AIFMD

Impact of AIFMD on Guernsey Funds

Guernsey is not a member of the EU and for the purposes of AIFMD is regarded as a Third Country.

Under AIFMD, the National Private Placement Regime (‘NPPR’) applies until such time as a marketing passport for Third Countries is made available. NPPR permits the marketing of non- European Economic Area (“EEA”) alternative investment funds in the EEA, subject to national law and regulation. In addition, certain conditions set out in AIFMD must be met. Those conditions include the need for supervisory cooperation agreements to be entered into between the GFSC and regulators in the relevant EEA countries in which the marketing is to take place.

Guernsey was well prepared for the introduction of AIFMD and the marketing of Guernsey investment funds in the EEA after 22 July 2013. The required supervisory cooperation agreements are in place with regulators in 27 out of 31 EEA countries.

The GFSC has issued AIFMD Marketing Rules to help ensure compliance by Guernsey investment funds and their managers with the AIFMD NPPR conditions. New opt-in AIFMD Rules have also been introduced: This allows Guernsey fund managers and depositaries to opt in to a set of Guernsey rules which are aimed at achieving compliance with AIFMD, should they wish to do so. Therefore, Guernsey is able to offer in exiting funds regime and an AIFMD compliant regime.

AIFMD applies to Alternative Investment Fund Managers (“AIFM”) established in EEA Member States, but also to non-EEA AIFMs that manage or market AIFs in the EEA, subject to a number of conditions. For the first time in EEA financial legislation, the Directive provides for an EEA passport for non-EEA AIFMs. This passport could potentially be applicable from 2015 or 2016. The principle of the passport is that, in order to enjoy the same rights, non-EEA AIFMs should comply with the same obligations, which means that non-EEA AIFMs will be able to benefit from the European passport so long as they abide by the rules of AIFMD. This does not mean that the non-EEA country where an AIFM is established would need to have AIFMD-equivalent rules, but that non-EEA AIFMs willing to operate in the EEA will have to comply with the AIFMD rules of a nominated EEA Member State of Reference as if they were European AIFMs. As a consequence, European competent authorities will have responsibility for supervising compliance with the AIFMD by AIFMs situated in non-EEA countries. In order to do this the European authorities would need the co-operation of the relevant non-EEA authority.

AIFMD allows non-EEA AIFMs to manage and market AIFs in the EEA so long as they comply with the specific rules in chapter VII of AIFMD.

The European Securities and Markets Authority (“ESMA”) has approved the co-operation arrangements between the GFSC and the EEA securities regulators for the supervision of Alternative Investment Funds (“AIF”).  ESMA has negotiated the agreement with the GFSC on behalf of all 27 EU Member State securities regulators as well as authorities from Croatia, Iceland, Liechtenstein and Norway and as listed below.

Countries EU/EEA Authority
Austria Finanzmarktaufsicht
Belgium Financial Services and Markets Authority
Bulgaria Financial Supervision Commission
Cyprus Cyprus Securities and Exchange Commission
Czech Republic Czech National Bank
Denmark Finanstilsynet
Estonia Estonian Financial Supervision Authority
Finland Finanssivalvonta
France Autorité des marchés financiers
Germany Bundesanstalt für Finanzdienstleistungsaufsicht
Greece Hellenic Capital Market Commission
Hungary Pénzügyi Szervezetek Állami Felügyelete
Iceland Fjármálaeftirlitiđ
Ireland Central Bank of Ireland
Latvia Finanšu un kapitāla tirgus komisija
Liechtenstein Finanzmarktaufsicht
Lithuania Bank of Lithuania
Luxembourg Commission de Surveillance du Sector Financier
Malta Malta Financial Services Authority
The Netherlands Autoriteit Financiële Markten
Norway Finanstilsynet
Poland Polish Financial Supervision Authority
Portugal Comissão do Mercado de Valores Mobiliários
Romania Financial Supervisory Authority
Slovak Republic Národná banka Slovenska
Sweden Finansinspektionen
United Kingdom Financial Conduct Authority

The co-operation arrangements include the exchange of information, cross-border on-site visits and mutual assistance in the enforcement of respective supervisory laws.  This co-operation will apply to Guernsey fund managers that manage or market AIFs in the EEA and to EEA AIFMs that manage or market AIFs in Guernsey.  The arrangements also cover co-operation in the cross border supervision of depositaries and AIFMs’ delegates.  The agreement will take the form of a bi-lateral Memorandum of Understanding (MoU) between each of the EEA securities supervisors and the GFSC.  The GFSC is currently awaiting the signatures to these co-operation agreements.

The key elements of the EEA-Guernsey co-operation arrangements are:

  • EEA and Guernsey supervisors will be able to supervise fund managers that operate on a cross border basis in the Bailiwick and the EEA;
  • The co-operation between the authorities includes the exchange of information, cross border onsite visits and assistance in the enforcement of the respective laws;
  • EEA authorities will be able to share relevant information received from the Commission with other EEA authorities, ESMA and the European Systemic Risk Board, provided appropriate safeguards apply;
  • The existence of co-operation arrangements between the EEA and Guernsey authorities is a precondition of AIFMD for allowing managers from Guernsey to access EEA markets or perform fund management by delegation from EEA managers; and
  • The EEA-Guernsey co-operation arrangements are applicable from 22 July 2013 and enable cross-border management and marketing to professional investors of AIFs.

Guernsey AIFMs and Guernsey Depositaries are only required to comply with The AIFMD Rules, 2013, if they opt-in to comply with those rules.  In order to opt-in to the regime, Guernsey AIFMs and Guernsey Depositaries are required to complete a Form GAIFM or DAIFM, respectively.  As part of this notification, Guernsey AIFMs and Guernsey Depositaries will be required to state which AIFs they would like The AIFMD Rules, 2013 to be applied to.  In the case of AIFs structured as Protected Cell Companies (“PCC”) and Incorporated Cell Companies (“ICC”), Guernsey AIFMs and Guernsey Depositaries will be able to apply The AIFMD Rules, 2013 to specified cells.

Once the GFSC has concluded its consideration of an application, The AIFMD Rules, 2013 will be imposed as a condition on the authorisation, registration or licence of the Guernsey AIFM or the licence of a Guernsey Depositary.  It is the GFSC’s intention that the condition will detail the specific AIFs that The AIFMD Rules, 2013 apply.

The GFSC considers that the above approach will give Guernsey AIFMs and Guernsey Depositaries flexibility to use the same corporate vehicle to service both EEA and non-EEA business.  Furthermore, this approach will also allow Guernsey AIFMs and Guernsey Depositaries to offer services to both AIFs marketed under national private placement and passported AIFs, should passporting be extended to non-EEA AIFMs and AIFs.

Licensees and their professional advisers are encouraged to talk to the GFSC in respect of any of the above issues.

Pre-Marketing

For purposes of AIFMD, “marketing” means a direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled in or with a registered office in the European EEA. This broad definition would capture circumstances where a fund is promoted via intermediaries or through distribution or placement agents.

The GFSC is aware that some EEA competent authorities have interpreted this to apply to “pre-marketing” activities of the types sometimes conducted by fund sponsors to familiarize potential investors with their general capabilities and experience.  This has led to non-EEA AIFMs having to register under the applicable national private placement register.

Usually “pre-marketing” activity such as the issue of a “red herring prospectus” is undertaken by Guernsey AIFMs prior to them being licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (“the POI Law”).  The GFSC considers that this remains acceptable, and therefore, the notification requirements under The AIFMD (Marketing) Rules, 2013 do not commence until the relevant Guernsey AIFM and/or Guernsey AIF is appropriately licensed, authorised or registered under the POI Law.