2 Summary of responses
2.1 Structure of this section
2.1.1 This section summarises the substantive comments received on and in relation to the proposals in the CP and the Government and Commission’s joint response to those comments.
2.1.2 Where the specific comments of a “respondent” are summarised, the respondent will have been a registered person (or represented a group of registered persons) unless stated otherwise.
2.2 Question 1 - paragraph 2.1.11 of the CP
Do you agree with the re-branding of the existing VPF a VPPF? If not, please explain why. There is an opportunity to change the name of this private fund product altogether. Some suggestions raised so far include ‘Restricted PPF’, ‘Limited PPF’, ‘Ultra PPF’, ‘Qualified PPF’ and ’15 or Fewer PPF’. We would welcome your suggestions on the most suitable name for this private fund product.
2.2.1 The majority of feedback received did not support the re-branding of the existing VPF, a VPPF.
2.2.2 One fund administrator commented that the introduction of another new regulatory product (the VPPF) is considered to be unnecessary.
2.2.3 One law firm commented that the VPF name “should be retained as it is tried and tested”. Another law firm acknowledged that whilst there could have been better names for a “Very Private Fund” in the first place, it is now a name that has brand recognition in relation to the Jersey funds industry and its preference would be for the VPF name to be retained.
2.2.4 Another law firm commented that the word “placement” might not suit all circumstances as not all VPFs are placed, but rather operate on a club model or, in the context of the AIFMD, may rely on reverse solicitation.
Government and Commission response: 2.2.5 The new single Jersey private fund product; the Jersey Private Fund (JPF), being an amalgamation of the proposed VPPF and the existing PPF makes no reference to ‘very’ or ‘placement’ in its name.2.2.6 Mindful of Industry’s desire to retain the VPF brand in Jersey’s private fund space, Part G. 3 of the JPF Guide provides that where in relation to a JPF there are to be 15 of fewer offers and professional and/or eligible investors, Industry may continue to refer to such arrangement as a ‘very private’ JPF. |
2.3 Question 2 - paragraph 2.1.12 of the CP
Do you have any observations or concerns regarding the proposal to publish the VPPF Guide? If you do, please state in detail what your observation or concern is and explain the reason for it.
2.3.1 The feedback was largely supportive of the Commission publishing the VPPF Guide, commenting that it has been “an unpublished policy for too long”. Another law firm commented that if the Commission wishes to set new requirements and criteria for very private vehicles, they should be published.
2.3.2 One fund administrator proposed that the publication of the VPPF Guide would assist in competing with Cayman where there are similar arrangements in place.
2.3.3 One private bank commented that the objective is to ‘rationalise’ Jersey’s funds regime but the VPPF Guide seems to be simply adding to it by applying PPF-like conditions to the Very Private Fund ‘product’.
2.3.4 Another law firm commented that the draft VPPF Guide marks a material shift in the current understanding of what has previously been considered to not even be funds but “very private arrangements” through the application of a “scratch and sniff” test to determine whether an arrangement has fund qualities or not. The same law firm stated that the flexibility of the very private fund regime must be maintained and care must be taken to ensure that very private arrangements that are not investment funds are not inadvertently caught by the VPPF Guide and questioned where do very private arrangements that are not funds, JPUTs or joint ventures now sit?
Government and Commission response: 2.3.5 Government and the Commission welcomes the support from respondents to publish a new private fund Guide which, for the reasons set out under paragraph 1.2 of this Feedback Paper (some of which are repeated under paragraph 2.3 above) will now be in the form of the Jersey Private Fund (JPF) Guide. 2.3.6 The Government and the Commission considers that publication of a codified set of clear and transparent guidelines for Jersey’s new single private fund product in the form of the JPF Guide will create certainty and consistency for Jersey’s funds industry and will ensure that Jersey’s private fund space/share of the market remains competitive.2.3.7 Part B of the JPF Guide (Scope) expressly provides that “it is not intended that holding companies or joint venture arrangements will fall within the definition of a JPF or be treated by the Commission as a JPF for the purpose of the JPF Guide. Equally, a special purpose/securitisation investment scheme issuing “securities” (as defined in the Collective Investment Funds (Restriction of Scope) (Jersey) Order 2000 (Restriction Order)) and which has either (i) received a relevant consent from Registry and which meets all of the other requirements of Article 2 of the Restriction Order; or (ii) does not require a consent to be issued under COBO in respect of those securities, will not be treated by the Commission as a JPF for the purpose of the JPF Guide.”2.3.8 Part B of the JPF Guide further provides that “provided that the criteria and relevant definitions outlined in Annex B of the JPF Guide are met, arrangements between persons who are connected to each other by way of a “family connection” or incentive arrangements between persons who are connected to each other by way of an “employment connection” will not be treated by the Commission as a JPF for the purpose of the JPF Guide.” 2.3.9 In line with what was proposed under paragraph 2.1.3 of the CP, from the Effective Date, all applications for a relevant consent by a structure/arrangement which is not an investment fund (Non-Fund) will be dealt with by Registry with no reference to the FSB/TCB Funds Authorisation Team. On this basis as referred to under paragraph 1.3.1.3 of this Feedback Paper, two new Registry Forms known as the Jersey UT (Non-Fund) Form and the NDS (Non-Fund) Form will be published for use by Jersey UT (Non-Fund)’s and NDS (Non-Fund)’s requiring a relevant consent to be issued. Like the other Registry Forms, the Jersey UT (Non-Fund) Form and the NDS (Non-Fund) Form must be filed directly with the Registry in order for the relevant consent to be issued. However, unlike the other Registry Forms the Jersey UT (Non-Fund) Form and the NDS (Non-Fund) Form will not require the disclosure of any beneficial owner/controller information (contrary to what was originally proposed under paragraph 2.1.4 of the CP). Instead reliance is placed on the local registered TCB to ensure that all data and information submitted to the Commission in the relevant form is gathered in accordance with the requirements set out in the MLO referring to guidance in the AML/CFT Handbook. The publication of the Jersey UT (Non-Fund) Form and the NDS (Non-Fund) Form by Registry will see an end to applications for a relevant consent being submitted to the FSB/TCB Funds Authorisation Team from Jersey unit trust and non-domiciled structures which are not investment funds. |
2.4 Question 3 - paragraph 2.1.13 of the CP
Do you believe that there are any issues concerning the information or confirmations that must be given under the VPPF Form? If so, please explain why.
2.4.1 Several respondents remarked that as the form had not been circulated in draft form that they could not comment definitely on this question with some of the respondents saying that further consultation on the form should take place.
2.4.2 One law firm commented that the scope and meaning of the DSP’s responsibilities needed to be clarified and suggested that it would be better to set out an express description of the minimum oversight and compliance responsibilities of the DSP in the Guide in a specific section which addresses their role rather than leaving their role to be derived by reference to confirmations they are required to sign up to in the form.
2.4.3 The same law firm said that it had concerns about the form being signed by the DSP and the form including confirmations that the DSP is effectively putting its name to that (a) all investors will be “professional investors” or “eligible investors” and (b) the number of offers for subscription and number of investors shall not exceed 15. This law firm questioned whether the DSP is required to verify to some degree the status of investors and cannot accept at face value the representations made by investors when signing the subscription forms where they will state that they qualify as professional/eligible investors?
2.4.4 Regarding the requirement for the DSP to confirm “all necessary due diligence on all parties to the VPPF prior to its launch date and, on an ongoing basis, to ensure compliance with all necessary due diligence and Jersey AML/CFT requirements applicable to the VPPF, the same law firm asked “what is all necessary due diligence” and “who are all parties to the VPPF? Does this include a promoter entity which does not in fact act as a service provider to the private fund? Does it include investors in the fund?”. The same law firm commented that the requirement seemed to impose an ongoing duty to carry out “all necessary due diligence” as well as AML/CFT compliance only to the DSP and not to any other service provider and questioned whether this meant that there is a requirement for the fund governance body to delegate AML/CFT compliance only to the DSP and not to any other service provider?
2.4.5 Another law firm assumed that the Commission will not require the DSP or the governing body of the fund to (i) obtain Commission consent to changes to any of the information supplied in the application form; or (ii) notify the Commission of any changes to the information supplied in the application form except for notifying changes to the Jersey based service providers (including the DSP) and the DSP making the annual confirmation that the information in the form is still true and accurate but said that it would be better if this was explicitly stated.
2.4.6 Another law firm queried why details of the auditor would need to be provided, saying the naming of the DSP should be sufficient.
Government and Commission response: 2.4.7 The Commission does not ordinarily consult on its regulatory forms. Whilst the JPF Form has not gone out for wider public consultation, the Smaller Working Group and the JFA Committee have reviewed the JPF Form together with the other JPF Documents.2.4.8 Part G of the JPF Guide (Designated Service Provider) expressly states that the duties and responsibilities of the DSP do not replace the duties and responsibilities of the governing body of the relevant JPF for all aspects of the JPF (including marketing and capital raising) and, for the avoidance of doubt, specifically sets out what duties the DSP must assume responsibility for in relation to the relevant JPF.2.4.9 It must be understood that the quid pro quo for the JPF regime’s enhanced flexibility is a requirement for broader DSP due diligence in relation to a JPF than a PPF. Part G. 6. ii. of the JPF Guide expressly provides that the DSP is responsible for “ensuring that all necessary due diligence on the JPF and its promoter is carried out and ensuring that the promoter of the JPF has put in place appropriate measures to ensure that all service providers to the JPF are fit and proper and can fulfil the tasks in a responsible, professional and suitable manner”. 2.4.10 The requirement on the DSP to undertake “all necessary due diligence on the JPF and its promoter” at the outset and on a continuing basis is the cornerstone concept of the JPF regime. The wording is drafted intentionally wide as too prescriptive wording may result in the DSP doing the bare minimum of what is required and thereby causing it to fail in the exercise of an appropriate judgement call in the relevant circumstances. The DSP must carry out its duties with reference to the JPF Guide, Jersey’s AML/CFT legislation and related notices and guidance, the AML/CFT Handbook for regulated financial services business (AML/CFT Handbook) and in particular the Funds and Fund Operators Section of the AML/CFT Handbook. For the avoidance of any doubt, “all necessary due diligence on the JPF and its promoter” will require an appropriate and proportionate level of due diligence to be undertaken by the DSP on the directors and other principal persons and key persons of the JPF and its promoter. The DSP will also need to make all reasonable enquiries to ensure that the JPF will meet the eligibility criteria referred to under Part. D of the JPF Guide, including that the service provider approving and processing the applications to invest in the JPF (which may or may not be the DSP itself) has appropriate policies and procedures in place in order to verify, to a reasonable degree, that all investors will be “professional investors” or “eligible investors” and the number of offers for subscription and number of investors will not exceed 50 (or 15 in the case of a ‘very private’ JPF).2.4.11 There is no requirement to obtain the prior approval of the Commission to a material change to the JPF provided the change is in accordance with the JPF Guide. Part G. 6.vi of the JPF Guide set out the requirements on the DSP, acting on behalf of the relevant JPF to notify the Commission in writing, using the JPF Notice of Change or Event as soon as reasonably practicable, and for the avoidance of doubt within 28 days’, in the event of any:2.4.11.1 material change in relation to the JPF which would impact the accuracy of the information provided to the Commission in the JPF Form (including the termination of the JPF (under any circumstances) or any change to the JPF’s DSP or any other Jersey service provider(s));2.4.11.2 non-compliance with the JPF’s Jersey AML/CFT obligations (noting that the requirement for notice to be given in such circumstances may be a statutory requirement pursuant to other laws and regulations);2.4.11.3 material/unresolved complaint(s) made in relation to the JPF; or2.4.11.4 qualified audit of the JPF’s annual accounts and financial statements (where the JPF has appointed an auditor) except in the circumstances when adopting modified GAAP.2.4.12 Part C of the JPF Guide provides that a “JPF is not required to appoint an auditor but may do so”. Where the JPF does appoint a Jersey auditor, the name of the auditor is required to be disclosed under paragraph 3.2 of the JPF Form (along with the name of any other Jersey service provider to the JPF (other than the DSP). |
2.5 Question 4 - paragraph 2.1.14 of the CP
Do you agree that the VPPF Guide should apply to existing VPFs that require an amendment or variation to its relevant consent? If not, please explain in full why.
2.5.1 Over half of the respondents did not agree to the proposal principally due to the additional costs of forcing the transition from VPF to VPPF with limited perceived benefit to existing VPF investors.
2.5.2 One law firm suggested that it might not be in the fund’s best interest to be authorised under the VPPF Guide as the VPPF may not have been structured in such a way as to meet the VPPF criteria. Likewise, another respondent commented that it would be inappropriate to force a VPPF to have to make structural changes in order to comply with the conditions of the VPPF Guide – for example appoint a Jersey licensed entity under FSJL to act as the DSP.
2.5.3 One law firm said that it had concerns with the potential practicality of this requirement, for example, would existing VPF investors be required to sign the VPPF investment warning and urged for clarity to be given as soon as possible to confirm the VPPF Guide will not apply to existing VPFs unless particular circumstances arise, or the promoter “opts in” to the VPPF regime and makes an application for the same.
2.5.4 Another law firm commented that to date, there are many holding vehicles or joint venture vehicles which are not investment funds but which have been issued with the standard “15 or Fewer” relevant consent and questioned where such a vehicle does have a “15 or Fewer” restriction in its relevant consent, should future requests for variation go to the FSB/TCB Funds Authorisation Team in the first instance or should the legal advisers reassess at the point of requesting a variation whether the vehicle is a fund, and if it isn’t approach Registry for a revised relevant consent?
Government and Commission response: 2.5.5 On the basis of the above, the JPF Guide will not, by default, apply to any existing VPF that applies to the Commission for an amendment or variation.2.5.6 Part J of the JPF Guide (Transitional provisions and conversion) specifically provides that “existing VPFs, PPFs and COBO Only Funds may continue in operation until the end of their life or, alternatively they (through their DSP) may apply to the Commission to convert into a JPF by completing and submitting a JPF Form with the corresponding application fee in the amount prescribed in the COBO Fees Notice. Should an existing VPF, PPF or COBO Only Fund wish to convert into a JPF and be subject to the requirements of the JPF Guide, it must meet all of the eligibility criteria for a JPF set out under Part D. of the JPF Guide.” 2.5.7 With reference to the updated Indicative Application Timescales (attached as Appendix H to this Feedback Paper), any request from an existing VPF to amend its relevant consent will be dealt with by the FSB/TCB Funds Authorisation Team as a ‘Maintenance Task’ which may take up to 10 working days’ unless the VPF applies to the Commission to convert into a JPF by completing and submitting a JPF Form with the corresponding application fee in the amount prescribed in the COBO Fees Notice. 2.5.8 Where, for example, a holding vehicle or joint venture vehicle has been issued with a standard “15 or Fewer” relevant consent but is at the point of requesting a variation to its relevant consent not considered to be a private fund (capable of meeting the eligibility criteria for a JPF set out under Part D of the JPF Guide), the application to amend the relevant consent should be addressed to Registry (by use of the appropriate Registry Form (which may include the new Jersey UT2 or NDS2 (Non-Fund) Change of Particulars Forms). |
2.6 Question 5 - paragraph 2.2.5 of the CP
Does the VPPF Guide make it sufficiently clear that a VPPF must meet the meaning of a ‘collective investment fund’ as set in Article 3 of the CIFJL including that an offer to invest in a VPPF must be addressed exclusively to a restricted circle of persons which must be 15 or fewer investors? If you do not think it does, please state why.
2.6.1 The majority of respondents were not in favour of shackling the definition of a private fund to the statutory definition of a CIF under Article 3 of the CIFJL saying that it was unhelpful and confusing.
2.6.2 One law firm said that it would be better to just set out a simple statement that a private fund is a “collective investment arrangement involving the pooling of capital raised for the fund and which operates on the principle of risk spreading.”
2.6.3 One of the law firm respondents commented that it would be helpful to list the various arrangements that would be considered to be out of scope of the VPPF Guide in order to give certainty and that these out of scope arrangements should include not only family connections and employee connections, but JPUTs and joint ventures also.
2.6.4 A small proportion of the respondents felt that the risk spreading requirement was problematic for a VPPF on the basis that it could potentially close the VPPF off to single asset “club” deals. There was also concern that the term “risk spreading” is vague and undefined.
Government and Commission response: 2.6.5 On the basis of the above feedback, Part A of the JPF Guide (Basic definition) provides that “A JPF is a private investment fund involving the pooling of capital raised for the fund and which operates on the principle of risk spreading.” 2.6.6 Part A of the JPF Guide now specifically provides that “A JPF shall not be a collective investment fund (CIF) within the meaning of the Collective Investment Funds (Jersey) Law 1988, as amended (CIFJL)”. On this basis, any offer for subscription, sale or exchange of units of a JPF must be addressed exclusively to a “restricted circle of persons” (within the meaning of Article 3 of the CIFJL) so as to ensure that the offer does not in any way constitute an “offer to the public” within the meaning of Article 3 of the CIFJL.2.6.7 Given the basic definition of a JPF and the eligibility criteria for a JPF, the Commission would not expect a CIF which has been issued with a CIF certificate to apply to the Commission to convert into a JPF (see Part J of the JPF Guide (Transitional provisions and conversion)). 2.6.8 In terms of what is meant by “risk spreading”, the proposal to issue a guidance note on what is and what is not risk spreading was considered by the Smaller Working Group and, after significant deliberation, considered by it to be impractical. |
2.7 Question 6 - paragraph 2.3.7 of the CP
Do you foresee any issues in allowing a VPPF to take any of the forms described in Part D of the VPPF Guide (i.e. a company, partnership or unit trust incorporated or established either in Jersey or in a country or territory outside of Jersey)? If so, please explain what they are.
2.7.1 The feedback from the respondents on this question was largely supportive of the forms described in the VPPF Guide.
2.7.2 One law firm commented that the VPPF Guide omitted to refer to general partnerships as an approved form of a VPPF.
2.7.3 Another law firm commented that the PIRS Orders would need updating so that LLPs could rely on such an exemption going forward.
2.7.4 A private bank queried what enforcement options are available to the Commission over non-domiciled VPPFs and noted that a non-domiciled VPPF coupled with a non-Jersey board potentially increases the risk for the DSP who may well turn away business opportunities because of that perceived enhanced risk.
Government and Commission response: 2.7.5 Government and the Commission have considered the feedback received. We do not agree that a general partnership should be included as one of the forms by which a private fund may be structured on the basis that general partnerships do not receive a relevant consent under COBO. On this basis the Part C of the JPF Guide (Structure) does not include general partnerships as a permissible form under which to structure a JPF.2.7.6 In relation to the feedback given in relation to extending the PIRS Orders to LLPs, whilst this response does not specifically answer the specific question raised, from a policy perspective, we see no reason why LLPs cannot be listed in the PIRS Orders and we shall look to make this amendment in Phase II of the Funds Review Project. 2.7.7 Part A of the JPF Guide (Basic definition) provides that “A JPF may be established in Jersey or in a country or territory outside of Jersey which requires a relevant consent to be issued.” It has been accepted practice in our private fund space to permit non-Jersey domiciled structures and in order to remain competitive in the market the Government and the Commission understand that it is important to remain as flexible as possible on this point. It would not be in the Island’s best interests, going forwards, to prevent a JPF from being established outside of Jersey. In terms of the perceived enhanced risk with a non-domiciled structure, Government and the Commission would expect any enhanced risk(s) to be managed appropriately by the relevant DSP and any other Jersey service provider(s). |
2.8 Question 7 - paragraph 2.3.8 of the CP
Do you foresee any issues with not requiring a Jersey general partner, managing partner or trustee to be appointed to a VPPF which is established as one or more limited partnerships, a limited liability partnership or as a unit trust? If so, please explain your concerns in full.
2.8.1 The feedback was largely supportive of the proposed position not to make it a requirement of the VPPF Guide that a Jersey general partner, managing partner or trustee be appointed to a VPPF which is established as one or more limited partnerships, a limited liability partnership or as a unit trust. Respondents thought that the proposed position ensured that VPPFs remain flexible in their structuring and in line with competitor products.
2.8.2 One law firm remarked that where a VPPF is a non-Jersey partnership or unit trust with a non-Jersey general partner, managing partner or trustee, there are no offers being made in Jersey and the only link to Jersey is a Jersey based DSP who is providing certain services (such as keeping a register or managing bank accounts), the VPPF Guide may end up catching vehicles which have almost no nexus with Jersey and questioned whether this was too broad in scope?
Government and Commission response: 2.8.3 In order to ensure the “optimal flexibility” of the JPF regime and owing to the hardwired requirement for a Jersey DSP, Government and the Commission do not propose to alter the proposed policy although of course there is nothing to prevent a Jersey general partner, managing partner or trustee from being appointed to the relevant JPF.2.8.4 On this basis, Part C. of the JPF Guide (Structure) provides that it will not be necessary for a JPF to appoint a Jersey general partner, managing partner or trustee which is established as one or more limited partnerships, a limited liability partnership or as a unit trust. |
2.9 Question 8 - paragraph 2.3.9 of the CP
Do you foresee any issues with not requiring a VPPF to appoint one or more Jersey resident directors to its governing body? If so, please explain your concerns in full.
2.9.1 A large proportion of the respondents did not express any concerns about not requiring Jersey resident directors to be appointed to the fund’s governing body.
2.9.2 One respondent did however argue that the requirement to appoint Jersey resident directors to a VPPF ensured an appropriate level of regulatory oversight locally and a lack of Jersey resident directors appointed to a VPPF may result in it being more difficult to substantiate Jersey tax residence.
2.9.3 This same respondent also argued that the requirement to have at least one Jersey resident director would encourage further development and professionalization of the Jersey NED community.
Government and Commission response: 2.9.4 For the reasons set out above, the Government and the Commission are in agreement that it would be beneficial to have Jersey resident directors but in order to retain the full flexibility of the JPF product do not wish to mandate this requirement in the JPF Guide recognising that the appointment of the board of directors to the governing body of the JPF (which may not be a Jersey entity itself) is ultimately a commercial decision for the promoter of the JPF. 2.9.5 On this basis, Part C of the JPF Guide (Structure) provides that “Whilst there is no explicit requirement for the mind and management of a JPF (including a non-Jersey domiciled JPF) to be in Jersey, the Commission would ordinarily expect, in the majority of cases, for one or more Jersey resident directors to be appointed to the board of a JPF’s governing body.” There are a number of possible reasons for a JPF to choose to appoint Jersey resident directors on its board, such as real presence and substance requirements, AIFMD, DSP requirements or preferences, tax reasons (OECD, BEPS, establishing a Jersey nexus), future EU Directives such as MiFID and general good governance practices. |
2.10 Question 9 - paragraph 2.3.10 of the CP
Considering the VPPF criteria, as summarised in Part E of the VPPF Guide, do you believe it to be reasonable for a VPPF to have to meet this criteria? If not, please explain why.
2.10.1 One law firm commented that without clarity, there will be confusion as to whether or not certain vehicles that were historically treated as “very private arrangements” will now be caught by the VPPF Guide (e.g. joint ventures).
2.10.2 A small group of respondents had strong concerns about the footnote in the VPPF Guide which suggested that 12 months after the VPPF Guide, the Commission shall review the need to appoint an auditor to the VPPF not least due to the cost implications with one respondent saying that it would put us at a disadvantage with other jurisdictions and simply the potential for this to happen may dissuade promoters from using the product.
2.10.3 Another administrator thought that Part E. 2 of the draft VPPF Guide which provided that “No retail investors are permitted to invest in a VPPF except in the circumstances where paragraphs 3. or 5. of Annexure A of this Guide apply” contradicted Part G.7 which provided that “In accordance with paragraph 5 of Annexure A of this Guide, a professional investor may acquire an interest in a VPPF directly for an on behalf of one or more retail investors ….”.
2.10.4 One law firm thought that it would make the Jersey VPPF more competitive and flexible if there was a limit on the number of investors only as opposed to a limit on the number of offers and investors.
2.10.5 Approximately half the responses thought that it would enhance business if the number of offers and investors in a VPPF increased from 15 to, say, 20 or 30 or even 50.
2.10.6 One law firm commented that the term “offer” may be widely interpreted and extend to red herring documents and that the footnote in the VPPF Guide suggesting that AIFMD would be the only reason why a VPPF may have a private placement memorandum or offering document should be amended.
2.10.7 Another law firm suggested that VPPFs are not currently subject to the Sound Business Practice Policy so this is an increased obligation for these types of structures.
Government and Commission response: 2.10.8 Part B of the JPF Guide (Scope) expressly provides that “It is not intended that holding companies or joint venture arrangements will fall within the definition of a JPF or be treated by the Commission as a JPF for the purpose of the JPF Guide.”2.10.9 There is now no reference in the JPF Guide to the Commission reviewing or consulting at some point in the future on introducing a requirement for a JPF to appoint an auditor. We note that this is not current policy for existing VPFs and may be too heavy a burden for some JPFs. However we would also note that, as we understand it, there are in fact many VPFs that exist now that do have their accounts audited each year due to the professional nature of the investors investing in those funds and it is necessary for the Commission to retain the power to re-visit this point at some point in the future should circumstances dictate. 2.10.10 Part D. of the JPF Guide (Eligibility criteria) sets out the criteria for a JPF and paragraph D.4 provides that “No retail investors are permitted to invest (directly or indirectly) in a JPF (except in the circumstances where paragraphs 3. or 5. of Annex A of the JPF Guide apply) which clarifies when retail investors may invest in a JPF. To be clear, as a general rule, retail investors are not permitted to invest directly in a JPF. However, there are certain situations which are set out in paragraph 3 of the Professional Investor Definition found at Annex A of the JPF Guide where it would be permissible for a non-professional investor to hold an interest in a JPF. It is anticipated that these are not circumstances where such an investor is making an “investment” choice, but rather in a service provider capacity or to facilitate an involuntary transfer. 2.10.11 The Government and the Commission’s response to Industry feedback to the CP has resulted in the imposition of a ‘50 or Fewer Test’ for the JPF product as opposed to a ‘15 or Fewer Test’. On that basis, Part A of the JPF Guide (Basic definition) provides that “the number of offers of units for subscription, sale or exchange shall not exceed 50 and the number of investors shall not exceed 50.” Unlike the number of investors, which is a regulatory requirement, the number of offers is a legal requirement pursuant to the CIFJL and COBO). There was no intention to amend Article 3 of CIFJL in Phase I of the Funds Review Project; rather, the intention was to codify and simplify existing practice for Jersey’s VPF regime. For this reason, the limit on the number of offers made will not be uncoupled from the regulatory requirement for there to be a limit on the number of investors in this Phase I. Phase II of the Funds Review Project may afford an opportunity to re-visit this issue.2.10.12 Paragraph iv. of Part D of the JPF Guide (Eligibility criteria) provides that “A JPF is not required to have a private placement memorandum or an offer document, but may do so, provided that such document contains all of the material information which investors and their professional advisers (if any) would reasonably require, and would reasonably expect to find and to have brought fairly to their attention for the purpose of making an informed judgement about: 2.10.12.1 the merits of purchasing units in the JPF; and 2.10.12.2 the nature and levels of the risks accepted by making such a purchase.”2.10.13 The Commission’s Sound Business Policy applies in all circumstance where a relevant consent is sought and, for the avoidance of any doubt, applies to all existing VPFs. The Commission is committed to clarifying the position for Industry through the issue of FAQs etc. in due course. |
2.11 Question 10 - paragraph 2.4.2 of the CP
Do you agree that investors looking to invest in a VPPF should receive and acknowledge an investment warning before they can invest? If not, please explain the rationale behind your answer.
2.11.1 The respondents were largely in support of the requirement for an investment warning with one law firm commenting that the vast majority of existing VPFs are PIRS and investors already acknowledge an investor warning so it saw no issue with asking investors to receive and acknowledge an investor warning before they invest in this product.
2.11.2 One law firm queried whether each investor in a feeder fund needed to acknowledge receipt of the investment warning.
2.11.3 Another law firm thought that the investment warning in the VPPF Guide and the PIRS Orders should be one and the same or at least able to easily co-exist in one document.
Government and Commission response: 2.11.4 Based on the feedback received, investors looking to invest in a JPF will be required to receive and acknowledge the investment warning and the newly inserted disclosure statement (which includes a responsibility statement from the governing body of the JPF) as set out under Part E. of the JPF Guide (Investment warning and disclosure statement) before they can invest.2.11.5 It will not be necessary for each underlying investor in a feeder fund to also receive and acknowledge an investment warning in order to invest in a JPF on the basis that the language in the investment warning itself ensures that the feeder fund is satisfied that the investment is suitable for the relevant underlying investors.2.11.6 It is expected that the investment warning and the disclosure statement will be included in the same place as per the PIRS Orders disclosure (which Industry has to date found a home for where there is no offer document). This could be contained within an offer document or memorandum (if any), a deed of adherence or subscription agreement. The investment warning and disclosure language need not be replicated exactly (so long as it appears in substantially the same terms). 2.11.7 The Government and the Commission agree that it would be useful for the JPF Guide and the PIRS Orders to be synchronised in terms of the investment warning. In Phase II of the Funds Review Project, Government and the Commission will look to amend the PIRS Orders so that the investment warning in the PIRS Orders is consistent with the investment warning in the JPF Guide. |
2.12 Question 11 - paragraph 2.4.3 of the CP
Do you consider the investment warning itself to be appropriate and reasonable? If not, please explain why.
2.12.1 Respondents to the consultation paper overwhelmingly supported the investment warning itself.
2.12.2 One law firm commented on how the investment warning is in a form similar to the Expert Fund Guide but didn’t include the statement “Requirements which may be deemed necessary for the protection of retail investors or non-professional/eligible investors, do not apply to the fund” and commented further on the investment warning appearing quite lengthy and having the look and feel of a more regulated product.
2.12.3 One fund administrator queried whether the investment warning would be signed by a professional investor on behalf of retail investors and commented on the assumption that those retail investors would presumably have recourse against the professional investor signing the investment warning rather than the VPPF itself.
Government and Commission response: 2.12.4 The prescribed investment warning set out under Part E of the JPF Guide (Investment warning and disclosure statement) is closely modelled on the warning in the existing PPF Guide and includes the following statement: “Requirements which may be deemed necessary for the protection of retail or non-professional/eligible investors, do not apply to the [Fund].”2.12.5 The JPF investment warning is, in the view of both Government and the Commission, entirely reasonable for the JPF product which is a more regulated product than the existing VPF. It is common practice for professional investors to be required to sign such warnings. 2.12.6 Professional investors will be required to sign the warning where they invest, directly or indirectly, for or on behalf of a retail investor and by doing so the Commission expects (as is explicitly stated in the warning) that professional investor to be satisfied that the investment is suitable for the underlying retail investors. The professional investor will be required to acknowledge in writing that it has received the investment warning and therefore is aware of the Commission’s expectations with respect to investing on behalf of underlying investors. As to any recourse those underlying investors may have to the relevant professional investor, this is not within the scope of this Feedback Paper. |
2.13 Question 12 - paragraph 2.5.5 of the CP
Do you agree with the proposed rules and exceptions around the 15 or Fewer Test which are set out under Part G of the VPPF Guide? If not, please explain your reasons why.
2.13.1 The majority of respondents felt that setting out rules concerning how to calculate 15 or fewer offers and investors was helpful.
2.13.2 However a number of respondents suggested that the number 15 should be increased with one fund administrator saying that it believed the current threshold of 15 could potentially leave Jersey at a distinct competitive disadvantage in terms of our competitors.
2.13.3 One law firm expressed concerns that the product would not necessarily be suitable for open-ended hedge funds where investors may redeem and potential new investors admitted.
2.13.4 One respondent commented that paragraphs 1 to 3 should be made clear that the number of investors in the relevant fund at any one time must not exceed 15, that paragraph 5 should include additional wording to make clear that the carried interest vehicle could also be established for the sole purpose of sharing in the profits of any other vehicle promoted or advised by the promoter of the VPF, and finally, paragraph 6 should also include GPs of ILPs and SLPs and managing partners of LLPs.
2.13.5 The same respondent also thought that there needed to be clarification that where there is a Feeder Fund through which professional or eligible investors invest, each of the professional or eligible investors in the Feeder Fund will be counted for the purposes of the ‘15 or Fewer Test’ but that the Feeder Fund itself does not need to be counted as an investor in these circumstances.
2.13.6 Another law firm commented that paragraph 6 of the ‘15 or Fewer Test’ should be clarified as to whether a GP would still not be considered as an “investor” if the GP commits capital to the partnership for the purposes of carried interest and/or co-investment.
Government and Commission response: 2.13.7 The Government and the Commission’s response to Industry feedback to the CP has resulted in the imposition of a 50 or Fewer Test for the JPF product as opposed to a 15 or Fewer Test. On that basis, Part A of the JPF Guide (Basic definition) provides that “the number of offers of units for subscription, sale or exchange shall not exceed 50 and the number of investors shall not exceed 50.” 2.13.8 Any offer for subscription, sale or exchange of units of a JPF must be addressed exclusively to a “restricted circle of persons” so as to ensure that the offer does not in any way constitute an “offer to the public” within the meaning of Article 3 of the CIFJL. On this basis, whilst a JPF may be open-ended owing to the requirement for a “restricted circle of persons” it is unlikely that the JPF product would be a suitable product for an open-ended hedge fund structure. 2.13.9 Paragraphs 1 and 3 of Part F of the JPF Guide provide that the number of investors in the relevant JPF at any one time must not exceed 50.2.13.10 Part F of the JPF Guide (Test for number of offers/investors) provides under paragraph 5 that “A carried interest vehicle which is established for the sole purpose of sharing in the profits of a JPF or any other vehicle promoted or advised by the promoter of the JPF shall not be counted as an investor. This is on the basis that generally, the principal purpose of a carry vehicle is to incentivise the relevant fund’s management and/or advisory team. Each participant of the carried interest vehicle must be a “professional” or an “eligible” investor as such terms are defined in the JPF Guide”.2.13.11 Part F. 6 of the JPF Guide provides that “A general partner of JPF which is established as a form of limited partnership shall not be counted as an investor but shall be counted as an investor where that general partner commits capital to the limited partnership for the purposes of co-investment in that limited partnership. The same position shall apply to general partners of separate limited partnerships, general partners of incorporated limited partnerships and managing partners of limited liability partnerships”. The general partner committing capital to the JPF for the purpose of carried interest would not cause the general partner to be counted as an investor.2.13.12 Part F. 9 of the JPF Guide provides that “Where there is a Feeder Fund which is not the type described in the above paragraph 8., through which professional or eligible investors invest, each professional or eligible investor in that Feeder Fund shall be counted for the purposes of the ‘50 or Fewer Test’ however the Feeder Fund itself shall not.” |
2.14 Question 13 - paragraph 2.5.6 of the CP
Do you believe that any other rules or exceptions around the 15 or Fewer Test should be included under Part G of the VPPF Guide? If so, please state the additional rule(s) or exception(s) clearly and give a full explanation as to why you think it should be included in the VPPF Guide.
2.14.1 The majority of the respondents cross referenced the comments they made in Question 12, but overall did not have any further comments on this question.
2.14.2 One law firm thought that the concept of having a “certified sophisticated investor” category would be helpful on the basis that a similar concept exists in the UK whereby a qualified IFA certifies that they have considered the fund to be appropriate for a particular client.
Government and Commission response: 2.14.3 Part F of the JPF Guide (Test for number of offers/investors) has been drafted taking into account the feedback to the CP.2.14.4 In relation to the comment made concerning “certified sophisticated investors”, such investors are able to gain access to JPFs via discretionary investment managers. |
2.15 Question 14 - paragraph 2.5.7 of the CP
Do you agree that retail investors should be able to invest indirectly in a VPPF? If not, please explain your reasons why.
2.15.1 A large majority of respondents felt that this approach was reasonable.
2.15.2 One respondent thought that by allowing retail investors to indirectly invest, it changes the look and feel of the product and that this places an additional level of risk for each DSP to consider.
2.15.3 Another respondent felt that although the professional investor through which the retail investor invests may be well regulated, this would not of itself prevent potential mis-selling and could result in reputational damage to Jersey.
Government and Commission response: 2.15.4 The DSP is required to make all reasonable enquiry to ensure that the JPF meets all of the eligibility criteria referred to in Part D. of the JPF Guide. Government and the Commission would expect this to include ensuring that the service provider approving and processing the applications to invest in the JPF (which may or may not be the DSP itself) has appropriate policies and procedures in place in order to verify, to a reasonable degree, the status of the investors in the JPF and to satisfy itself that all investors will be “professional investors” or “eligible investors” (by reference, at all times to Part D of the JPF Guide (Eligibility criteria)). 2.15.5 To ensure the flexibility and competitiveness of the JPF product it was necessary to provide for the opportunity for retail investors to be invested in a JPF in the limited circumstances referred to under paragraphs 3 and 5 of Annex A of the JPF Guide (the “Professional Investor Definition”). Indeed, investment via a discretionary investment manager is not an uncommon occurrence and it was important to recognise this situation in the JPF Guide as well as the expectations on the discretionary manager in such a scenario.2.15.6 Paragraph 3 of Annex A of the JPF Guide anticipates the situation where shares, interests and units in a JPF are created or issued for the purposes of the formation and structuring of the JPF or voting, management rights and entitlement to performance related fees or dividends as part of the management or advisory function of the JPF. In those situations, it is acknowledged that the person acquiring the shares, interests or units in the JPF may not be a professional investor or eligible investor. Paragraph 3 of Annex A of the JPF Guide also provides that the acquisition/transfer of any interest in a JPF “where the transfer has been involuntarily, such as on the death or bankruptcy of a registered holder...shall be permissible notwithstanding that the person acquiring the same is not a professional/eligible investor” provided that “once the administration is complete” the person who has acquired the interest satisfies the professional/eligible investor test under the JPF Guide. 2.15.7 Paragraph 5 of Annex A of the JPF Guide provides that “Any discretionary investment manager acquiring an interest in a JPF, directly or indirectly, for or on behalf of one or more persons who are not professional investors must be satisfied that such investment is suitable for the underlying investor, and that the underlying investors are able to bear the economic consequences of investment in the relevant JPF, including the possibility of the loss of their entire investment.” In such limited circumstances the entity making the decision to invest is the discretionary investment manager so in this sense, it is the investor. 2.15.8 Any instances of retail investors being exposed to a JPF outside of the specific circumstances provided for under paragraphs 3 and 5 of Annex A of the JPF Guide will be dealt with very seriously by the Commission and may result in regulatory action being taken by the Commission against the governing body of the JPF and its DSP. |
2.16 Question 15 - paragraph 2.6.4 of the CP
Do you foresee any issues in requiring a VPPF to appoint a DSP? If so, please explain your concerns.
2.16.1 The general feedback from respondents was that the appointment of a DSP of itself was not a concern, however there were concerns about the precise role and responsibility of the DSP with one law firm saying that it should be made clear in the VPPF Guide that compliance with Guide is the responsibility of the VPPF itself and not the DSP.
2.16.2 Some respondents felt that the requirement for a DSP will lead to additional work owing to the increased regulatory responsibility on the DSP which, in turn, will increase costs to the clients and/or the DSP.
2.16.3 One respondent thought that the requirement on a VPPF to appoint a DSP was a major change to the existing VPF regime.
2.16.4 One law firm commented that it thought that it was important that entities with TCB licences only (i.e. no FSB licence) can act as the DSP to a VPPF even where the VPPF has multiple investors (i.e. more than two) and said that if this was not the case, it would be a significant change of regulation if only entities with FSB licences could act as DSP to VPPFs. In contrast, some respondents said that only those persons licensed to carry on fund services business should be permitted to act as DSP.
2.16.5 One law firm commented that the activities of a DSP in relation to a VPPF would arguably not constitute regulated business and queried the extent to which the Commission will monitor the activities of the DSP in relation to a VPPF?
Government and Commission response: 2.16.6 Part G of the JPF Guide (Designated Service Provider) specifically sets out what duties the DSP must assume responsibility for in relation to the relevant JPF and expressly states that the duties and responsibilities of the DSP do not replace the duties and responsibilities of the governing body of the relevant JPF for all aspects of the JPF.2.16.7 It must be understood that the quid pro quo for the JPF regime’s enhanced flexibility is the requirement for a DSP. Requiring a DSP also facilitates the 48 hour fast-track JPF authorisation process.2.16.8 Paragraphs 2 and 3 of Part G of the JPF Guide provide that “The DSP must be registered by the Commission under the Financial Services (Jersey) Law 1998 (FSJL) to carry on one or more of class V (Administrator), class U (Manager), class X (Investment Manager) or class ZG (Trustee) of Fund Services Business (FSB). Where however, in relation to a JPF there are to be 15 or fewer offers and professional and/or eligible investors (a ‘very private’ JPF), the duly appointed DSP does not have to be an FSB registered under the FSJL for class V, U, X or ZG and may instead be registered by the Commission to carry on any class of FSB, Trust Company Business (TCB) and/or Investment Business within the meaning of the FSJL.” In order to ensure the flexibility and the competitiveness of the new JPF product, it was important to continue to allow TCBs and IBs to provide services to ‘very private’ JPFs.2.16.9 Paragraph 7 of Part G of the JPF Guide provides that “The DSP is required to comply with all relevant provisions of the MLO and FSJL and, the Commission may consider and take account of such conduct when assessing the “fit and proper” status of the DSP for the purposes of its FSJL licence”.2.16.10 In addition to the requirement on the DSP to file the JPF Notice of Change or Event and the JPF Return the Commission will supervise and monitor DSPs activities going forwards by, for example, conducting themed visits on DSPs. |
2.17 Question 16 - paragraph 2.6.5 of the CP
Do you foresee any issues in requiring a DSP to sign the VPPF Form? If so, please explain what these issues are.
2.17.1 Concern was expressed by a number of respondents regarding the confirmations to be provided by the DSP in the VPPF Form, particularly the due diligence requirement imposed on the DSP given that the DSP will have no control/ownership of the product. In contrast, one law firm responded by saying that on the basis the DSP will need to do due diligence before they complete the VPPF Form, in much the same way as the PPF, it could not foresee any issues.
2.17.2 Several of the respondents requested consultation in relation to the VPPF Form itself.
2.17.3 Another law firm remarked that any of the lawyers, fund or the DSP ought to be able to sign the VPPF Form.
Government and Commission response: 2.17.4 Part G of the JPF Guide (Designated Service Provider) expressly states that the duties and responsibilities of the DSP do not replace the duties and responsibilities of the governing body of the relevant JPF for all aspects of the JPF (including marketing and capital raising) and, for the avoidance of doubt, specifically sets out what duties the DSP must assume responsibility for in relation to the relevant JPF.2.17.5 Part G. 6. ii. of the JPF Guide expressly provides that the DSP is responsible for “ensuring that all necessary due diligence on the JPF and its promoter is carried out and ensuring that the promoter of the JPF has put in place appropriate measures to ensure that all service providers to the JPF are fit and proper and can fulfil the tasks in a responsible, professional and suitable manner”. 2.17.6 The requirement on the DSP to undertake “all necessary due diligence on the JPF and its promoter” at the outset and on a continuing basis is the cornerstone concept of the JPF regime. The wording is drafted intentionally widely as too prescriptive wording may result in the DSP doing the bare minimum of what is required and thereby causing it to fail in the exercise of an appropriate judgement call in the relevant circumstances. The DSP must carry out its duties with reference to the JPF Guide, Jersey’s AML/CFT legislation and related notices and guidance, the AML/CFT Handbook for regulated financial services business (AML/CFT Handbook) and in particular the Funds and Fund Operators Section of the AML/CFT Handbook. For the avoidance of any doubt, “all necessary due diligence on the JPF and its promoter” will require an appropriate and proportionate level of due diligence to be undertaken by the DSP on the directors and other principal persons and key persons of the JPF and its promoter. The DSP will also need to make all reasonable enquiries to ensure that the JPF will meet the eligibility criteria referred to under Part. D of the JPF Guide, including that the service provider approving and processing the applications to invest in the JPF (which may or may not be the DSP itself) has appropriate policies and procedures in place in order to verify, to a reasonable degree, that all investors will be “professional investors” or “eligible investors” and the number of offers for subscription and number of investors will not exceed 50 (or 15 in the case of a ‘very private’ JPF).2.17.7 The Commission does not ordinarily consult on its regulatory forms. Whilst the JPF Form has not gone out for wider public consultation, the Working Group and the JFA Committee have reviewed the JPF Form together with the other JPF Documents. All of the forms are available, in draft, as hyperlinks in the appendices to the Feedback Paper and will be published in final form a week in advance of the Effective Date.2.17.8 The JPF Form expressly states that it should be “completed and submitted by the relevant DSP (or on behalf of the relevant DSP, signed by the relevant DSP) by email in readable pdf format to: fundauth@jerseyfsc.org”. |
2.18 Question 17 - paragraph 2.6.6 of the CP
Do you foresee any issues in requiring a DSP to file an annual confirmation or notify the Commission of the matters listed in paragraph 3 of Part H of the VPPF Guide? If so, please explain your concerns.
2.18.1 One fund administrator commented that a PPF is not required to submit an annual declaration and it is not clear why this is being introduced in relation to VPPFs adding that the declaration should come from the VPF itself and be filed by the DSP.
2.18.2 Another fund administrator commented that annual confirmation of no changes seems reasonable but it would be helpful if this can be timed around the submission of the FSB returns. Other fund administrators were in agreement that the annual confirmation should be filed concurrent with the annual FSB declarations and not the annual anniversary of the VPPF as to do so would create an unwelcome burden for administrators.
2.18.3 One law firm asked “what will the Commission do if it receives a notification and asked at what point is the relevant consent required to be re-issued due to a material change in the original information?”
2.18.4 Another fund administrator observed that of the matters listed, there seems to be an over reliance on the DSP to report to the Commission, in particular on AML/CFT which is typically the responsibility of the governing body of the fund.
2.18.5 One law firm suggested that Part I of the VPPF Guide (AML/CFT) be amended to provide that “The DSP and, to the extent applicable, the managing entity of the VPPF, are required to comply with all relevant provisions of the Money Laundering (Jersey) Order 2008 with respect to the VPPF and for the avoidance of doubt, a VPPF is a specified Schedule 2 business for the purposes of the Money Laundering (Jersey) Order 2008.”
Government and Commission response: 2.18.6 Part G. 6.vi of the JPF Guide (Designated Service Provider) sets out the requirements on the DSP, acting on behalf of the relevant JPF to notify the Commission in writing, using the JPF Notice of Change or Event as soon as reasonably practicable, and for the avoidance of doubt within 28 days’, in the event of any:2.18.6.1 material change in relation to the JPF which would impact the accuracy of the information provided to the Commission in the JPF Form (including the termination of the JPF (under any circumstances) or any change to the JPF’s DSP or any other Jersey service provider(s));2.18.6.2 non-compliance with the JPF’s Jersey AML/CFT obligations (noting that the requirement for notice to be given in such circumstances may be a statutory requirement pursuant to other laws and regulations);2.18.6.3 material/unresolved complaint(s) made in relation to the JPF; or2.18.6.4 qualified audit of the JPF’s annual accounts and financial statements (where the JPF has appointed an auditor) except in the circumstances when adopting modified GAAP.2.18.7 Both the JPF Notice of Change or Event and the JPF Return are required to be completed by every DSP appointed by a JPF in its capacity as DSP to the relevant JPF. It is by means of the JPF Form, the JPF Notice of Change or Event and the JPF Return that the Commission will be able to monitor and supervise the JPF space. 2.18.8 The JPF Return period is from 1 July to 30 June to conform with the period when the JPF annual fee is due and payable to the Commission. The process around the FSB annual compliance return is subject to review by the Commission’s supervision team in the context of the Commission’s wider supervisory approach. 2.18.9 The Commission will respond appropriately to the material change/event notified to it by the relevant DSP under the JPF Notice of Change or Event. 2.18.10 In terms of any requirement to issue the relevant JPF with a revised relevant consent to take account of the information provided in the JPF Notice of Change or Event, the JPF Notice of Change or Event contains the following paragraph in the declaration from the DSP acting in its capacity as DSP to the JPF “On behalf of the JPF, we hereby request that any relevant consent to be issued to take account of any change/event notified to the Commission under this JPF Notice of Change or Event should (i) replace any previous relevant consent issued to the JPF pursuant to COBO and (ii) be issued with immediate effect.”2.18.11 There is no separate Part on AML/CFT in the JPF Guide. Part D of the JPF Guide (Eligibility Criteria) instead provides under paragraph 9 that “The DSP and, to the extent applicable, the governing body of the JPF are required to comply with all relevant provisions of the Money Laundering (Jersey) Order 2008 (MLO) and, for the avoidance of doubt, a JPF is a specified Schedule 2 business for the purposes of the Proceeds of Crime (Jersey) Law 1999 and the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 (to be read with reference to Article 13 (10) of the Money Laundering (Jersey) Order 2008 and the meaning of a non-public fund). 2.18.12 Please note that, as is the case for existing VPFs, a ‘very private’ JPF which has appointed a DSP which is registered solely for IB under the FS(J)L and is provided with no other service in Jersey by a person registered for TCB or FSB under the FS(J)L, is itself required to register with the Commission under the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008. 2.18.13 Likewise, and as is also the case for existing VPFs, a service provider (for this example, “SP1”) providing services to a JPF may rely on the PIRS Orders to exempt it from the requirement to register for IB and/or TCB under the FS(J)L, however, if SP1 is provided with services by a person solely registered for IB under the FS(J)L SP1 will: 2.18.13.1 not be exempt from AML/CFT requirements; and 2.18.13.2 be required to register under the Proceeds of Crime (Supervisory Bodies ) (Jersey) Law 2008. |
2.19 Question 18 - paragraph 2.7.4 of the CP
Do you have any observations or concerns regarding the proposed 48 hour stream-lined VPPF authorisation process or the proposed VPPF application fee of £1070? If you do, please state in detail what your observation or concern is and explain the reason for it.
2.19.1 The 48 hour turn around was largely welcomed by the respondents to the CP and was considered an improvement from the previous 5 day turn around for standard VPF applications by the Commission.
2.19.2 One respondent raised concerns about whether the Commission could in fact meet this deadline.
2.19.3 One respondent law firm suggested that the VPPF application fee was a very significant increase from the existing fee, was concerned that the proposed fee was the same as the PPF, and thought that some promoters are likely to be concerned, whereas a private bank thought that the fee seemed reasonable compared to other jurisdictions.
2.19.4 A fund administrator also commented that they had concerns about Jersey’s competitiveness against Cayman as they thought that these types of private funds are very cost sensitive.
2.19.5 Another law firm thought that the proposed VPPF fee was only reasonable if no additional fees were payable to the Commission under the AIFMD regime.
Government and Commission response: 2.19.6 Part I of the JPF Guide (Timescale and Cost) provides that “The relevant consent will be granted in 48 hours in relation to a JPF provided that the FSB/TCB Funds Authorisation Team receives the fully completed JPF Form and the corresponding application fee in the amount prescribed in the Commission’s notice of fees payable by or in relation to COBO (COBO Fees Notice), as amended from time to time”. 2.19.7 A VPPF application fee of £1070 was proposed under the CP in line with the existing PPF application fee. On this basis, the COBO Fees Notice provides, under paragraph 2.1.1 (Application fee) that “a fee of £1070 (which is the same fee as was applied to PPFs) shall be payable in respect of a JPF which is applying to the FSB/TCB Funds Authorisation Team for the issue of a relevant consent.” 2.19.8 The 48 hour JPF application timescale is subject to the usual caveat set out in the Indicative Application Timescales which provides that “It may not always be possible to meet the above indicative timescales (for example, during very busy periods or on receipt of multiple applications in connection with the same group or scheme arrangement). In such circumstances, applications will be dealt with on a best endeavours basis. Requests to the FSB/TCB Funds Authorisation Team for applications to be dealt with on an expedited basis outside of the above indicative timeframes will be considered only if overall workloads permit. Where any application is not in compliance with relevant Commission Policies, Codes and Guidance Notes the “clock” will stop until such time as all queries are satisfactorily resolved. Alternatively, where an application is seriously deficient, it will be returned to the applicant.”2.19.9 In terms of fees related to Registry and the AIFMD regime, Part I of the JPF Guide expressly provides that “For the avoidance of doubt, the 48 hour JPF timescale and fee is separate from the timescale and fee attaching to any application to the Registry for the incorporation/registration of a Jersey company or partnership. Similarly, where a JPF is also an AIF, the application time scale and fee attaching to the relevant AIFMD Form(s) shall be separate from the 48 hour JPF time scale and fee.” The AIFMD regime is an ‘overlay’ on the JPF regime and as such has separate timescales and fees applying to it (as reflected in the Indicative Application Timescales (attached as Appendix H to this Feedback Paper). 2.19.10 Part I of the JPF Guide further provides that “an annual JPF fee (in the amount prescribed in the COBO Fees Notice) is also payable to the Commission in each relevant year”. This annual fee is intended to cover the cost of supervising the JPF regime going forwards. A VPPF annual fee was not originally proposed under the CP. Instead, the proposed annual fee for a JPF is consulted on by the Commission pursuant to the fee consultation provided for under paragraph 1.2 of this Feedback Paper and pursuant to the COBO Fees Notice itself. On this basis, the COBO Fees Notice provides, under paragraph 3 (JPF annual fee) the following:2.19.10.1 A fee shall be paid in respect of a JPF on the 1 July in each relevant year for so long as the JPFs’ relevant consent remains in force.2.19.10.2 The fee must be paid no later than 31 July in each relevant year, and shall be paid directly by the governing body of the JPF or by the DSP on behalf of the JPF.2.19.10.3 The fee payable on an annual basis shall be £500 and shall be pro-rated.” 2.19.11 The Commission invites comments, in writing, from interested parties on the fee consultation and its likely impact on JPFs no later than 31 March, 2017.2.19.12 The Commission is of the view that both the JPF application fee and the JPF annual fee are fair and reasonable and do not put us at a disadvantage to our competitors.2.19.13 The COBO Fees Notice further provides under paragraph 2.1.3 that a fee of £330 is payable in respect of any application to Registry for the issue of a relevant consent in respect of a Jersey UT (Non-Fund) or an NDS (Non-Fund). This amount, now payable to Registry, is the same as the amount that was payable previously to the Commission’s FSB/TCB Funds Authorisation Team in such circumstances. |
2.20 Question 19 - paragraph 2.8.5 of the CP
Do you agree that an ‘employment connection’ and ‘family connection’ should not be treated as a VPPF? If you do not agree please explain why.
2.20.1 The majority of responses were in agreement that an ‘employment connection’ and a ‘family connection’ should not be treated as a VPPF and welcomed both exemptions.
2.20.2 Two law firms considered that there should be an opportunity for such arrangements to be able to “opt in” and be treated as a VPPF should they wish to do so with one law firm saying that it thought it important that Jersey be seen to be as flexible as possible in offering potential structuring solutions for family office vehicles that may derive advantages from being able to be a VPPF.
2.20.3 Whilst most respondents agreed that an ‘employment connection’ and a ‘family connection’ should not be treated as a VPPF, a number said that there is a requirement for a number of other exemptions with one law firm saying that it would welcome a carve out for joint venture non-fund arrangements as they are excluded from AIFMD.
Government and Commission response: 2.20.4 There is nothing in the JPF Guide which would prevent an ‘employment connection or a ‘family connection’ from “opting in” to the JPF regime if it so wished to do so. However, the relevant ‘employment connection or a ‘family connection’ could not then decide, at some point in the future, that the JPF Guide no longer applied to it.2.20.5 Part B of the JPF Guide (Scope) expressly provides that “it is not intended that holding companies or joint venture arrangements will fall within the definition of a JPF or be treated by the Commission as a JPF for the purpose of the JPF Guide. Equally, a special purpose/securitisation investment scheme issuing “securities” (as defined in the Collective Investment Funds (Restriction of Scope) (Jersey) Order 2000 (Restriction Order)) and which has either (i) received a relevant consent from Registry and which meets all of the other requirements of Article 2 of the Restriction Order; or (ii) does not require a consent to be issued under COBO in respect of those securities, will not be treated by the Commission as a JPF for the purpose of the JPF Guide.” 2.20.6 The Government and the Commission acknowledge that Part. B of the JPF Guide is not exhaustive however, other appropriate exemptions may be considered by the Government and the Commission in due course, but such consideration will not be undertaken by the Commission in relation to individual applications. |
2.21 Question 20 - paragraph 2.8.6 of the CP
Do you agree with how ‘employment connection’ and ‘family connection’ have been defined in the VPPF Guide? If not, please explain your concerns.
2.21.1 The majority of respondents raised no concern with the definitions of ‘employment connection’ and ‘family connection’.
2.21.2 One law firm remarked that part b. of the definition of “eligible employee” had been drafted too restrictively and should apply to arrangements established for “the sole benefit of an individual referred to in paragraph a. or such an individual and his/her dependants.”.
Government and Commission response: 2.21.3 Taking account of the feedback, the meaning of “eligible employee” for the purpose of the Commission’s treatment of family office and employee incentive arrangements for the purpose of the JPF Guide is:2.21.3.1 “an individual that is a senior employee, partner or director of an employer or of a company in the same group as the employer; or2.21.3.2 a trust, foundation, company, partnership or other scheme or arrangement established for the sole benefit of an individual referred to in paragraph a. of this definition or such an individual and his/her dependants.” |
2.22 Question 21 - paragraph 3.2.1 of the CP
Do you have any observations or concerns regarding the proposed universal application of the Professional Investor Definition across our private fund, public fund and unregulated fund regimes (including the PIRS Orders, but excluding our AIFMD framework)? If you do, please state in detail what your observation or concern is and explain the reason for it.
2.22.1 The majority of respondents agreed that it makes sense to have a universal definition across the various fund regimes (excluding AIFMD), remarking that a universal definition will simplify the overall Jersey fund regimes in line with the recommendation coming out of Jersey’s jurisdictional review, bringing coherence and consistency to Jersey’s various fund regimes and will enhance certainty in relation to the suitability of the Jersey funds regime for promoters and potential investors.
2.22.2 One law firm replied no such concerns subject to a) the need to amend the PIRS Orders and b) it is important that the Restriction of Scope Order is not changed and that it does not adopt the Professional Investor Definition.
2.22.3 One law firm questioned whether references to “a Fund” in paragraphs d. and g. of Annex A of the JPF Guide should be clarified to exclude uncertainty and limit its meaning to the subject fund to which investors are subscribing? The same law firm proposed that paragraphs d. and e. of the Professional Investor Definition should be widened, certainly for private funds, beyond regulated service providers to encompass any service provider entities engaged by the private fund whether or not required to be regulated in Jersey or elsewhere or exempt from regulation.
2.22.4 Another respondent commented that expanding the definition of “investments” in the footnote to the definition would fundamentally impact the present treatment of real estate promoters, who are not usually regulated for such activity in their home jurisdiction.
Government and Commission response: 2.22.5 The application of the Professional Investor Definition is limited to JPFs for the time being. The Government and the Commission will look to apply the same “Professional Investor Definition” to the PIRS Orders and other public fund and unregulated fund products through Phase II of the Funds Review Project.2.22.6 Subject to 2.22.5, there is no proposal to amend the Restriction of Scope Order to adopt the Professional Investor Definition.2.22.7 Paragraphs d. and g. of Annex A of the JPF Guide (Definition of a “professional investor”) refer exclusively to the JPF.2.22.8 The Government and the Commission were of the view that to widen paragraphs d. and e. of the Professional Investor Definition beyond regulated service providers to encompass any service provider entities engaged by a JPF whether or not required to be regulated in Jersey or elsewhere or exempt from regulation would not be appropriate.2.22.9 There is no expansion on the definition of “investments” as it appears under paragraph 1a. of Annex A (Definition of a “Professional Investor”) to the JPF Guide. |
2.23 Question 22 - paragraph 3.2.2 of the CP
Are there categories of persons that should be considered professional investors but who currently do not meet any of the criteria set out in the Professional Investor Definition? If so, please explain who they are and why they should be considered a professional investor.
2.23.1 The majority of respondents considered the categories to be adequate.
2.23.2 One fund administrator said that there should be an allowance for certain persons who would have previously qualified, for example, an investment manager/professional but who is no longer employed in such capacity.
2.23.3 One law firm observed that the Professional Investor Definition should not be more restrictive than the equivalent definitions/rules onshore and in the UK in particular.
2.23.4 Another law firm and one fund administrator suggested that where another international category of investor is found, consideration should be given to adopting it (as has been done for MiFID professional clients).
Government and Commission response: 2.23.5 Whilst the Government and the Commission have given due regard to the above feedback, Annex A to the JPF Guide (Definition of a Professional Investor) remains in substantially the same form as was consulted on under the CP. |
2.24 Question 23 - paragraph 3.2.3 of the CP
Would the Professional Investor Definition be better placed in legislation or in Commission guidance or other documentation? Please explain the reasons for your response.
2.24.1 The majority of respondents suggested Commission guidance or a subordinate Order or Regulation so that the Professional Investor Definition can be amended fairly swiftly if circumstances so require.
2.24.2 One fund administrator said that its preference would be for the Professional Investor Definition to be annexed to each Jersey fund guide.
Government and Commission response: 2.24.3 The Professional Investor Definition is included under Annex A to the JPF Guide (Definition of a Professional Investor).2.24.4 The application of the Professional Investor Definition is limited to JPFs for the time being. The Government and the Commission will look to apply the same “Professional Investor Definition” to the PIRS Orders and other public fund and unregulated fund products through Phase II of the Funds Review Project and will, at the same time, consider whether the Professional Investor Definition is better placed in the form of legislation or Commission guidance. |
2.25 Question 24 - paragraph 4.1.3 of the CP
Do you have any immediate observations or concerns regarding the proposal to amend the COBO Law to include the same modern regulatory supervision, enforcement and co-operation powers as are contained in the CIFJL? If you do, please state in detail what your observation or concern is and explain the reason for it.
2.25.1 The majority of respondents said that they had no immediate concerns or observations regarding the proposal to amend the COBO Law with one fund administrator commenting that the proposal would appear a logical change.
2.25.2 However, one fund administrator said that the proposed amendment to the COBO Law to provide regulatory powers similar to the CIFJL is perhaps an unnecessary addition to an already over-burdensome regime and misses the opportunity to consolidate regulation under the CIFJL and not create more of it by way endorsing dual regimes.
2.25.3 Another fund administrator commented that whilst difficult to quantify at this stage, it felt that the proposal would have a significant impact on Industry and should be considered in great detail prior to further consultation.
Government and Commission response: 2.25.4 There was an opportunity at the outset of the Funds Review to consolidate Jersey’s dual COBO/CIFJL investment funds regime but the Working Group did not favour this approach and opted to retain COBO Law/COBO as the regulatory law for JPFs.2.25.5 A Ministerial Decision from the Chief Minister has been issued for the necessary law drafting to COBO Law/COBO to introduce the same modern regulatory supervision, enforcement and co-operation powers under COBO Law/COBO as are contained in the CIFJL. 2.25.6 The amending draft law will be subject to further public consultation with Industry. The precise nature and extent of which is yet to be determined by Government and the Commission. In addition, such amending draft law will be subject to debate by the States of Jersey and will require approval by Privy Council. |
2.26 Question 25 - paragraph 5.2.2 of the CP
Do you have any observations or concerns regarding the proposal that new applications for COBO Only Funds will no longer be accepted by the Commission going forwards and the gradual phasing out of COBO Only Funds? If you do, please state in detail what your observation or concern is and explain the reason for it.
2.26.1 A number of respondents agreed that there has been very little interest in COBO Only Funds in recent years owing to the introduction of the PPF Guide, with one law firm commenting that the proposal seems to be a sensible step towards the reduction of the unnecessarily large number of fund regimes Jersey currently has.
2.26.2 However, a number of respondents were concerned that a PPF cannot be open-ended and whilst open-ended private funds are rare, the COBO Only Fund regime offered an authorisation process for such funds. One law firm asked what would be the alternative for an open-ended private fund? One fund administrator and one law firm suggested that consideration be given to amending the PPF Guide to allow open-ended funds.
Government and Commission response: 2.26.3 Paragraph 2 of Part D of the JPF Guide provides that “A JPF may be open or closed-ended provided that the 50 or Fewer Test (within the meaning of Part F. of the JPF Guide is met).” On this basis, whilst a JPF may be open-ended, any offer for subscription, sale or exchange of units of a JPF must be addressed exclusively to a “restricted circle of persons” so as to ensure that the offer does not in any way constitute an “offer to the public” within the meaning of Article 3 of the CIFJL. 2.26.4 For the avoidance of doubt, the rules provided for the ‘50 or Fewer Test’ within the meaning of Part F of the JPF Guide (Test for number of offers/investors) will apply equally (with the substitution of 15 for 50) where in relation to a JPF there are only 15 or fewer offers/investors (a ‘very private’ JPF).2.26.5 The JPF Guide further provides, in a footnote to Part J (Transitional provisions and conversion) that “A converting fund must ensure that any subsequent offer, when taken together with any previous offer, is addressed to persons capable of falling within the “restricted circle of persons” to whom the original offer was addressed so at to ensure that the offer, as a whole, does not in any way constitute an “offer to the public” within the meaning of Article 3 of the CIFJL.” For this reason and as expressly stated under Part J of the JPF Guide “Given the basic definition of a JPF outlined in Part A of the JPF Guide and the eligibility criteria which needs to be met referred to in Part D of the JPF Guide, the Commission would not expect for a collective investment fund which has been issued with a certificate pursuant to the CIFJL to be able meet the requirements of this Guide or utilise this Part J of the JPF Guide to convert to a JPF”. |
2.27 Question 26 - paragraph 6.2.1 of the CP
Do you have any observations or concerns regarding the proposal that new notifications for Unregulated Exchange-Traded Funds will no longer be accepted by the Commission going forwards and the gradual phasing out of Unregulated Exchange-Traded Funds? If you do, please state in detail what your observation or concern is and explain the reason for it.
2.27.1 Whilst the majority of respondents said that they did not have any concerns with this proposal three law firms did raise concern over the cessation of the Unregulated Exchange-Traded Fund product.
2.27.2 One law firm said that they would not welcome the withdrawal of the Unregulated Exchange Traded Fund product on the basis that it would limit choice for promoters.
2.27.3 Two other law firms responded by saying that they do have concerns about the cessation of the Unregulated Exchange-Traded Funds regime on the basis that it is their belief that there is now greater interest being shown in the regime by sponsors and professional advisers of Real Estate Investment Trusts (REITs) under the UK REIT legislation as a potential solution for such REITs over any other Jersey fund product. In addition, one of the law firms made reference to the recent change made by the Channel Islands Securities Exchange (now known as ‘The International Stock Exchange’) on 1 September, 2016 to its Chapter 7 Listing Rules to allow an easier take up for the listing of REITs. The common concern shared by both law firms is that if the Unregulated Exchange-Traded Funds regime is not available, sponsors are likely to look, not to another Jersey fund product (such as the Jersey Listed Fund product) but to other jurisdictions where they are able to access fund products which are similar to the Unregulated Exchange Traded Funds, such as Luxembourg saying that they have already seen examples of this.
2.27.4 One law firm observed that some REITs could be established as Unregulated Eligible Investor Funds but for paragraph 5 (2) (a) of Schedule 1 of the Unregulated Funds Order which provides that where units in the fund are traded on a stock exchange or stock market, there must not be a market maker.
Government and Commission response: 2.27.5 Owing to the historic misuse of Unregulated Exchange-Traded Funds and the inherent risks of the product for Jersey Plc, a decision has been taken by Government and the Commission to prepare an amendment to the Unregulated Funds Order to prevent any person from serving notice on the Registrar pursuant to Schedule 2. For reference, as at [23 February 2017] only 3 Unregulated Exchange-Traded Funds have been notified to the Registrar since January, 2015. On that basis, the Government and the Commission does not see this course of action as a significant issue for Industry.2.27.6 We understand from Industry that UK REITs are ordinarily held by a small number of institutional or sovereign wealth investors (who would meet the eligible investor test) and therefore, being mindful of the feedback to the CP, the Government and the Commission has provided a structuring solution for narrowly held REIT structures in the form of the Unregulated Eligible Investor Fund. This will involve an amendment to paragraph 5 (2) (a) of Schedule 1 of the Unregulated Funds Order (Exchange trading of units) to permit the appointment of a market maker by a Jersey incorporated fund company or by another person on behalf of the fund company where such fund company is a UK REIT and units in the fund company are listed on one or more exchanges or markets listed on Schedule 4. This is subject to all of the other provisions of paragraph 5(2) of Schedule 1 being complied with (noting that paragraph 5 (2) (b) of Schedule 1 provides that “the fund companies, so far as reasonably possible, restrict transfers of the units in order to ensure that no person other than an eligible investor can acquire units in the fund through that trade;” and paragraph 5 (2) (e) of Schedule 1 further provides that “the stock exchange or stock market is conducted in such a way as not to prevent the restriction referred to in clause (b) from operating).2.27.7 The Commission is committed to looking into an amendment/clarification to the Jersey Listed Fund Guide to cater for more widely held REIT structures, given that they have to be tax resident in the UK under Phase II of the Funds Review Project. |
2.28 Question 27 - paragraph 6.2.2 of the CP
Do you believe that existing Unregulated Exchange-Traded Funds should be able to continue in operation until the end of their natural life or, do you believe that they should be required to make an application to the Commission to convert into a regulated public fund product (for example an unclassified or a listed fund product)? If so, please explain why.
2.28.1 The majority of respondents said that existing Unregulated Exchange Traded Funds should be able to continue in operation until the end of their natural life with one law firm commenting specifically that one of the benefits of Jersey’s regime is the stability and maturity of its regulation and unilaterally requiring a change of regime could be perceived to be damaging to Jersey’s reputation.
2.28.2 One law firm said that perhaps the opportunity should be offered to existing Unregulated Exchange Traded Funds to convert to another regime such as the listed fund regime. Other respondents did not think that an option to convert from an Unregulated Exchange Traded Fund into a regulated public fund product would be well received due to the associated costs of conversion.
Government and Commission response: 2.28.3 Unregulated Exchange Traded Funds will be able to continue in operation until the end of their natural life. On this basis, Schedule 2 of the Unregulated Funds Order will be retained in its entirety with Article 3 being amended to prevent any person from serving notice on the Registrar pursuant to Schedule 2. |
2.29 Question 28 - paragraph 6.2.3 of the CP
For those existing Unregulated Exchange-Traded Funds, would you be minded to convert to another Jersey fund product? If so, which fund product would you choose and what would be the anticipated timescale for any such conversion (subject to Commission approval if a regulated fund product)?
2.29.1 Whilst the majority of respondents made no comment on this question, a number of respondents repeated the concerns raised under paragraph 2.28 above (that Unregulated Exchange-Traded Funds should be able to continue in operation until the end of their natural life).
2.29.2 One law firm commented that in their discussions with clients wishing to convert their existing Unregulated Exchange-Traded Funds the two options that are discussed the most often are the Expert Fund and the Listed Fund regimes. In terms of timescales, the same law firm suggested that this should broadly follow the same time scales as would apply to a launch of a new Expert Fund or Listed Fund.
Government and Commission response: 2.29.3 Unregulated Exchange Traded Funds will be able to continue in operation until the end of their natural life. 2.29.4 Any application for an existing Unregulated Exchange-Traded Fund to convert into an Expert Fund or a Jersey Listed Fund will be dealt with by the FSB/TCB Funds Authorisation Team in accordance with the Commission’s updated Indicative Application Timescales (attached as Appendix H to this Feedback Paper) for that particular product. |
Page 1 of 41 Issued: 1 March 2017
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