This interview features in the ‘Future of Fund Services’ Report, published by Private Funds CFO.
What have you seen in terms of regulatory activity, and how are funds responding?
Elliot Refson: There is currently a plethora of regulatory activity underway, for example around the EU pre-marketing rules, AIFMD II proposals, ESG regulation and AML. While there are always early adopters or those who embrace a particular piece of legislation, it is my experience that managers tend to comply when regulation is cemented.
As a jurisdiction, Jersey has always been an early adopter of new regulation, taking a robust but pragmatic approach within our globally respected regulatory framework in order to maintain our global reputation.
How will the new reverse solicitation rules coming into effect impact the funds market in Jersey?
ER: This refers to the pre-marketing rules in the EU. These rules have clarified what constitutes pre-marketing and thereby limit what can be seen as a genuine reverse solicitation scenario.
Jersey is a tried and tested route for marketing under National Private Placement Regimes into the EU, outside of the full scope of the AIFMD, and therefore offers a very efficient gateway into Europe for countries that have typically relied on reverse solicitation.
Philip Pirecki: It is also worth highlighting that reverse solicitation might come under increased scrutiny and that the EU have already announced that they will look to start collating data on reverse solicitation. We are seeing reaction to this from the US where our NPPR route offers a middle ground and removes the growing uncertainty surrounding pre-marketing/reverse solicitation.
What requirements must foreign limited partnerships fulfill to continue as a Jersey law-governed limited partnership under the latest regulatory changes? Are there currently any major obstacles to approvals being granted?
PP: In July 2020, Jersey introduced a straightforward statutory migration scheme for the continuance of non-Jersey limited partnerships to Jersey and this regime is working well.
There are no obstacles because under the Continuance Regulations, a foreign limited partnership may continue as a limited partnership within Jersey if it is not prohibited from doing so by the laws of the jurisdiction in which it was formed and does not have legal personality under the laws in which it was formed.
How do the new limited partnership rules affect GPs wanting to migrate to Jersey? How are they impacting fundraising dynamics?
ER: The continuation would not create a new limited partnership in Jersey or aff ect any existing partnership interests or assets. Similarly, the continuance would not affect any act done to, or powers, rights or obligations of, the limited partnership exercised by any partner or other person before its continuation.
PP: With regards to fundraising, we have seen a lot of enquiries from investors in jurisdictions that may be seen as sub-optimal particularly from the perspective of non-compliance with international standards.
What kind of solutions are available to funds looking to migrate to Jersey?
PP: If the continuing limited partnership operates as an investment fund, additional regulatory applications will need to be made and authorizations obtained before the continuance has effect.
It is expected that many continuing limited partnerships will seek approval as Jersey Private Funds. The application process for a JPF is easy and straightforward and the local Jersey administrators and lawyers advising on the continuance will be able to facilitate this.
What impact would a move have on LPs, under the new rules?
ER: The Continuance Regulations do not expressly require limited partners to consent to a continuance into Jersey, but the limited partnership agreement itself may require such consent to be obtained.
How does Jersey’s regulatory landscape differentiate it from other major fund hubs such as Luxembourg and the Republic of Ireland?
ER: Jersey is a Crown Dependency and independent of the UK and the EU. Financial services is the bedrock of our economy. Our default is stability, both in terms of political stability and fiscal stability. Further, we offer a minimal change outlook from a regulatory, legal and economic perspective.
This basis of stability is underpinned by tax neutrality and supported by world-class infrastructure, highlighted, for example, by having the fastest broadband in the world and by broad and deep expertise from the nearly 14,000 people who work in the finance industry.
PP: One thing that sets Jersey apart is our ‘opt-in/opt-out’ stance to AIFMD. This allows managers to be outside of scope of the directive when outside of Europe. Within Europe, Jersey has longstanding market access arrangements via the NPPRs with the member states of the EU, and Jersey’s access to the UK market via the National Private Placement Regime remains guaranteed post-Brexit. As a result, Jersey offers a marketing bridge between the EU and the UK as well as to the rest of the world.
ER: But there is a reason why the NPPRs matter and why they are so strongly supported by industry from across the world, as highlighted in KPMG’s pre-AIFMD2 report which says that by the EU’s own statistics, only 3 percent of all alternative investment fund managers are registered to market in more than three European jurisdictions. If a manager is a part of the 3 percent who market on a pan-European basis or to the retail market, then they will most likely need to access EU markets via another jurisdiction under full scope of AIFMD or UCITS. But if they are one of the 97 percent who do not market so widely within the EU, then Jersey and its European Private Placement agreements offers a more efficient solution outside the full scope of AIFMD. It’s a real differentiator.