KEY TAKEAWAYS
- As Jersey is considered from a UK and an EU perspective to be a "third country", it is outside the scope of full compliance with the AIFMD and can take advantage of the NPPR marketing routes.
- A Jersey domiciled AIFM will either require a licence or if it is sub-threshold, an approval from the JFSC under Jersey law.
- The changes brought by AIFMD II which will impact "third countries" (like Jersey) include the NPPR framework conditions (eg access will only be available where the third country where the Non-EU AIFM or the Non-EU AIF is established is not identified as a "high-risk third country" pursuant to the EU's fourth Anti-Money Laundering Directive, which Jersey continues to meet).
The Alternative Investment Fund Managers Directive 2011/61/EU ("AIFMD") came into force on 22 July 2013, setting standards for the authorisation, operation and transparency of alternative investment fund managers ("AIFMs") and the marketing of alternative investment funds ("AIFs") into the EU or EEA.
As of 31 January 2020, the UK ceased to be a member state of the EU and, therefore, AIFMD is no longer applicable to the UK. In its place, the UK has implemented a regime regulating fund managers and the marketing of AIFs in the UK, which, in effect, generally mirrors the AIFMD requirements.
The methods for marketing funds to professional investors in the EU or EEA under the AIFMD are:
- Marketing passport regime: Marketing passports are used by EU AIFMs to market EU AIFs across the EU or EEA through a regulator-to-regulator prior notification procedure. Currently only EU and EEA countries benefit from the marketing passport. It remains unclear as to whether the marketing passport will be extended to include the third countries, such as Jersey, as had previously been the intention pre-Brexit.
- National Private Placement Regimes ("NPPRs"): NPPR is a mechanism which allows non-EU AIFMs to market AIFs which would not otherwise be authorised to be marketed under the AIFMD marketing passport regime.
Following 31 January 2020, the marketing passports under AIFMD are no longer available to the UK.
The methods of marketing funds to professional investors in the UK under the Alternative Investment Fund Managers Regulations 2013 of the United Kingdom (the "UK AIFM Regulations") are now by way of NPPR.
Jersey satisfies the requirements for the purposes of marketing under the NPPRs through:
- a co-operation agreement between the JFSC and the regulators of the EU or EEA member states, coordinated by the European Securities and Markets Authority ("ESMA");
- Jersey remaining off the Financial Action Task Force blacklist (the "FATF Requirement"); and
- AIFMs complying with transparency, reporting and disclosure requirements provided for by the AIF Code of Practice issued by the JFSC (the "AIF Code").
It is important to note that certain EU or EEA member states have different requirements under their NPPRs, so advice should be sought from a local counsel in each relevant Member State before conducting marketing activities to potential investors in that jurisdiction.
Jersey AIFMs marketing into Europe or the UK
Jersey-based fund managers are in a unique position as they are considered from a UK and an EU perspective to be located in a 'third country'. As Jersey is considered to be a third country, it is outside the scope of full compliance with the AIFMD and can take advantage of the NPPR routes. The AIFMD and UK AIFM Regulations have been implemented on an 'opt-in' basis in Jersey. This means that where Jersey fund managers are not targeting UK, EU or EEA investors, they are not obliged to opt into the AIF Code compliance.
If an AIFM is Jersey domiciled and intends to market a fund to UK, EU or EEA-based investors, it will:
- either need to hold a licence under the Financial Services (Jersey) Law 1998 (the "FSJ Law") or, if it is a sub-threshold AIFM (as summarised below), it will need to be approved by the Jersey Financial Services Commission (the "JFSC") as a sub-threshold AIFM service provider under the Alternative Investment Funds (Jersey) Order 2013 (the "Jersey AIF Order"); and
- in each case, it will need to comply with the applicable sections of the AIF Code.
From a Jersey perspective, and under the AIFMD and UK AIFM Regulations, there are less onerous requirements for sub-threshold AIFMs. To qualify as a sub-threshold AIFM in Jersey, the AIFM’s combined AUM must fall below certain thresholds:
- leveraged assets of less than €100 million; or
- unleveraged and closed-ended assets valued at less than €500 million.
Jersey funds marketing into Europe or the UK
- Jersey Private Funds ("JPFs") must apply to the JFSC for an AIF Certificate under Jersey’s Alternative Investment Funds (Jersey) Regulations 2012 (the "AIF Regulations") and comply with the applicable sections of the AIF Code. A Jersey-based AIFM will either need to be licensed by the JFSC under the FSJ Law or, if the AIFM meets exemption criteria as a "sub-threshold" AIFM, it will have to be approved as a sub-threshold AIFM under the Jersey AIF Order.
- Jersey Expert, Listed, Eligible Investor, Unclassified and Recognised Funds: these funds are already regulated under the Collective Investment Funds (Jersey) Law 1998 and their service providers need to be regulated under the FSJ Law, regardless of whether they plan to market into Europe. Where these funds are also AIFs, as part of the fund application process, these funds simply notify the JFSC of their intention to market interests in the UK, EU or EAA. As part of the same application, the AIF will also confirm to the JFSC the identity of its AIFM and whether it is a sub-threshold or full compliance AIFM. The AIFM will then be required to comply with the applicable sections of the AIF Code.
- Unregulated funds: unregulated funds cannot be marketed into the UK or EU, so such funds would need to be converted into either a JPF, Expert, Listed, Eligible Investor, Unclassified or Recognised funds before they can be marketed to UK or EU investors.
AIFMD II
- More than 10 years after the AIFMD was adopted, the EU Parliament and the Council of the EU have agreed on specific amendments to the text of the AIFMD ("AIFMD II").
- While AIFMD II entered into force on 15 April 2024, member states of the EEA have until 16 April 2026 to implement its rules, subject to certain measures that member states must implement from 16 April 2027.
- Changes impacting third countries (including Jersey) include the NPPR framework conditions (reference lists have been updated to EU AML and tax blacklisting (e.g. the FATF Requirement is being replaced and under AIFMD II access will only be available where the third country where the non-EU AIFM or the non-EU AIF is established is not identified as a "high-risk third" country pursuant to the EU's fourth Anti-Money Laundering Directive, which Jersey continues to meet)), investor disclosure requirements and annex IV reporting. These expand on existing rules and, ahead of the changes coming into force on 16 April 2026, in-scope AIFMs (including Jersey AIFMs marketing funds to EU investors) need to familiarise themselves with the new ESMA reporting templates (once available).
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