Approval to act for a non Guernsey scheme is granted at licensee level, i.e. to the licensee undertaking either administration, custody or management of the non Guernsey scheme and not to the fund itself. This is because the non Guernsey scheme does not have a registration or authorisation with the Commission and the approval given is personal to the administrator. A new application form is therefore required together with any relevant fund documentation and accompanying fee for each scheme.
If you have any queries over the FAQs or suggestions for potential FAQs please contact Emma Bailey firstname.lastname@example.org the Investment Supervision and Policy Division.
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.
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.
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)
Under section 8 of the Law open-ended and closed-ended schemes can apply to be authorised or registered. 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.
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.
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.
Please see Guide to Risk Based Supervision.
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.
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.
Private Investment Fund FAQs
Just the Form PIF. This form combines the application form for the PIF and the Licensed Manager. Other than completing the questions on the Form PIF and the submission of the Personnel Questionnaires via the online portal there are no other requirements for documents to be submitted along with the Form PIF. A Form RA1 and a new Promoters' checklist does not need to be submitted.
A fee for the Private Investment Fund is required (this is the Application Fee for a Collective Investment Scheme) and a fee for the Licensed Manager is required (this is the Application Fee for either a Principal Manager of authorised or registered open-ended collective investment schemes or a Manager of authorised or registered closed-ended collective investment schemes). The current fees may be found here. Annual fees apply to both the Licensed Manager and the Private Investment Fund and at the point of licensing/registration these fees are pro-rated.
The philosophy of a private fund is a close relationship between investors and management; therefore, it is not an unreasonable representation for the Licensed Manager to make. If the Licensed Manager is not willing to complete the warranty then clearly the Private Investment Fund is not the product for them.
The Commission is not prescriptive as to how the Licensed Manager satisfies itself as to the ability of the investors to sustain loss however, the Commission would not look favourably upon the use of a form of warranty from the investor to the Manager. Nor has the Commission stipulated a minimum subscription amount as this also would not in our view be a strong determinant in demonstrating the ability of an investor to sustain loss.
As stated above the Commission expects the relationship to be sufficiently close to allow for other measures to be used by the Licensed Manager to warrant that the investors could suffer loss. The Commission, whilst not imposing rules on the Licensed Manager of the Private Investment Fund, sees its role as one of substance in the discharging of corporate governance. The philosophy is that the manager through its relationship with the promoter, will have a relationship with the investors. The Commission acknowledges that the burden on the manager to warrant an investor's ability to sustain loss can only fall at the time the subscription is made.
The Commission will treat any failures in the process leading to the signing of such warranties extremely seriously.
During consultation the Commission received representations suggesting that the burden of such warranties would ultimately fall on to the Designated Administrator. It is not the intention of the Commission to place this burden on the Designated Administrator. The Commission recognises that certain funds are characterised by a relationship between management and investors that is closer than that of a typical agent. It is difficult to see how a designated administrator can have this relationship at the outset, and therefore the regime does not anticipate it being able to fulfil this role. Hence the requirement for a licensed manager.
Upon application via the submission of the Form PIF the Licensed Manager will licensed at least for the restricted activity of Management and any other restricted activity to be determined by the applicants. Any additional restricted activities should be detailed on the Form PIF.
The Private Investment Fund should contain no more than 50 legal or natural persons holding an ultimate economic interest in the private investment fund, save in the instance where the investment is made by an investment manager acting as agent for investors in a collective investment scheme or equivalent, pension holders in an occupational pension scheme, or government funds – whether local or sovereign.
Yes however, excepting a period of one year commencing from the date of first subscription, there is a "rolling test" applied on a continuous basis. In the previous twelve months, the Private Investment Fund can add no more than 30 new ultimate investors. This test must be applied and evidenced by the Licensed Manager of the Private Investment Fund. The Manager shall keep a record of such tests. For the avoidance of doubt at all times the maximum number of investors allowed is 50 as defined in FAQ 6 above.
No please refer to FAQ "What is the Commission's expectations when the Licensed Manager completes the warranty on the ability of the investors to assume loss?" above.
Yes they do. The Private Investment Fund itself is not a Financial Services Business (FSB) so either the Licensed Manager or the Designated Administrator acting for the PIF will be responsible for ensuring the obligations under the AML/CFT regulations and handbook are adhered to. The Licensed Manager will be considered an FSB and will be required to have a MLRO appointed to it and will be required to produce a Business Risk Assessment.
Class B FAQs
The Class B Rules FAQs arises from the introduction of The Authorised Collective Investment Schemes (Class B) Rules, 2013 (the Class B Rules) with effect from 2 January 2014.
The Commission proposes that the same approach be taken as that used in respect of derogations of The Licensees (Conduct of Business) Rules, 2009 and the Licensees (Capital Adequacy) Rules, 2010. Therefore, the Commission requests that designated managers and designated custodians/trustees of Class B collective investment schemes assess whether or not they still require derogations granted under the Class B Rules 1990. Should a derogation still be required, then a request, including the rationale, must be made to the Commission to derogate or modify the application of the Class B Rules 2013 by no later than 2 January 2015. This is the same period as set out in the transitional provisions in Rule 10.02(2) of the Class B Rules.
For the avoidance of doubt, the Commission considers that the existing derogations granted under the Class B Rules 1990 will remain in place until the earlier of the following two dates:
1) The date that a derogation is granted pursuant to the Class B Rules 2013; or
2) 2 January 2015.
It is considered that the revised derogation requests could be dealt with at the same time as submitting to the Commission the updated scheme particulars to comply with the schedule to the Class B Rules 2013. Updated scheme particulars and derogation requests pursuant to the Class B Rules 2013 can be submitted by e-mail to email@example.com
No. Rules 2.08(9) and 2.08(10) are intended to cover management or advisory charges, however described and prescribed, in order to prevent double-charging thereon by those who are making, or advising on, investment decisions. The exception to this is in respect of feeder fund structures, as described at Rule 2.08(11) – in which case the fee structure should be fully disclosed.