Jersey unregulated eligible investor funds07 Dec 2018
Funds established in Jersey are generally subject to regulation by the Jersey Financial Services Commission ("JFSC"). In contrast, unregulated eligible investor funds are out of scope.
Investment funds which are offered to the public are regulated pursuant to the Collective Investment Funds (Jersey) Law 1988 (the "CIF Law") and must obtain a certificate from the JFSC. This involves an approval process which includes scrutiny of all the documentation and key parties associated with the fund. Funds offered to more sophisticated investors, such as Jersey expert funds or listed funds, are subject to lighter regulation. For all funds which have been issued with a certificate under the CIF Law, a code of practice for certified funds (the "Certified Funds Code") applies.
In contrast, unregulated eligible investor funds fall entirely outside the regulatory regime under the CIF Law, and the requirements of the Certified Funds Code do not apply. This is by virtue of a statutory exemption, set out in the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 (the "Order"), for funds which meet the criteria set out in the Order.
Unregulated Eligible Investor Funds ("EUIF")
The defining feature of a UEIF is that all investors in the fund must qualify as eligible investors.
The term "eligible investor" is defined in the Order and includes:
- a person who has agreed to pay consideration of not less that US$1 million (or the equivalent in another currency), for the subscription, purchase, exchange or acquisition;
- a person whose ordinary business or professional activity includes the acquisition, underwriting, management, holding or disposal of investments, whether as principal or agent, or the giving of advice on investments (or an employee, director or shareholder of or consultant to such person);
- a service provider, or an associate of a service provider to the fund (or an employee, director or shareholder of or consultant to such service provider or associate who is acquiring the investment as remuneration or reward); or
- a person whose property has a total market value of not less than US$10 million (or the equivalent in another currency).
A UEIF may be structured as a Jersey company, a Jersey limited partnership or a unit trust and may be open- or closed-ended.
A UEIF may be listed, but only on a stock market or stock exchange which permits restrictions on transfer. This is to ensure that only eligible investors are able to acquire units in the fund.
Unregulated eligible investor funds are not 'AIFMD-compliant'. As such, they avoid the regulatory overlay imposed by AIFMD-compliace, but cannot be marketed to investors in the EU.
The following criteria apply to UEIFs:
Service providers, directors and officers
A UEIF which is structured as:
- a company, must be incorporated under the Companies (Jersey) Law 1991 (the "Companies Law") and have its registered office in Jersey;
- a limited partnership, must be registered pursuant to the Limited Partnerships (Jersey) Law 1994 (the "Limited Partnerships Law") and must appoint at least one general partner which is a Jersey company;
- a unit trust, must appoint at least one Jersey company as its trustee or manager.
There is no requirement for a UEIF to appoint Jersey fund service providers or Jersey-resident directors or other officers.
Any Jersey company providing a service to a UEIF must be regulated by the JFSC to carry on "fund services business" pursuant to the Financial Services (Jersey) Law 1998 (the "FSJ Law"). However, by way of specific exemption to the FSJ Law, in the case of UEIFs structured as limited partnerships or unit trusts, the general partner or trustee of such funds, respectively, is exempt from this requirement, provided that: (a) the only activity of such company is acting as a general partner or a trustee, respectively, to the limited partnership or unit trust, as applicable, (b) its registered office is provided by a person regulated under the FSJ Law to carry on fund services business, including at least the class of "manager of a managed entity", and (c) its name is notified to the JFSC. The JFSC will not register an entity for fund services business pursuant to the FSJ Law where its only activity is to act for UEIFs.
UEIFs must have an offering document containing a prominent warning (in a prescribed format) stating that the fund is unregulated. The warning must be acknowledged in writing by investors before any subscription, purchase or exchange of units in the fund is completed. There are no other requirements as to the contents of the offering document, save for a general principle that the offering document should disclose all inofmration that investors would reasonably require or should reasonably be brought to their attention in order to make an informed judgment about the merits and risks of participating in the fund.
Formalities and timescale
The only Jersey regulatory formality following the establishment of a UEIF is for written notice to be given to the Registrar, confirming that the fund has been established and that the necessary conditions set out in the Order have been met. The UEIF may be launched immediately following the filing of such notice.
There are no statutory or regulatory fees payable in relation to a UEIF, save for those payable upon its incorporation (where the fund is structured as a company) or its registration (where the fund is structured as a limited partnership).
There are no requirements as to the standing or track record of any investment manager or distributor appointed in relation to a UEIF.
There is no requirement for a custodian or prime broker to be appointed in relation to a UEIF.
Borrowing and gearing
There are no restrictions under the Order on the level of borrowing (or gearing) which the UEIF may enter into.
Ongoing requirements: continuing observance of conditions
There are minimal ongoing requirements imposed on UEIFs. Procedures must be put in place to ensure that the requirements of the Order continue to be satisfied in relation to the fund, but there is no requirement to file, for example, details of changes of the service providers or directors of the fund. UEIFs which are companies will continue to be subject to the provisions of the Companies Law. This means that an annual return (including details of the directors and shareholders of the company) and audited accounts will need to be filed with the Registrar. Furthermore, UEIFs which are limited partnerships are subject to the provisions of the Limited Partnerships Law and will, therefore, be required to notify the registrar of limited partnerships in Jersey of changes to the particulars contained in the declaration made by the limited partnership upon its registration.