Jersey: Funds Quarterly Legal And Regulatory Update – 1 January 2015 To 31 March 2015

FATCA

1. New FATCA IGA guidance notes

On 3 February 2015, the Jersey Chief Minister’s Department published the latest version of the Guidance Notes on the Taxation (International Tax Compliance) (Jersey) Regulations 2014 in relation to the implementation of obligations arising under the intergovernmental agreements (IGAs) with the US and UK.

The IGAs’ aim is to improve international tax compliance through domestic reporting and the automatic exchange of information. The Guidance Notes provide practical assistance to businesses and staff of Jersey’s tax office when dealing with entities affected by the IGAs and, if and when agreed, other bilateral automatic exchange of information agreements implementing FATCA-based reporting (including the Common Reporting Standard).

2. FATCA reporting deadlines

30 June 2015 marks the deadline for the first reports of FATCA information required under the US/Jersey IGA. The equivalent deadline under the UK/Jersey IGA is 30 June 2016.

Certain funds might, however, be able to benefit from the reporting exemption for certain regularly traded interests. If seeking to rely on this exemption, attention should be drawn to the fact that the interpretation of what constitutes interests “regularly traded on an established market” differs markedly between the US and UK IGAs.

Ahead of the 2015 and 2016 reporting deadlines, funds must obtain from investors all information as is necessary in order to fulfil the FATCA due diligence and reporting requirements. In light of this, it has become vital for funds to include provisions in their constitutional documents which oblige investors to supply all such requested information.

Jersey/ JFSC

3. Managed Accounts – supporting documentation published

Following on from The Financial Services (Investment Business (Qualifying Segregated Managed Accounts – Exemption)) (Jersey) Order 2014, the Jersey Financial Services Commission (JFSC) has published supporting documentation for the qualifying segregated managed accounts (QSMA) regime, namely a Notice of Fees, a Form to Report the Quarterly Statistical Information and a Notification Form re: commencement of QSMA activity.

4. Update on the AML/CFT Handbooks

Following on from the 2014 series of Consultation Papers and the AML 1 – 3 Feedback Paper published by the JFSC in December 2014, the following handbooks are now available:

the revised AML/CFT Handbook for Regulated Financial Services Business noting, amongst other things, the delay in consulting on Section 14 – Funds and Fund Services Business;
the revised AML/CFT Handbook for the Legal Sector; and
the AML/CFT Handbook for the Accountancy Sector.

5. Civil liability for breaches of the Codes

On 20 February 2015, the Financial Services Commission (Amendment No. 6) (Jersey) Law 2015 was registered, which makes changes to the Financial Services Commission (Jersey) Law 1998 to include provisions to enable the JFSC to impose civil financial penalties for material contraventions of the Codes of Practice and the AML/CFT Handbook.

6. Update on Jersey Financial Services Ombudsman Law

The Financial Services Ombudsman (Jersey) Law 2014 (Appointed Day) (No. 2) Act 2015 came into force on 10 March 2015 allowing for the opening of necessary information gateways with the JFSC. Specifically it will:

require the JFSC to provide the Office of the Financial Services Ombudsman (OFSO) with information held by the JFSC and required by the OFSO to calculate or raise a levy;
make it an offence to disclose information received for the purposes of complaints, case-fees or levies, subject to certain exceptions; and
specify other powers of the OFSO to provide non-restricted information and guidance.

7. JFSC Business Plan 2015

The JFSC published its Business Plan 2015 in January, in which it outlined its strategic goals and priorities. Among the 10 priorities listed for 2015 is a ‘Funds regime review’, for which it will continue to work with stakeholders to undertake a review of the current Jersey Funds and Fund Services Business regime. The business plan mentions that consideration is being given to the regime’s current effectiveness and opportunities that may exist to enhance or simplify it, whilst still ensuring that it complies with all relevant international standards.

Transparency

8. UK Register of beneficial ownership update

The UK Small Business, Enterprise and Employment Bill is currently at the House of Lords Committee stage, which requires the Secretary of State to give guidance on what is meant by ‘persons with significant influence and control’. The UK Department for Business, Innovation and Skills has published a draft Terms of Reference for the working group, in which it is suggested that the guidance will be produced by October 2015. It also indicates that the legislation’s first phase will commence in January 2016, for companies keeping their own registers, and the second phase will commence in April 2016, for companies filing Person with Significant Control information on the public register.

9. 4MLD – political agreement in Europe on beneficial ownership registers

On 15 January 2015, the Chief Minister’s Department provided a Summary of its understanding of Jersey’ position under, and the likely impact of, the EU Fourth Money Laundering Directive (4MLD), for which political agreement was reached on 16 December 2014.

According to the Summary, due to the relationship Jersey has with the EU (not being a member state) there is no obligation on it to adopt 4MLD and, should Jersey wish to follow the EU approach, its impact would be minimal.

10. BEPS update

On 6 February 2015, the Organisation for Economic Cooperation and Development (OECD) announced an agreement with G20 countries concerning implementation of the base erosion and profit shifting (BEPS) project, and presented the following findings at the G20 Finance Ministers meeting in Istanbul:

A mandate for negotiations on a multilateral instrument to streamline implementation of tax treaty-related BEPS measures, offering countries a single tool for efficiently updating their tax treaties in a consistent manner.
An implementation package for country-by-country reporting in 2016 and a related government-to-government exchange mechanism to start in 2017 with the aim of increasing transparency through improved transfer pricing documentation standards.
The criteria to assess which preferential treatment regimes for intellectual property (patent boxes), and other preferential regimes, can be considered harmful tax practices.

AIFMD

11. House of Lords criticises AIFMD implementation

On 2 February 2015, a report entitled The post-crisis EU regulatory framework: do the pieces fit? was published by the House of Lords EU Select Committee which set out its conclusions on certain European regulatory developments, including the introduction of the European Supervisory Agencies and the European Commission’s proposals for a capital markets union. Whilst generally positive, the report is critical of the Alternative Investment Fund Managers Directive (AIFMD) which put in place ‘inappropriate definitions and requirements’ (leading to significantly increased operational costs for Real Estate Funds, Private Equity Funds and Venture Capital Funds in particular) and was disproportionate in its application due to excessive politicisations. On numerous occasions the report calls for better quality impact assessments at every stage of the legislative process before further significant reforms are introduced.

12. ESMA publishes responses to call for evidence

A call for evidence was issued in October 2014 by the European Securities and Markets Authority (ESMA) to gather views on the extension of the AIFMD passport to third party countries (i.e. non-EU countries) by July 2015. The deadline for the submission of responses to the call for evidence was 8 January 2015. Ogier worked closely with the Jersey Funds Association on preparing a response, which has been published on the ESMA website.

We understand that ESMA is likely to make a decision this summer on whether the AIFMD passport will be extended to third party country AIFMs on a country by country basis.

Case law

13. Weavering judgement reversed

On 12 February 2015, the Cayman Islands Court of Appeal handed down its long awaited judgment in Weavering Macro Fixed Income Fund Limited (in Liquidation) v Peterson and Ekstrom.

In 2011 the directors of the Weavering Fund were found wilfully negligent by the Grand Court in respect of their duty to supervise the Fund’s affairs, and were ordered to pay damages of US$111 million to Weavering’s insolvent estate.

The Court of Appeal has found that although the Judge had correctly identified the appropriate legal test to determine whether a director is in wilful breach of his duty, i.e. that the director commits a knowing and intentional breach of duty, the evidence given at trial did not support the trial Judge’s finding of a wilful breach. An inference that the directors had consciously chosen not to perform their duties to the fund was an insufficient basis for a finding of wilful default. That finding could only have been established on a specific finding of facts that the directors both knew what was expected of them but had decided not to perform in accordance with that expectation. The Court of Appeal decided that the trial Judge had not made such findings.

A fuller briefing with a detailed analysis of the Court of Appeal’s decision and its implications for Cayman directors will follow in due course.