Originally published in Corporate INTL, July 2009

Guernsey has always benefited from a flexible and user-friendly investment fund regime. As a result of this regime, the value of Guernsey's funds under management and administration grew by £22.2 billion in 2008 to a total of £200.4 billion, an increase of 12.5%. Recent regulatory changes have enhanced Guernsey's position as a jurisdiction in which to establish offshore funds and the island continues to balance the demands of the current competitive market with the need for a robust regulatory framework. With the expected thawing of economic challenges Guernsey is well placed to attract increased fund activity.

The New Rules

On 29 October 2008, amendments to the Protection of Investors (Bailiwick of Guernsey) Law,1987 came into effect and the Guernsey Financial Services Commission published new accompanying guidance rules on 15 December 2008.

The new regime now regulates both open-ended and closed-ended funds, and has repealed parts of the Control of Borrowing (Bailiwick of Guernsey) Ordinances. Open-ended and closed-ended funds are now classified as either Authorised Funds or Registered Funds, both of which are treated by the GFSC as regulated products, albeit subject to different notification regimes and levels of supervision.

Authorised Funds are subject to a greater level of GFSC supervision than Registered Funds, although disclosure requirements are similar to the previous COBO regime. Registered Funds are not subject to many immediate notifications, although notification of all material matters is required to be provided to the GFSC on an annual basis. The application process for new Registered Funds has the advantage of a three day fast track approval process.

Existing closed-ended funds are now deemed to be Authorised Funds unless an election to be treated as Registered Funds was made on or before 30 April 2009. Open-ended funds will continue to be governed by the Class A, Class B and Class Q Rules. However, under the new regime the GFSC continues its flexible approach and has the ability to grant derogations in respect of certain rules if satisfied that these are in the interests of investors.

As part of the recent regulatory changes, the GFSC has introduced a fast track licensing regime for management vehicles being established in connection with Registered Funds and Qualifying Investor Funds. This development means that the overall fund establishment process should not be delayed by the sometimes lengthier licensing process that would otherwise apply.

The QIF Regime

The Qualifying Investor Fund (QIF) Regime continues to apply to closed-ended and open-ended funds for those seeking an expedited approval process. The GFSC may grant QIF approval within three working days provided a licensed Guernsey applicant has certified that:

  • the fund is restricted to qualified investors;
  • promoter and associated parties are fit and proper; and
  • they are satisfied with the economic rationale and disclosure of risks in the prospectus.

Choice of Vehicle

The new regime does not affect the range of fund vehicles that can be established. These include:

  • limited liability companies;
  • protected cell companies;
  • incorporated cell companies;
  • unit trusts; and
  • limited partnerships.

Companies Law

Recent reforms in Guernsey introduced the new Companies (Guernsey) Law 2008. The new law, which came into effect on 1 July 2008, includes changes to the Guernsey Registry and company formation procedures. Guernsey companies can now be established using an on-line facility possibly within 24 hours, 2 hours or 15 minutes. The GFSC's prior approval for incorporation is no longer necessary and fund vehicles can therefore be incorporated in advance of launch.

Limited partnerships and unit trusts can also be quickly established, with new limited partnerships requiring registration with the Guernsey Registry while unit trusts require simple execution of a trust instrument. It should be noted however, that this does not override the requirement to obtain GFSC registration or authorisation in respect of the fund itself.

The new law also introduced improvements to the legal framework which has helped create a more flexible environment for corporate funds to operate within. For example, companies may now pay dividends out of their reserves providing the directors are satisfied and able to certify that, immediately after payment, the company will satisfy the "solvency test". It is therefore no longer necessary for a company to have "profits available for the purpose" as was required under the old law.

Shari'ah Law

Guernsey attracts a number of Shari'ah compliant funds and trust structures, as local financial institutions become increasingly active in this developing market. Guernsey has suitably qualified and experienced lawyers and advisors who are able to assist with incorporating Islamic structures.


Recent regulatory changes continue to streamline Guernsey's fund regime, sharpening Guernsey's competitive edge whilst maintaining a robust regulatory framework. The range of structures available, local expertise, increased flexibility and competitive regulatory timeframes cater for the demands of the current competitive market and should ensure Guernsey remains well regarded as a jurisdiction for the establishment of investment funds.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

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.