Private placement rules and law in the Channel Islands (Jersey and Guernsey)

Jersey and Guernsey are not EU Member States and therefore funds may be marketed into both jurisdictions in the same manner as prior to the AIFMD. 

Under the Control of Borrowing (Jersey) Order 1958 (“COBO”), the consent of the Jersey Financial Services Commission (“JFSC”) will generally be needed in order to raise money in Jersey or make offers to invest in a fund in Jersey, for example, by circulating that fund’s prospectus in the Island. If marketing materials which do not constitute an offer are circulated, this will fall outside the scope of COBO. 

Exemptions to COBO are available for funds structured as companies and unit trusts, but not limited partnerships. In summary, those exemptions require that the fund has no relevant connection with Jersey (for example, the management and control of the fund or, in the case of a unit trust, certain service providers, is carried out in Jersey) and the offer to invest is circulated to fewer than 50 prospective investors in Jersey or otherwise is valid in the UK or Guernsey and circulated to similar investors and in a similar manner to that made in the UK or Guernsey (as applicable). 

The JFSC generally processes applications for COBO consent within five working days, and a regulatory fee (currently GBP 635) is payable. Applications made in relation to UCITS funds are particularly straight-forward, as the JFSC generally treats such funds with a ‘light touch’. 

In terms of the distribution/marketing of the fund in Jersey, either (i) a Jersey licenced distributor or (ii) a person who falls within the ‘overseas persons’ exemption should be appointed. In order to fall within the ‘overseas persons’ exemption, a distributor must be supervised in its home jurisdiction and have no place of business in Jersey, the fund will need to qualify as a UCITS fund or otherwise fall within certain regulatory categories and there is a ‘reverse solicitation’ requirement that offers be initiated by the Jersey party rather than the distributor (or otherwise be in response to an advertisement meeting certain content requirements). 

If neither of the above applies, marketing activities should be kept to a minimum such that they fall outside the scope of the Financial Services (Jersey) Law 1998, as amended (the “FSJL”). 

As a general principal under Guernsey law, the “promotion” of fund interests is a restricted activity which requires a licence from the Guernsey Financial Services Commission (“GFSC”), pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (as amended) (the “POI Law”). However, there are certain exemptions:

1. If the promotion is being aimed at “Relevant Licence” holders (i.e. those holding a licence under the POI law, or under one of Guernsey’s other regulatory laws), the promotion to such institutions is not regarded as an activity requiring a licence under the POI Law.
2. The promotion of UK authorised collective investment schemes, Jersey recognised funds, Isle of Man authorised collective investment schemes and Republic of Ireland authorised UCITS funds can be freely promoted provided the promoter has registered with the GFSC with a Form EX.
3. If the promotion is to investors other than Relevant Licence holders and the funds to be promoted are not exempted as provided for in the above paragraph, a person may still be able to market such products without needing a POI Licence on the basis that they are an “Overseas Person” and are not carrying on the restricted activity of promotion in connection with controlled investments in or from the Bailiwick of Guernsey.  

The GFSC have drawn a distinction between “passive” promotion, which may be undertaken by an Overseas Person without a POI Licence, and “active” promotion which, subject to exceptions, may not.

1. “Active” promotion is where an Overseas Person specifically targets potential investors in the Bailiwick e.g. by sending promotional material, cold-calling or advertising in the local press.
2. “Passive” promotion includes any type of promotional activity which is not specifically targeted at Bailiwick residents (i.e. advertisements in the international press) and responding to queries from Bailiwick residents.

Other forms of possible placement options for fund interests outside fund regulations
Not applicable in either Jersey or Guernsey (please see above for exemptions which may apply).

Distributors may commence pre marketing funds which are not yet established (or established but have not obtained all regulatory consents required in the fund's home jurisdiction) to potential investors in Jersey. However, any pre-marketing activities which are carried out while the distributor is physically in Jersey should be kept to a minimum such that the activities fall outside the scope of the Financial Services (Jersey) Law 1998, as amended (unless the distributor can rely upon the 'overseas persons' exemption detailed in this guide).

Any document provided to potential investors within the context of the pre marketing activity should not enable such investors to commit to acquiring units or shares of the pre marketed fund, and should contain appropriate wording clearly stating that the document does not constitute an offer to invest."

Promoters may commence pre marketing funds which are not yet established (or established but have not obtained all regulatory consents required in the fund's home jurisdiction) to potential investors in Guernsey. However, any pre-marketing activities which are carried out while the promoter is physically in Guernsey should be kept to a minimum such that the activities fall outside the scope of the POI Law, as amended (unless the promoter can rely upon the exemptions detailed in this guide).

Any document provided to potential investors within the context of the pre marketing activity should not enable such investors to commit to acquiring units or shares of the pre marketed fund, and should contain appropriate wording clearly stating that the document does not constitute an offer to invest.

It is a criminal offence (punishable by a prison term and/ or a fine) to contravene the COBO legislation or to carry out/ hold oneself out as carrying out unauthorised fund services business under the FSJL. Directors of companies which do so also risk being prosecuted.

The JFSC may also publish regulatory statements to warn potential investors from dealing with such persons.

The POI Law makes it a criminal offence, subject to certain exceptions, for any person to carry on or hold himself out as carrying on any controlled investment business in or from the Bailiwick of Guernsey without a licence issued by the GFSC. In addition to the direct penalties for unlicensed promotion set out in the POI Law, any contract with an investor which is agreed in contravention of the POI Law is unenforceable and the investor is entitled to a return of any subscription monies paid.

A person is treated as carrying on controlled investment business if they engage by way of business in any of the restricted activities specified in the POI Law (i.e. promotion, subscription, registration, dealing, management, administration, advising and custody) in connection with any controlled investment (which includes open and closed-ended collective investment schemes).

The COBO regime applies equally to non fund securities, such as shares in listed or non listed companies. 

Please note that the recommendation of securities to prospective investors may constitute “investment business” under the FSJL, in which case a licence to conduct such business would need to be obtained (unless an appropriate exemption applies). 

The promotion of securities to prospective investors may constitute controlled investment business under the POI Law in which case a licence would need to be obtained (unless an appropriate exemption applies). 

The Prospectus Rules and Guidance 2021 (the “Rules”) also apply in respect of offers to the public in the Bailiwick of Guernsey of general securities and derivatives (wherever the offeror is domiciled). A person wanting to market a non fund investment to “the public” in Guernsey would need to prepare a prospectus containing the disclosures as set out in the Rules and register the prospectus with the GFSC prior to circulation. This is in addition to the general restrictions on promotion. 

The Rules provide that an investment is not promoted to the public by a promotion directly communicated to an identifiable category of persons not exceeding 50 in number if those persons are in possession of sufficient information to be able to make a reasonable evaluation of any offer included in the promotion and are the only persons who may accept such an offer.