Collective Investment Funds (Unregulated Funds) (Jersey) Order 200-.

Information about the publication of Ministerial Decisions

A formal published “Ministerial Decision” is required as a record of the decision of a Minister (or an Assistant Minister where they have delegated authority) as they exercise their responsibilities and powers.

Ministers are elected by the States Assembly and have legal responsibilities and powers as “corporation sole” under the States of Jersey Law 2005 by virtue of their office and in their areas of responsibility, including entering into agreements, and under any legislation conferring on them powers.

An accurate record of “Ministerial Decisions” is vital to effective governance, including:

demonstrating that good governance, and clear lines of accountability and authority, are in place around decisions-making – including the reasons and basis on which a decision is made, and the action required to implement a decision
providing a record of decisions and actions that will be available for examination by States Members, and Panels and Committees of the States Assembly; the public, organisations, and the media; and as a historical record and point of reference for the conduct of public affairs

Ministers are individually accountable to the States Assembly, including for the actions of the departments and agencies which discharge their responsibilities.

The Freedom of Information Law (Jersey) Law 2011 is used as a guide when determining what information is be published. While there is a presumption toward publication to support of transparency and accountability, detailed information may not be published if, for example, it would constitute a breach of data protection, or disclosure would prejudice commercial interest.

A decision made (18/02/2008) regarding: Collective Investment Funds (Unregulated Funds) (Jersey) Order 200-.

Decision Reference: MD-E-2008-0035
Decision Summary Title :	Collective Investment Funds (Unregulated Funds) (Jersey) Order 200-		Date of Decision Summary:	18 February 2008
Decision Summary Author:	James Mews Finance Industry Development Executive		Decision Summary: Public or Exempt? (State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:
Written Report Title :	Collective Investment Funds (Unregulated Funds) (Jersey) Order 200-		Date of Written Report:	18 February 2008
Written Report Author:	James Mews Finance Industry Development Executive		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: The passing of the Collective Investment Funds (Unregulated Funds) (Jersey) Order 200- Order (“the Order”) exempting certain categories of fund from Collective Investment Funds Law (Jersey) 1998 (“the CIF Law”) and consequential changes set out in the Companies (General Provisions) (Amendment No 2) (Jersey) Order 2008 (“The CGPO Amendment”) and the Control Of Borrowing (Amendment No 12) (Jersey) Order (“The COBO Amendment”) in order for Jersey to offer an unregulated funds product.
Decision(s): The Minister made the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008, the Companies (General Provisions) (Amendment No 2) (Jersey) Order 2008 and the Control Of Borrowing (Amendment No 12) (Jersey) Order 2008.
Reason(s) for Decision: It is very important that the funds industry is able to offer a full product range to investors in order to remain competitive with other jurisdictions. Jersey lacks a very light touch registration regime for those investors who are sophisticated or institutional, and industry have informed the Minister that there is a demand for such a model that provided simplicity, certainty and speed to the promoters. It is important this be introduced as early as possible to maintain Jersey’s international position. Consultation has taken place with industry who support the proposed changes. The Commission recommends the proposed changes set out in the COBO Amendment, the making of the Order and has been consulted concerning the CGPO Amendment.
Resource Implications: No measurable cost or manpower implications arise for the Commission, the States or industry.
Action required: The Minister to approve and sign the Orders (and explanatory notes) and the Finance Industry Development Executive to deliver the signed Orders ‘au Greffe’ immediately upon signature.
Signature: Senator P.F.C.Ozouf		Position: Minister
Date Signed:		Date of Decision (If different from Date Signed):

Collective Investment Funds (Unregulated Funds) (Jersey) Order 200-.

MINISTER FOR ECONOMIC DEVELOPMENT

COLLECTIVE INVESTMENT FUNDS (UNREGULATED FUNDS) (JERSEY) ORDER 200- (“THE ORDER”)

COMPANIES (GENERAL PROVISIONS) (AMENDMENT NO 2)(JERSEY ) ORDER 2008 (“THE CGPO AMENDMENT”)

CONTROL OF BORROWING (AMENDMENT NO 12) (JERSEY) ORDER (“THE COBO AMENDMENT”)

TOGETHER “THE ORDERS”

JERSEY FINANCIAL SERVICES COMMISSION (“THE COMMISSION”)

THE ISSUE AND RECOMMENDATION

Industry through Jersey Finance Limited (“JFL”) requested that a new model of Jersey fund, offering a light touch registration regime and light level of regulation for those investors who were sophisticated or institutional be introduced. Orders have been drafted to achieve these aims.

It is recommended that the Minister for Economic Development approves and signs the Orders so that they may come into force on 19 February 2008.

BACKGROUND

JFL, the Jersey Fund Association and the Commission have been fully engaged in the drafting of the Orders over several months and there has been widespread consultation by JFL with industry. Agreement has been reached for the terms of the proposed regime.

It should be noted that as the Order is made under Article 3(7) of the Collective Investment Funds (Jersey) Law 1988 (“the CIF Law”) and that the power granted to the Minister is to be exercised on the recommendation of the Commission. A letter of recommendation is attached from the Commission.
This letter states that the recommendation of the Commission is subject to the Financial Services (Jersey) Law 1998 (“the FSJL”) being amended within a 6 month period so that all Jersey based functionaries to an unregulated fund will be regulated by the Commission. Consequently while the Order is not limited in scope for a 6 month period, it is an important that the Order be repealed should the FSJL not be amended within this period. However, although this point is made this scenario is unlikely. The Law Draftsman is currently working on the FSJL amendment to be made by Regulations. They are expected to be ready to be lodged shortly.

Letters are attached from the Commission evidencing that the Commission has been consulted over the CGPO Amendment and recommends the COBO Amendment in accordance with the statutory obligations placed on the Minister.

Jersey has had since the late 1990s a successful and growing alternative fund industry but an unregulated fund offering is not offered. JFL reports that from industry research involving London fund promoters (hedge, property and real estate), Jersey lacks a very light touch registration regime for those investors who are sophisticated or institutional and that there is a demand for a model that provides simplicity, certainty and speed to the promoters, one which did not incur an additional regulatory layer which provided little benefit to this type of investor.

JFL believes that the introduction of this regime in 2008 will provide a further catalyst for growth in the alternative funds arena and increase Jersey’s market share from the existing 5% towards the very strong 47% share held by Cayman.

Proposals

In overview, the proposed regime would operate by introducing exemptions to the requirements of the CIF Law under which the Commission regulates collective investment funds. These are firstly, unregulated eligible investor funds comprising only investors who are investing at least $1 million or who have net assets in excess of $10 million or who have special expertise by virtue of their employment, and secondly, unregulated exchange traded funds comprising funds who are listed on a stock exchange or market and who must comply with the rules of that stock exchange or market.

Funds who met these criteria would not be required to comply with the requirements of the CIF Law and would be unregulated by the Commission in Jersey. However, the functionaries of the unregulated funds, if based in Jersey, would be limited to those who are currently licensed to provide fund services business. Once the changes are made to the FSJL, then the functionaries of an unregulated fund would be regulated under the FSJL.

The main points in the Order will be highlighted below. Following the definitions section in Article 1, Article 2 carves out unregulated funds from the application of the CIF law provided that the conditions set out in the schedules are met. Article 2 also provides that if any of the conditions in the schedules are not met, then the fund company has to rectify this within the timetable set out by the Commission or it will no longer be exempted from the CIF Law and will become an unauthorised CIF and subject to the enforcement powers set out in the CIF law.

Schedule 1 – Unregulated Eligible Investor Fund

Schedule 1 sets out the criteria for a fund to be an Unregulated Eligible Investor Fund (“UEIF”). These include (in Paragraph 1) that the structure must be a Jersey company, a Jersey limited partnership or a Jersey unit trust. Both the Unit Trust and the Limited Partnership must have a Jersey incorporated company as part of the structure.

Paragraph 2 requires the Jersey based functionaries to be registered under the FSJL to carry on fund services business of a similar nature. It also ensures that, where the fund has no functionaries in Jersey other than the registered office provider, the registered office provider is a person of certain stature by limiting this role to persons already carrying on certain classes of fund services business.

Subject to certain exceptions, Paragraph 4 limits the persons who may invest in an UEIF to eligible investors as defined in Paragraph 6. The key definitions may be summarised as those investing US$1 million, those whose employment gives them knowledge of the risks involved, and persons with US$10 million in assets excluding their and their spouse’s principal place of residence, as well as liabilities owed by them or their spouse. In order to subscribe to units, eligible investors must sign a declaration that he or she has read and understood the warning set out in Schedule 3, which ensures the investor is aware of the potential risks involved.
Paragraph 7 also permits investment managers to invest on behalf of non-eligible investors providing that the manager declares (in addition to the declaration mentioned in the previous paragraph) that the investment is suitable for the investor concerned and that the investor is able to bear the economic consequences of any loss.

Schedule 2 – Unregulated Exchange-Traded Fund

Schedule 2 sets out the criteria for a fund to be an Unregulated Exchange-Traded Fund (“UETF”). Paragraphs 1 and 2 of the schedule are identical to those of Schedule 1 discussed above, save that the fund must be a closed fund (paragraph 1(2)).
Paragraph 4 requires that the units in a UETF must be listed on one or more of the exchanges listed in Schedule 4 (this list having been agreed between the Commission and industry, and matching the list of recognised stock exchanges and markets in the Listed Fund Guide). Since it is unlikely that an exchange will allow the fund to be listed before it is established, a period of 90 days is allowed to gain a listing. This period may be extended by the Commission.
Paragraph 5 requires that any prospectus relating to a UETF must display a prominent warning of the potential risks involved.

COBO Amendment

The COBO Amendment exempts unregulated funds who take the structure of a Unit Trust and which are not governed under Jersey Law from having to seek the consent of the Commission in order to issue a prospectus.

CGPO Amendment

The CGPO Amendment exempts the unregulated fund set up as a Company issuing units from the requirements to obtain consent for the circulation of prospectuses.

RECOMMENDATION

It is recommended that the Minister for Economic Development approves and signs the Orders so that they may come into force on 19 February 2008.

JAMES MEWS

Finance Industry Development Executive

18 February 2008

http://sojedmdav/livelinkdav/nodes/24340803/WR_Collective Investment Funds (Unregulated Funds) (Jersey) Order 200-.doc