How do I apply for an investment licence?
I am not sure if I need an investment licence, can I ask you for advice?
We can offer general comments as to the activities covered by the Protection of Investors (Bailiwick of Guernsey) Law, 2020 and the rules and regulations made thereunder, but we cannot provide legal advice in respect of specific circumstances. If you are in doubt, you should seek advice from a lawyer qualified in Guernsey law.
Who can establish collective investment schemes in Guernsey?
A policy of selectivity is applied to promoters/sponsors of open or closed ended schemes: only those with a demonstrable and favourable track record in the promotion of established collective investment schemes will be considered acceptable to establish schemes.
The authorisation of intended promoters/sponsors by regulatory authorities in other jurisdictions is not, in itself, generally sufficient. We aim to enable innovative strategies whilst maintaining meaningful investor protection. We are 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. Please email Authorisations with an outline of your proposals in the first instance, so that an assessment can be made of which technical staff should attend any future meeting.
What are the major differences between an authorised collective investment scheme and a registered collective investment scheme?
Under section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (“the Law”) both open-ended and closed-ended schemes can apply to be authorised or registered.
Both authorised and registered schemes must appoint a local licensed designated administrator/manager to conduct the day to day operations of the scheme. Whereas the designated administrator/manager must conduct due diligence on the promoter of any scheme it proposes to administer, in addition in respect of a registered scheme, the designated administrator/manager is required, at application, to sign a declaration that it has undertaken that due diligence: for further details refer to Guidance on Registered Collective Investment Schemes. The declaration also confirms that the designated administrator/manager confirms that it is content with the disclosures in the scheme’s prospectus/offer document as meeting the requirements of the Prospectus Rules and Guidance 2021.
We attach great importance to these declarations and expect applicants to be able to demonstrate that they have documentary evidence to support the confirmations given, and to be able to produce that evidence immediately should we request it. Failure to support a declaration by documentary evidence might be taken into account by us in assessing ongoing fitness and properness under schedule 4 to the Law. Consequently, because the designated manager has to provide these confirmations to the Commission we are able to declare the scheme registered within three working days of receipt.
How can collective investment schemes be constituted?
Open ended schemes and closed-ended schemes may be constituted as:
- Incorporated cell companies;
- Limited partnerships;
- Protected cell companies; or
- Unit trusts.
The choice of constitution is a commercial decision for the applicant to determine, however, use of a limited partnership for an open-ended scheme would require further discussion with Authorisations. 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. Irrespective of the nature of the constitution of the scheme similar application processing applies.
Virtual currencies, crypto currencies and Initial Coin Offerings (“ICO”)
The Commission has a policy of encouraging innovation through initiatives such as our Innovation Soundbox, which offers a supportive environment where existing or future licencees can come and discuss ideas, innovations or future applications with our authorisations or supervisory experts.
Globally, one specific area of innovation within financial services has been the increasing use of virtual, or crypto, currencies including in the development of Initial Coin Offerings (“ICO”), where an individual receives a token or coin in exchange for an investment into a company or alternative vehicle.
Whilst the Commission has already worked with firms using the underlying technology of these currencies, i.e. Blockchain, in common with other regulators around the world, the Commission believes there are significant risks in the use of virtual or crypto currencies especially for retail customers. Nevertheless, we understand that professional investors with a high risk appetite may wish to invest in this developing sector.
Virtual or crypto currencies could interact with our regulatory laws in a number of ways and therefore any application would need to be assessed on its individual merits. We will assess any application by the same criteria we use for other asset types or structures, which means we would look to ensure that key controls are appropriate - for example around custody, liquidity, valuation of assets and investor information.
Our current Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing already permits the use of technology for customer due diligence and we would expect any applicant to demonstrate to us how it plans to comply within the Bailiwick’s current laws and rules, especially when establishing the identity of investors and beneficial owners.
Due to the significant risk of fraud and/or money laundering, we would be cautious about approving applications for ICOs which could then be traded on a secondary market. We would also be cautious about the establishment of a digital currency exchange within the Bailiwick.
We continue to encourage firms or individuals to use our Innovation Soundbox to discuss potential applications and to meet with our Authorisations team at an early stage so we can help them understand what our key questions are likely to be when they make a formal application.
How do I request incorporation consent for a PCC or an ICC?
Incorporation of a PCC or ICC in the Bailiwick requires written consent from the Commission, pursuant to Sections 438 and 469 of The Companies (Guernsey) Law 2008, respectively. This is even when the PCC or ICC is not going to be carrying out regulated financial activities.
When considering whether it is appropriate for a PCC or ICC to be incorporated the Commission must have regard to the protection of public interest. This includes the need to:
- Protect the public, in Guernsey and elsewhere, against the effects of dishonesty, incompetence or malpractice
- Counter financial crime and the financing of terrorism in Guernsey and elsewhere, and
- Protect and enhance the reputation of the Bailiwick as a financial centre.
A written request for consent to incorporate should be sent to [email protected]. The submission must include details of all directors and beneficial owners of the proposed PCC/ICC together with a high level business plan for the structure which should include details of all related entities and service providers.
An application fee of £500 should accompany any request for consent to incorporate when the PCC/ICC will not be directly regulated by the Commission.