The phrase "may you live in interesting times" is reputed to be an ancient Chinese curse. Unquestionably these are "interesting times" for the Channel Islands' funds industry with a raft of external pressures being applied to the islands' regulatory regimes in the form of US and European-led requirements. But in our case this need not necessarily be looked at as a curse. Those of us inclined to view our glasses as half-full may see opportunity amongst the changes.
For some time now the most pressing of concerns for the Islands' fund industry has been the Alternative Investment Fund Management Directive (AIFMD), a piece of European law-making intended to regulate the way investment funds offered to investors in the European Union are run. Much has been made of the need for the Islands to provide an "AIFMD-equivalent regime" whilst delays in producing the detail of what such a regime will need to be equivalent to have kept finance professionals waiting on tenterhooks.
With that detail finally being forthcoming we now have a chance to properly understand what faces us and take decisive action to move forward. Our response demonstrates the opportunities new regulations may create and so is well worth considering in more detail. Both islands' have stressed their commitment to offering equivalency and meeting EU timescales but what does that mean in the real world?
Guernsey Finance ran a masterclass in London earlier this month to explain its position. The steps being put forward broadly are as follows. Guernsey will offer a dual funds regime in which Guernsey managers can opt into complying with Guernsey's proposed new AIFMD equivalent rules for certain EU marketed funds (an entirely optional arrangement at the choice of the Guernsey manager) or use Guernsey's current regulatory regime which will continue unchanged for all Guernsey managers not wishing to opt in and for non-EU business. The new AIFMD rules will only apply if the Guernsey manager chooses to opt in (which they may do to gain access to investors in certain EU Member States for which there may otherwise be limited access following the incorporation of the AIFMD into relevant national laws). From 2015, these new rules should provide funds with a passport under which to access the entire European Union. Until then "Private Placement" (ie business as usual) will continue with limited directive requirements added. In fact some commentators expect this regime to continue well after 2015 depending upon the speed of progress inside Europe.
Jersey has similarly announced plans for an "opt-in regime" with both AIFM-compliant and non AIFM-compliant fund rules in place. These dual regimes offer a key advantage; EU managers will have to subject all their funds and investors to the full scope of the directive which will necessarily have cost implications, Guernsey and Jersey managers will have a choice whether to do so or not (a choice likely influenced by the location of their investor base).
This choice will give the islands a significant advantage over EU jurisdictions and professionals acknowledge this. For example the audience at a recent London Stock Exchange event heard a widely respected adviser on listed funds, Oriel Securities Partner Joe Winkley, say that he believed Guernsey would continue to dominate as a listing domicile going forward.
Another potential positive outcome for the islands is that managers may choose to relocate their businesses to the Islands in order to take advantage of these opportunities. To do so they will need to demonstrate that they are not simply establishing letterbox entities but businesses with real substance (with interpretations of substance ranging from a strong board of local directors all the way to taking on their own local officers and staff). The establishment of such businesses (alongside existing CI-based managers such as BlueCrest and Terra Firma) can only help in bringing further jobs and opportunities into the island economies.
So in the case of AIFMD, opportunities are arising from the threats. But that's AIFMD. Other buzzwords and acronyms will surely appear over the horizon soon. What's next? Interesting times indeed.
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