The Unregulated Fund Regime was introduced in 2008 by virtue of the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 (the “Order”), which provides a statutory exemption from the Collective Investment Funds (Jersey) Law 1998 (“CIF law”).
An Unregulated Exchange Traded Fund (“ETF”) is therefore a type of fund which falls outside the regulations in the CIF law, and offers an alternative structure subject to lighter regulation. An ETF is typically less costly to run than a fund established under the CIF law. The speed and simplicity of establishment provides Jersey with a significant advantage in competing with other European and offshore jurisdictions.
Although the ETF itself is classed as ‘unregulated’, a Jersey based administrator will still come within the remit of the Jersey Financial Services Commission (“JFSC”). The administrator will be required to hold a Fund Services Business licence (“FSB Licence”) and will be required to adhere to the codes of practice and the underlying core principles which are in place to protect the investor by ensuring that any FSB licensed provider conducts its business with honesty, integrity, transparency and with due regard to the interests of the fund (amongst other things).
Jersey service providers are also expected to maintain the reputable standards which resulted in Jersey being endorsed by the International Monetary Fund on the high standards and supervision in place.
The conditions for establishing an ETF are that:
- the units of the ETF are listed on one or more of the 54 exchanges listed in the Order, listing takes place within 90 days of the establishment of the ETF;
- the ETF must be closed-ended, which means there are no additional units created once the ETF has been launched and the units are not usually redeemable until the ETF terminates (but could be transferable during the life of the ETF);
- it has to be structured as either a Jersey company, a Jersey registered limited partnership, or a Jersey unit trust; and
- the offering documentation contains an appropriate warning in a form prescribed in the Order stating that the ETF is unregulated and that the JFSC have neither evaluated nor approved the scheme of arrangement or the prospectus.
Provided the above conditions are met, the ETF can be launched immediately following the filing of written notice to the JFSC.
The on-going requirements are minimal compared to the requirements of a fund established under the CIF laws. There is no need to have an appointed investment manager with a proven standing or track record and there is no requirement to appoint a custodian in relation to the ETF.
Furthermore, there are no restrictions imposed under the Order upon the level of borrowing or gearing which may be entered into by the ETF. The ETF will be governed by the rules set out by the relevant exchange, and will also have to comply with either the Companies (Jersey) Law 1991, the Limited Partnerships (Jersey) Law 1994, or the Trusts (Jersey) Law 1984 depending on how the ETF is structured. There are also no restrictions on the amount of investment, or the number and sophistication of the investors, as is the case under the CIF law or an Eligible Investor Fund.
ETFs are just one of a number of Jersey fund structures that have been introduced to allow a variety of choice for establishing Jersey funds. This allows Jersey practitioners to tailor the structure of the fund according to a client’s specific requirements.
For more information on ETFs or any other type of fund please contact our fund services department.
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