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JFA – Legal Update

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.

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JFA – Legal Update

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  1. JFA – Legal Update 24 October 2013 Robert Milner

  2. LEGAL UPDATE AIFMD New Prospectuses Order Managed Accounts LLPs FATCA and Son of FATCA New Security Interests Law

  3. FOCUS FOR TODAY – FUNDS PRACTITIONERS Background? Why should you care? Next Steps?

  4. 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)

  5. 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

  6. EXISTING AIFS: BRIDGING THE GAP AIF Codes of Practice AIF Cert AIF Cert Notice • AIFMD rules • Consent to marketing • Supervision • Information • Authorisation • Permission Very COBORegulated Unregulated private only / PPF CIF Fund

  7. JERSEY REGULATION: AIFS * The Alternative Investment Funds (Jersey) Order 2013, Article 2(3) ** The Alternative Investment Funds (Jersey) Order 2013, Article 2(1)

  8. 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)

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. NEW PROSPECTUSES ORDER: NEXT STEPS Beat the rush! If UFPO compliant, should be straightforward Can get derogations – need to be reasoned and specifically requested

  15. 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

  16. 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

  17. 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!

  18. MANAGED ACCOUNTS: NEXT STEPS Tell people! See if suitable for fund manager clients - MoME’d or otherwise Convert existing structures? Develop custody products?

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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?

  25. 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

  26. 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

  27. CONTACT DETAILS Robert Milner Partner, Carey Olsen T 01534 822 336 E robert.milner@careyolsen.com

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