CODES OF PRACTICE FOR CERTIFIED FUNDS

Report
JFA – Legal Update
24 October 2013
PRESENTED BY
Robert Milner
LEGAL UPDATE
■ AIFMD
■ New Prospectuses Order
■ Managed Accounts
■ LLPs
■ FATCA and Son of FATCA
■ New Security Interests Law
FOCUS FOR TODAY – FUNDS PRACTITIONERS
■Background?
■Why should you care?
■Next Steps?
AIFMD: BACKGROUND
■ EU legislation seeks to harmonise regulation and marketing of
AIFs by AIFMs
■ Ultimately, aims to provide a ‘passport’ to market throughout
the EU (per prospectus directive, UCITs, etc)
■ Focuses on the AIFM (although does impact AIFs too)
■ Went through many iterations (political dynamite)
AIFMD: WHY SHOULD YOU CARE?
■ New Jersey laws – apply where any fund is marketing into EU
– Require all AIFs and AIFMs to be regulated
– BUT only if AIFMD applies
■ Existing regulated funds and managers pretty much OK
■ Transitional provisions
■ AIFs – AIF certificate
■ AIFM – FS(J)L registration (consent for “sub-threshold”)
■ Horrible consequences of getting it wrong: criminal offences in EU and Jsy
PLUS Art 22 FS(J)L – contracts can be void
EXISTING AIFS: BRIDGING THE GAP
■ AIFMD rules
AIF Codes of Practice
■ Consent to
marketing
■ Supervision
■ Information
Notice
AIF
Cert
AIF
Cert
■ Authorisation
■ Permission
Very
private
COBO
only / PPF
Regulated
CIF
Unregulated
Fund
JERSEY REGULATION: AIFS
* The Alternative Investment Funds (Jersey) Order 2013, Article 2(3)
** The Alternative Investment Funds (Jersey) Order 2013, Article 2(1)
JERSEY REGULATION: AIFMS
*The Financial Services (Jersey) Law 1998, Schedule 2, Part 5, Article 23(3)
** The Financial Services (Jersey) Law 1998, Schedule 2, Part 5, Article 23(1)
NEW STRUCTURES – SPOTTING THE ISSUES
■ What is “marketing”?
■ What is an AIF?
■ What is an AIFM?
Why aren’t the answers clear?
■ 28 interpretations
■ Little guidance outside UK
■ ESMA / EU review
NEW STRUCTURES: WHAT IS AN AIF?
■ Very broad definition - easier to look at what isn’t caught
■ Trading companies – ie commercial activity (not including financial
services) or industrial activity is OK
■ Joint-ventures
■ Intra-group: only investors are in manager’s group and none are funds
■ Employee participation schemes
■ Managed accounts
NEW STRUCTURES: WHAT IS AN AIF?
■ Other things that aren’t caught:
■ UCITS
■ Holding companies
■ Securitisation special purpose vehicles (SPVs)
■ Pension funds, insurance contracts
Concerns about club deals, co-invest vehicles etc
NEW PROSPECTUSES ORDER: BACKGROUND
■ Collective Investment Funds (Certified Funds –
Prospectuses) (Jersey) Order 2012
■ All certified funds (unclassified, expert, listed) must
comply from November 2013
■ Replaces UFPO and CGPO
NEW PROSPECTUSES ORDER: WHY DO YOU CARE?
■ Transitional provisions about to expire
■ All open-ended funds will be caught
■ Closed-ended funds – impact if they started
marketing before November 2012
■ Requirement for ongoing revision (can be done by
supplement) if new offer or material change
■ Criminal offence- 5ys and/or fine
NEW PROSPECTUSES ORDER: NEXT STEPS
■Beat the rush!
■If UFPO compliant, should be straightforward
■Can get derogations – need to be reasoned
and specifically requested
MANAGED ACCOUNTS: BACKGROUND
■ What is a managed account?
■ Art 2 FS(J)L – distinguishes FSB and IB based on who
the client is
■ FSB regime less onerous than IB
■ Fund managers prejudiced – need IB as well as FSB
for doing exactly the same job
■ Proposed new class of FSB and IB exemption
■ Hopefully in force early 2014
MANAGED ACCOUNTS: WHY SHOULD YOU CARE?
■ Can streamline regulation for existing Jersey fund
managers
■ Can attract new managers to the Island and
encourages substance
■ Provides clarity on tax position
■ Potentially neat solution to AIFMD
MANAGED ACCOUNTS: CRITERIA
■Minimum investment US$1,000,000
■Single Individual (includes couples and family
offices) or Corporate client
■Discretionary investment management
■Investment policy/restrictions either the same
or substantially similar to existing fund
■Subject to change!
MANAGED ACCOUNTS: NEXT STEPS
■Tell people!
■See if suitable for fund manager clients MoME’d or otherwise
■Convert existing structures?
■Develop custody products?
LLPs: BACKGROUND
■ Introduced in 1997
■ Supposed to attract international professional partnerships
■ Combination of £5m ‘deposit’ and UK government pressure on
HMRC meant no-one used them
■ UK LLPs have since became popular structures for fund
managers
■ LLP law changing - £5m requirement already gone - and
wholesale modernisation in progress
LLPs: WHY SHOULD YOU CARE?
■ Key product for fund managers looking to set up in Jersey
■ Combination of separate legal personality, tax transparency
and limited liability
■ Other tax advantages in UK
■ More flexible than companies - like a ‘general’ partnership but
with limited liability
■ More flexible than limited partnerships – every partner can
take part in management without losing limited liability
LLPs: NEXT STEPS
■ Get familiar with the structure – basic filing and
solvency requirements
■ Spread the word
■ Await new LLP law later this year
■ New UK proposals may drive existing LLPs offshore
FATCA/SON OF FATCA: BACKGROUND
■ The US wants the rest of the world to help it collect taxes
■ This is done by identifying US investors in local structures and
providing information on their interests or by making foreign
financial institutions withhold tax on payments they make
■ If you don’t comply, the US can impose withholding taxes on
any US investments
■ Everyone hates FATCA – delayed and possibly diminished – 1
Jan 2015 now deadline for FFIs
■ UK wants in on the act – Son of FATCA
■ Stop Press: Jsy/UK IGA signed up this week
FATCA/SON OF FATCA: WHY SHOULD YOU CARE?
■ Withholding tax = very unhappy investors
(particularly non-US)
■ Either Fund or Administrator/Custodian will be
responsible
■ Need to know who your investors are
■ Deemed compliance
■ Data Protection issues?
■ Son of FATCA could drive UK investors elsewhere
FATCA: NEXT STEPS
■ FATCA: Wait for Guidance Notes
■ Son of FATCA: IGA details to follow
■ In the meantime, identify existing US investors
■ Identify new US investors – use subscription agreement reps
■ Sort potential Data Protection issues – use subscription
agreement
■ New world order on tax network agreements by 2015?
NEW SECURITY INTERESTS LAW: BACKGROUND
■ Old law was old
■ New law is new
■ New not necessarily better but coming in on 1
January 2014 anyway
NEW SECURITY INTERESTS LAW: WHY SHOULD YOU CARE?
■ If your structures lend against Jersey-situate collateral, all
security must be taken in accordance with new law from
1/1/14
■ Existing security OK – but could it be improved?
■ More certainty on non-sale enforcement
■ Register introduced so need to check when buying Jersey
assets
■ If you are a bank or custodian, you may have to be party to
SIAs
■ Third party security now officially OK
CONTACT DETAILS
Robert Milner
Partner, Carey Olsen
T 01534 822 336
E [email protected]
This presentation is intended for educational purposes only, is not for circulation and does not
constitute legal advice. Legal advice should be sought for specific queries or circumstances.
© Copyright 2013

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