On 15th December 2008, changes were made to the regulation of investment funds in Guernsey. Those changes created two regulatory regimes for collective investment schemes in Guernsey:
- registered investment schemes; and
- authorised investment schemes.
Further changes to the registered investment scheme regime were made with effect from 1 April 2015. This briefing note analyses the differences between the two regimes.
Repeal of COBO
Prior to 2008, Guernsey closed-ended funds were regulated by the Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959, ("COBO") and open-ended schemes by the Protection of Investors (Bailiwick of Guernsey) Law, 1987 ("POI"). Now, all open and closed-ended funds are governed by POI and may elect to be regulated as authorised or registered schemes.
In conjunction with the 2008 changes, the Guernsey Financial Services Commission ("GFSC") has issued three sets of rules under POI:
- the Registered Collective Investment Scheme Rules 2015 (RCIS Rules), applicable to open and closed-ended registered funds;
- the Prospectus Rules 2008 applicable to open and closed-ended registered funds; and
- the Authorised Closed-ended Investment Schemes Rules (ACIS Rules) 2008 applicable to authorised closed-ended funds.
Authorised open-ended schemes continue to be governed by the Class A, Class B and Class Q Rules.
The registered fund regime offers a fast-track (3-day) approval process that involves little or no review by the GFSC at the inception of the fund and relies upon increased due diligence expectations on the part of the fund’s administrator (referred to in the ACIS Rules as the designated manager and in the RCIS Rules as the designated administrator).
Funds that wish to be authorised under the ACIS Rules but which do not meet the qualifying investor fund (QIF) criteria will be subject to GFSC scrutiny at the outset and, consequently, the authorisation process will take significantly longer than the registration process.
Authorised funds which meet the QIF criteria can access the same fast-track (three-day) approval process as registered funds. Therefore, for funds which meet the QIF criteria, timing considerations alone will not dictate which regime is the more suitable. To assist promoters and their advisers in choosing between the two regimes, we set out below a comparison of the registered and authorised regimes.
Registered and authorised funds may be established as companies, unit trusts or limited partnerships or such other vehicle or entity as may be approved by the GFSC. Each scheme must be established with the objective of spreading risk and the criteria must be specified in the information particulars.
Closed-ended funds (authorised or registered) are not required to appoint a custodian and may appoint a custodian or trustee that is domiciled outside Guernsey.
Application and annual fees for both regimes are identical and contain identical conflicts of interest requirements.
The GFSC adopts the same (existing) policy of selectivity in respect of both regimes.
The designated manager/administrator of an authorised or registered fund must submit to the GFSC within six months of the end of each financial year the audited annual report and accounts together with any principal documents or other agreements which have been amended (or, in the case of authorised schemes, materially amended). The requirement to file quarterly statistical information is identical under both regimes.
The designated manager/administrator of every authorised or registered fund must notify the GFSC in writing annually of any changes in the information contained in the application form submitted for authorisation or registration of the fund.
The first such notification has to be submitted to the GFSC within 12 months of the date on which a declaration of authorisation or registration was issued and thereafter at intervals of not more than 12 months. Nil returns are required.
The designated manager of an authorised fund must give written notice forthwith to the GFSC of:
- a proposed material change in the constitutive documents or the information particulars of the fund;
- a proposed change of the (i) manager or general partner, (ii) designated manager/administrator, (iii) secretary, (iv) registrar, (v) custodian or trustee, (vi) investment adviser or investment manager, (vii) directors, or (viii) qualified auditor;
- a proposed material delegation of the duties of any of the parties listed in (2)(i) to (vi) above;
- any change in the name or of the ultimate or intermediate beneficial ownership of any of the parties listed in 2(i) to (vi) above;
- any proposed material alteration to any agreement under which a licensed entity provides management, administration or custody services to the fund;
- any proposed material alteration to the fund itself including its name and its investment, borrowing and hedging powers;
- any proposal to reconstruct, amalgamate, terminate prematurely or extend the life of the fund;
- any proposal to list or de-list the fund on any stock exchange; and
- the bringing of or the intention to bring any proceedings against or by the fund.
The immediate notification requirements under the RCIS Rules are much briefer. The designated administrator of a registered fund is only required to give written notice forthwith to the GFSC of any proposal to reconstruct, amalgamate, terminate prematurely, wind up or extend the life of the scheme.
Notably, both the RCIS and ACIS Rules only require notification of these matters to the GFSC. They do not explicitly require GFSC consent to the proposed changes.
However, any proposed change to the designated manager/administrator or custodian (where relevant) requires GFSC consent under both the RCIS and ACIS Rules.
The ACIS Rules set out the disclosures which must be included in the information particulars issued to investors in an authorised closed-ended collective investment scheme. The Prospectus Rules 2008 set out the disclosures that must be made to investors in a registered collective investment scheme. These disclosure requirements differ in some respects, notably:
- A registered fund constituted as a limited partnership must disclose details of significant beneficial ownership of its general partner. There is no equivalent disclosure for authorised funds under the ACIS Rules;
- The information particulars of a registered fund must contain a responsibility statement stating that the directors, general partner, manager or trustee (as appropriate) have taken all reasonable care to ensure the accuracy of the information particulars. Although the ACIS Rules ascribe responsibility for the accuracy of the information particulars to the directors, general partner, manager or trustee (as relevant) of the fund, the ACIS Rules do not require an explicit statement to that effect to be included in the information particulars.
Although authorised funds are subject to more immediate notification obligations, as set out above, the disclosure requirements in respect of registered funds are slightly more onerous than those for authorised funds. Accordingly, our analysis of both rules does not readily identify one regime as being more heavily regulated than the other.
However, because authorised funds which are not qualifying investor funds are subject to GFSC scrutiny at the outset and because of the more stringent regulatory requirements imposed on authorised open-ended funds, there is a perception that authorised funds generally are subject to a higher level of regulation than registered funds. For that reason and because of the slightly more onerous disclosure requirements applicable to registered funds, a number of Guernsey fund promoters have opted for the authorised QIF regime instead of the registered regime. However, as the above analysis reveals, technically there is very little to choose between the two regimes.
- there are slightly more immediate notification requirements for closed-ended authorised collective investment schemes;
- the disclosures required of registered funds are slightly more onerous than those required of closed-ended authorised funds; and
- authorised funds are perceived to be subject to a higher level of regulation than registered funds.