PRESENTED BY

JFA – Legal Update

24 October 2013

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

■ Consent to marketing

■ Supervision

■ Information

■ Authorisation

■ Permission

Very COBO Regulated Unregulatedprivate only / PPF CIF Fund

AIF Codes of Practice

AIFCertAIF

Cert

Notice

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

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

CONTACT DETAILSRobert MilnerPartner, Carey Olsen

T 01534 822 336

E robert.milner@careyolsen.com