With less than a year to go, there is still uncertainty surrounding Brexit and what this means. However, writing for the Guernsey Press Q1 2018 Business Review, Ferbrache & Farrell Senior Associate Natalie Le Cras suggests it might not necessarily be doom and gloom for Guernsey.
According to the latest figures published by the Guernsey Financial Services Commission (GFSC), the value of fund business in Guernsey at the end of 2017 amounted to £270bn and Guernsey’s funds sector has grown for the third consecutive year.
While growth can be attributed at time to currency movements between euro, dollar and sterling denominated funds, 10 new investment funds were approved by the Guernsey regulator in Q3 2017, and 18 in Q4.
It is encouraging to see that Guernsey continues to be a go-to jurisdiction for new, existing and repeat funds and fund managers. Guernsey is continuing to adapt in an effort to keep the jurisdiction at the forefront of fund managers’ and investors’ minds. There are numerous reasons to come to Guernsey, including the comparative east and cost of establishing a structure, the speed to market in terms of set-up and obtaining regulatory approvals and the multitude of experienced and knowledgeable to-quality fund managers, administrators, directors and other service providers available locally.
This has to be balanced, however, with the need to keep costs down to retain value and alleviate investors’ concerns and to strike the right level of regulation. The GFSC’s ‘revision of laws’ project to overhaul Guernsey’s regulatory laws is ongoing and feedback is being sought from industry on the draft Protection of Investors Law, the draft Regulation of Fiduciaries Law and the definitions which will apply across all regulatory laws. Some of the proposed changes will enshrine the principle that regulation should not necessarily apply to all structures.
Funds with a local focus are also thriving in Guernsey – Guernsey Investment Fund PCC Ltd was established this year as a closed-ended registered scheme to invest in projects and businesses with a Bailiwick of Guernsey focus, or which may benefit directly or indirectly the development of the Bailiwick.
The fund aims to deliver long-term capital growth to shareholders, including the States of Guernsey as seed investor. It will comprise a number of protected cells investing in technology, innovation, property and infrastructure projects, businesses and assets or any other strategy the board believes to be for the benefit of investors and Guernsey.
As a Guernsey-focused law firm, Ferbrache & Farrell LLP are proud to be appointed as legal counsel to the fund and to be able to support local industry as well as its international client base.
Changes to the Private Investment Funds regime
In November 2016, the GFSC introduced the private investment fund regime to streamline regulation for funds where management has a closer relationship to investors than is typical in most investment funds. PIFs may be marketed to any number of potential investors but the actual number of investors in a PIF at any one time may not exceed 50 legal or natural persons holding an ultimate economic interest in the fund, save where the investment is made by an investment manager acting as agent for a wider group of stakeholders.
The introduction of the PIF was widely heralded as an opportunity for Guernsey to stay competitive in the investment funds sphere, but demand for the product to date has been lower than expected. This has largely been due to concerns from fund managers who were required to give certain warranties to the regulator, including that investors were able to sustain any losses incurred on their investment in the fund at the time that they make such investment.
Following a review by the GFSC and discussions with industry, it was announced on 20 March 2018 that the requirement on the fund manager to give such a warranty under the PIF Rules 2016 has been removed. Managers must now give a declaration (a lesser burden) which can be satisfied in a number of ways.
In light of the close relationship between investors and management, the GFSC has not been prescriptive as to how the manager may reasonably satisfy itself as to the ability of investors to sustain loss, nor has it stipulated a minimum subscription amount. It is ultimately up to the manager to get comfortable in order that it may give the declaration without any reservations, but the regulator has provided some examples or suggestions as to how the declaration may be satisfied in the FAQs section on its website. It is expected that these changes will increase take-up of the PIF going forward.
Active M&A sector
The M&A market in Guernsey is buoyant at the moment, particularly in relation to financial services or fund administration businesses.
To name but a few, Estera acquired the Morgan Sharpe group and Heritage Financial Services Group in 2017, SGG Group acquired First Names Group in December 2017 and both Sanne and JTC have listed on the main market of the London Stock Exchange. This level of interest by new entrants in the Guernsey market provides a degree of optimism as to the safe environment and sustainability of our offering as a funds jurisdiction.
An original version of this article first appeared in the Guernsey Press Q1 2018 Business Review, 24 April 2018.