Brexit, transparency and private placement – Q&A on Jersey's future as an investment funds centre

Investment funds partner Emily Haithwaite has extensive regulatory experience in advising investment funds and fund services businesses and directors on their regulatory license applications and ongoing obligations. She is an expert on AIFMD regulation and is an active member of Jersey's AIFMD industry working group, and is a member of several other working groups considering the impact of international developments on laws, regulations and investment structures in Jersey.

In this Q&A, Emily considers the most recent regulatory developments and their impact on Jersey.


In terms of its skill base and regulatory environment, what are Jersey’s strengths as a funds centre and which areas could benefit from further investment or development?

For many years now there has been a huge focus on upskilling among employees and professionals locally. Our clients and the advisers we deal with in the UK are often surprised by how knowledgeable people in Jersey are, and how adaptable we are to new initiatives. We want to be right there where things are happening and provide people with the solution they need. We’ve got a new finance centre, which shows we’re open for business. It will encourage big businesses to come to Jersey because we can offer them the infrastructure they need to operate in a high-quality, modern and technologically progressive environment. Air links to London and Europe are good, but they could be even better, so that is an area for improvement.  Another area for improvement is messaging – Jersey and Jersey businesses should be more vocal about the quality of services they provide and the value they create for investors.


With tax transparency and competition still high on the global agenda, how is Jersey positioned and how is it responding?

Jersey has consistently been an early adopter of international standards on transparency and, in the most recent reports by MoneyVal, has been acknowledged to have a system for combating money laundering which is far more compliant than that of other competing jurisdictions, both onshore and offshore.  We should rightly be proud of that.  It goes back to the point as to what we could do better, which is to effectively impart that information and turn the conversation from one about low tax jurisdictions to one about what we do, that we do it well and how we benefit investors.


What is the significance of the Alternative Investment Fund Managers Directive (AIFMD) to Jersey? Is private placement still a robust option and what is the status of ‘third-country’ passporting?

AIFMD was significant for Jersey because, absent the third-country rules, Jersey would effectively have been locked out of the EU market. We were hot on getting our legislation in place to ensure managers based in Jersey were able to access the EU market under national private placement regimes. We have also introduced an option allowing managers to prepare for a full AIFMD passport, once this becomes available. In terms of national private placement regimes, those appear to work very well for our clients. Fund managers are able to market their funds within the regimes that are in place, and it’s been a solution for those managers who market in few EU member states or who, for whatever reason, don’t need the full passport or for whom the cost of a passport is prohibitive or unnecessary. Also, the passport has been shown not to be the panacea everyone thought it would be, not only in terms of cost but also in terms of set-up and reporting. Many of our clients who have tried the passporting route have come back to private placement having realised they can market to their target EU investors within the private placement regime, whereas the passport is costly and burdensome.


How might Brexit affect Jersey?

Brexit could be good for Jersey. Effectively the UK will become a third country. Jersey is already a third country, so to the extent that the UK is our largest trading partner, it would be a third-country-to-third-country situation. In many ways, it makes things simple. Many UK managers are hoping that structural solutions to EU distribution will still be available post-Brexit, but nobody knows what those negotiations will produce and what the timing of those will be, so in the interim, Jersey is well placed to service UK fund managers who are thinking about raising funds within this two or three-year period. We are more developed in terms of our third-country thinking than the UK.


How important are Jersey’s links with emerging markets, for instance in Asia, and how do you see these relationships developing?

It’s not just outward investment into the UK and other markets, it‘s also inward investment. We’ve seen Jersey structures being used for the purpose of Asian infrastructure projects, for example. Because Jersey is outside the EU, we can offer a non-EU regulated product for those purposes. Jersey works well because there’s no requirement for EU regulation or full AIFMD application. For the purposes of non-EU investors, it makes sense to have a non-EU product.


What other regulatory issues, such as BEPS, are occupying your time?

We are thinking about BEPS, of course, and how it might impact traditional Jersey fund structures. Jersey is a signatory to the BEPS initiative and is commitment to tax transparency.  The focus is turning to how to demonstrate real substance, particularly in the fund management space – that is a real strength which the Island can offer.   Regulation generally is an interesting question given the direction of travel in the US. The easier US regulation gets for fund managers, the more Europe will have to compete on a regulatory basis. At a recent gathering of UK managers, they were asking, ‘Is Paris or Frankfurt the biggest competitor to London, or is it New York?’.  It will be interesting to see what the next six to twelve months bring.


How do you see Jersey evolving as a financial jurisdiction?

We have a varied toolkit and the changes we’re making mean that we will continue to be attractive both to EU and non-EU investors and managers. We’re trying to broaden the jurisdictions from which we get business, and hopefully we will provide an infrastructure for all sorts of products, as opposed to just a cookie-cutter approach that certain other jurisdictions have relied on and which focus on one particular asset class, for example. Ultimately, we’re proud of Jersey’s fund industry and want to protect and enhance it.


This content originally appeared in a round-table Q&A format in Funds Europe.