Guernsey: Guernsey Ready For Third Country AIFMD Passport

Last Updated: 27 July 2016
Article by Andrew Whittaker and Paul Wilkes

Most Read Contributor in Guernsey, November 2017

On 19th July 2016, the European Securities and Markets Authority ('ESMA') once again recommended Guernsey for a third country passport under the Alternative Investment Fund Managers Directive (AIFMD). This followed ESMA's announcement last summer that Guernsey had demonstrated the ability to satisfy the criteria required under AIFMD.

The independent EU regulatory authority assessed Guernsey, alongside 11 other non-EU jurisdictions, as part of its non-EU AIFMD passport reviews. In its final assessment, ESMA has concluded that 'there are no significant obstacles regarding investor protection, competition, market disruption and the monitoring of systemic risk impeding the application of the AIFMD passport to Guernsey'.

For Guernsey, being in the first wave is important for two reasons. Firstly, because it demonstrates that it has a strong regulatory framework in place and meets the OECD's tax transparency guidelines – both of which are significant if you are an investment manager looking to set-up a fund under AIFMD. And secondly, because some jurisdictions will likely turn off their national private placement regimes once the third country passport is formally introduced.

"At the moment, managers of Guernsey funds need to privately place into Europe and that works well. If Guernsey were not in the first wave, there would be a danger of there being an unknown period of time, during which managers would not be able to market into certain jurisdictions. Luckily, that won't be the case," explains Andrew Whittaker, Chairman of the Guernsey Investment Fund Association.

Certain countries, such as the UK, have left their national private placement regimes intact such that it remains 'business as usual' for managers looking to market a Guernsey fund. And whilst there will likely remain a core number of EU and non-EU managers who use Guernsey specifically to remain out of full scope of AIFMD and continue down the NPPR route, there are plenty of managers who will look to take full advantage of the third country passport and opt in to the AIFMD regime on an equivalent basis.

AIFMD opt-in regime

"We have a full set of AIFMD opt-in rules which mirror the requirements of a full scope EU AIFM," confirms Paul Wilkes, Group Partner, Collas Crill, a prominent Channel Islands law firm. "I was part of the drafting committee and the view we took was that by getting the rules in place early, it would give the Guernsey Financial Services Commission ('GFSC') sufficient time to look at the rules and carefully consider them. We wanted our clients to have the opportunity to opt-in as early as possible, even though it doesn't yet give them the right to passport their funds into Europe.

"However, what it does do is allow managers to tell investors, 'Yes, we're not in Europe but we are subject to the same rules as we have opted in to the Guernsey AIFMD regime, which is equivalent'.

Manager led product

Both Luxembourg and Malta have recently unveiled new unregulated funds in a clear sign that Europe is evolving under AIFMD. Known as the Reserved AIF and the Notified AIF respectively, the regulatory oversight of the AIF lies squarely with the AIFM, thereby avoiding a dual layer of regulation at both the manager and the fund level.

In anticipation of receiving the third country passport, Guernsey has looked at these recent developments and moved quickly to introduce an AIFMD friendly product of its own. Known as the Manager Led Product ('MLP'), "it allows fund promoters to have an AIFM and fund(s) underneath, for example, a Guernsey GP/LP structure, thereby making it more efficient for the AIFM to manage funds from Guernsey," says Whittaker.

The MLP was unveiled by the GFSC on 11th May 2016. It aims to ensure a proportionate risk-based level of product regulation for any AIFM that establishes itself in Guernsey and seeks to market an AIF into Europe under the National Private Placement Regime arrangements. Once an AIFM has been licensed by the GFSC, they will be able to freely launch new partnership structures and corporate funds by simple notification, reducing the amount of red tape. For new managers wishing to operate under AIFMD via a hosted solution (using a 3rd party AIFM), the introduction of the MLP could be a game changer for Guernsey.

"Since the Directive was introduced I've always regarded it as a big opportunity for Guernsey," says Wilkes. "Once we have the third country passport it will give better access to European capital than Guernsey has ever had. It's a significant opportunity for Guernsey funds over the long term," adding that Guernsey's USP, compared to EU onshore jurisdictions, is the Island's expertise in asset classes such as private equity, real estate, alternative hedge fund strategies; service levels for sophisticated private funds; quick turnaround times by the GFSC, and most importantly, cost. "There are real cost benefits to setting up a Guernsey fund. Once the third country passport is available, it's up to us to become as competitive as possible."

Fund structuring options

Investment managers may make application for authorisation or consent under one of three routes:

  • Authorised Fund by standard application;
  • Authorised Fund by Qualifying Investor ("QIF") application;
  • Registered Fund application.

The QIF process

Promoters of authorised funds, which are typically offered to professional or experienced investors willing to invest a minimum of USD100,000, are able to take advantage of the qualifying investor fund or "QIF" fast-track application process. Under such a scenario, an appropriately licensed Guernsey administrator must certify to the Guernsey Financial Services Commission ('GFSC') that it has performed sufficient due diligence on the promoter and that the requisite disclosures are made in the offering document of the scheme.

The benefit to managers under this arrangement (and the registered fund option) is speed to market. The administrator does all the heavy lifting, so that by the time a fund application reaches the Commission, it typically provides a guaranteed response time of three business days; a significant benefit to managers who need to get their fund to market to avoid losing investor capital commitments.

Class B Authorised Fund

For an Authorised Fund there are four choices: an authorised closed ended fund or a Class A, Class B or Class Q open-ended fund. "Class A is the Guernsey equivalent of UCITS. Class B is by far the most common open-ended vehicle for hedge funds. The basic tenet is that you have to disclose in the fund documents what the investment strategy is, what the restrictions are, etc. Traditionally HNW investors and institutional investors are the main investors in Class B funds.

"Class Q is the most flexible of the three classes of Authorised Fund in respect to how much the manager needs to involve investors should they wish to change the fund's investment objectives. Because of that flexibility it is limited to a definition of 'Qualifying Investor' – namely HNW individuals, professional investors," says Wilkes. He says that the 'QIF' process can be applied to any Guernsey authorised fund: Managers can fast track a Class B Authorised Fund using the QIF process giving them the flexibility of a Class B fund and the recognition of a Class B fund in the market."

As a general rule of thumb, all Guernsey-domiciled funds are required to appoint a locally licensed administrator, which is referred to as a "designated manager". If a fund promoter chooses an open-ended fund structure, the fund must generally appoint a Guernsey licensed custodian to hold and safeguard its assets.

By contrast, a Guernsey closed-ended fund is not required to appoint a local custodian. It is not mandatory for either an authorised or registered fund to have a locally regulated or a local manager/adviser. All three classes of Authorised Fund, and the Guernsey Registered Fund, will be eligible for the third country passport, going forward.

An original version of this article was published in Hedgeweek's guide to setting up an AIF in Europe, July 2016. It has been updated to reflect ESMA's announcement of 19 July 2016.

For more information about Guernsey's finance industry please visit

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions