Since 1990, when the Collective Investment Schemes (Class B) Rules were introduced, there has been a steady increase in the level of interest in funds targeting institutions and high net worth individuals. In response to demand from international fund sponsors and in order to maintain its competitiveness in this area where Guernsey has cornered a niche market, the Commission has established the Class Q Rules which are specific to qualifying, professional investors.
The attached Guidance Notes provide further background to the Class Q Rules and summarises key features of this new category of collective investment scheme which may be authorised by the Commission. Copies of the Class Q Rules (which will be sent free of charge to licensees, applicants for licensees under the Law and subscribers to the Commission's Rule Book) will be available shortly from the Commission at a price of £15 each.
Nigel Taylor, Director of Investment Business: 01481-712706
Tammy Menteshvili, Deputy Director of Investment Business: 01481-712706
Notes for the Editor :-
Guernsey authorised open-ended funds fall into one of three classes: Class A, Class B, and Class Q.
In December 1988 the Bailiwick of Guernsey was granted Designated Territory status under Section 87 of the UK Financial Services Act, 1986 ("FSA") in respect of Class A (retail) schemes. The granting of this status recognises that the regulation and supervision in Guernsey of Class A schemes provides investors with protection at least equivalent to that provided under the FSA. In addition to the UK, Guernsey Class A funds may be publicly marketed (upon application to the relevant authority) in Australia, Hong Kong, Japan, The Netherlands, The Republic of Ireland and Switzerland.
The Class B schemes rules incorporate a measure of flexibility, allowing for wider investment and borrowing powers than those permitted under the Class A UCITS-equivalent schemes, whilst maintaining meaningful investor protection, and are applied by the Guernsey Financial Services Commission exercising judgement and discretion and taking into account all facts pertaining to a particular fund application. The authorities in Hong Kong, The Netherlands, The Republic of Ireland and Switzerland are willing to consider applications to market Class B funds in their jurisdictions on a case-by-case basis.
The Class Q rules seek to provide a clear and concise set of requirements for the operation of professional investor funds and have been designed to encourage innovation. Accordingly, the rules place emphasis on disclosure rather than prescription. Other key features of Class Q funds include simplified document requirements, expedient processing of applications as well as having no prescribed minimum subscription requirement.
Class Q schemes, as with Class A and B schemes, will be subject to permanent and continuing supervision by the Commission and this should enhance the ability of fund sponsors to promote Class Q schemes in other jurisdictions.
Press Release - Class Q Funds (6 February 1998)
GUERNSEY FINANCIAL SERVICES COMMISSION PROTECTION OF INVESTORS (BAILIWICK OF GUERNSEY) LAW5 1987 (44P01 LAW 99)
The Collective Investment Schemes (Qualifying Professional Investor Funds) (Class Q) Rules 1998 ("Class Q Rules")
These Guidance Notes, which are intended to assist existing and potential promoters and managers of Class Q collective investment schemes with an understanding of the Commission's policy and practice, should be read in conjunction with the Class Q Rules.
Since 1990 when the Collective Investment Schemes (Class B) Rules 1990 ("the Class B Rules") were introduced, there has been a steady increase in the level of interest in funds targeting the professional investor.
As the Guidance Notes to the Class B Rules state, Class B schemes range from the retail fund aimed at the "general public" via institutional funds to the strictly private fund established solely as a vehicle for investment by a single institution, and their investment objectives and risk profiles are similarly wide-ranging. A high proportion of Class B funds are professional investor funds.
In response to fund managers' requirements and in order to maintain its competitiveness in this area where Guernsey has cornered a niche market, the Commission has established the Class Q Rules which are specific to qualifying professional investors. Class B funds will continue to be available for promoters/sponsors seeking to launch bespoke and innovative products for other types of investors.
The Commission's existing policy of selectivity which, in the context of funds, means that great weight is given to the status of the intended promoter will continue in respect of all Guernsey authorised collective investment schemes. Only those of the first rank are encouraged and, normally, a demonstrable and favourable track record in the promotion of established collective investment funds is required.
Class Q schemes, as with Class A and B schemes, will be subject to permanent and continuing supervision by the Commission and this should enhance the ability of promoters to market Class Q schemes in other jurisdictions. The Class Q Rules seek to provide a clear and concise set of requirements for the operation of professional investor funds and have been designed to encourage innovation. The Class Q Rules incorporate a measure of flexibility, consistent with meaningful investor protection. Accordingly the Rules allow greater discretion in respect of investment restrictions and place more emphasis on disclosure of risks inherent in the investment vehicle.
- Each scheme must be authorised and is subject to permanent and continuing supervision by the Commission.
- Class Q funds may be established as companies (including protected cell companies), trusts or limited partnerships. The manager has a responsibility to ensure that the ownership of partnership interests, shares and units is limited to qualified professional investors as defined.
- There is no prescribed minimum individual subscription requirement for investment in a Class Q fund.
- The property of the scheme must be subject to a spread of risk which will be at the discretion of the manager and, in the case of a company, the company. The criteria for spread of risk must be specified in the scheme's information particulars.
- Document requirements have been simplified. An offering document (information particulars) must be produced which contains sufficient information to facilitate an informed investment decision.
- A lawyer's certificate will not be required prior to a scheme being authorised. Instead, the manager is required to certify that the information particulars comply with the Class Q Rules.
Considerable thought has been given to the role of the trustee/custodian in relation to Class Q funds. The Commission has determined that in the best interests of Guernsey and of Class Q funds which it will authorise, a Guernsey licensed designated trustee/custodian is required. However, the emphasis in the rules on the role of the designated trustee/custodian is broadly limited to that of responsibility for the custody of scheme property and ensuring that sub-custodians are fit and proper.
In accordance with the Commission's policy, the principal manager should normally be incorporated in Guernsey. However, in the case of Class Q schemes promoted by a group of which the designated manager is a member, the Commission is willing to consider the incorporation of a principal manager outside Guernsey.
As with all other types of investment business, the Commission is always prepared to meet managers, potential promoters or their professional advisers in order to discuss matters of policy and practice regarding collective investment schemes, whether authorised or proposed.
The Class Q Rules were made by the Commission in exercise of the powers conferred on it by the Protection of Investors (Bailiwick of Guernsey) Law, 1987 ("the Law").
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.