In our AO Hall Lawline article Major Changes to Guernsey’s Fund Regime – Now in Force, we reported on the commencement of the legislation necessary to give effect to Guernsey’s new regulatory regime for open and closed-ended funds.
In summary, the major effect of the changes is that both open and closed-ended funds can now choose to be either:
- “Authorised” funds, which are subject to a higher degree of supervision and filing requirements, and where the initial due diligence is carried out by the Guernsey Financial Services Commission (the “GFSC”); or
- “Registered” funds, which are subject to a lower degree of supervision and filing requirements, and where the GFSC relies on warranties provided by a licensed administrator (instead of performing the bulk of the initial due diligence itself). Registered funds must not be offered directly to the public in Guernsey, but initial approval can be obtained from the GFSC within three working days of submitting a complete application.
Previously, only closed-ended funds could choose to be registered funds.
The GFSC has now released the Authorised Closed-Ended Investment Scheme Rules 2008 (the “Authorised CEIS Rules”), the Registered Collective Investment Scheme Rules 2008 (the “Registered CIS Rules”) and the Prospectus Rules 2008 (the “Prospectus Rules”) which (amongst other things) provide for the transition of existing funds into the new regime. These rules are in addition to the Class A, B and Q Rules that currently apply to authorised open-ended funds. The major points arising from the transitional provisions in the Rules are as follows:
- Open-ended funds: Existing open-ended funds have until 14 April 2009 to choose to become a registered fund if they wish to do so. If they do, the Registered CIS Rules and the Prospectus Rules will apply. If not, the fund will remain as an authorised fund, and subject to the Class A, B or Q Rules which they are currently authorised under.
- Closed-ended funds: Existing closed-ended funds would appear to have until 30 April 2009 to choose to become a registered fund if they wish to do so. This includes funds that were authorised as registered closed-ended funds before the changes to the law and the introduction of the new rules. If they do, the Registered CIS Rules and the Prospectus Rules will apply. However, if they do not make the election by 30 April, they will be deemed to be an authorised fund, and the Authorised CEIS Rules will apply instead. The GFSC has indicated that any closed-ended schemes that do not elect to be a registered fund will be subject to post-facto due diligence reviews (if one has not already been performed).
In each case, fund managers need to consider (and within a short timeframe) whether there is any advantage to becoming a registered fund, and whether those advantages outweigh the costs involved. For some funds, electing for registered status may mean that the fund is not able to retain advantages in other jurisdictions that are accorded to funds that are subject to a higher degree of regulation. It may also be necessary to obtain approval from holders. From a practical perspective, it may not be possible to obtain such approval before the dates set out above.
There appears to be some confusion in the rules as to the relevant dates by which the elections must be made - the Registered CIS Rules and the Authorised CEIS Rules each provide a different date for the election to be made for a closed-ended fund to become a registered fund. However, we understand from promotional material released by the GFSC that they will accept elections for closed-ended funds until 30 April 2009. We are not aware of any similar material in respect of open-ended funds, and accordingly open-ended funds wishing to become a registered fund should elect to do so on or before 14 April 2009.
In addition, the principal documents (being the constitutional documents and main service agreements) of all existing funds must be revised to comply with all rules relating to their contents either:
- On the next occasion where amendment to those documents is required to be approved by investors; or
- By 15 December 2010.
Finally, the information particulars of an existing fund must be revised to comply with the new rules applicable to them if they are revised at any time following the commencement of the rules.