Understanding the basics of fund regulation

It is important to understand that there may be a number of jurisdictions involved when setting up a new fund, each with their own regulatory regime. A fund may be established in a different jurisdiction to its manager, perhaps because of a better suited regulatory or tax regime, and whilst economic substance requirements recently enacted in a number of Appleby jurisdictions do not directly affect funds, they are likely to influence choice of domicile for fund managers. It is also essential to consider the location of potential investors, as many jurisdictions have rules relating to the offering of interests in a fund to people in that jurisdiction.

Jurisdictions such as the Isle of Man have graduated regulatory requirements, with funds that are only open to sophisticated investors subject to lessor regulation than those available to retail investors. Investment managers or advisors may also benefit from exemptions from licensing in certain circumstances, so it is important to get advice at an early stage to structure a new fund and its management appropriately.

Corporate governance

The panel discussed the importance of good governance and of non-executive directors who scrutinise and actively engage with decision making. The Isle of Man Financial Services Authority has issued a guidance note on the governance of collective investment schemes, which includes guidance on conflicts of interest, balancing power and responsibility within the board, and appropriate composition of a board. In the Isle of Man, a person who acts as a director of more than ten companies must also be licensed by the Isle of Man Financial Services Authority, subject to certain exclusions and exemptions such as group arrangements.

Compliance

The panel highlighted the expanding scope of compliance, with FATCA and CRS reporting to be addressed in addition to anti-money laundering and countering the financing of terrorism obligations. Funds must also be conscious of the application of data protection legislation, given that GDPR has extraterritorial effect and applies to those offering goods or services to individuals in the EU or monitoring their behaviour in the EU. The Isle of Man, Jersey and Guernsey have each enacted data protection legislation mirroring GDPR.

Hot topics for start-ups

Other speakers at the conference through the day spoke on: how to market and find investors; surviving as a smaller manager; whether there is still a place for vanilla trading strategies and opportunities to explore emerging markets, such as trading cryptocurrencies and investing in cannabis businesses; and the benefits of outsourcing and factors to consider when choosing service providers.

Isle of Man exempt scheme

There was a lot of interest in the Isle of Man exempt scheme, which is an ideal vehicle for emerging and start-up managers looking to establish a track record with friends and family money. An exempt scheme may have up to 49 investors but cannot be offered to the public or promoted anywhere in the world. It is subject to minimal regulation, with no regulatory approvals or filings needed, no need for a custodian, and no need for audited accounts. An exempt scheme offers total flexibility on asset classes and trading strategies. Exempt schemes may be structured as companies (including protected cell companies), limited partnerships or unit trusts.

As an exempt scheme grows, there may be good reasons why it would become appropriate to make arrangements for public offerings or to exceed the maximum number of investors. If this is the case, an exempt scheme may convert to another class of Isle of Man fund with proportionately increased regulation, such as a Specialist Fund or Qualifying Fund.

For further information about funds in the Isle of Man please contact Katherine Johnson.

Share
Twitter LinkedIn Email Save as PDF
More Publications
8 Dec 2020 |

The International Comparative Legal Guide to Gambling 2021 – Isle of Man Chapter

This chapter was first published in The International Comparative Legal Guide to: Gambling 2021, by ...

Contributors: Sophie Corkish
30 Oct 2020 |

When Worlds Collide – How COVID is Connecting Technology with Natural Resources

Dating back to the beginning of 2020, the natural resources sector has been extremely active at both...

13 Aug 2020 |

Special Purpose Acquisition Companies (SPACS) make a comeback

In this global article on SPACs we revisit the basics, then look to each of our key jurisdictions fo...

20 Jul 2020 |

Listing quoted Eurobonds on The International Stock Exchange

The International Stock Exchange (TISE or the Exchange) provides recognised facilities for the listi...

Contributors: Chris Smedley
8 Jul 2020 |

Isle of Man Treasury announce new personal injury discount rate

The Isle of Man Treasury has announced that a new discount rate will be applicable to personal injur...

Contributors: Claire Corkish
23 Jun 2020 |

The International Stock Exchange – The home of UK Real Estate Investment Trusts (REITs)?

Real Estate Investment Trusts (REITs) were introduced in the UK under the Finance Act 2006 on 1 Janu...

Contributors: Chris Smedley