Published in the Jersey Evening Post Finance in Law Supplement - March 2007

The investment funds sector in Jersey has experienced considerable success in recent years. The Island is well on its way to setting itself apart from other offshore centres as a first choice domicile for alternative investment funds and as a leading administration centre.

A recent part of the effort to promote the funds industry is the new listed fund regime, introduced by the Jersey Financial Services Commission with effect from 9 January, 2007. This new regime follows on from the very successful expert fund and non-domiciled funds regimes, and should contribute to a period of continued and accelerated growth in the Jersey investment funds sector.

The main advantage of the new listed fund regime is that it provides a streamlined process for the authorisation by the Commission of qualifying listed funds. There is a 'self-certification' process for compliance with the Commission's policy requirements, which is similar to the expert fund regime. Because of this, listed funds should be able to be authorised by the Commission within three business days of receipt of duly completed documentation. However, unlike an expert fund, a listed fund is not restricted to 'expert investors'. There are no qualification criteria to be an investor in a listed fund (beyond any required by the relevant stock exchange or market) and a listed fund's securities will be freely transferable through the relevant stock exchange or market.

In terms of Jersey requirements, a listed fund must be a Jersey company and is therefore subject to the Companies (Jersey) Law, 1991. The board of a listed fund must have at least two Jersey resident directors. An additional safeguard for investors is that a majority of the board (including the chairman) must be independent.

A listed fund must have a Jersey-based monitoring functionary with two Jersey resident directors. This monitoring functionary must comply with the Commission's best practice guidelines in the conduct of its duties, which include conducting due diligence on the investment manager and monitoring the investment manager's actions on a continuing basis.

The investment manager does not have to be Jersey-based but must have appropriate experience, be of good standing, be established in an OECD member state or in a jurisdiction with which the Commission has a memorandum of understanding, be regulated in that state or jurisdiction and comply with certain minimum standards of corporate governance.

A listed fund must also be closed-ended i.e. it cannot permit redemptions at the option of investors. However, securities will be freely transferable through the relevant stock exchange or market.

The Commission and the funds industry in Jersey has planned future initiatives to maintain the momentum that Jersey has built in the investment funds area. In the future, depending on demand, the listed fund regime may be adapted to allow other structures such as unit trusts or limited partnerships.

Consultation on further enhancement to the expert fund regime has been ongoing. The Commission has recently issued amendments to the Expert Fund Guide designed to bring further clarity and robustness to the expert fund regime.

The intention is also to consolidate Jersey's financial services legislation, so that funds activity would be regulated alongside other financial services areas, such as investment business, rather than under separate law. A common regulatory platform should produce efficiencies such as local administrators not having to obtain separate authorisation in respect of each new fund but simply being able to take on new business on the basis of their being regulated as fund services businesses under the Financial Services (Jersey) Law, 1998.

The next step beyond the expert fund regime is the introduction of the super-expert fund regime targeted specifically at hedge funds. Serious consideration is being given by the Jersey funds industry to this initiative.

These proposals are in their early stages, and subject to discussion, consultation and regulatory approval, but the broad plan is to introduce a fast track self-certification regime, like the expert fund regime, allowing the rapid establishment of hedge funds in Jersey with the greatest amount of operational flexibility, such as the ability to appoint an administrator based outside Jersey. We shall wait and see what form these plans eventually take, but it again serves to demonstrate the desire of the Jersey funds industry to develop new products and services to maintain Jersey at the forefront of the offshore funds world.

It is hoped that these initiatives will provide continued impetus for Jersey's funds industry. Although not all may come to fruition in the precise form currently under discussion, the process of regulatory and legal development, and the direction and focus of the sector, augurs well for the future of funds and fund services in Jersey.

Martin is a Partner and Bernard is a lawyer in Bedell Cristin's Investment Funds and Private Equity Group.