financial Services Commission (Jersey) Law 1998 (the “1998 Law”), in the same way as for all other fees and charges due to the Financial Services Commission (the “Commission”), including those in respect of permits under the CIF Law.

1.3 The need for these particular amendments derives from the fact that a decision taken in 2007 to make substantial alterations in the way in which collective investment funds were regulated, coincided with a largely unrelated amendment to the 1998 Law that altered the mechanism for determining the fees and charges payable to the Commission.

1.4 The amendment to the 1998 Law provided for fees and charges to be as published by the Commission after consultation (where previously they had been as prescribed by Ministerial Order). This change was made largely as a result of a recommendation by the International Monetary Fund following the assessment it conducted in 2002/2003 of the Island’s compliance with international standards.

1.5 Together with the new arrangements for determining and publishing fees, the amendment to the 1998 Law made consequential amendments to other laws where they referred to fees and charges that were affected. However, it preceded the changes to the regulation of funds. As such, no equivalent provision could be made in respect of the fees relating to the new requirement for fund certificates, the introduction of which was a feature of the revised regulatory arrangements that came into force in April 2008 (namely, the Collective Investment Funds (Amendment No. 4) (Jersey) Law 2008 (L14/2008)).

1.6 The Draft Law will make the small but necessary changes to the 1988 Law to align the fee-charging arrangements for fund certificates with other fees payable to the Commission. It does not provide for any change in the amount of fees being charged.

1.7 Secondly, the Draft Law validates the payments of certification fees made to the Commission between April 2008 (when the changes to the CIF Law came into force) and February 2012, notwithstanding that those fees were not prescribed by Order until February 2012.

2 BACKGROUND

2.1 Prior to the changes to the way in which funds are regulated, the CIF Law required every functionary of a collective investment fund to hold a permit in respect of each fund for which it acted, if either it was a Jersey company or it carried out any part of its activities in Jersey. Under the new arrangements, the regulation of most functionaries is undertaken through the Financial Services (Jersey) Law 1998, leaving the CIF Law to be the legislative vehicle for regulating the collective investment fund as a product.

2.2 The only functionaries that are still regulated under the CIF Law, and to whom permits are still issued, are those acting for recognized funds. The regulatory arrangements for recognized funds are the basis on which the Island has been granted ‘Designated Territory’ status by the United Kingdom authorities, allowing funds of this class to market directly to the public in the UK. Without the prior agreement of the UK authorities (which would have delayed implementation for all other funds), any changes to those regulatory arrangements would have adversely affected the special status.

2.3 For all other funds, where formerly the CIF Law had provided for permits to be issued to functionaries, the CIF Law now requires that a certificate must be issued in respect of any fund managed from within Jersey (other than a recognized fund). For a fund constituted as a company (typically around 55% of all such funds), the certificate simply replaced the permit that it previously had to hold. Other types of funds (e.g. unit trusts and partnerships) do not have separate legal personality, so the permits were previously only issued to the operators of those funds. Accordingly, the introduction of certificates placed such funds on an equal footing with those having a corporate structure.

2.4 Key features of the new arrangements were a substantial reduction in the administrative burden, both for the Commission and for industry, in registration and regulation of functionaries together with the introduction of Codes of Practice for functionaries that help to ensure that regulation remained consistent with international standards.

2.5 In February 2006, the Commission published a paper that initiated a three-month period of public consultation on the principles of the changes. Those proposals received broad support of the funds industry, as indicated by the summary of the responses that were included in a Position Paper published by the Commission in April 2007.

2.6 That Position Paper also presented drafts of all of the legislation. The substantial package of primary and secondary legislation included a draft Order that would prescribe all fees payable under the amended CIF Law, both in relation to permits (to be retained in respect of recognized funds) and in relation to the certificates that were being introduced. In the case of certificates, both the fees payable on application and those payable subsequently by holders of certificates, were the same as were in force at that time in respect of permits.

2.7 At the time that the package of amendments was lodged for debate by the States (in September 2007), the law amending the 1998 Law had already been adopted but had not yet received the sanction of Privy Council. Accordingly, the amendments to the CIF Law could only provide that the fees relating to certificates were to be prescribed by Order.

2.8 The amendments to the 1998 Law came fully into force in January 2008, making redundant the need for fees in respect of permits to be prescribed by Order. From that date, fees applicable to permits in respect of recognized funds were as published by the Commission in accordance with the amended 1998 Law.

2.9 When the raft of amendments to the CIF Law relating the requirements for unclassified funds to hold certificates came into force in April 2008, an oversight resulted in the provisions relating to certification fees not being amended in line with the amendments made by the 1998 Law concerning permit fees. Instead, the CIF Law continued to require fees for certificates to be prescribed by Order. Notwithstanding this, certification fees were in fact charged by the Commission (and paid by industry) along the lines that had been set out in the Position Paper (and draft Order) that had previously been published by the Commission in April 2007 (see paragraph 2.5 above).

2.10 When the oversight came to light, and to set the matter right in terms of fees for certificates going forwards, the Collective Investment Funds (Certified Funds – Fees) (Jersey) Order 2012 (the “2012 Order”) was made. This Order came into force on 18 February 2012 and now formally prescribes the application fees for certificates as well as those payable subsequently by certificate holders. The 2012 Order will remain in effect until the Draft Law comes into force.

3 the draft law

Amending Provisions

3.1 Article 1 of the Draft Law defines the necessary terms.

3.2 Article 2 amends the references in the CIF Law which refer to fees that are prescribed, so that they provide instead for the fees to be as published by the Commission in accordance with Article 15 of the 1998 Law. This will bring those provisions into line with the provisions dealing with fees in all other laws administered by the Commission.

3.3 The Articles affected in the CIF Law are –

3.3.1 Article 8A(2)(e), which provides for a fee payable with an application for a certificate;

3.3.2 Article 8B(10), which allows the Commission to cancel a certificate for any of a number of reasons, one of which is the failure to pay a fee that is required by Article 8B(13). The change to be made to the provision is a direct consequence of changing Article 8B(13) so that the fees referred to therein are to be as published, instead of as prescribed.

3.3.3 Article 8B(13), which provides for fees to be paid by the holder of a certificate at intervals or on the occurrence of certain events. At present, such fees are due when a certificate is granted, if certain changes are made to the certificate and annually on the 1st July in any year.

3.4 Article 2 of the Draft Law makes one further minor amendment in relation to Article 7(7) which was omitted from the list of consequential amendments flowing from the amendment to the 1998 Law when that came into effect in January 2008. Although the provisions for the payment of fees were amended, Article 7(7) which allows the Commission to cancel a permit for the non-payment of a fee was not. As a result it has continued to allow for cancellation only upon non-payment of a prescribed fee, where that fee was required elsewhere (namely, in Article 7(12)) to be a published fee.

3.5 When all of these changes have been made, the provisions in the CIF Law regarding fees in respect of certificates will be materially the same as those for fees in respect of permits. Furthermore, the arrangements for determining those fees will be in line with those for all other fees and charges payable under all laws to the Commission.

Transfer from present to new arrangements

3.6 The combination of measures contained in Article 3 of the Draft Law, together with the delay in Article 2 coming into effect (see Article 5), are intended to ensure a seamless transfer from fees that have been prescribed to fees that will be published under Article 15 of the 1998 Law. These measures require that the fees that are to apply after the changes take effect are to be published in advance as if Article 2 were already in force.

3.7 The ‘published’ fees are to be the same as those that have been prescribed under an Order in force at the time the Draft Law comes fully into force. The transitional provisions in Article 3 effectively dispense with the requirement for the period of consultation that would otherwise be required under Article 15 of the 1998 Law.

Validating provisions

3.8 Article 4 of the Draft Law validates fees charged and collected by the Commission during the ‘relevant period’ on the basis that the 2012 Order is treated as having been in force during the relevant period. The ‘relevant period’ for these purposes is the period running from 4 April 2008, being the date upon which the amendments to the CIF Law came into force, up to and including 17 February 2012, being the day immediately before the 2012 Order came into force.

3.9 The fees applicable during the relevant period are confirmed to be those prescribed by the 2012 Order as made by the Minister on 17 February 2012. If, for whatever reason, a certificate holder or an applicant for a certificate paid during the relevant period a lesser fee than the fee prescribed by the 2012 Order, then they are taken to have paid the full fee.

3.10 Additionally, provision is made to ensure that, although the 2012 Order is taken to have been in force throughout the relevant period, a person from whom a fee was due during that period but who has not paid the fee is not guilty of the offence of contravening any provision of an Order (under 16(6) of the 1988 Law).

Citation

3.11 The final part of the Draft Law (Article 5) deals with citation and the dates when the individual provisions will come into force.

4 human rights implications

4.1 The Law Officers’ Department have stated that in their opinion the Draft Law is human rights compliant.

5 RESOURCE IMPLICATIONS

5.1 There are no financial or manpower implications for the States, the Commission or for the financial services industry in Jersey.

6 RECOMMENDATION

6.1 It is recommended that the Minister

6.1.1 approves the Draft Law and this report;

6.1.2 signs the statement of compatibility with the European Convention on Human Rights; and

6.1.3 directs that the documents be lodged au Greffe for the States to debate the Draft Law at the earliest opportunity.

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