What is the major difference between open ended and closed ended collective investment schemes (funds)? Open ended collective investment schemes are investment vehicles which offer for sale without limitation, or have outstanding securities which investors are entitled to redeem on demand, subject to any applicable notice period. A closed ended investment scheme is a scheme under which the investors are not entitled under the terms of the scheme to have their units redeemed or repurchased by, or out of funds provided by the scheme, or to sell their units on an investment exchange, at a price related to the value of the property to which they relate. How can collective investment schemes be constituted? Open ended schemes and closed-ended schemes may be constituted as companies, incorporated cell companies, protected cell companies, unit trusts or limited partnerships. However, the use of a limited partnership for an open-ended scheme would require further discussion with the Commission. Incorporated and Protected cell companies are similar to umbrella schemes but are incorporated as companies not as unit trusts. The assets of each cell may not be combined with the assets of another cell and must be kept legally separate. What legislation is in place to control the establishment of collective investment schemes in Guernsey? Open ended and closed-ended schemes must be either authorised or registered under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended ("the Law") and entities conducting restricted activities in connection with controlled investment business must be licensed under the Law. The Commission has made a number of rules under the Law which set out the detailed requirements to be followed by all authorised schemes and licensees.
The major rules under the Law are:- - The Licensees (Conduct of Business) Rules 2009 (which cover all licensees including designated managers and designated custodians of schemes);
- The Licensees (Capital Adequacy Rules) 2010 (which cover all licensees)
- The Collective Investment Schemes (Class A) Rules 2002 (which cover Class A schemes);
- The Authorised Collective Investment Schemes (Class A) Rules 2008;
- The Collective Investment Schemes (Class B) Rules 1990 (which cover Class B schemes);
- The Collective Investment Schemes Qualifying Professional Investors (Class Q) Rules 1998 (which cover schemes designed for qualifying professional investors);
- The Authorised Closed-Ended Investment Schemes Rules 2008 (which cover authorised closed-ended investment schemes);
- The Registered Collective Investment Schemes Rules 2008 (which cover open and closed-ended registered schemes);
- The Prospectus Rules 2008 (which cover registered schemes and offers to the public);
- The Licensees (Conduct of Business and Notification)(Non-Guernsey Schemes) Rules 1994 (which cover open-ended schemes which are neither established in the Bailiwick of Guernsey nor authorised or registered under the Law)
What are the major differences between an authorised collective investment scheme and a registered collective investment scheme?
Under section 8 of the Law open-ended and closed-ended schemes can apply to be authorised or registered. Authorised schemes can be offered by the issuer directly to the public in Guernsey whereas registered schemes may not be offered directly by the issuer to the public within Guernsey. However, registered collective investment schemes may be offered to regulated entities in Guernsey or offered to the public by entities appropriately licensed under the Law.
Both authorised and registered schemes must appoint a local licensed designated manager (administrator). The designated manager must conduct due diligence on the promoter of an authorised or registered scheme. However, in respect of a registered scheme the designated manager is required to certify at the time of the application that it has undertaken due diligence on the promoter of the registered scheme. The Commission has established clear guidelines of the minimum criteria for the due diligence to be undertaken by the designated manager. For further details refer to the Guidance on Registered Collective Investment Schemes.
The designated manager of a registered scheme must also sign a warranty confirming that it has effective procedures in place to ensure that the scheme is not offered directly by the issuer to public within the Bailiwick of Guernsey and that disclosures in the scheme’s prospectus/offer document or equivalent meet the requirements of the Prospectus Rules 2008.
The Commission attaches great importance to these warranties. It expects applicants to be able to demonstrate that they have documentary evidence to support the warranties given, and to be able to produce that evidence immediately should the Commission request it. Failure to support a warranty by supporting documentation might be taken into account by the Commission in assessing ongoing fitness and properness under schedule 4 to the Law. Consequently, because the designated manager has to provide these warranties to the Commission we are able to declare the scheme registered within three working days of receipt.
Whilst designated managers must conduct due diligence on the promoter of an authorised scheme, it is not required to provide warranties to the Commission. Instead there is a three stage application process for authorised schemes. For further details please refer to Applications for Closed-ended Collective Investment Schemes and Applications for Open ended Collective Investment Schemes.
What are the major differences between Class A, Class B and Class Q authorised open-ended collective investment schemes? Class A schemes are those which meet the Commission's Collective Investment Schemes Rules 2002 and are therefore eligible for recognition by the UK Financial Services Authority for sale to the public in the United Kingdom by virtue of Guernsey's designation under section 270 of the Financial Services and Markets Act 2000.
The rules for Class B schemes incorporate a measure of flexibility, consistent with meaningful investor protection, and are applied by the Commission exercising judgement and discretion and taking into account all the facts pertaining to a particular fund application. This policy recognises that Class B schemes range from the retail fund aimed at the "general public" via institutional funds to the strictly private fund established solely as a vehicle for investment by a single institution, and that their investment objectives and risk profiles are similarly wide-ranging. Accordingly, the rules do not incorporate specific investment, borrowing and hedging restrictions. This also allows for the possibility of new products without the need to amend the Commission's regulation.
Historically, a substantial number of Class B schemes have been targeted at institutional investors. The Class Q Rules seek to provide a clear and concise set of requirements for the operation of professional investor funds and have been designed to encourage innovation. Accordingly, the Rules place emphasis on disclosure of risks inherent in the investment vehicle, rather than prescription, simplified document requirements, timely processing of applications and no prescribed minimum subscription requirement. Since the introduction of the Class Q Rules in 1998 fund managers in Guernsey have taken advantage of the flexibility in regulations covering qualifying professional and sophisticated investors whilst Class B schemes continue to cater for the more innovative products.
Can Guernsey collective investment schemes be marketed to the public in any other countries? Although local legislation varies from jurisdiction to jurisdiction, it is the Commission's experience that the majority of countries distinguish between retail funds, aimed at the general public, and wholesale funds selling investment from institutions and / or their existing clients. In the case of wholesale funds, the requirements (if any) tend to be less onerous. This link will direct you to a schedule showing regulatory authorities who have been approached by the Commission showing the outcome / status of negotiations. What continuing supervision of licensees and authorised schemes is undertaken by the Commission? Category 1 controlled investment business covers collective investment schemes only. Category 2 controlled investment business covers general securities and derivatives. All entities carrying on controlled investment business within the Bailiwick must be licensed and are subject to financial resources, notification, conduct of business and compliance rules made under the Law, and may be subject to compliance visits (pre-arranged or unannounced) from staff at the Commission.
In addition to immediate and annual notification requirements under the rules:-
- the designated managers of all authorised and registered schemes are required to submit quarterly statistical returns regarding the schemes managed;
- the designated managers and designated custodians/trustees of all authorised and registered schemes are subject to compliance visits (pre-arranged or unannounced) from staff at the Commission;
- unresolved complaints against licensees must be notified to the Commission; and authorised and registered schemes and licensees are required to submit detailed reports and audited accounts to the Commission at least annually (or on publication if shorter);
- The Commission reserves the power to conduct compliance visits to any licensee whether or not it has cause for concern.
All licensees are subject to the Licensees (Conduct of Business) Rules 2009.
Who can establish collective investment schemes in Guernsey? There is a policy of selectivity which, in the context of open or closed ended schemes, means that great weight is given to the status of the intended promoters/sponsors. Only those of the first rank are encouraged and normally a demonstrable and favourable track record in the promotion of established collective investment schemes is required.
The authorisation of intended promoters/sponsors by regulatory authorities in other jurisdictions is not, in itself, generally sufficient. Subject to the foregoing, the Commission's policy is to be as flexible as possible and consistent with meaningful investor protection. The Commission is always prepared to meet potential promoters/sponsors or their professional advisers in order to discuss matters of policy and practice regarding proposed open or closed ended schemes.
Are Guernsey collective investment schemes covered by any compensation scheme? The Collective Investment Schemes (Compensation of Investors) Rules 1988 (as amended) provide for compensation for investors in Class A schemes of up to £5mn in any year. Subject to this limit, the maximum compensation payable per investor is 90% of the first £50,000 and 30% of the balance of up to £100,000 (i.e. a maximum total of £60,000). To date, no call has been made on the compensation scheme.
There is no compensation scheme covering investors in Class B schemes, Class Q schemes or closed ended investment schemes. |
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