Digital markets, funding and payment services
Guernsey collective investment schemes are regulated under the POI Law and are required to be administered by a Guernsey-licensed administrator. Additionally, open-ended funds are usually required to custodise their assets with a Guernsey-licensed custodian. The definition of collective investment scheme sets out four characteristics that must be met for an entity to comprise a collective investment scheme. These are:
- the vehicle involves pooling of investors' money for investment in a common portfolio('Spread of Investors');
- the common portfolio holds assets intended to spread risk ('Spread of Risk');
- there is no intention to exercise day-to-day management control over any business in which the vehicle invests; and
- the portfolio is managed by a professional manager, at arm's length from the investors in the collective investment scheme(this is covered by (c) and (d), together referred to as 'Independent Management').
In short, a structure is likely to be a collective investment scheme for the purposes of the POI Law where there is a Spread of Investors, a Spread of Risk and Independent Management. Investing in cryptocurrencies, ICOs or both is possible for collective investment schemes; however, the GFSC have emphasised the perceived volatility of this asset class and will expect collective investment schemes operating in the space to have adequate controls in place to address this.
All collective investment schemes in Guernsey are required to have in place a Guernsey-licensed fund administrator. For open-ended schemes, a Guernsey-licensed custodian is also required although alternative custody arrangements may be approved by the GFSC where the assets involved make this appropriate.
Crowdfunding and crowd-lending are both permitted, as is peer-to-peer lending. All three structures are likely to fall within one of the categories defined as a financial services business for the purposes of the NRFSB Law and require registration. Guernsey does not have any consumer lending regulation in place (although there is a long-standing but rarely utilised prohibition dating to the 1930s on the charging of excessive interest, likely only to apply where the interest is owed by an individual).
A consultation was commenced in 2017 around revised regulation in respect of lending, credit and finance regulation in Guernsey – the proposals would involve the replacement of the NRFSB Law and regulation around consumer lending and credit. A core goal of this consultation was ensuring consumer interests were matched with the ability for Guernsey companies to operate internationally. Noted among the responses to the consultation was industry 'encouragement to implement a framework that portrays a positive approach towards progressing advances in the use of technology and the digital sector'. Development of legislation in respect of this consultation is ongoing and is likely to form part of the Guernsey government's stated intention to continue to develop the Fintech sector in Guernsey.
Operating an investment exchange is a restricted activity in Guernsey under the POI Law. To the extent businesses permit trading in loans or financing on a secondary market (or unitise or securitise those loans and permit trading in those), consideration should be given to whether an investment exchange is being created. To the extent that what is being transferred or offered meets the POI Law definition of a general security or derivative, consideration should also be given as to whether any other restricted activity (promotion or advising for example) is being undertaken that would trigger a licensing requirement.
Payment services operations are also unlicensed and again typically require registration under the NRFSB Law to ensure suitable AML and CFT procedures are in place.