This briefing provides a concise outline of recent developments in the regulation of Guernsey investment funds.
2008 has seen various changes to legislation at the core of Guernsey's finance industry, including the introduction of the zero-10 tax regime and the Companies (Guernsey) Law, 2008. The Guernsey Financial Services Commission's (the "Commission") system for approval of investment funds has also been overhauled. Here we explain the main points of the new rules and give an overview of the various regimes as they currently stand.
1. Control Of Borrowing
All but limited sections of the Control of Borrowing (Bailiwick of Guernsey) Ordinances, 1959 to 2003 ("COBO") have now been repealed.
- Consent under COBO for borrowing and guarantees - still required
- Consent under COBO for establishment of closed-ended funds (and further issues) - transferred to POI Law and the new rules (see post)
- COBO for incorporation of (non-fund) companies - abolished
- COBO for establishment of (non-fund) unit trusts - abolished
- COBO for establishment of (non-fund) limited partnerships - abolished
- COBO for further issues of shares in companies, units in unit trusts or limited partnership interests (non-fund) - abolished
- COBO for distribution in Guernsey of a prospectus by a Guernsey / non-Guernsey entity - transferred to new Prospectus Rules (see post)
2. Protection Of Investors
New rules have been introduced under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended ("POI Law"). Closed-ended investment schemes are now included in the definition of "collective investment schemes" in the POI Law and application for regulation of either open- or closed-ended schemes may now be made under the "Authorised" regime or the lighter touch "Registered" or "QIF" regimes.
2.1 Authorised Funds
Authorised open-ended schemes continue to be governed by either the Class A, Class B or Class Q Rules, but the Class A Rules have been updated with a 2008 version (in force 24 November 2008) which reflect a movement to liberalise UCITs in Europe.
Closed-ended schemes may now be approved under the Authorised regime with the introduction of the Authorised Closed-Ended Investment Schemes Rules 2008 (the "Closed-Ended Rules") which provide for the administration and custody of a closed-ended scheme, certain ongoing compliance matters, the information required to be included in any prospectus (which mirrors the requirements of the Commission's old Form APC) and the obligations to notify the Commission or investors in the fund.
Existing Authorised closed-ended schemes may elect (until mid-April 2009) to be treated as a Registered closed-ended scheme and thereafter will be deemed to have been granted a registration in accordance with the new Registered Rules (as defined below).
Existing closed-ended schemes which do not elect for registration under the Registered Rules must revise their principal documents (articles of incorporation, limited partnership agreement or unit trust instrument and related management agreements) to comply with the Closed-Ended Rules either at the next occasion when an amendment of their principal documents is put to investors or by not later than December 2010. Most existing closed-ended funds will already comply with the Rules. Prospectuses of existing funds, if revised following commencement of the Closed-Ended Rules must be revised to comply with them.
2.2 Registered Funds
Open-ended funds can now take advantage of the fast-track application process of the Registered fund regime, which previously only dealt with closed-ended schemes. Open- and closed-ended schemes are now both included in the Registered Collective Investment Scheme Rules 2008 (the "Registered Rules"). The Registered Rules provide for the administration and custody of a Registered scheme, certain ongoing compliance matters, the obligations to notify the Commission and investors in the scheme and the preparation of a prospectus but do not deal with the content of the prospectus. The Prospectus Rules 2008 (the "Prospectus Rules") have been introduced to regulate the contents of prospectuses issued by Registered open- or closed-ended schemes, including information required to be disclosed and statements to be included.
Existing Authorised open-ended schemes may elect (until mid-April 2009) to be treated as a Registered open-ended scheme and will be deemed to have been granted a registration in accordance with the Registered Rules.
Existing Registered schemes must revise their principal documents to comply with the Registered Rules either at the next occasion when an amendment of their principal documents is put to investors or by not later than December 2010. Most existing closed-ended funds will already comply. Prospectuses of existing funds, if revised following commencement of the Registered Rules must be revised to comply with them.
There are no changes to the Qualifying Investor Fund, or "QIF", regime.
The Prospectus Rules regulate the contents of Registered fund prospectuses and also apply to offers of any controlled investment ("General Securities and Derivatives") either made by a Guernsey entity (company, limited partnership or unit trust) or made to the public in the Bailiwick wherever the offeror is domiciled. The "public" is defined as an identifiable category of persons exceeding 50 in number. The Prospectus Rules do not apply to offers of investments which are listed on an exchange supervised by a member of the International Organization of Securities Commissions (IOSCO), such as the London Stock Exchange or AIM.
Any prospectus circulated in the Bailiwick of Guernsey or outside the Bailiwick by a Guernsey entity must meet the requirements of the Prospectus Rules and be delivered to the Commission for registration on payment of an application fee. Any changes to the contents of the prospectus must be notified to investors.
2.4 POI Licensees
In October 2008 the Commission introduced a fast track process for consideration of a POI Law licence application for any company domiciled in Guernsey which acts as fund manager to a Registered fund or QIF. Where the fund structure includes a Guernsey fund manager or the fund is structured as a limited partnership and has a Guernsey general partner, the Commission will process the application for the licence of such entity (with reliance on the certification of the administrator) under the fast track licensee application process and put it before the Commission's Licensing Committee within ten business days of receipt.
The Commission has confirmed that administrators and other service providers which are licensed to provide restricted activities to only category 2 controlled investments ("General Securities and Derivatives") which category previously included closed-ended funds, will, with the re-classification of closed-ended funds as "collective investment schemes", automatically be deemed to hold a licence for providing the same services to category 1 controlled investments ("Collective Investment Schemes").
Expert Advice Is On Hand
Mourant du Feu & Jeune's funds team provides advice in relation to a broad range of investment funds in Guernsey, Jersey and the Cayman Islands, including hedge funds, property funds, private equity funds and money market funds. It advises on the establishment of investment funds, fund related deals and provides ongoing advice in relation to fund structures.
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.