This memorandum has been prepared for the assistance of clients considering carrying out investment fund business in Guernsey. It is intended to provide only a summary of the main legal requirements and general principles applicable to investment fund business in Guernsey and is not intended to be comprehensive in its scope. It is recommended that a client seeks legal advice on any proposed transaction prior to taking steps to implement it.
A series of briefings on other aspects of Guernsey law have been produced by Ogier and are available on request.
This memorandum has been prepared on the basis of the law and practice as at 1 July 2008
Guernsey's regulatory regime for investment fund business is changing. A report issued in 2005 (the Harwood Report) set out some key recommendations for change, with the principal purpose of ensuring that Guernsey maintains and enhances its position as a major offshore financial centre for investment funds.
In December 2007, legislative changes were approved by the States (Government). The effective date for these amendments has yet to be determined.
The main thrust of the changes is aimed at enhancing Guernsey's ability to compete on the international stage, by simplifying the regulatory process.
Currently, Guernsey funds are divided into two categories:
- open-ended collective investment schemes (whereby investors are entitled to redeem their shares, units etc). These are governed by the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended ("POI Law") and applicable rules; and
- closed-ended investment funds. These are not authorised under the POI Law, but instead are required to obtain consent under the Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959, as amended ("COBO").
The principal changes to the funds regime in Guernsey are as follows:
- the POI Law will apply to both open-ended and closed-ended funds - COBO will no longer be relevant.
- investment funds will be categorised (whether open-ended or closed-ended) as either:
- regulated funds, which will be supervised by the Guernsey Financial Services Commission ("GFSC"); or
- registered funds, which will not be subject to ongoing supervision by the GFSC, but will be identified on a register maintained by the GFSC after certain filings are made with the GFSC and payment of a fee. A Guernsey licensed administrator will be required.
- registered funds will not be permitted to offer their shares, units etc to the Guernsey public; but will be able to offer their securities to Guernsey licensed entities (see below).
- registered funds, both open-ended and closedended, will be subject to ongoing notification requirements to the GFSC (and not continuing obligations) and be obliged to make annual filings.
- the GFSC will continue to implement rules for open-ended funds under the POI Law and will also implement rules for regulated closedended funds.
The following are some other changes which will benefit the funds industry:
- the exemptions in relation to licensing requirements under the POI Law will be extended. Entities carrying on controlled investment business in or from within the Bailiwick of Guernsey (which includes promotion in relation to investments) must be licensed under the POI Law. New exemptions will enable non-Guernsey professional service providers to promote investments in Guernsey to local licensed entities (but not the public), without a POI licence, thereby increasing local access to non-Guernsey products.
- the circulation in Guernsey of prospectuses or other offer documents will be regulated under the POI Law (rather than COBO). The new regulations will include filing requirements in relation to particular documents, minimum disclosure requirements, payment of a fee and the provision of a certificate from a local Advocate confirming regulatory compliance.
- parts of COBO will be repealed, including those which currently require Guernsey entities to obtain consent for raising or borrowing money in or outside the Bailiwick of Guernsey.
- the GFSC will adopt the three objectives of the International Organization of Securities Commissions, namely:
- the protection of investors;
- ensuring markets are fair, efficient and transparent; and
- reducing systemic risk.
Some regulatory changes have been implemented already. Open-ended funds no longer require a principal manager. A regime for registered closed-ended funds was introduced on 1 February 2007. This regime offers a fast-track procedure to obtain COBO consent for a closedended fund.
If all papers are in order, the GFSC will grant COBO consent within 3 working days.
The Guernsey licensed administrator of a registered closed-ended fund must obtain satisfactory due diligence on the fund's promoter and/or investment manager, which is similar to the approach taken for the 3 day fast-track approval procedure for Qualifying Investor Funds.
The streamlining of Guernsey's funds regime will make it more efficient and effective and so should enhance the Island's reputation as an attractive place to conduct investment business.
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.