MINISTER FOR ECONOMIC DEVELOPMENT
APPROVAL OF ORDERS RELATING TO FINANCIAL SERVICES (AMENDMENT OF LAW)(No.2)(JERSEY) REGULATIONS 200-
1 THE ISSUE AND RECOMMENDATION
1.1 Amendments to the Financial Services (Jersey) Law 1998 (“the Law”) through the Financial Services (Amendment of Law) (No 2) (Jersey) Regulations 200- (“the Regulations”) were passed by the States on Wednesday 7 November 2007. The Regulations are one of a series of changes in order to transfer the regulation of functionaries of funds from the Collective Investment Funds (Jersey) Law 1988 (the ‘CIF Law’) to the Financial Services (Jersey) Law 1998 (“the Law”). There are a further five Orders to be approved to add necessary consequential changes.
1.2 It is recommended that the Minister for Economic Development approves and signs the attached consequential Orders.
2 BACKGROUND
2.1 The Regulations and Orders have been through the normal consultation process. The proposals were subsequently comprehensively discussed with industry through two consultation papers published in February 2006 and a further Consultation in April 2007 contained the draft legislation. Subsequently, discussions have been continuing between industry and Commission with the result that a negotiated compromise position has been reached which is reflected in the revised Financial Services (Funds Services Business) (Accounts, Audits and Reports) (Jersey) Order 200- (“the Accounts Order”)
3 REGULATIONS
3.1 These changes are part of a larger set of amendments all with the purpose of regulating all financial services businesses operating in Jersey under a single law. This will increase efficiencies in both the finance industry and the Commission in accordance with the latest international standards and good practice.
3.2 The Regulations passed by the States are part of the process of moving the regulation of functionaries of funds from the Collective Investment Funds (Jersey) Law 1988 (“the CIF Law”) to the Financial Services (Jersey) Law 1998 (“the Law”). This change enables the Commission to remove the requirement for functionaries to hold multiple permits under the CIF Law in respect of each fund for which they act. Instead, functionaries will be required to be register just once under the Law to carry on fund services business from within Jersey. In the main, existing persons carrying on Fund Services Business under the CIF Law will be “grandfathered” into the Law.
4 THE SUBSEQUENTIAL PROPOSED ORDERS
4.1 Now that the States have approved the Regulations, it is proposed that consequential changes should be made by Order.
4.2 In summary, these consequential changes will enable most functionaries of unclassified funds to become exempt from the requirement to obtain a permit under the CIF Law as instead they will be regulated under the Law. In addition, Orders will be introduced dealing with the holding of fund assets and the preparation of accounts. Overall there are five Orders proposed under the Law and one under the CIF Law as follows:
4.2.1 Financial Services (Investment Business (Fund Services Business Exemption)) (Jersey) Order 200- (“the Investment Business Order”)
4.2.2 Financial Services (Trust Company Business (Exemptions)) (Amendment No.2) (Jersey) Order 200- (“the Trust Company Business Order”)
4.2.3 The Financial Services (Funds Services Business) (Accounts, Audits and Reports) (Jersey) Order 200- (“the Accounts Order”)
4.2.4 Financial Services (Funds Services Business (Registration and Fees)) (Jersey) Order 200- (“the Fees Order”)
4.2.5 Collective Investment Funds (Permits) (Exemptions) (Amendment No 2) (Jersey) Order 200- (“the CIF Order”)
4.3 The Investment Business Order and the Trust Company Business Order broadly speaking contain consequential changes to moving the regulation of fund functionaries to the Law from the CIF Law relating to conducting investment business and trust company business.
4.4 The Investment Business Order also grants exemptions from registration in Jersey to overseas distributors of certain non-Jersey funds where the distributor is supervised for fund services business in its home jurisdiction and the person acting in the Island does so in accordance with the Fund Services Business Codes of Practice as such distributors are already subject to equivalent standards of regulation to that in Jersey.
4.5 It is proposed to introduce the Accounts Order for Fund Functionaries in order to ensure equivalence to existing orders under the Law for Trust Company Businesses (“TCBs”) and Investment Businesses (”IBs”). This will ensure that as far as possible Fund Services Businesses will be subject to the same standards of regulation as other sectors of financial service business.
4.6 Fund Services Businesses would be subject to new requirements such as the provision of a declaration stating, amongst other things, whether they complied with the legislation and Codes of Practice. There would also be a shorter time frame for submitting the audited annual report and accounts from the current requirement of 10 months to 4 months from the end of the accounting period. The shorter time limit only applies to the functionary registered under the Law and not the fund itself.
4.7 This reduction of time was opposed by industry on the ground that it would not be practicable in the short term to get the auditors to prepare accounts within the timescale and also that it would be impossible for many managed entities to comply at all as they can only submit their accounts once the underlying fund produces its own audited accounts. The Commission responded on the first point by offering a sunset clause delaying the changes for 2 years or 2 accounting periods whichever is longer. On the second point the Commission stated that they have discretion to grant exceptions on a case by case basis and they will apply their discretion sensibly providing that there are sound reasons given for an exception. Both these points have now been accepted by industry as stated in the attached letter from Jersey Finance to the Minister dated 2 November 2007.
4.8 The Fees Order prescribes the classes of funds services business and the fees for all new applicants together with annual fees. There is no change in the level of fees proposed under the new regime.
4.9 The CIF Order extends the requirement in the CIF(J)L for a functionary of a collective investment fund to hold a permit from CIUs to unit trusts and limited partnerships which were not previously covered. It amends the existing Collective Investment Funds (Permits Exemptions) (Jersey) Order 1994 so that, in relation to unclassified funds, both a trustee and a general partner will also require a permit. This will enable the Commission to adopt a coherent approach to regulating funds constituted in different corporate bodies.
5 SUMMARY
5.1 In summary, the changes will:
5.1.1 Enable the Commission to integrate the regulation of funds functionaries under the same law as other classes of business helping to establish a more coherent and efficient regime;
5.1.2 Enable the Commission to move towards a regime where most fund functionaries will only have to register once in order to carry on fund services business speeding up doing business in Jersey, and
5.1.3 Includes various related ancillary and consequential provisions;
5.2 No measurable cost or manpower implications arise for the Commission, or the States .
6 RECOMMENDATION
6.1 It is recommended that the Minister for Economic Development approves and signs the Orders.
JAMES MEWS
Finance Industry Development Executive
12 November 2007