Substance in the fund management sector, particularly in the context of the Alternative Investment Fund Managers Directive (AIFMD) and Base Erosion and Profit Shifting (BEPS) initiative, is of increasing importance, a newly-published white paper has reported.

The Guernsey Finance white paper Investment funds - why substance is key, written by funds journalist Kirstie Brewer, examines how the need to prove that an offshore fund manager has the necessary 'substance' to its business dealings and functionality has never been more acute, particularly in the context of the current climate of regulatory reforms and politically-motivated improvement of tax transparency. The white paper looks specifically at what substance is, where it came from and how to get enough of it.

Guernsey Finance Chief Executive Dominic Wheatley said it was clear that substance requirements were going to be of the utmost importance in the years ahead, particularly with the growing raft of regulation and international policy initiatives. The recent recommendation from the European Securities and Markets Authority (ESMA) that Guernsey should be granted a 'third country' passport under AIFMD was further proof that the Island is ready to meet those requirements.

"Guernsey has now come in the top tier of two successive ESMA reviews of third countries and these, together with the recent review by MONEYVAL, demonstrate the quality of financial services regulation in Guernsey. The Island was also one of only five jurisdictions to receive an unqualified and positive assessment from ESMA in its most recent advice," said Mr Wheatley.

"This clearly offers a greater degree of certainty for investment managers utilising Guernsey for funds which are then sold into the European Union. Unlike some other jurisdictions, Guernsey has a financial services industry with substance where governance and administrative functions are performed within the Island to a level that meets not only the demands of international regulatory standards but also the expectations of the market."

Gavin Farrell, Partner at Mourant Ozannes in Guernsey, explains in the white paper that Guernsey offers a very strong substance proposition.

"From a Guernsey regulatory and structural perspective we provide the substance that is required for the management and running of the Guernsey entities, both the products and their management companies. Not only because we have all the service providers in Guernsey - custodians, administrators, lawyers, banks and accountants - who provide live services to those entities but also because the individuals appointed at the board level are very credible individuals and under a regulatory burden and scrutiny to exercise their managerial and fiduciary duties," said Mr Farrell.

* The white paper, 'Investment funds - why substance is key', can be viewed here. It was written by funds journalist Kirstie Brewer, formerly the Investment Editor at hedge fund trade publication HFMWeek, who has expertise in the alternative investment fund management sector and corporate governance.

For more information about Guernsey's finance industry please visit

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