Transcript Slide 1

JFA Legal Update
26 March 2015
Ben Robins – Chairman of JFA and Partner, Mourant Ozannes, Jersey
What we'll cover
•Recent and on-going local “product” law amendments:
– recent Companies Law amendments
– proposed updates of the Limited Liability Partnerships and Limited Partnerships
Laws
•Managed Accounts Exemption
•Recent and on-going “regulatory” changes and consultations (AML, outsourcing
policy, civil penalties and fund licensing fees)
•External factors:
– Where are we with AIFMD?
– BEPS impact?
– MiFID 2 impact?
•Where are we with post-McKinsey funds regime review process?
Slide 2
Companies Law amendments
Companies (Amendment No.11)(Jersey) Law 2014
-reductions of share capital possible without court approval
-distribution which does not reduce company’s net assets (eg upstream guarantee) not subject to
provisions regulating distributions
-changes to shareholder ratification of breaches of directors’ duties (OR rather than SR)
-more flexible written resolutions (non-unanimous; new process for circulation)
-variable special resolution voting thresholds
-share redemptions/buy-backs: “in kind” transactions permitted; depositary receipts catered for
-meetings: corp rep, consent to short notice and proxy requirements now reflect UK Companies Act
-statutory merger/migration process improvements
-transfers between capital accounts made easier
-(court) process to ratify unlawful distributions
Changes to prospectus and demerger provisions under subordinate legislation to follow….
Slide 3
LLP Law Amendments
Backdrop:
•1997 “prototype” Law: aimed at professional services organisations;
required £5m bond to be posted by each LLP
•Not widely taken up - £5m bond requirement since removed
2014: new JFSC policy to allow LLPs to be licensed as fund services
businesses (NB subject to local span of control requirements)
2015: update of 1997 Law expected (Q3?); near final draft consulted on;
•no drastic changes – just a slicker version
•replaces “designated partner” concept (for JFSC filings) with Jersey (TCB
licensed) secretary requirement
•can’t be used as fund vehicles
Slide 4
LP Law Amendments
Proposal to update Limited Partnerships (Jersey) Law 1994
- Mainstay legislation of local PE industry; other jurisdictions have been/will
be updating their LP laws (eg Cayman, Lux, Guernsey)
- Possible amendments:
•
specify statutory general partner duties (as per Delaware/Cayman)
•
amendment of the "safe habour" limited liability provisions to protect advisory committee members
and to reflect the use of "GP/LPs" as a general partner of a Jersey limited partnership
•
more flexibility on liquidation: on dissolution LP affairs can be wound up by the general partners or
by such other person appointed in accordance with the partnership agreement
•
statutory basis for investor default/commitment forfeit provisions
•
statutory basis to irrevocable commitment provisions
•
adding flexibility around limited partner inspection rights (LPA restrictions possible)
•
adding LP merger/continuance provisions
•
adding cellular LP provisions?
Slide 5
Managed Accounts Exemption
Financial Services (Investment Business (Qualifying Segregated Managed
Accounts – Exemption) (Jersey) Order 2014
- Created the Qualifying Segregated Managed Accounts (QSMA) concept
- QSMA = a >$1m managed account with a single manager, employing a strategy
replicating a hedge fund strategy the manager already employs for its funds business,
set up for a single investor or connected group of joint investors
- Where an fund services business licenced manager operates a QSMA, it is exempt from
the need to also hold an investment business licence to operate that managed account
- Need to notify JFSC when appointed to operate a QSMA
- 3 or 4 notifications already made
Slide 6
AML Amendments / MONEYVAL (1)
Against backdrop of MONEYVAL inspection in January 2015:
•
In 2014/15, numerous expedited industry consultations re amendments
to the AML/CFT Handbooks, including the AML/CFT Handbook for
Financial Services Businesses
•
Some changes (eg enhanced identification measures) implemented as of
January 2015 before MONEYVAL visit
•
New funds sector-specific guidance in FSB handbook currently being
worked on
•
A series of themed JFSC meetings in 2014 with funds industry compliance
officers to inform JFSC revisions
•
Hope to introduce more certainty and market consistency in grey areas
Slide 7
AML Amendments / MONEYVAL (2)
Legislative Changes:
•Proceeds of Crime and Terrorism (Miscellaneous Provisions) (Jersey) Law
2014: updating/tidy-up exercise; brought all ML offences into Proceeds of Crime Law
•Money Laundering (Jersey) Order 2008 - Amendment No. 7 in 2014: requires
enhanced CDD measures in some areas (eg private banking investment; companies with
nominee holders) and prevents simplified identification measures where customers
resident in FATF non-compliant countries
•One “live” Consultation Paper No.4 2015: re identification measures: policies and
procedures to determine whether customer is acting for a third party or is subject to
international sanctions
•Proceeds of Crime (Amendment - Financial Intelligence) (Jersey) Law and
Regulations – to establish the JFCU as Jersey’s Financial Intelligence Unit (FIU) and
specify its powers/functions
Slide 8
Outsourcing and Delegation Policy Review
•
Existing JFSC policy difficult to apply in practice
•
Different requirements depending on whether service is “outsourced” or
“delegated” and definitions aren’t very clear
•
Revised policy subject to industry consultation; nearing completion
•
“Hoped for” amendments:
– confirm the purchase of advisory services by fund managers is outside
the scope of the policy
– update to cover AIF services business;
– clarify that Jersey certified funds, funds services businesses or AIF
services businesses can delegate or outsource for the purposes of the
revised policy (ie banking/investment service providers can only
outsource)
Slide 9
New Civil Penalties for Breaches of Codes
•
Financial Services Commission (Amendment No. 6) (Jersey) Law –
in force 20 March 2015
•
Enables civil financial penalties to be levied for contraventions of JFSC
Codes of Practice (bringing Jersey into line with other jurisdictions)
•
Recent Tariff Order consultation – re the tariff of such penalties;
suggested ranges of 4%, 6%, 8% of gross turnover; some in industry
suggest a monetary cap is needed
•
Recent Processes Order consultation - re the principles and processes to
be applied by JFSC when seeking to impose a financial penalty
•
JFL has responded – new Orders expected soon
Slide 10
Increased JFSC Licencing Fees for Funds?
•
JFSC Consultation Paper No. 3 of 2015 re proposed increases in fundrelated regulatory fees from this summer
•
Proposals include:
– £1k fee on all COBO consent applications sent to Funds Authorisation
team
– FSB application fees up from £1.6k to £2.1k
– CIF cert holder fees up from £1.6k to £1.7k
•
JFA industry response stressed need for competitiveness and sought a
more nuanced approach to COBO fees (ie fee justified for JPPF
applications but less so for very private structures and consents for
circulation of non-Jersey fund offers)
Slide 11
AIFMD: application to Jersey AIFMs
Applies to and regulates Jersey AIFMs:
– marketing any “AIF” to professional
investors in the EEA after July 2014;
or
– managing EEA AIFs
Slide 12
AIFMD: Marketing into the EEA under NPPRs
Private Placement Marketing in the EEA since July 2014
-for all those Jersey AIFMs marketing to professional investors in the EEA;
-use differing national private placement regimes (NPPRs) of individual EEA states;
-Jersey AIF needs AIF Certificate (or CIF certificate and file AIF/Exempt
notification for AIF exemption)
-Jersey AIFM needs AIFSB licence (or FSB licence and file AIFSB/Exempt
notification for AIFBS exemption) or sub-threshold AIFM approval
-then need to comply with AIFMD's disclosure, reporting and transparency
provisions as set out in AIFMD and new AIF Codes
Note: some use of NPPRs alongside “reverse solicitation“ - CAUTION NEEDED!
Slide 13
AIFMD: two local legislative “tweaks” to come
•
Self-managed Jersey corporate AIFs
– issue with shareholder Form PQs required to obtain AIF Services Business
licence
– to be resolved shortly: exemption for publicly-offered funds (CIFs) from the
requirement to be authorised to carry on AIF Services Business
• EEA AIFs (eg UK LPs) with Jersey AIFM (eg GP)
– problem: from the point in time at which non-EEA AIFMs can be authorised in
EEA (eg for passporting) when non-EEA AIFMs manage EEA AIFs (eg Jersey GP
of UK LP), must be fully-compliant with AIFMD
– can be avoided if UK LP is treated as “established in Jersey” for AIFMD purposes
by having its registered office in Jersey or being authorised in Jersey
– AIF Regulations to be amended to permit JFSC to authorise UK LPs with Jersey
AIFM/GP so they are treated as Jersey AIFs under AIFMD
Slide 14
AIFMD: Likelihood of Third Country Passport thoughts…(1)
- Jersey is in the first group of (20) third countries being assessed by
ESMA for suitability (ESMA to opine in July 2015)
- Jersey has already implemented fully-compliant AIFMD option
(ie Level 1 and Level 2 text) through its AIF Codes where Jersey AIFMs
opt to comply in full for pass-porting
- If third country AIFM pass-porting commences, subject to ESMA
review (ie the “AIFMD II” debate) in 2017, NPPRs may end in 2018
and only fully AIFMD-compliant non-EEA AIFMs may be able to market
into the EEA, by way of passport. BR view: NPPRs will be sustained
for access to important but non-equivalent third countries (eg U.S.)
Slide 15
AIFMD: Likelihood of Third Country Passport –
thoughts…(2)
•
ESMA opinion in July 2015 – passport unlikely before Feb 2016 at earliest; possibly
as part of AIFMD II in 2017?
•
ESMA Call for Evidence – responded to by 8 Jan 2015 (e.g. JFSC, JFA, EVCA, BVCA,
AIMA, AREF, ALFI etc.) information gathering on functioning of passport and private
placement in practice.
•
JFSC are now intensively engaged with ESMA
•
ESMA will differentiate between 3rd countries – those with equivalent regimes more
likely to get passport than those without? ESMA Chairman’s speech of 5th November
2014:
“…our advice will not treat all non-EU countries as a single block. In other words, we will not
simply say “yes, there should be a passport for everyone”. Rather, we will distinguish between
the various non-EU jurisdictions taking into account the criteria set out in the AIFMD itself. One of
the aspects that we will look at is whether EU entities experience difficulties in getting access to
non-EU markets. This is just one of the criteria to be assessed, but it is an important one.”
Slide 16
BEPS Impact on Jersey Funds?
Base Erosion and Profit Shifting
- Political measure in response to global fiscal deficits
- G20 directive to OECD to create an action plan: “ensure profits are taxed where
economic activities generating profits are performed”
- Focus on corporate multi-nationals (eg Amazon, Starbucks); tax structuring, profit
shifting, exploitation of loop-holes and double tax treaties
Impact on fund structures - as yet unclear but need to be watchful:
- Hopefully fund entities can remain tax transparent
- BUT query:
-
impact on management/advisory fees: permanent establishment issues; tax to be paid on
services where earned, so a need for Jersey substance if local rates to apply
-
impact on tax efficient investment holding structures (eg Lux DTA companies)
Slide 17
MiFID 2 Impact on Jersey Funds?
•
MiFID 2 = Markets in Financial Instruments Directive and the related
Regulation
•
Due to take effect in January 2017
•
Sets out which investment services and activities should be licensed across the
EU and the organisational and conduct standards that those providing such services
should comply with
•
Harmonised regime expected for non-EU firms providing services in the EU crossborder to professional clients/eligible counterparties; no harmonised rules where
services are provided via EU branches or to retail clients
•
JFSC team are considering impact on Jersey entities; most impact likely on
investment businesses rather than funds businesses BUT possible impact on EU
investment trading and fund distribution activity by Jersey funds and their managers
Slide 18
Post-McKinsey Funds Review Process
•
Process to explore and implement stream-lining changes to Jersey’s fund
regulatory regimes, as recommended by McKinsey review of the finance
industry
•
Government and JFSC teams working on proposals
•
Industry JRIG groups being consulted on outputs
•
Promising early signs:
– a single funds law (replacing CIF, COBO and AIF regs)
– fewer, but still varied, regimes
– regulatory focus on a single “responsible entity” in Jersey (reduce “layering” of
regulation on multiple entities)
– a single “professional investor” definition for non-retail products
– AIFMD “over-lay” approach retained so rest of world business not impacted
Slide 19
Contact details:
Ben Robins, [email protected]
T +44 1534 676 475
Mourant Ozannes is one of the world's leading offshore law firms.
We advise on the laws of the BVI, Cayman Islands, Guernsey and Jersey.