CODES OF PRACTICE FOR CERTIFIED FUNDS - … · 2014-08-15 · any aspect of the proposal prior to...

CONSULTATION PAPER NO. 7 2009 CODES OF PRACTICE FOR CERTIFIED FUNDS Proposes the introduction of codes of practice in respect of unclassified collective investment funds issued with a fund certificate ISSUED JULY 2009

CONSULTATION PAPER The Jersey Financial Services Commission (the Commission) invites comments on this consultation paper. Robert Kirkby at Jersey Finance Limited (Jersey Finance) is co-ordinating an Industry response that will incorporate any matters raised by local businesses. Comments should reach Jersey Finance by 30 October 2009. Responses should be sent to: Robert Kirkby Technical Director Jersey Finance Limited 4th Floor, Sir Walter Raleigh House, 48-50 Esplanade, St Helier, Jersey JE2 3QB

Telephone: +44 (0) 1534 836004 Facsimile: +44 (0) 1534 836001 Email: [email protected]

It is the policy of Jersey Finance to make individual responses it receives available to the Commission upon request, unless a respondent specifically requests otherwise. Alternatively, responses may be sent directly to David Banks or David Porter at the Commission by 30 October 2009. If you require any assistance, clarification or wish to discuss any aspect of the proposal prior to formulating a response, it is of course appropriate to contact the Commission. The Commission contacts are: David Banks Director, Securities Telephone: +44 (0) 1534 822040 Facsimile: +44 (0) 1534 822002 Email: [email protected] David Porter Senior Examiner, Securities Telephone: +44 (0) 1534 822018 Facsimile: +44 (0) 1534 822002 Email: [email protected]

Commission Postal address: Jersey Financial Services Commission PO Box 267 14-18 Castle Street St Helier Jersey JE4 8TP

It is the policy of the Commission to make the content of all responses available for public inspection unless specifically requested otherwise.

CODES OF PRACTICE FOR CERTIFIED FUNDS 3 of 29

mailto:[email protected]:[email protected]

4 of 29 ISSUED JULY 2009

Glossary of terms

certified fund means an unclassified collective investment fund in relation to which a current certificate has been granted under Article 8B of the CIF(J)L.

Certified Fund Codes means the proposed Codes of Practice for Certified Funds.

Certificate Holder means the person described in Article 8A(1) of the Law who is issued with a certificate under Article 8B of the Law.

the CIF(J)L means the Collective Investment Funds (Jersey) Law 1988, as amended.

CO means Compliance Officer

the Commission means the Jersey Financial Services Commission.

the Commission Law means the Financial Services Commission (Jersey) Law 1998, as amended.

the FS(J)L means the Financial Services (Jersey) Law 1998, as amended.

FSB Codes means the Codes of Practice for Fund Services Business.

FSMA means the UK Financial Services and Markets Act 2000 as amended.

fund services business has the same meaning as in Article 1 of the FS(J)L.

fund service provider means a person who carries on fund services business.

IMF means International Monetary Fund

Jersey Finance means Jersey Finance Limited.

IOSCO means the International Organization of Securities Commissions.

MLCO means Money Laundering Compliance Officer

MLRO means Money Maundering Reporting Officer

OCIF means a fund approved by the Commission as a Jersey open-ended unclassified collective investment fund offered to the general public.

OCIF Guide means the latest version of the OCIF Guide to establishing an OCIF published by the Commission.

the Rules Order means the Collective Investment Funds (Recognized Funds) (Rules) (Jersey) Order 2003.

regulatory laws means the FS(J)L, the Banking Business (Jersey) Law 1991, the Insurance Business (Jersey) Law 1996 and the CIF(J)L, all as amended.

unitholder means any person who participates in a certified fund or who may participate in a certified fund as the context requires.

Unregulated Funds Order

means the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008


Contents Glossary of terms.......................................................................................................................................4 Contents ......................................................................................................................................................5 1 EXECUTIVE SUMMARY................................................................................................................6

1.1 Who would be affected?......................................................................................................6 1.2 Background...........................................................................................................................6 1.3 What is proposed and why?...............................................................................................7

2 CONSULTATION..........................................................................................................................10 2.1 Basis for consultation.........................................................................................................10 2.2 Responding to the consultation .......................................................................................10 2.3 Next steps............................................................................................................................10

3 THE COMMISSION......................................................................................................................11 3.1 Overview.............................................................................................................................11 3.2 Commissions functions....................................................................................................11 3.3 Guiding principles .............................................................................................................11

4 Discussion of proposal ..................................................................................................................12 4.1 Standard Conditions..........................................................................................................12 4.2 Compliance with IOSCO Objectives and Principles .....................................................12 4.3 Status of Guides .................................................................................................................13 4.4 General construct of the Certified Fund Codes .............................................................14 4.4 Collective investment funds not covered by the Certified Fund Codes ....................15

5 Detailed discussion of the Certified Fund Codes principles .................................................17 5.1 Conduct of business with integrity .................................................................................17 5.2 Highest regard for the interests of unitholders .............................................................17 5.3 Proper performance of its business activities and existence of adequate risk

management systems ........................................................................................................17 5.4 Transparency in business arrangements ........................................................................19 5.5 Adequate financial resources and insurance .................................................................19 5.6 Dealing with the Commission and others in an open and co-operative manner .....20 5.7 Not making statements that are false, misleading or deceptive .................................20 5.8 Compliance with any applicable Guide .........................................................................20 5.9 Consequences of breaching the Certified Fund Codes.................................................21

6 COST BENEFIT ANALYSIS ........................................................................................................22 6.1 Costs to industry ................................................................................................................22 6.2 Costs to the Commission ..................................................................................................22 6.3 Benefits ................................................................................................................................22

7 APPENDIX A ...........................................................................................................................................24

SUMMARY OF QUESTIONS......................................................................................................23

List of representative bodies who have been sent this consultation paper. ..........................24 APPENDIX B............................................................................................................................................25

Table showing standard certificate conditions and the equivalent provision in the Certified Fund Codes.....................................................................................................................25

APPENDIX C............................................................................................................................................29 Draft Codes of Practice for Certified Funds ...............................................................................29


1 EXECUTIVE SUMMARY 1.1 Who would be affected?

1.1.1 Any unclassified collective investment fund holding a certificate granted by the Commission under Article 8B of the Collective Investment Funds (Jersey) Law 1988, as amended, (the CIF(J)L), referred to in this paper as a certified fund.

1.1.2 To clarify, the proposed Codes of Practice for Certified Funds (Certified Fund Codes) will not apply to collective investment funds that fall into one of the following categories:

1.1.2.1 non-Jersey funds;

1.1.2.2 recognized funds; and

1.1.2.3 unregulated funds.

1.1.3 Section 4.5 of this paper provides further information in respect of the collective investment funds listed in 1.1.2.

1.2 Background 1.2.1 Since 2003, the Commission has been implementing an initiative to integrate a

number of pre-existing regulatory laws into the Financial Services (Jersey) Law 1998, as amended, (the FS(J)L) by providing a one-stop shop for the legislation that the Commission administers. Once completed the one-stop shop will simplify the Commissions administrative and communication roles and make it easier for Industry to understand and comply with the legal framework.

1.2.2 One of the outcomes of the Commissions integration process was, in November 2007, the transfer of the regulation of certain fund functionaries from the CIF(J)L into the FS(J)L so that persons providing fund services business in respect of unclassified collective investment funds are now required to be registered under the FS(J)L. In addition, the integration process made it a requirement for unclassified collective investment funds established in Jersey to hold a fund certificate granted under the CIF(J)L rather than a permit.

1.2.3 The proposal to introduce codes of practice in respect of fund functionaries and the collective investment fund was raised in Consultation Paper No 1 of 2006 on the future regulation of funds and fund functionaries.

1.2.4 Responses to previous Commission consultations on introducing codes of practice relating to the funds sector highlighted that it was too problematic to have one set of codes of practice applying to both the fund service provider and the collective investment fund. The Commissions proposed solution was to have two separate codes of practice; one applying to the fund service provider under the FS(J)L, and the other to the unclassified collective investment fund itself under the CIF(J)L.

1.2.5 As part of the November 2007 integration process, functionaries of unclassified collective investment funds that were converted to fund services businesses


under the FS(J)L, became subject to Codes of Practice for Fund Services Business (FSB Codes). The FSB Codes apply to the fund service provider, not the unclassified collective investment fund itself. At the time of the integration, and in line with the Commissions response to previous consultations, it was envisaged that separate codes of practice would be introduced in respect of the collective investment fund at some future date.

1.2.6 Accordingly, this consultation paper proposes the introduction of codes of practice in respect of unclassified collective investment funds issued with a fund certificate under the CIF(J)L - Codes of Practice for Certified Funds. A draft of the Certified Fund Codes is appended to this consultation paper at Appendix C.

1.3 What is proposed and why? 1.3.1 Until November 2007, the Commission only had the power to issue fund permits

(now certificates) to unclassified collective investment funds constituted as companies which could be conditioned if necessary. The Commission was unable to issue separate permits to the unclassified collective investment fund when it was structured as a unit trust or limited partnership. Consequently, any conditions that the Commission wished to attach to unclassified collective investment funds structured as unit trusts or limited partnerships had to be included in the permit issued to the trustee or general partner respectively.

1.3.2 The Commission is now able to register and issue fund services business certificates to trustees and general partners under the FS(J)L and issue separate certificates to unclassified collective investment funds under the CIF(J)L. Consequently, the regulation of the Jersey funds sector is now achieved through a two pronged approach: the regulation of the fund service providers under the FS(J)L), and the regulation of the unclassified collective investment fund through the issuance of fund certificates under the CIF(J)L, attaching conditions as necessary.

1.3.3 As part of the November 2007 integration process, any existing conditions relating to the unclassified collective investment fund were grandfathered and attached to the new fund certificates. Many of the conditions applied by the Commission are standard conditions and these are now included in the Certified Fund Codes. Appendix B to this paper is a destination table setting out each of the current standard conditions and their equivalent provision in the Certified Fund Codes.

1.3.4 The Commission is of the opinion that a number of benefits will be realised from taking this approach:

1.3.4.1 the fund certificates themselves will be significantly shorter because they will no longer require the standard conditions. Instead, any conditions attached to a fund certificate will be specific to a particular certified fund;

1.3.4.2 the current slight variations in the wording of commonly imposed conditions will be removed because the wording will be embodied in the Certified Fund Codes applicable to all certified funds; and

1.3.4.3 Industry will be aware of the standard conditions imposed by the Commission in advance of the fund certificate being produced.


1.3.5 Taken together, the benefits identified in 1.3.4 are expected to reduce administrative time and costs to both the Commission and Industry, and enable the Commission to redirect resources to improving service levels, and the effective and efficient regulation of the funds sector generally.

1.3.6 The Certified Fund Codes also include a number of new requirements flowing from the IMF assessment of 2002, and the shortfalls identified against the Objectives and Principles of the International Organisation of Securities Commissions (IOSCO) standards when undertaking the recent self-assessment exercise. For example, the Certified Fund Codes require audited financial statements of the certified fund to be filed with the Commission by the earlier of:

1.3.6.1 the date for the production of financial statements specified in the certified funds prospectus or other relevant documents; and

1.3.6.2 seven months from the financial year-end.

1.3.7 Conditions on the fund certificate typically require financial statements to be filed within ten months of the year-end. Fund prospectuses generally state that financial statements of the fund will be available within three or four months of the year-end and certified funds that are structured as public companies must file their financial statements with the Companies Registry within ten months in any event. Where certified fund documents require financial statements to be available before the ten months stipulated by the Commission and this is not achieved, the Commission would like to be able to address unitholder concerns promptly; which it is currently unable to do.

1.3.8 In the Commissions view the introduction of the Certified Fund Codes does not impose any significant material change to the present regulatory regime or, with respect to the time limit for filing certified fund financial statements, typical obligations imposed by the funds offering documents.

1.3.9 Where the certified fund is constituted as a limited partnership or a unit trust, the intention is that those with ultimate responsibility for, or control over, the certified fund should ensure that the Certified Fund Codes are adhered to, and that the certified fund is operated in a manner that complies with the Codes. For a unit trust this will be the trustee, and for a limited partnership it will mean the general partner.

1.3.10 There may be an element of duplication in that the fundamental principles in the FSB Codes and the Certified Fund Codes are substantially the same. However it does not automatically follow that there is a duplication of effort required in order to comply with the Certified Fund Codes; where the fund services business is already complying with the FSB Codes because it is regulated under the FS(J)L, it should be easier for the certified fund itself to comply with the Certified Fund Codes in areas such as Key Persons.

1.3.11 It is also proposed to incorporate the OCIF Guide, the Jersey Expert Fund Guide and the Jersey Listed Fund Guide as part of the Certified Fund Codes as Schedules 2, 3 and 4. Currently compliance with the Expert Fund Guide and the Listed Fund Guide is imposed by way of a condition on the fund certificate and breach of a certificate condition is a criminal offence. With the transfer of standard conditions to the Certified Fund Codes, failure to comply with those conditions will no longer be a criminal offence.


1.3.12 Nonetheless, the proposal to integrate the guides into the Certified Fund Codes will provide clarity with respect to the status of the OCIF Guide, the Jersey Expert Fund Guide and the Jersey Listed Fund Guide and, where principle 8 of the Certified Fund Codes is applicable, the Commission will consider regulatory action where breaches are identified.

1.3.13 The Certified Fund Codes will come into immediate effect on issuance. However, the Commission acknowledges that some certified funds may not be able to demonstrate immediately full compliance with all aspects of the Certified Fund Codes. Where this is the case, the Commission will look favourably on circumstances where a certified fund is in compliance with the relevant fundamental principles of the Certified Fund Codes and is actively taking steps to secure compliance with the detailed underlying requirements.

1.3.14 The approach outlined continues to provide the Commission with the ability to flex the standard conditions should circumstances dictate as the introduction to the Certified Fund Codes highlights that: In exceptional circumstances, where strict adherence to the Codes would produce an anomalous result, Funds [certified funds] may apply to the Commission for variance from the Codes. It will still be possible to agree variances from the OCIF Guide with the Commission as it is at present and any such variances will be set out as a condition to the fund certificate.

1.3.15 The key benefit of the proposal is, therefore, simplification of the administrative process whilst maintaining the regulation of fund service providers and certified funds in a manner that is consistent with the current international standards. The Commission is satisfied that the changes proposed in this paper satisfy the IOSCO Objectives and Principles which the Island is committed to meeting.


2 CONSULTATION 2.1 Basis for consultation

2.1.1 The Commission has issued this consultation paper in accordance with Article 8(3) of the Financial Services Commission (Jersey) Law 1998, as amended (the Commission Law) under which the Commission may, in connection with the carrying out of its functions - .consult and seek the advice of such persons or bodies whether inside or outside Jersey as it considers appropriate.

2.2 Responding to the consultation 2.2.1 The Commission invites comments in writing from interested parties on the

proposals included in this consultation paper. Comments may be made via a representative industry body or association where appropriate. Where comments are made by an industry body or association, that body or association should also provide a summary of the type of individuals and/or institutions that it represents.

2.2.2 To assist in analysing responses to the consultation paper, respondents are asked to:

2.2.2.1 prioritise comments and to indicate their relative importance; and

2.2.2.2 respond as specifically as possible and, where they refer to costs, to quantify those costs.

2.3 Next steps 2.3.1 The consultation process will take place with the assistance of Jersey Finance

which will establish a working party and provide a co-ordinated Industry response in accordance with the agreed consultation process. Members of Jersey Finance are therefore encouraged to respond to Jersey Finance in the first instance, although they may of course respond directly to the Commission if they so choose.

2.3.2 Following the consultation period, the Commission will consider all responses received with a view to identifying appropriate amendments to the Certified Fund Codes. Final Certified Fund Codes will be published with an accompanying feedback paper that will identify where substantive amendments have been applied as a result of the consultation process.

2.3.3 The Commission will also consider how to remove the conditions currently applying to fund certificates. This is not an issue where the wording of the Certified Fund Codes is substantially the same as the wording of the condition but action may be required where the two differ.


3 THE COMMISSION 3.1 Overview

3.1.1 The Commission is a statutory body corporate established under the Commission Law. It is responsible for the supervision of financial services provided in or from within Jersey.

3.2 Commissions functions 3.2.1 The Commission Law prescribes that the Commission shall be responsible for:

3.2.1.1 the supervision and development of financial services provided in or from within Jersey;

3.2.1.2 providing the States, any Minister or any other public body with reports, advice, assistance and information in relation to any matter connected with financial services;

3.2.1.3 preparing and submitting to the Minister for Economic Development recommendations for the introduction, amendment or replacement of legislation appertaining to financial services, companies and other forms of business structure;

3.2.1.4 such functions in relation to financial services or such incidental or ancillary matters

as are required or authorised by or under any enactment, or

as the States may, by Regulations, transfer; and

3.2.1.5 such other functions as are conferred on the Commission by any other Law or enactment.

3.3 Guiding principles 3.3.1 The Commissions guiding principles require it to have particular regard to:

3.3.1.1 the reduction of risk to the public of financial loss due to dishonesty, incompetence malpractice, or the financial unsoundness of financial service providers;

3.3.1.2 the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters;

3.3.1.3 the best economic interests of Jersey; and

3.3.1.4 the need to counter financial crime in both Jersey and elsewhere.


4 Discussion of proposal 4.1 Standard Conditions

4.1.1 As noted in 1.3.2, a fund certificate must be held in respect of each unclassified collective investment fund regardless of whether it is structured as a company issuing units, a unit trust or a limited partnership.

4.1.2 Until November 2007, the Commission only had the power to issue fund permits to companies issuing units (equating to a fund certificate) which could be conditioned if necessary. The Commission was unable to issue separate permits to the unclassified collective investment fund when it was structured as a unit trust or a limited partnership. Consequently, any conditions that the Commission wished to attach to unclassified collective investment funds structured as a unit trust or limited partnership had to be included on the permit issued to those undertaking the function of trustee or general partner respectively. The Commission is now able to license trustees and general partners under the FS(J)L and issue separate fund certificates under the CIF(J)L.

4.1.3 As part of the November 2007 integration process, any existing conditions that related to the unclassified collective investment fund were grandfathered and attached to the new fund certificates. The Commission is aware that many of the conditions now attaching to fund certificates are standard and are not always linked to the type of structure utilised - company issuing units, unit trust or limited partnership.

4.1.4 By way of example, conditions may include:

4.1.4.1 a requirement that there shall be no change in the fund service providers without the prior approval of an officer of the Commission;

4.1.4.2 a requirement that there shall be no change to the agreements relating to the fund without the prior approval of an officer of the Commission; and

4.1.4.3 a requirement that the Certificate Holder will advise the Commission of any applications made by the fund for authorisation under the laws or rules of any territory or regulatory authority and of any refusal of such applications or withdrawal of such authorisation.

4.1.5 As these conditions are common to many certified funds, the Commission is of the opinion that it would be a duplication to include them every time a new fund certificate is issued, therefore the standard conditions have been incorporated into the Certified Fund Codes.

4.1.6 Appendix B to this paper is a destination table setting out the standard conditions and where they appear in the Certified Fund Codes.

4.2 Compliance with IOSCO Objectives and Principles 4.2.1 While the Certified Fund Codes replicate a number of conditions previously

imposed on unclassified collective investment funds by way of permit conditions, the Codes also include a number of new requirements. These derive from the International Monetary Fund (IMF) assessment of 2002, which was reported in


2003, and the IOSCO self-assessment exercise conducted by the Commission in advance of the IMF 2008 assessment. The self-assessment exercise compared Jerseys fund regime to the international standards set by IOSCO and a number of shortfalls were identified. The shortfalls are addressed by appropriate provisions in the Certified Fund Codes.

4.2.2 For example, audited financial statements of the fund must now be filed with the Commission by the earlier of:



4.2.3 This is a departure from the existing position where the conditions on the fund certificate typically require financial statements to be filed within ten months of the year-end. In the Commissions experience the current ten month filing deadline has led to anomalous results. For example, where a fund has been overdue with its financial statements under the funds constitutive documents, the Commission has been unable to take action in respect of the default until ten months have elapsed. This is clearly unacceptable to both unitholders and the Commission. Fund prospectuses generally state that financial statements of the fund will be available within three or four months of the year-end and the Commission would like to be able to address unitholder concerns promptly if financial statements are delayed beyond that time. It should be noted that the recognized fund regime requires financial statements to be published within four months of the financial year-end.

4.2.4 Other IOSCO related additions flowing from the Commissions self-assessment exercise are based more on general principles of good practice, such as avoiding conflicts of interest, conducting business in an expeditious manner, and having the highest regard for the interests of unitholders. Requirements of this nature are addressed to the governing body of the fund.

4.3 Status of Guides 4.3.1 The Commission has issued a number of Guides1 relating to specific types of

certified funds: the OCIF Guide; the Jersey Expert Fund Guide and the Jersey Listed Fund Guide. With the proposed introduction of the Certified Fund Codes, the Commission has clarified the status of these Guides as they have been included as Schedules to the Certified Fund Codes and principle 8 states that a Fund [certified fund] must at all times comply and be operated in accordance with any applicable Guide.

4.3.2 The Commission is aware of areas of overlap between the Certified Fund Codes and the Guides but does not believe that the requirements of the documents are in conflict with each other therefore it is not proposed to make any substantive amendments to either the Jersey Expert Fund Guide or the Jersey Listed Fund Guide.

4.3.3 However, the Commission has identified that the OCIF Guide has not been updated to reflect the changes to the regulation of the funds sector as a result of

1 Guides relating to the funds sector may be accessed from the Commission website at: http://www.jerseyfsc.org/the_commission/general_information/policy_statements_and_guidance_notes/index.asp


the November 2007 integration process. Consequently, appropriate amendments are being proposed to the OCIF Guide, along with a number of other amendments the rationale for which is set out in 4.3.4. The proposed OCIF Guide is set out in Schedule 4 to the Certified Fund Codes

4.3.4 The proposed amendments to the OCIF Guide fall into a number of distinct categories as follows:

4.3.4.1 to reflect the current regulation of the funds sector which resulted from the November 2007 integration process;

4.3.4.2 to remove text which is now the subject of stand-alone Commission policy statements the Promoter policy and Outsourcing policy;

4.3.4.3 to properly reflect the requirements of the FSB Codes where required, in particular capital requirements for Fund Services Businesses;

4.3.4.4 references to the Non-Domiciled Funds policy have been removed such that the OCIF guide now only refers to a certified fund;

4.3.4.5 certificate conditions have been deleted as they are now contained in the Certified Fund Codes; and

4.3.4.6 formatting of the text in line with the most recent Commission style.

4.3.5 Question: Do you have any comments on the change of status of the Guides?

4.3.6 Question: The Commission proposes to continue utilising the OCIF Guide as the benchmark for unclassified collective investment funds (which would include closed-ended funds) that are not an OCIF, Jersey Expert Fund or Jersey Listed Fund. Do you disagree with this proposal?

4.4 General construct of the Certified Fund Codes 4.4.1 The Certified Fund Codes set out eight fundamental principles governing the

standards of conduct expected of certified funds, together with a number of specific provisions dependent upon the type of fund. Unless otherwise stated, all certified funds must satisfy the eight fundamental principles and comply with the detailed standards of conduct. Functions may be delegated in accordance with the Commissions published Policy Statement and Guidance Notes on Outsourcing as amended from time to time.

4.4.2 The Certified Fund Codes have been prepared and issued for the purpose of establishing sound principles and providing practical guidance in respect of any certified fund, and any provision of the CIF(J)L and any Regulations or Order made under it. The Certified Fund Codes are being proposed under powers granted to the Commission by Article 15 of the CIF(J)L.

4.4.3 It is the responsibility of the certified fund, operating though the Certificate Holder, to comply with the principles set out in the Certified Fund Codes and also to implement such additional practices as are necessary for the proper management and control of the certified fund.

4.4.4 Where the certified fund is constituted as a limited partnership or a unit trust, the intention is that those with ultimate responsibility for, or control over, the fund should ensure that the Certified Fund Codes are adhered to, such that the fund is


operated in a manner that complies with the Codes. For a unit trust this means the trustee and for a limited partnership it means the general partner.

4.4.5 The fundamental principles contained in the Certified Fund Codes are that a certified fund:

4.4.5.1 must conduct its business with integrity;

4.4.5.2 must have the highest regard for the interests of unitholders;

4.4.5.3 must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems;

4.4.5.4 must be transparent in its business arrangements with unitholders;

4.4.5.5 must maintain, and be able to demonstrate the existence of, both adequate resources and adequate insurance;

4.4.5.6 must deal with the Commission and other authorities in Jersey in an open and co-operative manner;

4.4.5.7 must not make statements that are misleading, false or deceptive; and

4.4.5.8 must at all times comply and be operated in accordance with any applicable Guide.

4.4.6 Section 5 of this consultation paper discusses in greater detail each of the principles set out in 4.4.5.

4.5 Collective investment funds not covered by the Certified Fund Codes 4.5.1 For clarity this section provides information in respect of collective investment

funds that do not fall within the scope of the Certified Fund Codes.

Non-Jersey funds

4.5.2 The Commission no longer regulates unclassified collective investment funds domiciled outside Jersey as it previously did when a functionary of an unclassified fund was required to hold a permit. However, it continues to retain a degree of regulatory oversight in respect of non-Jersey funds.

4.5.3 The FS(J)L, requires any fund service provider who acts in or from within Jersey, or any Jersey company carrying out a function anywhere in the world, in respect of an unclassified collective investment fund (whether or not the fund is domiciled in Jersey), to be registered under Article 9 of the FS(J)L and the fund service provider is subject to the existing FSB Codes.

4.5.4 The non-Jersey fund itself, however, will not be subject to the Certified Fund Codes proposed by this paper.

Recognized funds and functionaries of recognized funds

4.5.5 The current Jersey recognized fund legislation is modelled on the equivalent UK legislation. It was introduced in order to demonstrate that the regulation of recognized funds in Jersey provides investor protection at least equivalent to that


afforded to investors in the UK under the Financial Services and Markets Act 2000 (FSMA). As a result, the UK authorities have declared Jersey to be a Designated Territory and any collective investment fund that has been granted a recognized fund certificate may seek authorisation under section 270 of FSMA to market directly to the general public in the UK. A 2008 inspection by the UK Financial Services Authority confirmed that Jersey recognized funds continue to comply fully with the criteria laid down in FSMA.

4.5.6 The rules applicable to recognized funds are set out in the Collective Investment Funds (Recognized Funds) (Rules) (Jersey) Order 2003 (the Rules Order). The Commission believes that the substitution of the whole or part of the Rules Order by the Certified Fund Codes attached to this consultation paper would be a material change to the recognized fund legislation.

4.5.7 Material changes to the recognized fund legislation, including the regulation of functionaries of recognized funds, would require the Commission to demonstrate to HM Treasury that the changes have not adversely impacted on the investor protection equivalence of the Jersey recognized fund legislation.

4.5.8 The November 2007 integration process did not, and the Certified Fund Codes will not, affect the recognized funds regime: it is still a requirement for a functionary of a recognized fund to hold a permit under the CIF(J)L, and for a certificate to be granted under the Rules Order in respect of the recognized fund.

Unregulated funds

4.5.9 By virtue of Article 2 of the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 (Unregulated Funds Order) any scheme or arrangement which meets the conditions set out in either Schedule 1 or Schedule 2 of the Unregulated Funds Order does not constitute a collective investment fund for the purposes of the CIF(J)L.

4.5.10 Consequently, there is no requirement to apply for and be granted a fund certificate under the CIF(J)L and the Certified Fund Codes cannot apply to an unregulated fund.


5 Detailed discussion of the Certified Fund Codes principles

5.1 Conduct of business with integrity 5.1.1 The Commission considers this principle to be of the utmost importance.

Consequently, any failure to comply will be considered to be amongst the most serious breaches of the Certified Fund Codes.

5.1.2 In essence, a certified fund is not to seek to avoid any of its responsibilities under the Certified Fund Codes unless the Commission gives its consent.

5.2 Highest regard for the interests of unitholders 5.2.1 A certified fund must act with due skill, care and diligence to fulfil the

responsibilities it has undertaken. In brief, this means that a certified fund should exercise its discretions in a proper and timely manner, and avoid or manage appropriately any conflicts of interest.

5.2.2 In relations with third parties the certified fund must always act in the best interests of unitholders and must not effect transactions with inappropriate frequency or in excessive size.

5.2.3 A certified fund is expected to act fairly and even-handedly between unitholders and, where it is divided into a number of sub-funds, not to act in the interests of one sub-fund to the detriment of another. As noted earlier (4.2.4), where the certified fund is constituted as a limited partnership or a unit trust, it is intended that responsibility for compliance will lie with the governing body of the fund.

5.2.4 A fund services business acting as manager to a certified fund will already be subject to the FSB Codes. Those Codes require the fund service provider to always act in the best interests of the fund2. At the consultation stage that part of the FSB Codes referred to the interests of unitholders but feedback from Industry set out a concern that this created a direct line of liability between the manager and the unitholders. Accordingly, the published FSB Codes now only refer to the fund which is the managers immediate counterparty. The Certified Fund Codes now link the certified fund with the unitholders.

5.3 Proper performance of its business activities and existence of adequate risk management systems 5.3.1 A certified fund must ensure that the Principal Persons, Key Persons and all other

employees are fit and proper for their roles. In effect, this means that the governing body of the fund shall procure that the competence and probity of its Principal Persons, Key Persons and all other employees shall be vetted and monitored.

2 See paragraph 2.5 of the FSB Codes.


5.3.2 This requirement is directed at the certified fund rather than the unitholders. Note that unitholders are not Principal Persons or Key Persons for the purposes of the CIF(J)L. However, it is conceivable that certified funds may have employees where, for instance, they are self-managed.

5.3.3 The Commission expects a certified fund to ensure that the Principal Persons, Key Persons and staff are properly qualified and experienced for their particular role, and that they maintain their level of competency by undergoing relevant and continuing professional development. In this context Principal Persons and Key Persons comprise the funds directors, Money Laundering Reporting Officer (MLRO), Money Laundering Compliance Officer (MLCO), Compliance Officer (CO) and any employees.

5.3.4 A certified fund must appoint a CO to be responsible for evaluating the certified funds arrangements, including policies and procedures, for its ability to ensure compliance with all relevant laws, orders and codes of practice. In addition, the Money Laundering (Jersey) Order 2008 requires a certified fund to appoint a MLRO and a MLCO. Where the manager of the certified fund is registered under the FS(J)L to provide fund services business, it will also be required to appoint a CO under the FSB Codes. In that case it is permissible for the same person to fulfil both roles. (The same person may also be the MLRO and the MLCO under the Money Laundering (Jersey) Order 2008).

5.3.5 A certified fund should also operate robust arrangements for meeting the standards and requirements of the regulatory framework, establish good corporate governance and ensure adequate span of control at all times. Persons with sufficient knowledge and experience should make all decisions and approve transactions undertaken in the course of business. With regard to unit trusts and limited partnerships, the Commission considers that matters such as corporate governance will be the responsibility of the governing body of the certified fund.

5.3.6 The Certified Fund Codes include detailed provisions on establishing procedures for record keeping and dealing with complaints from unitholders.

5.3.7 Paragraph 3.8 of the Certified fund Codes refers to valuations of the certified fund and requires that these should be produced in accordance with the Applicable Rules (as defined in the Certified Fund Codes).

5.3.8 Generally, with regard to the above requirements, the Commission will apply a common sense approach. Some of the matters described may be contracted to a third party, for example record keeping and dealing with complaints, however, the Commission requires responsibility for the matter to remain with the governing body of the fund.

Financial statements

5.3.9 Audited financial statements of the certified fund are required to be filed with the Commission by the earlier of:




5.3.10 This is a departure from the existing position where the conditions on the fund certificate typically require that financial statements must be filed within ten months of the year-end. See further the explanation at 4.2.3 above.

5.3.11 Prescription has been included in the Certified Fund Codes with respect to the accounting and auditing standards to be utilised by the certified fund in the preparation of its financial statements.

5.3.12 A further difference is in respect of notification of a change of auditors to the fund. Fund certificate conditions usually require that notification of a change of auditors must be given to the Commission within 28 days of the change taking effect. Paragraph 3.7.2.3 of the Certified Fund Codes now requires the consent of the Commission before such change is implemented.

5.3.12.1 Question: Do you foresee any difficulty in meeting the time limits for filing financial statements? If so, please explain the nature of the difficulty.

5.3.12.2 Question: Similarly, do have an issue with obtaining the Commissions prior consent before implementing a change of auditor?

5.4 Transparency in business arrangements 5.4.1 A certified fund should be transparent to its unitholders in respect of its fees and

charges. Disclosure of its fees in the prospectus will usually be sufficient for these purposes.

5.4.2 All correspondence and advertising material should state that the Commission regulates the certified fund.

5.5 Adequate financial resources and insurance 5.5.1 A certified fund is required to have both adequate financial resources and

adequate insurance. What amounts to adequate financial resource in this context is up to the Certificate Holder to determine based upon the certified funds liquidity requirements. Consequently there are no set solvency requirements as there are under the FSB Codes: however, the Commission expects the certified fund to be solvent at all times and to be able to settle any obligations as they fall due.

5.5.2 On insurance, the Commission is prepared to be flexible and to leave the questions of scope of risk and adequacy of cover to the discretion of the governing body of the certified fund. Insurance is not intended to cover market loss but it may, for instance, cover the directors errors and omissions, if they are not already covered through a fund services business or from another source, and other matters such as title insurance. Special considerations may be necessary where unit trusts and limited partnerships are concerned


5.6 Dealing with the Commission and others in an open and co-operative manner 5.6.1 The Certified Fund Codes require there to be candour between the Commission

and the certified fund. This means that a certified fund should co-operate in providing information requested by the Commission and allow inspections to be carried out in order to assess compliance with the Certified Fund Codes.

5.6.2 Principle 6 of the Certified Fund Codes sets out circumstances where the certified fund must receive prior consent, give prior notification or notify the Commission of events as soon as possible. For example, where the certified fund is served with a winding-up order or an application for bankruptcy whether or not in Jersey, or where the certified fund is subject to regulatory investigations outside Jersey, prompt notification is required. In addition, notice must be given where the certified fund becomes aware of a material default by another entity in respect of the fund.

5.6.3 Notice to the Commission is required whenever a certified fund becomes aware of any matter that might affect the material interests of a fund or its unitholders.

5.7 Not making statements that are false, misleading or deceptive 5.7.1 The Commission is concerned to ensure that unitholders are not misled when

considering whether to invest in a certified fund and that they are aware of the key risks involved. A certified fund is expected therefore to take reasonable steps to ensure the accuracy of anything said or published in respect of the fund, and that the information is conveyed in a clear and transparent manner. What is reasonable in this context will depend upon the type of certified fund and the sophistication of the target investor market. Again, the responsibility for ensuring compliance rests with the governing body of the certified fund to take the steps reasonably necessary in order to ensure compliance.

5.7.2 While the Commission has no responsibility to vet advertisements, once the Certified Fund Codes are finalised, and assuming the requirements remain substantially the same, the Commission is willing to discuss issues arising from compliance with this aspect of the Certified Fund Codes on a case-by-case basis.

5.8 Compliance with any applicable Guide 5.8.1 Principle 8 of the Certified Fund Codes sets out requirements in relation to open-

ended unclassified funds (OCIFs), Jersey Expert Funds and Jersey Listed Funds only. The requirements are drawn from the standard conditions applicable to each of those types of certified fund and now appear in the Certified Fund Codes instead of on the fund certificates themselves.

5.8.2 The Jersey Expert Fund Guide, Jersey Listed Fund Guide and OCIF Guide form part of the Certified Fund Codes and are schedules 2, 3 and 4 respectively.


5.9 Consequences of breaching the Certified Fund Codes 5.9.1 Where the Commission has reason to believe that at any time there has been a

failure on the part of a certified fund to follow the Certified Fund Codes, it may revoke the fund certificate and or issue a public statement concerning that fund. In addition, under the CIF(J)L the Commission has the power to issue a direction requiring the certified fund to remedy any breach by removing persons, suspending dealings, subscriptions or redemptions, or to cease operating altogether.

5.9.2 Failure to follow the Certified Fund Codes will not of itself render any person liable to proceedings or invalidate any transaction. The Certified Fund Codes will, however, be admissible in evidence of compliance with the CIF(J)L in any proceedings concerning the certified fund.

5.9.2.1 Question: Do you have any comments on the Certified Fund Codes?


6 COST BENEFIT ANALYSIS 6.1 Costs to industry

6.1.1 The costs of implementing the Certified Fund Codes are anticipated as being any associated costs to firms of adapting current compliance procedures to accommodate the variation between the existing fund certificate conditions and the additional requirements set out in the Certified Fund Codes.

6.2 Costs to the Commission 6.2.1 The Commission will incur costs as it considers the conditions currently attaching

to fund certificates, as a result of the grandfathering process, and identies those conditions that are specific to a certified fund and must remain on the fund certificate as against those that are standard and can be removed.

6.3 Benefits 6.3.1 The expected benefits of the proposed regime are as follows:

6.3.1.1 the Commissions resources can be directed more towards enhancing the funds sector on-site examination programme and the effective and efficient regulation generally of fund service providers and collective investment funds;

6.3.1.2 Industry should benefit from a more efficient authorisation process as the number of conditions attached to a fund certificate will be reduced;

6.3.1.3 the fund certificates themselves will be significantly shorter, in that they will no longer set out the standard conditions, and any conditions attached to a fund certificate will be specific to that particular certified fund;

6.3.1.4 the current slight variations in the wording of commonly applied conditions will be removed, as the wording will be embodied in the Certified Fund Codes applicable to all certified funds; and

6.3.1.5 Industry will be aware of the standards relating to certified funds in advance of the fund certificate being produced and reviewed by their advisers.

6.3.2 The key benefit of the proposal is, therefore, simplification of the administrative process whilst maintaining the regulation of fund service providers and certified funds in a manner consistent with the current international standards. The Commission is satisfied that the changes proposed in this paper satisfy the current Objectives and Principles of IOSCO which the Island is committed to meeting.


7 SUMMARY OF QUESTIONS REFERENCE QUESTION ________________________________________________________________ 4.3.5 Do you have any comments on the change of status of the Guides? _________________________________________________________________ 4.3.6 The Commission proposes to continue utilising the OCIF Guide as the

benchmark for unclassified collective investment funds (which would include closed-ended funds) that are not an OCIF, Jersey Expert Fund or Jersey Listed Fund. Do you disagree with this proposal?

5.3.12.1 Do you foresee any difficulty in meeting these time limits? If so, please explain the nature of the difficulty.

5.3.12.2 Similarly, do you have an issue with obtaining the Commissions consent before implementing a change of auditor? _________________________________________________________________

5.9.2.1 Do you have any comments on the Certified Fund Codes? _________________________________________________________________


APPENDIX A List of representative bodies who have been sent this consultation paper.

Jersey Finance Limited

Jersey Funds Association


APPENDIX B Table showing standard certificate conditions and the equivalent provision in the Certified Fund Codes

Conditions applicable to all certified funds Relevant paragraph(s) in Certified Fund Codes

The Certificate Holder will provide to the Commission one copy of each of the following:

(a) the audited annual report and accounts and any interim report and accounts of the Fund; and

(b) the audited annual report and accounts and any interim report and accounts of each PC and the PCC/each IC and the ICC.

Each of the above is to be sent to the Commission as soon as it is sent to any person entitled to receive it or within the period specified (if any) in the Law or within 10 months of the end of the accounting period whichever is the sooner.

3.7.1 (annual financial

statements submission period reduced to 7

months)

The Certificate Holder will provide to the Commission such information with respect to the Fund, the Certificate Holder and any person who is an associate of the Certificate Holder as the Commission may reasonably request.

6.2

The Certificate Holder will permit, and will procure the agreement of any agent or subcontractor resident or established in Jersey and appointed by the Certificate Holder, for officers of the Commission to conduct inspections of any part of the activities in relation to which this certificate is issued and the Certificate Holder will and will procure the agreement of any such agent or subcontractor to give all assistance in connection with any such inspection which they are reasonably able to give.

6.3

The Certificate Holder will advise the Commission of any applications made by the Fund for authorisation under the laws or rules of any territory or regulatory authority and of any refusal of such applications or withdrawal of such authorisation.

6.7.3


Additional conditions applicable to OCIFs Relevant paragraph(s) in Codes

The prior approval of an officer of the Commission be sought and obtained to any changes associated with the Fund, unless the changes would not materially affect the import of the information previously supplied in connection with the application for this certificate.

8.1.2

The issue of prospectuses, explanatory memoranda or other documents inviting offers for subscription, sale or exchange of any units in the Fund, other than any such invitation which is subject to the Collective Investment Funds Unclassified Funds) (Prospectuses) (Jersey) Order, 1995, will be subject to the prior consent of an officer of the Commission, unless any waiver from part or all of this requirement is given in writing by an officer of the Commission.

8.1.3

There shall be no change in the fund service providers without the prior approval of an officer of the Commission.

8.1.4

There shall be no change in agreements [list agreements] without the prior approval of an officer of the Commission.

8.1.5

Additional conditions applicable to Jersey Expert Funds Relevant paragraph(s) in Certified Fund Codes

The fund will be operated in accordance with the Commissions published Jersey Expert Fund Guide.

8.2.1

The Certificate Holder will provide to the Commission a copy of the prospectus in its final printed form, within 14 days of its publication.

8.2.2

Any changes to the Fund that are not in accordance with the Jersey Expert Fund Guide will require the prior approval of an officer of the Commission.

8.2.3

Any changes to the Fund that are in accordance with the Jersey Expert Fund Guide and affect the information supplied on the application form will be notified to the Commission within 28 days or the change taking place.

8.2.4


Additional conditions applicable to Jersey Expert Funds Relevant paragraph(s) in Certified Fund Codes

There shall be no change in the fund service providers as disclosed in the original Jersey Expert Fund Guide application form without the prior approval of an officer of the Commission.

8.2.5

Additional conditions applicable to Jersey Listed Funds Relevant paragraph(s) in Certified Fund Codes

The Fund will be operated in accordance with the Commissions published Jersey Listed Fund Guide.

8.3.1

The Certificate Holder will provide to the Commission a copy of the prospectus in its final printed form, within 14 days of its publication.

8.3.2

Any changes to the Fund that are not in accordance with the Jersey Listed Fund Guide will require the prior approval of an officer of the Commission.

8.3.3

Any changes to the Fund that are in accordance with the Jersey Listed Fund Guide and affect the information supplied on the application form will be notified to the Commission within 28 days of the change taking place.

8.3.4

There shall be no change in the fund service providers as disclosed in the original Jersey Listed Fund Guide application form without the prior approval of an officer of the Commission.

8.3.5

The Fund remains listed on a Recognised Stock Exchange or Market.

8.3.6

The Certificate Holder will inform the Commission immediately if a listed Fund is refused permission to be listed on a Recognised Stock Exchange or Market, of if such permission is revoked or if there is any other material event.

8.3.6


Additional conditions applicable to Funds which are not an OCIF, Jersey Expert Fund or Jersey Listed Fund

Relevant paragraph(s) in Codes

The prior approval of an officer of the Commission be sought and obtained to any changes associated with the Fund, unless the changes would not materially affect the import of the information previously supplied in connection with the application for this certificate.

8.4.2

The issue of prospectuses, explanatory memoranda or other documents inviting offers for subscription, sale or exchange of any units in the Fund, other than any such invitation which is subject to the Collective Investment Funds Unclassified Funds) (Prospectuses) (Jersey) Order, 1995, will be subject to the prior consent of an officer of the Commission, unless any waiver from part or all of this requirement is given in writing by an officer of the Commission.

8.4.3

There shall be no change in the fund service providers without the prior approval of an officer of the Commission.

8.4.4

There shall be no change in agreements [list agreements] without the prior approval of an officer of the Commission.

8.4.5


APPENDIX C

Draft Codes of Practice for Certified Funds

CODES OF PRACTICE FOR CERTIFIED FUNDS

COLLECTIVE INVESTMENT FUNDS (JERSEY)

LAW 1988

Issued: xxx 2009

Codes of Practice for Certified Funds Glossary of Terms

Issued: xxx 2009 Page 3 of 70

GLOSSARY OF TERMS

Unless otherwise defined, the following terms when used in these Codes of Practice shall have the meanings set out below. If not defined below or elsewhere in these Codes, terms, where relevant, have the same meanings as are ascribed to them in the Collective Investment Funds (Jersey) Law 1988, as amended (the Law). Anti-Money Laundering Legislation

includes the Proceeds of Crime (Jersey) Law 1999, the Money Laundering (Jersey) Order 2008, the Terrorism (Jersey) Law 2002 and the Drug Trafficking Offences (Jersey) Law 1988, as well as any other applicable laws and United Nations or European Union Sanctions Orders applied within Jersey, all as amended from time to time. The legislation must be observed in conjunction with the requirements of the relevant Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism, issued by the Commission.

Applicable Rules

in relation to a Fund, means the following:

these Codes;

the Law and any Orders and Regulations made under it;

other legislation relevant to the activities of the Fund;

any Guide relevant to the Fund;

any conditions attached to a Certificate;

policy statements issued by the Commission from time to time; and

the Funds Constitutive Documents and prospectuses.

associate of the Fund means any person whose name is linked to the promotion of the Fund.

Certificate Holder means the person described in Article 8A(1) of the Law who is issued with a Certificate.

Certificate means a certificate granted under Article 8B of the Law.

the Codes the Codes of Practice for Certified Funds.

Collective Investment Fund

has the same meaning as in Article 3 of the Law.

the Commission the Jersey Financial Services Commission.


Page 4 of 70 Issued: xxx 2009

Constitutive Documents means the principal documents governing the formation of a Fund, including:

the trust instrument in the case of a Fund which is a unit trust;

the memorandum and articles of association of a Fund which is a company;

the limited partnership agreement where the Fund is a limited partnership;

the Fund rules (if any);

any agreement for the management of the Fund; and

any agreement appointing a custodian to the Fund,

but excludes Fund Services Business Agreements other than those listed above.

CPD Continuing Professional Development.

the Exceptions Regulations

the Rehabilitation of Offenders (Exceptions) (Jersey) Regulations 2002.

Fund means a certified fund within the meaning of the Law.1

Fund Assets means assets of any description belonging to the Fund or made available by or due to a unitholder.

fund service provider means a person who carries on fund services business.

fund services business has the same meaning as in Article 1 of the Financial Services (Jersey) Law 1998 as amended.

Fund Services Business Agreement

means the agreement or equivalent document by which a person is appointed as a provider of fund services business to a Fund.

Guide means any guide published by the Commission from time to time including, but without limitation, the Jersey Expert Fund Guide, the Non-domiciled Fund Guide, the Jersey Listed Fund Guide and the OCIF Guide, as amended from time to time.

Jersey Expert Fund means a Fund established in accordance with the terms of the Jersey Expert Fund Guide.

Jersey Expert Fund Guide

means the latest version of the Jersey Expert Fund Guide published by the Commission setting out the conditions applicable to Jersey Expert Funds.

Jersey Listed Fund means a Fund established in accordance with the terms of the Listed Fund Guide.

1 For clarification this includes any sub-funds and cells of that Fund.



Jersey Listed Fund Guide

means the latest version of the Jersey Listed Fund Guide published by the Commission setting out the conditions applicable to Jersey Listed Funds.

Key Person has the same meaning as in Article 1 of the Law.

the Law means the Collective Investment Funds (Jersey) Law 1988, as amended.

OCIF means a Fund approved by the Commission as a Jersey open-ended unclassified Collective Investment Fund offered to the general public.

OCIF Guide means the latest version of the OCIF Guide to establishing an OCIF published by the Commission.

Principal Person has the same meaning as in Article 1 of the Law.

Recognized Fund has the same meaning as in Article 1 of the Law.

Regulatory Laws means the Financial Services (Jersey) Law 1998, the Banking Business (Jersey) Law 1991, the Insurance Business (Jersey) Law 1996, and the Law, all as amended.

unit has the same meaning as in Article 1 of the Law.

unitholder any person who participates in the Fund or who may participate in the Fund as the context dictates.

Unregulated Fund has the same meaning as in Article 1 of the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008.

Codes of Practice for Certified Funds Contents


CONTENTS

Glossary of Terms ...................................................................................................................... 3

Contents ....................................................................................................................................... 6

Introduction................................................................................................................................. 9

Consequences of breaching the Codes............................................................................. 10

Revision of the Codes ......................................................................................................... 10

Advisory note regarding the application of the Codes..................................................... 11

The Principles ........................................................................................................................... 12

1 A Fund must conduct its business with integrity. ......................................................... 12

2 A Fund must have the highest regard for the interests of unitholders ....................... 12

3 A Fund must organise and control its affairs effectively for the proper performance of its activities and be able to demonstrate the existence of adequate risk management systems ......................................................................................................... 13

4 A Fund must be transparent in its business arrangements with unitholders. ........... 22

5 A Fund must maintain, and be able to demonstrate, the existence of adequate financial resources and adequate insurance.................................................................... 23

6 A Fund must deal with the Commission and other authorities in Jersey in an open and co-operative manner. .................................................................................................. 23

Other matters to be notified to the Commission ............................................................ 24

7 A Fund must not make statements that are misleading, false or deceptive ............... 26

8 A Fund must at all times comply and be operated in accordance with any applicable Guide..................................................................................................................................... 29

SCHEDULE 1 - TABLE OF NOTIFICATIONS AND CONSENTS ............................... 32

CORPORATE GOVERNANCE......................................................................................... 32

COMPLIANCE OFFICER/MONEY LAUNDERING REPORTING OFFICER/MONEY LAUNDERING COMPLIANCE OFFICER.................................. 32

COMPLAINTS..................................................................................................................... 32

ACCOUNTS......................................................................................................................... 32

CHANGES IN DETAILS GENERAL NOTIFICATIONS ........................................... 33



SCHEDULE 2 - CLASSIFICATION GUIDE

JERSEY EXPERT FUND GUIDE.......................................................... 35

Objective.................................................................................................................................... 37

Glossary of Terms .................................................................................................................... 38

Contents ..................................................................................................................................... 40

Section 1 ..................................................................................................................................... 41

1 EXPERT FUNDS AND EXPERT INVESTORS ............................................................................. 41

Section 2 ..................................................................................................................................... 43

2 THE STRUCTURE OF THE EXPERT FUND............................................................................... 43

The Expert Fund.................................................................................................................. 43

Investment Manager........................................................................................................... 43

Administration/Management........................................................................................... 45

Monitoring of the Investment Manager........................................................................... 45

Custody Arrangements ...................................................................................................... 46

The Name of the Expert Fund ........................................................................................... 46

The Auditor.......................................................................................................................... 46

Fund service providers....................................................................................................... 46

Borrowing and Gearing...................................................................................................... 46

Transfers of Interests .......................................................................................................... 47

Stock Exchange Listings..................................................................................................... 47

Section 3 ..................................................................................................................................... 48

3 THE OFFER DOCUMENT OF THE EXPERT FUND .................................................................. 48

General.................................................................................................................................. 48

Investment Warning ........................................................................................................... 50

Ongoing Requirements ...................................................................................................... 50

Section 4 ..................................................................................................................................... 51

4 AUTHORISATION OF THE EXPERT FUND.............................................................................. 51

Appendix 1 ................................................................................................................................ 52

1 SPAN OF CONTROL REQUIREMENTS .................................................................................... 52



SCHEDULE 3 - CLASSIFICATION GUIDE

JERSEY LISTED FUND GUIDE .......................................................... 53

Objective.................................................................................................................................... 55

Glossary of Terms .................................................................................................................... 56

Contents ..................................................................................................................................... 58

Section 1 ..................................................................................................................................... 59

1 THE STRUCTURE OF THE FUND ............................................................................................ 59

The Fund .............................................................................................................................. 59

Investment Manager........................................................................................................... 59

Administration/Management........................................................................................... 62

Monitoring of the Investment Manager........................................................................... 62

Review by the Board of Directors of the Fund Company ............................................. 62

Custody Arrangements ...................................................................................................... 62

The Name of the Fund........................................................................................................ 62

The Auditor.......................................................................................................................... 63

Fund service providers....................................................................................................... 63

Borrowing and Gearing...................................................................................................... 63

Section 2 ..................................................................................................................................... 64

2 THE OFFER DOCUMENT OF THE FUND ................................................................................ 64

General.................................................................................................................................. 64

Investment Warning ........................................................................................................... 66

Ongoing Requirements ...................................................................................................... 66

Section 3 ..................................................................................................................................... 67

3 AUTHORISATION OF THE FUND ........................................................................................... 67

Appendix 1 ................................................................................................................................ 68

1 RECOGNISED STOCK EXCHANGES OR MARKETS ................................................................ 68

Appendix 2 ................................................................................................................................ 70

1 SPAN OF CONTROL REQUIREMENTS .................................................................................... 70

Codes of Practice for Certified Funds Introduction


INTRODUCTION

The Codes of Practice for Certified Funds (the Codes) are issued by the Jersey Financial Services Commission (the Commission) under powers given to it by Article 15 of the Law. The Codes have been prepared and issued for the purpose of establishing sound principles and providing practical guidance in respect of any certified fund, and any provision of the Law or any Regulations or Order made under it. It is the responsibility of the Fund, operating through the Certificate Holder, to comply with these principles and to implement such additional practices as it considers necessary for the proper management and control of its business. In exceptional circumstances, where strict adherence to the Codes would produce an anomalous result, a Fund may apply to the Commission for variance from the Codes. Where the Fund is constituted as a limited partnership or unit trust, the intention is that the governing body of the Fund, being those with ultimate control over and responsibility for the Fund, should ensure the Codes are adhered to and that the Fund is operated in a manner that complies with the Codes. Accordingly, responsibility for failing to comply with requirements of the Codes will rest with the Funds governing body. For a limited partnership this means the general partner and for a unit trust it means the trustee. The Codes come into immediate effect, however, the Commission acknowledges that some Funds may not be able to demonstrate immediately full compliance with all aspects of the Codes. Where this is the case, the Commission will look favourably on circumstances where a Fund is in compliance with the relevant fundamental principle of the Codes and is actively taking steps to secure compliance with the detailed underlying requirements. The Codes are arranged under eight fundamental principles which are further described, explained and delimited, as the case may be. Those fundamental principles are:

1. A Fund must conduct its business with integrity;

2. A Fund must have the highest regard for the interests of unitholders;

3. A Fund must organise and control its affairs effectively for the proper performance of its business activities and be able to demonstrate the existence of adequate risk management systems;

4. A Fund must be transparent in its business arrangements with unitholders;

5. A Fund must maintain, and be able to demonstrate the existence of, both adequate financial resources and adequate insurance;

6. A Fund must deal with the Commission and other authorities in Jersey in an open and co-operative manner;

7. A Fund must not make statements that are misleading, false or deceptive; and

Codes of Practice for Certified Funds Introduction


8. A Fund must at all times comply and be operated in accordance with any applicable Guide.

Each section of the Codes is designed to be understood by reference to its full text, including any notes. The Codes should be read by Certificate Holders in conjunction with the Law and its subordinate legislation, together with any conditions attached to a Certificate held under the Law, and the relevant Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism. Certain parts of the Codes replace conditions formerly imposed on the Fund by means of certificate conditions. Additionally, certain parts of the Codes only apply to particular types of Fund such as OCIFs, Jersey Expert Funds and Jersey Listed Funds. Where such special provisions apply, these are documented in principle 8 of the Codes.

Consequences of breaching the Codes

Failure by a Fund to follow these Codes represents grounds for the Commission to take enforcement action. Where the Commission has reason to believe that at any time there has been a failure on the part of a Fund to follow these Codes, it may consider making use of its regulatory powers which, in serious cases, could include requiring a Fund to wind up and revocation of its Certificate. In addition, failure to comply with a Code may support a decision by the Commission that, for example, continued non-compliance or other failure to remedy the circumstances giving rise to the breach may be addressed by the issue of a written direction under Article 13 of the Law. Such a direction might impose requirements on the Fund to do or not to do things, remove persons, or cease operations. In appropriate circumstances that direction can be made public. Whilst failure to follow these Codes shall not of itself render any person liable to proceedings of any kind or invalidate any transaction, the Codes shall be admissible in evidence if it appears to the court conducting proceedings to be relevant to any question arising in the proceedings, and shall be taken into account in determining any such question. Where it appears to the Commission that a person has failed to comply with these Codes, it may issue a public statement under Article 17 of the Law.

Revision of the Codes

The Codes can be revised after consultation with such persons or bodies as appear to be representative of the interests concerned. John Harris Director General [ ] 2009

Codes of Practice for Certified Funds


ADVISORY NOTE REGARDING THE APPLICATION OF THE CODES

These Codes apply to all unclassified collective investment funds issued with a certificate by the Commission under Article 8B of the Law. These Codes do not apply to non-Jersey funds, Recognized Funds or Unregulated Funds. Responsibility for complying with these Certified Fund Codes is as follows:

company the board of directors; limited partnership the general partners(s); and unit trust the trustee(s).

Codes of Practice for Certified Funds The Principles


THE PRINCIPLES

1 A Fund must conduct its business with integrity.

1.1 Failure to comply with the above principle will be considered amongst the most serious of breaches of the Codes.

1.2 Without limiting the breadth of the above principle, a Fund must not:

1.2.1 act or refrain from acting; or

1.2.2 contract or have any other arrangement;

1.2.3 so as to avoid, or seek to avoid, any regulatory responsibilities it may have under the Codes unless the Codes expressly permit any such avoidance.

2 A Fund must have the highest regard for the interests of unitholders.

2.1 A Fund must act with due skill, care and diligence to fulfil the responsibilities that it has undertaken.

2.2 Where a Fund is authorised to exercise discretion in the execution of its function, it must exercise that discretion in a proper manner and maintain proper records of its actions and decisions.

2.3 A Fund must either avoid any conflict of interest arising or, where a conflict arises, must address such conflict through internal rules of confidentiality, by declining to act or by disclosing the nature of the conflict to unitholders.

2.4 A Fund must transact its business in an expeditious manner.

2.5 When entering into financial, banking or other transactions, the Fund must:

2.5.1 always act in the best interests of unitholders; and

2.5.2 not effect such transactions with inappropriate frequency or in excessive size.

2.6 Where provided by the Applicable Rules, a Fund should not enter into underwriting or sub-underwriting contracts:

2.6.1 without the prior consent of either the trustee or the custodian (or other body with responsibility for safe custody of the fund assets), as applicable; and

2.6.2 unless the Certificate Holder provides in writing that all commissions and fees payable to the Certificate Holder and/or any other fund service provider under such contracts and all investments acquired pursuant to such contracts shall form part of the assets of the Fund.

Codes of Practice for Certified Funds The Principles


2.7 When dealing with unitholders, a Fund should ensure that all unitholders are treated fairly.

2.8 Subject to any mandatory legal restraints and duties of confidentiality, the Fund should, within a reasonable period of time, notify unitholders of any matters of which it becomes aware that might reasonably be expected to be in the material interests of unitholders to disclose.

2.9 Where changes are to be made to the rights of unitholders that do not require prior approval from unitholders, the Fund is to give unitholders reasonable notice of the proposed changes.

2.10 The Fund must be able to demonstrate that adequate disclosure of the key risks and the relevant terms and conditions was made to the unitholders before any commitment was made to invest in the Fund in order to ensure that unitholders, assisted by their advisers, have made an informed decision, particularly so for Funds targeted at retail unitholders.

Notes:

1 With reference to paragraph 2.4, it is incumbent on the parties (namely the Fund through its governing body on the one hand and the fund service providers on the other) to ensure this aspect is covered in the relevant Fund Services Business Agreements. The Commission anticipates compliance with the Codes generally to be part of the contractual arrangements entered into with the service provider.

2 The requirement in paragraph 2.7 does not apply to any discount that may be offered to or negotiated by an individual unitholder in relation to the fees charged upon his investment in a Fund, or require the Fund to offer a similar discount to any other unitholder.

3 Paragraph 2.7 does not apply in respect of any arrangements set out in a Funds Constitutive Documents, Applicable Rules or material contracts providing for preferential rights or treatment or conferring other priorities on certain persons or classes.

3 A Fund must organise and control its affairs effectively for the proper performance of its activities and be able to demonstrate the existence of a

CODES OF PRACTICE FOR CERTIFIED FUNDS - … · 2014-08-15 · any aspect of the proposal prior to...

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