This memorandum has been prepared for the assistance of clients considering carrying out investment fund business in Guernsey. It is intended to provide only a summary of the main legal requirements and general principles applicable to investment fund business in Guernsey and is not intended to be comprehensive in its scope. It is recommended that a client seeks legal advice on any proposed transaction prior to taking steps to implement it.
A series of briefings on other aspects of Guernsey law have been produced by Ogier and are available on request.
This memorandum has been prepared on the basis of the law and practice as at 15 December 2008.
As you may be aware, Guernsey has recently introduced a new regime of investment fund regulation which affects how investment funds are treated. The new regime involves (a) the repeal of certain parts of the Control of Borrowing (Bailiwick of Guernsey) Ordinances 1959 ("COBO") pursuant to which closed-ended funds were established and (b) amendments to the Protection of Investors (Bailiwick of Guernsey) Law 1987 ("POI Law") with the effect that all funds (open or closed-ended) are now governed by the POI Law.
All Guernsey funds (whether open or closed-ended) will now be categorised as either:
- authorised (i.e. regulated) funds, which are subject to ongoing supervision by the Guernsey Financial Services Commission; or
- registered funds, which are subject to only limited ongoing supervision by the Commission. The Commission has also published the following rules, which came into effect on 15 December 2008:
- Authorised Closed-Ended Investment Schemes Rules 2008;
- Registered Collective Investment Scheme Rules 2008; and
- Prospectus Rules 2008.
Rules in respect of Authorised Open-Ended Investment Schemes, notably the Class B Rules, remain in force and Authorised Open-Ended Schemes must continue to prepare scheme particulars in compliance with the relevant Rules.
Information Particulars for Authorised Closed-Ended Investment Schemes must now comply with the Authorised Closed-Ended Investment Scheme Rules. Information particulars for such a scheme are likely to be required in connection with its launch. In respect of other issues (e.g. tap issues, dividend investment plans, employee benefit plans) it is expected that the Commission will exercise its discretion and in due course publish guidance.
The Registered Collective Investment Scheme Rules cover both Open and Closed-Ended Schemes.
The Prospectus Rules apply to Registered Collective Investment Schemes and in connection with their launch each such scheme is now required to prepare a prospectus in conformity with those rules.
Closed-ended investment funds
The Authorised Closed-Ended Investment Schemes Rules provide that all existing closed-ended funds automatically become authorised funds even if originally established under the old style registered fund regime, unless prior to 30 April 2009 a fund elects to be treated as a registered fund.
If the fund remains authorised, it will be subject to the Authorised Closed-Ended Investment Schemes Rules. Those rules contain a number of ongoing notification requirements which expand the notification requirements for closed-ended funds established under COBO. Furthermore, the Authorised Closed-Ended Investment Schemes Rules require the "principal documents" (i.e. trust instrument, articles of incorporation, administration agreement, custodian agreement and limited partnership agreement, as applicable) to be revised to comply with the rules. The revision must take place on the next occasion when any amendment is made and in any event not later than 14 December 2010.
In addition, funds established under the old style registered fund regime which chose to remain as authorised will be subject to the due diligence reviews that would normally apply in respect of newly established authorised funds.
If the fund elects to be registered, it will become subject to the Registered Collective Investment Scheme Rules and the Prospectus Rules. Whilst registered funds are intended to have less regulation than authorised funds (for example, fewer ongoing notification requirements), there are a number of requirements which will need consideration. For example, there is a similar requirement for the "principal documents" to be revised to comply with the rules.
Open-ended investment funds
Existing open-ended funds will continue to be authorised under section 8 of the POI Law unless the Commission is notified prior to 30 April 2009 that a fund has elected to be treated as registered.
If a fund elects to become registered, it will be subject to the Registered Collective Investment Scheme Rules and the Prospectus Rules which in general will represent significantly fewer regulatory requirements.
Authorised or Registered?
Whilst we would not foresee significant difficulties for a fund established under the old style registered fund regime electing to become registered, this may be more problematic for authorised funds. For example:
- registered funds may not be offered directly to the public in Guernsey;
- other regulatory and listing authorities may require the fund to be authorised;
- a registered fund is subject to less regulation and the benefit to investors of changing needs to be explored and may require investor consent.