The evolution of Jersey's regulatory structure for the fund industry over the past three years has been essentially driven by the needs of the market. The various initiatives the island has undertaken, starting with introduction of the Expert Funds Guide in 2004, have been driven by the industry talking to people in London, listening to what they want from us as a jurisdiction, and responding to the needs of the market.
Cynics might say that Jersey is becoming a less regulated jurisdiction and is open to more risk, but it's more accurate to describe it as putting products into the market that are appropriate for certain types of investor and situations, and providing more structural flexibility to the market in the way they service Jersey-domiciled funds.
The introduction of Unregulated Funds, which carry a minimum investment level of USD1m, is the latest step in an overall strategy that requires Jersey to be responsive to the market and its needs in a meaningful way, with products that the market requires. The majority of these types of funds are currently domiciled in the Cayman Islands.
It would be almost misleading to claim that one was offering protection to sophisticated institutional investors with a very light touch regulatory regime. We ended up with an unregulated regime because the Jersey Financial Services Commission believed it better to have a structure that was clearly designated as unregulated rather than an even more lightly regulated structure than those offered in other jurisdictions, which in reality would not be subject to any meaningful regulation.
The nature of these funds is made clear to investors through the disclosure requirements and by restricting access to appropriate investors. It's then down to the investors to carry out their due diligence on the fund - as they would do anyway. This type of product is for institutions, funds of funds, family officers, pension funds and their advisers, who are more than able to look after themselves, not the type of investors represented by independent financial advisers.
In introducing unregulated funds, Jersey is simply responding to the requirements of the market; had a similar regime been available a decade ago, many of the funds that are now domiciled in Cayman might well have come to the Channel Islands instead. In practice, it took the launch of Expert Funds to begin the process of providing the full range of vehicles, structures and regulatory regimes the market requires.
But Jersey does see itself at the upper end of regulated offshore jurisdictions, and strives to meet international standards and maintain its reputation as well as respond to the needs of the market. By offering a product that's structurally very open as to how it's serviced, managers have a greater choice of service providers, which must be in the interests of investors. For example, there is a wider pool of directors beyond Jersey's shores that can be appointed to fund boards, which paves the way for better corporate governance and ultimately greater investor protection.
Gary Clark is head of hedge fund services with Mourant International Finance Administration in Jersey