Guernsey's fund sector
Regulation versus innovation


If you look around the world at countries, regions or cities that have become leading venues for innovation in any field, there some themes come up repeatedly. Whether it is Silicon Valley, London or Estonia, innovation centres emerge where there is:

  • a highly skilled and educated workforce;
  • an environment in which people will choose to live;
  • a pragmatic approach to regulation makes it easy to do business; and
  • opportunity for investment.

The existence of those four preconditions is not solely down to government, regulators or industry (in fact, it can be argued that nature and geography play a role too), but rather a combination of the efforts of all three. Thus, the success of innovation in the Channel Islands depends on whether those preconditions are met.

Clearly they are: the islands' highly skilled workforce, natural features and culture make them a desirable place to live, the attitude of government and regulators are business friendly and there is ready access to capital for investment purposes.

The Channel Islands' funds sector is itself a product of the innovation that this environment has created. It was born as the islands' finance industries sought to diversify from banking and trust sectors in the 2000s, to establish a presence in the alternative investment funds market.

Guernsey's fund sector

Guernsey has already adopted an innovative, manager-led product scheme that reduces compliance duplication by focusing attention on managers and not underlying funds, which is itself based on Luxembourg's Reserved Alternative Investment Fund.

This manager-led product scheme could be another game changer in reducing costs both at the fund formation stage and throughout the life of the fund. At the same time, it gels with the European Union's shift towards regulating the managers of investments, not the investments themselves.

Regulation versus innovation

In this regulated industry, the pertinent question is whether there a tension between innovation on the one hand and necessary checks and balances on the other. The answer is that the relationship between the two, in the Channel Islands at least, might be better described as a state of healthy equilibrium.

The willingness of regulators and governments to make regulatory and legislative amendments to enable innovation to take place, not to mention the constructive attitude in terms of employee licensing, is matched by clear endorsement from international bodies. Just this year, there have been positive reports from Moneyval into Guernsey, and an indication from the European Securities and Markets Authority that there is "no significant obstacle" to granting EU Alternative Investment Fund Managers Directive passports to both Guernsey and Jersey. Both of these developments indicate that the appetite for innovation is not at the cost of proper regulation and supervision.

The next big test for regulators comes in the form of virtual currencies: how will they apply the same checks and balances to currencies outside the traditional banking framework and in which transfer of value from one jurisdiction to another is almost instant?

In this regard, Guernsey recently launched a consultation directed at establishing a bespoke regulatory structure for crowdfunding platforms and similar retail-focused alternative funders – recognition of an unquestionably growing area.


Innovation is not just increasingly important, it is increasingly rapid.

The term 'Silicon Valley' was coined in the 1970s, decades before it became what it is today. In 1980 the population of Shenzen in China was around 30,000, only slightly more than St Helier. Today, it is a technology and manufacturing hub with an estimated population of 11 million. Further, Estonia's embracing of a digital future began only with its 'Tiger Leap' project in the 1990s. Now its digital sector contributes an estimated 15% of gross domestic product.

The changing factor is technology, and the key point is not just that it has accelerated the pace of change and innovation but that it continues to do so. The future for the Channel Islands may be closer than first appears.

For further information on this topic please contact Marcus Leese at Ogier by telephone (+44 1481 721 672) or email ([email protected]). The Ogier website can be accessed at

An earlier version of this update appeared in BL Global.