If a vehicle established in Guernsey satisfies the criteria for a “collective investment scheme” (see below) or “fund”, it must either be registered or authorised by the Guernsey Financial Services Commission (“GFSC”) and no Guernsey-licensed entity can provide services to such a vehicle without it being so registered or authorised.
Generally, all Guernsey-domiciled funds must be administered by a locally licensed administrator and open-ended funds must also have a locally-licensed custodian.
Fund promoters new to Guernsey will have to demonstrate a proven track record.
The GFSC applies the following criteria in determining whether or not an entity is a collective investment scheme or fund:
If any of these features is lacking, the structure will not be regarded as a fund. For example, the GFSC is usually prepared to regard a structure as not requiring to be regulated as a fund where there is a limited number of investors, particularly where they are related parties, or where there is only one investment asset.
Guernsey makes a fundamental distinction between open-ended funds and closed-ended funds.
An open-ended fund is one in which the investors are entitled under the terms of the scheme to have their units redeemed or repurchased by the fund or to sell their units on an investment exchange at a price related to the value of the property to which they relate. In a closed-ended structure, there is no right to have one’s shares redeemed although, usually, the fund will have a predetermined life.
A Guernsey closed-ended fund is not required to appoint a local custodian or a local manager or adviser. Unlike a closed-ended fund, every open-ended fund generally must appoint a Guernsey licensed custodian to hold its assets on trust. Both open-ended and closed-ended funds are required to appoint a locally licensed administrator (referred to as a “designated manager” both in the relevant legislation and in this briefing). Previously, every open-ended fund also had to appoint a Guernsey licensed principal manager. This requirement was removed at the beginning of 2007 but, nonetheless, some promoters are continuing to use principal managers within their structures.
The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the “POI Law”) creates two categories of Guernsey fund:
Both open-ended and closed-ended funds may be either authorised or registered schemes under the POI Law and funds may take the form of companies, limited partnerships, unit trusts or other entities.
Open-ended funds may be:
Closed-ended funds may be:
For authorised funds (save in relation to qualifying investor funds (“QIFs”) (see below)), a traditional three stage approval process must be followed:
The overall timing for this process is usually in the region of six weeks.
Under the registered fund regime, responsibility for ensuring that the promoter of the fund is fit and proper and that the fund documentation complies with the relevant regulatory requirements lies with the designated manager of the fund. The designated manager must provide warranties to the GFSC verifying those matters and in reliance upon those warranties, the GFSC will issue the necessary registration within three working days. This process has moved responsibility for compliance on to the designated managers and leaves the GFSC free to inspect, investigate and audit those designated managers to ensure that the warranties being provided to it and upon which it will rely in granting registration are accurate and backed up by the necessary documentation.
The most significant advantage that registered schemes have over authorised schemes is the fast-track three day approval process for the fund.