With a recent increase in fund establishment activity it is a good time to revisit the very first step in having an investment fund established in Guernsey – the approval of the fund promoter. This requirement arises from the fact that the Guernsey Financial Services Commission (“GFSC”) operates a policy of selectivity, and “welcomes approaches from promoters of the first rank who have a favourable track record in the establishment and/or management of investment funds”. This standard of selectivity applies to both promoters introduced to Guernsey through the traditional GFSC authorised fund route, and the fast-track registered fund route. In both cases the GFSC requires the promoter to meet the criteria set out in Schedule 4 to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the “POI Law”). More on this below.
Who is the “Promoter”?
The party who is regarded as the “promoter” of a Guernsey fund by the GFSC can be different from overseas jurisdictions and sometimes causes confusion. For regulatory purposes the GFSC regards the party ultimately responsible for the success or failure of the fund as the promoter of the fund. Usually this party is easily identifiable as the fund manager or investment adviser. Where this party is a newly formed or start-up operation the GFSC is prepared to consider the respective track-records of the key individuals involved.
Schedule 4 to the POI Law
While Schedule 4 to the POI Law sets out the minimum criteria for licensing for applicants wanting to carry out controlled investment business under the POI Law, the GFSC also uses it as the basis upon which to assess the suitability of a new fund promoter. The headline criteria under Schedule 4 are:
- The promoter and its key individuals must be “fit and proper persons”. This includes having attributes such as the necessary probity, competence and experience for acting as a fund promoter. Educational and professional qualifications, policies and procedures for vetting clients and complying with regulatory requirements are also relevant. Previous offences, contravention of regulatory laws and past business practices are also taken into account.
- The promoter must carry on their business with integrity and skill.
- Very importantly, there must be at least two individuals within the promoter who have a demonstrable track record of successful fund establishment and/or management.
- The board of directors of the promoter must include a mix of executive and non-executive directors considered to be appropriate given the nature of the business it wishes to carry out, and the type of funds (e.g. asset class) that it wishes to establish and/or manage.
- The business of the promoter must be conducted in a prudent manner. In particular the promoter must maintain an appropriate and adequate capital base and insurance cover given the nature of its business activities.
The New Promoter Approval Process
For promoters establishing a fund under the authorised fund procedure, an application is made to the GFSC by the submission of a New Promoter Checklist and accompanying documents. Usually this is done at the very outset of the fund establishment process to ensure that time and money are not wasted on the fund itself until it is known that the GFSC will accept a formal fund application from the promoter. However, where timing is tight, or the promoter is confident of its suitability, the New Promoter Checklist can be submitted at the same time as the initial application for approval of the fund itself.
The New Promoter Checklist sets out the information and documents to be submitted by the applicant, which include:
- Details of the promoter’s operating history.
- Details of the beneficial ownership of the promoter and Forms PQ for any individual with a 15% or greater interest in the promoter and any director or key individual of the promoter.
- A structure diagram of the promoter group.
- Third party evidence of a favourable track record in fund establishment/management by the promoter or the individuals involved. This may include prospectuses, annual reports, accounts and performance sheets from existing funds.
- The promoter’s latest audited accounts and/or management accounts.
- A brief summary of the proposed fund.
The GFSC aims to respond to new promoter applications within 20 business days. If the application is favourably received the GFSC will inform the promoter that it is willing to receive a formal fund application from the promoter.
For promoters establishing a fund under the fast-track registered fund procedure, it is the proposed Guernsey licensed administrator who carries out due diligence checks on the promoter and then warrants their suitability to the GFSC. In reality, the information to be gathered and the assessment (against Schedule 4 to the POI Law) is the same, however, this process is carried out by the administrator.
Future Fund Launches
Once approved by the GFSC the promoter does not need to repeat the process for future funds, and can proceed straight to the fund application process. Similarly, for registered funds, provided their due diligence is up-to-date and the local administrator continues to be satisfied as to their suitability, promoters can move directly to the fund application process. For further information on the fund application process itself please refer to our following Red Guide: “Obtaining Approval of Investment Funds in Guernsey” http://www.aohall.com/obtainingapproval- investment-funds-guernsey