Originally published as 'Non-Guernsey Growth' in Contact Magazine, April/May 2011
There has been much handwringing of late over the choice of domicile for fund structures. Depending on the needs of managers and investors, the major funds jurisdictions each offer something different, writes Helen Crossley, Group Partner at Appleby in Guernsey.
Guernsey's funds industry continues to grow its market share. Figures released by the Guernsey Financial Services Commission ("GFSC") show that the value of funds business in Guernsey reached £257.4 billion at the end of 2010. Whilst there was a small rise year on year in respect of the value of open ended funds, and a larger rise in the value of closed ended funds in Guernsey, the most significant growth was in respect of non-Guernsey schemes – for which some aspect of management, administration or custody is carried out in Guernsey – where the value of funds reached £90 billion, an increase of £41.9 billion (87.1%) year on year. This growth in the value of these funds in 2010 results from the large number of non-Guernsey schemes that entered into service agreements with local licensees. It should also be noted that a significant proportion of these schemes are Cayman domiciled.
Guernsey's reputation as a finance centre with first class service providers and sensible, but not onerous, regulation has meant that a number of big names have moved to the Island in recent times to provide services to the funds industry. The significant increase may partly be due to the relocation of fund managers to Guernsey but is also recognition of the quality of management, administration and custody services on offer in the Island.
Where it is proposed to administer a non-Guernsey open ended scheme in Guernsey, GFSC approval is required. The approval process is relatively straightforward and there are certain exemptions.
In considering whether to approve a local licensee to provide services to a non-Guernsey open ended scheme, the GFSC will consider:
- The protection and enhancement of the reputation of Guernsey as a financial centre, the general nature and specific attributes of the controlled investment business to which the proposal relates and any other factors the GFSC considers appropriate.
The GFSC will apply the same standards as if the non-Guernsey open ended scheme were applying to obtain authorisation under the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended ("POI Law").
- Notification should be made to the GFSC by letter including confirmation that no other local licensee is acting and providing the scheme particulars for review. The GFSC may undertake checks on the promoters and certain other parties to the scheme (unless the fund may be regarded as a Qualifying Investor Fund and the local licensee chooses to apply using the fast track application regime).
- Personal questionnaires are required from the directors of the fund, beneficial owners of a promoter which is not a public company (being individuals with 15% or greater ownership or voting control), other key individuals upon which the performance of the fund will depend, and any other persons the GFSC requests.
- Non-Guernsey open ended schemes fall under the Licensees (Conduct of Business and Notification) (Non-Guernsey Schemes) Rules 1994 (the "NGS Rules"). An application fee of £1,000 and an annual fee of £500 fee which is reduced pro rata in the first year of approval are payable. The scheme is subject to ongoing reporting requirements.
- Where non-Guernsey schemes are closed ended, there is no fee and the NGS Rules do not apply.
Exempt Non-Guernsey Schemes
Designated Territory status has been granted to:
- the UK
- the Isle of Man
- the Republic of Ireland
This means that applicants carrying on business in relation to collective investment schemes with a main place of business in any of the above do not require a licence under the POI Law to promote certain collective investment schemes in the Bailiwick, but must give prior notice to the GFSC by completion of Form EX and submission of the latest prospectus and other documents.
An application fee of £1,000 and an annual fee of £500 fee which is reduced pro rata in the first year of approval are payable for schemes other than those domiciled in Jersey.
The NGS Rules do not apply to exempt schemes, but there is an on-going requirement to notify the GFSC of any significant changes, including links to updated prospectuses and published annual report and accounts.
The relevant schemes covered under this exemption are, broadly, highly regulated retail schemes. Schemes which have been recognised in the UK (for example, a UCITS scheme) are also covered in practice.
For growth of the type seen in Guernsey in respect of non-Guernsey schemes suggests Guernsey's progression to a centre of excellence for funds is well on track. Rumoured changes to the NGS Rules to introduce a licensee certification fast track approval are also good news.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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