The introduction by the Jersey Financial Services Commission in February 2008 of a system that allows Unregulated Funds to be established in the island is a reflection of its growing maturity as a funds jurisdiction, following the introduction of the Experts Fund, Listed Fund and Non-Domiciled Fund regimes over the past four years. The Unregulated Fund is the latest logical extension of Jersey's strategy to focus on niche, sophisticated products for high net worth and institutional investors rather than retail funds.
The Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 allows eligible funds merely to notify the Commission of their establishment, rather than go through a full authorisation process. The speed and simplicity of the system provides Jersey with a significant advantage in competing with other European and offshore jurisdictions to become a jurisdiction of choice particularly for private equity funds, hedge funds and other alternative funds for sophisticated investors.
There are two categories of unregulated fund. Unregulated Eligible Investor Funds are open to investors placing a minimum of USD1m and to sophisticated investors. Investors are required to acknowledge in writing their acceptance of the risks involved in a prescribed form. In addition, the fund must take steps to ensure that its investors meet the legal requirements to invest in the fund
The fund may be open-ended or closed-ended and may take the form of a company (or cell company), unit trust or partnership (where the general partner is required to be a Jersey company). There is no requirement for an Unregulated Eligible Investor Fund to have a Jersey-based administrator or custodian, nor Jersey-resident directors, nor for Jersey-based auditors to be appointed to the fund. The fund may only list on a stock exchange that permits restrictions upon transfers of interests in the fund, to ensure that only eligible investors can invest in the fund.
By contrast, an Unregulated Exchange Traded Fund is a form of unregulated fund that need not be regulated by the Jersey Financial Services Commission on the basis that it is already regulated by a stock exchange. Funds listed on a prescribed list of stock exchanges may be classified as Unregulated Exchange Traded Funds.
An Unregulated Exchange Traded Fund may only take the form of a closed-ended fund, but may be established as a company or cell company, unit trust or partnership. It is subject to the same criteria for eligibility of investors as an Unregulated Eligible Investor Fund. As with the latter, there is no need for Jersey-based auditors to be appointed to the fund.
Recent amendments to the Financial Services (Jersey) Law 1998 allow the unregulated funds regime to operate more effectively. The general partner to an unregulated fund that is a limited partnership, or the trustee to a fund which is a unit trust, where the general partner or trustee is a special purpose vehicle, are now exempt from registration for fund service business under Article 9 of the Financial Services (Jersey) Law, provided that the SPV itself is provided with a registered office by a person registered as a manager of a managed entity (often a Jersey administrator). The Codes of Practice that apply to functionaries with a fund service business licence will not therefore apply.
Tom Amy is head of the funds and SPVs group at Volaw Trust & Corporate Services and Bill Gibbon is a group partner at Voisin