If you are launching a fund in Guernsey, you need to get approval from the Guernsey Financial Services Commission ("GFSC") and, in the case of listed funds, the appropriate market authority.
Different approvals are required depending on whether the fund is to be an "authorised" fund or a "registered" fund, whether the fund is open-ended or closed-ended, and on the type of investor which the fund is aimed at.
Authorised versus Registered
Both open-ended and closed-ended funds can be approved in Guernsey, as either authorised or registered funds under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (the "POI Law"). The main differences between authorised and registered funds are:
1. The Party Responsible for the Bulk of the Due
In the case of an authorised fund, the GFSC undertakes the necessary due diligence on the fund promoter, unless the fund is a "qualifying investor fund" ("QIF"). For registered funds and QIFs, the Guernsey administrator carries out the due diligence required and provides warranties as to the suitability of the promoter to the GFSC.
2. The Length of Time to Obtain Approval
Approval of an authorised fund can take as little as 4 weeks, or up to 3 months if the fund is not a QIF, but usually towards the lower end of that range. Registered funds and QIFs are approved within 3 working days of completed documents being submitted to the GFSC and resolution of any issues arising.
3. The Applicable Fund Rules
In general terms, the rules set out stricter requirements for open-ended funds than for closed-ended funds. Likewise, in general terms the rules for authorised funds are stricter than those for registered funds.
Authorised Open-Ended Funds
Authorised open-ended funds are governed by the rules of the class under which they are authorised (known as Class A, Class B and Class Q).
Class A funds are generally retail funds intended for marketing to the UK public (or one of the other territories which recognise Class A funds as equivalent to their own retail funds, thereby allowing the fund to be "passported" without additional registration or authorisation requirements).
The rules relating to Class B funds have been developed with more flexibility in mind. Class B funds range from retail funds through to institutional and private funds.
Class Q funds are only to be sold to a strictly defined class of "qualifying professional investors", with rules which are correspondingly non-prescriptive.
Class A, B and Q funds can all be authorised using the QIF regime if they are limited to "Qualifying Investors". This reduces the authorisation time. However, the "Qualifying Investor" restriction means that in practice usually only Class B funds or Class Q funds are authorised in this way.
"Qualifying Investors" are those who are "professional", "experienced" and/or "knowledgeable", as defined by the GFSC guidelines on QIFs.
Authorised Closed-Ended Funds
Authorised closed-ended funds are governed by the Authorised Closed-Ended Investment Schemes Rules 2008. Such funds are subject to a lighter degree of regulation than applies to an authorised open-ended fund, but they are required to make more immediate notifications to the GFSC than a registered closed-ended fund.
It is worth noting that there is no requirement for an authorised closed-ended fund to have an appointed Guernsey custodian, and either the Guernsey administrator or a non-Guernsey based custodian may provide safekeeping services, provided that such arrangements are approved by the GFSC.
Authorised closed-ended funds can also be authorised under the "fast track" QIF regime if they are restricted to "Qualifying Investors".
Registered funds (whether open or closed-ended) are governed by the Registered Collective Investment Scheme Rules 2008 and the Prospectus Rules 2008.
The main advantage of a registered fund lies in the 3 working days, "fast track" approval time, without the "Qualifying Investors" restrictions.
The Rules require that a registered open-ended scheme must appoint a designated manager and a designated custodian, who are licensed under the POI Law. For a registered closed-ended scheme, only a designated manager is required.
The Rules require each registered fund to prepare information particulars which contain (at a minimum) the matters set out in the Prospectus Rules 2008. The ongoing notification requirements under the Rules are not as extensive as those for an authorised scheme.
GFSC Approval Process
Normal Authorisation Procedure
If the promoter of an authorised fund is new to Guernsey, they will need to complete a "new promoter checklist" and be pre-vetted by the GFSC. If the promoter is already known to the GFSC, this step is not necessary.
Funds which proceed along the normal authorisation route then follow 3 levels of GFSC approval: outline, interim and formal approval. The draft offering document for the fund must be submitted and reviewed by the GFSC at the interim stage once outline consent has been obtained for the fund. Certified copies of all final documentation must be filed with the GFSC when an application is made for final consent, although the documentation is not reviewed by the GFSC at this stage and consent is usually given within 48 hours. A fund must not be launched until final authorisation is granted.
QIF / Registered Fund Procedure
Once the local administrator has provided the necessary warranties to the GFSC, approval will be forthcoming within three working days of receipt of all the necessary documentation and the resolution of any issues raised by the GFSC.
Funds which are approved as QIFs must have in place measures to ensure that they are only available to investors who fall within the above definitions. Offering documents for QIFs need to contain various disclaimers and the administrator needs to provide the GFSC with a warranty certifying that the promoter is fit and proper. Similar to QIFs, Registered Funds have to submit an application form to the GFSC which includes certain warranties that the local administrator has performed sufficient due diligence on the principal parties to the fund.
Guernsey Management Companies
Typically, a Guernsey fund will appoint a management company to act as manager of the fund, whether incorporated in Guernsey or elsewhere (the "Manager"). If the Manager is incorporated in Guernsey, it will need to be separately licensed by the GFSC under the POI Law.
In the case of new Managers of funds that are following the normal procedure for authorisation, formal application for a fund licence is normally done in tandem with the fund authorisation application itself. The licence will normally be granted on the same day that the fund achieves authorisation/consent.
For new Managers of QIFs or registered closed-ended investment funds, there is a "fast track" procedure whereby a licence can be granted by the GFSC within 10 working days of submitting the licence application and resolution of any issues arising. Under this procedure, a local licensee is required to give warranties to the GFSC and to conduct due diligence to support the application, including on the beneficial owners and controllers of the Manager and certain other relevant individuals.
The Manager will usually delegate day-to-day administration of the fund to a locally-licensed administrator. All funds established in Guernsey must appoint a locally-licensed administrator to carry out certain core duties.
The GFSC applies the following fees to funds (subject to amendment; the fees below are current as at 29 April 2010):
Annual fee – fund £3,000
Annual fee – per additional class £200
Application fee – fund £3,000
Application fee – new class of umbrella /multi class fund £650
Application fee – Non-Guernsey fund £1,000
Annual fee – fund £3,000
Application fee – fund £3,000
Application fees and annual fees also apply to Guernsey Managers – please contact us for further information.
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.