Funds Europe – How concerned are you about Brexit’s impact on Jersey?
Refson – Jersey is outside the EU and the UK. Within the EU, we have strong, longstanding bilateral agreements with member states and established market access arrangements via the national private placement regimes. These are not going to be impacted by Brexit. Our access to the UK is guaranteed under our private placement agreement there, and that was recently augmented by our regulator in the event of a no-deal Brexit.
By the EU’s own statistics, only 3% of managers market in more than three European countries. If you are one of the 3%, then you’ll go elsewhere and be regulated under the AIFMD [Alternative Investment Fund Managers Directive] or Ucits Directive, but if you’re one of the 97%, then Jersey and its private placement arrangements offer a more cost-effective, faster, more efficient solution outside AIFMD.
According to a KPMG report into AIFMD II, there is strong demand for private placement to continue. This differentiates us from the other European jurisdictions. We are complementary rather than competitive. We’ve got over 180 fund promoters marketing over 320 funds into Europe. That figure has risen 76% since December 2015.
Haithwaite – Whatever the final Brexit deal is, it will impact Jersey – certainly in terms of its ability to trade with the EU. In financial services, however, the position remains unchanged. We are treated as a ‘third’ country. National private placement rules are available to Jersey, and they work well.
The number of managers using Jersey vehicles to market into the EU has risen consistently year-on-year, and for good reason: they’re tried and tested, cost-effective, and they enable access without the burdens of full AIFMD regulation. Jersey structures can also be marketed worldwide, so you get the best of both worlds.
While the Brexit negotiations are uncertain, the Jersey regime is well known. If you were ready to raise a fund, Jersey was a good place to do that unaffected by whatever Brexit brings.
Coughlan – Clearly communicating to the global market that our position is largely unchanged is certainly important and a point that we need to continue to reiterate to remove any misconceptions that may exist within the wider industry.
My greatest Brexit-related concern is the uncertainty over the stance that the UK may take post-Brexit. As part of the Budget 2020, the UK government are committed to a review of the UK funds regime with a view to ensuring that the UK is a competitive domicile for fund managers. VAT on management fees was specifically mentioned as an area of focus, which I found interesting from a Jersey perspective as this is clearly a key benefit of structuring real estate (RE) in Jersey. The benefits of RE structuring in Jersey have certainly diminished recently, given the inclusion of RE within the corporation taxation regime and also the more recent amendments to stamp duty rules.
Post-Brexit, does the UK see itself as a competitor to Jersey and other offshore jurisdictions? That’s the big question in my mind.
Burgess – Jersey has strong relationships with UK-based fund managers. In 2016, we saw many moving to European locations like Luxembourg, but that has slowed. In July, the Financial Conduct Authority and European Securities and Markets Authority announced that the Memoranda of Understandings that was agreed in February 2019 to cover a hard or no-deal Brexit scenario would continue after the end of the transition period on December 31. That supports current fund management structures in London. There’s a great opportunity for Jersey to continue to work with UK-based fund managers to build out not only their activities in Europe – and bear in mind that 50% of UK fund managers’ foreign activity is in Europe, so it’s material – but also globally.
For UK managers, a split model will inevitably arise. UK managers that want to raise funds in Europe will apply one set of rules, and the UK AIFM for managers raising funds outside Europe will happen separately. Jersey is in a perfect position to offer fund managers a one-stop shop of private placement in Europe and platforms outside Europe.
There is a UK review of VAT on fund management fees. If they get that right, it’s going to make the UK a more interesting place to be a fund manager. There’s also a review on how special purpose vehicles (SPVs) are taxed. We see SPVs used underneath funds. And in addition, the possibility of a UK professional investor fund (PIF) could offer an alternative to the JPF.