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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24 October 2013
New Prospectuses Order
FATCA and Son of FATCA
New Security Interests Law
Why should you care?
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)
AIF Codes of Practice
Very COBORegulated Unregulated
private only / PPF CIF Fund
* The Alternative Investment Funds (Jersey) Order 2013, Article 2(3)
** The Alternative Investment Funds (Jersey) Order 2013, Article 2(1)
*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)
Why aren’t the answers clear?
Other things that aren’t caught:
Securitisation special purpose vehicles (SPVs)
Pension funds, insurance contracts
Concerns about club deals, co-invest vehicles etc
Collective Investment Funds (Certified Funds – Prospectuses) (Jersey) Order 2012
All certified funds (unclassified, expert, listed) must comply from November 2013
Replaces UFPO and CGPO
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
Beat the rush!
If UFPO compliant, should be straightforward
Can get derogations – need to be reasoned and specifically requested
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
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
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!
See if suitable for fund manager clients - MoME’d or otherwise
Convert existing structures?
Develop custody products?
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
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
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
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
Withholding tax = very unhappy investors (particularly non-US)
Either Fund or Administrator/Custodian will be responsible
Need to know who your investors are
Data Protection issues?
Son of FATCA could drive UK investors elsewhere
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?
Old law was old
New law is new
New not necessarily better but coming in on 1 January 2014 anyway
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
Partner, Carey Olsen
T 01534 822 336