Please enable JavaScript.
Coggle requires JavaScript to display documents.
Unregulated funds - Coggle Diagram
Unregulated funds
Light touch regulation
In nearly all instances of unregulated fund, there can be found a layer of regulation, hence why many jurisdictions choose to adopt light-touch regulatory models rather than declaring them unregulated structures.
Both the Malta NAIF and Luxembourg RAIF will be indirectly regulated through the AIFM, which must comply with the terms of AIFMD when managing and marketing AIFs in Europe. Similarly, the Jersey UETF will be subject to the listings rules of its approved markets, which are designed with some form of investor protection in mind.
In addition, Jersey has added a specific form of light-touch regulated fund,
the Very Private Fund, which does not require the full form of regulation but need only gain consent under Jersey’s Control of Borrowing Ordinance (COBO), bringing it within the scope of a lighter form of regulation.
In May 2016 Guernsey announced its own lighter-touch fund product, named the Manager Led Product (MLP). Like the NAIF and the RAIF, the MLP regulates the investment manager rather than the underlying fund. This is a departure for Guernsey fund regulation, which traditionally has regulated both the manager and the fund itself.
The MLP allows one investment manager to absorb all the incidence of conduct of business and capital adequacy rules, while permitting multiple fund structures to exist under its regulatory obligations. That investment manager must adhere to Guernsey’s AIFMD Rules 2013 in order to be eligible and is designed to allow those managers to demonstrate to the EU competent authorities that they intend to be compliant with AIFMD.
The thought processes and benefits behind lighter-touch regulation are to bring fund products to investors that:
-
-
-
A Jersey unregulated fund is a Jersey domiciled fund which is either to be offered to certain eligible investors only or is listed on an approved exchange or market and opts out of regulation as a fund in Jersey
Two types of unregulated funds: unregulated eligible investor funds (UEIF) and unregulated exchange traded funds (UETF)
-
-
In both cases, an offer document must be published and must include the fact that the fund is unregulated, which must be acknowledged by investors in writing. In large this is due to the fact that an investor takes on the risk of the fund being unregulated, which includes the fact that the promoter does not have to establish a track record.
Guernsey’s funds offering does not recognise a particular definition of a fund and instead adopts a set of characteristics that, if present, will ordinarily result in regulation being required as a collective investment scheme.
– Pooling of contributions of investors – This means that a group of people, ordinarily unrelated to one another in any way, pool their contributions into one fund.
– Third party management of the portfolio assets – Meaning that a third party is appointed who selects and manages a group of assets
– Spread of risk – The fund invests in more than one asset, such as a number of properties or a diversified portfolio of equities.
For those entities outside of these characteristics (i.e. a single investment only or a small group of related parties), the Guernsey Financial Services Commission will ordinarily regard the structure as falling outside of the scope of a regulated fund. In these situations, a fiduciary licensee may, instead, administer the structure but it will not be recognised as a fund
Cayman offers unregulated funds largely through exemption under the Mutual Funds Law. Key examples would be funds:
-
those not incorporated in Cayman but offering subscription in Cayman through an appropriately licensed person and the interests are listed on an approved stock exchange or are regulated by an approved overseas regulatory authority
Additionally, a fund may be exempted from obtaining a licence and registered with the Cayman Islands Monetary Authority where the fund
is held by not more than fifteen investors, the majority of whom are capable of removing or appointing the operator of the fund. In which case, Cayman will treat the fund as a Private Fund.
Malta has introduced the notified alternative investment fund (NAIF), an unregulated fund structure designed to provide alternative investment fund managers (AIFMs) with a solution to market alternative investment funds (AIFs) within the EU as early as ten working days from the date of filing a completed notification pack.
The Malta NAIF is only available in limited circumstances in accordance with the Investement Services Acts (List of Notified AIFS) Regulations, where:
the fund is managed by an external AIFM (i.e. a manager regulated pursuant to the Alternative Investment Fund Managers Directive (AIFMD));
-
-
-
The Malta NAIF is a direct response to Luxembourg’s own fund offering, the Luxembourg Reserved Alternative Investment Fund (RAIF), another form of fund available within the EU providing a solution to AIFMD, as the RAIF must be managed by an AIFM.
In Bermuda, private funds (no more than 20 investors and closely-held) and closed-ended funds are excluded from the scope of the Investment Funds Act 2006 and are, thus, unregulated. In addition, Bermuda has two classes of exempted funds, being Class A and Class B.
Class A Exempt Funds are those whose interests are offered only to qualified purchasers and are managed by eligible investment managers. Class A funds must have a local administrator, registrar, auditor and custodian/prime broker. Otherwise, such funds may be classed as Class B Exempt Funds.
-
The BVI utilises the terms Professional Fund and Private Fund to denote those funds with the lightest touch regulation, however both must register under the Securities and Investment Business Act (SIBA).
Mauritius does not recognise a form of fully unregulated fund, however the nature and extent of regulation applied will depend upon the type of investor permitted to invest in it.