Guernsey's AIFMD Regime - Rules, Forms, Guidance & FAQs

Guernsey's AIFMD Regime

Following discussion with industry the general consensus indicated that a dual regime would be the best solution for Guernsey not least because there are AIFMs currently managing Guernsey funds which fall outside the scope of the Directive and in the future it is likely that promoters will continue to use the Bailiwick as a base for such products. In practice this will mean operating two regulatory regimes; an AIFMD focussed regime and a non-AIFMD regime.

The AIFMD (Marketing) Rules, 2013

There are two aspects to Guernsey's AIFMD Regime the first being The AIFMD (Marketing) Rules, 2013 ensure that Guernsey funds and Guernsey fund managers established in Guernsey who wish to market into the EEA meet the requirements of Articles 42 and 43 of AIFMD. These Rules introduce minimal notification requirements to the Commission by Guernsey fund managers and Guernsey funds in respect of marketing into the EEA. These Rules will also allow the Commission to co-operate effectively with the relevant EEA securities regulator. The Rules became effective on 22 July 2013.

Form AIFM should be used when making the required notification to the Commission.

The AIFMD Rules, 2013

The second part of the Bailiwick's AIFMD focussed regime, prior to the introduction of the pan-European passport, is that the Bailiwick will operate an equivalent opt in AIFMD regime for Guernsey fund managers and depositaries. The AIFMD Rules, 2013 governing this opt in regime became effective from 2 January 2014. Please find here the accompanying forms; Form GAIFM and Form DAIFM.

The AIFMD Rules, 2013 state that the Commission will have regard to the provisions of AIFMD and AIFMD Level 2 in interpreting these Rules. Any guidance issued by ESMA, for example, in respect of remuneration practices, or the definition of an AIF may be used by the Commission to interpret the obligations created by these Rules. The Commission however, has been requested to issue guidance on key topics such as outsourcing, cash monitoring and reconciliations. The Commission has commenced, and will continue to, work with the Guernsey investment fund industry in developing relevant guidance for the Bailiwick of Guernsey. In the meantime, the Commission has updated its FAQs below and will continue to provide updates by this medium.

Guidance

Guidance Notes for Article 36 of AIFMD - Depositary Requirements 479KB

Helpful Links

FAQs

What is AIFMD?

AIFMD is a European Directive that seeks to regulate the non-UCITs fund sector, including hedge funds, private equity funds and real estate funds.  All Alternative Investment Fund Managers (“AIFMs”) established in the EEA, whether they manage EEA or non-EEA Alternative Investment Funds (“AIFs”) are subject to AIFMD. AIFMD also governs the managing and marketing in the EEA of AIFs managed by an AIFM established outside the EEA.  It is important to note that a non-EEA AIFM marketing a non-EEA AIF outside of the EEA and a non-EEA fund which does not market to EEA investors and which invests in EEA securities do not come within the scope of AIFMD.
 
For the avoidance of doubt, AIFMD covers all funds other than UCITs Funds.  Therefore, for the purposes of AIFMD, all Guernsey regulated funds which are marketed into the EEA fall within the definition of an AIF.
 
The Directive entered into force on 21 July 2011. EEA Member States were given two years from this date to transpose the Directive into national law. EEA Member States were required to implement the Directive in local laws by 22 July 2013.  However, it is important to note that some EEA Member States, such as the United Kingdom have inserted transitional provisions into their regulatory regimes, which in the case of the United Kingdom have been extended to include third country (non-EEA Member States) AIFMs. Where applicable Guernsey fund managers and Guernsey regulated funds should review the regulatory regime in each applicable EEA Member State to which their business relates.

How is the Bailiwick of Guernsey treated under the EU's AIFMD?

The Bailiwick of Guernsey ("Guernsey") is not a member of the EU and for the purposes of AIFMD is regarded as a Third Country.  Guernsey funds are marketed into a number of EU jurisdictions and these FAQs have been published in order to help explain how Guernsey funds will be impacted by AIFMD and how such funds may continue to be marketed into the EU under AIFMD.
 
In addition to the EU Member States, it is expected that Iceland, Liechtenstein and Norway will also implement AIFMD, as a result we refer to the European Economic Area (“EEA”) throughout these FAQs.

What are the requirements for third countries such as Guernsey? (Non-EEA Member States)

AIFMD applies to AIFMs established in EEA Member States, but also to non-EEA AIFMs that manage or market AIFs in the EEA, subject to a number of conditions. For the first time in EEA financial legislation, the Directive provides for an EEA passport for non-EEA AIFMs. This passport could potentially be applicable from 2015 or 2016. The principle of the passport is that, in order to enjoy the same rights, non-EEA AIFMs should comply with the same obligations, which means that non-EEA AIFMs will be able to benefit from the European passport so long as they abide by the rules of AIFMD. This does not mean that the non-EEA country where an AIFM is established would need to have AIFMD-equivalent rules, but that non-EEA AIFMs willing to operate in the EEA will have to comply with the AIFMD rules of a nominated EEA Member State of Reference as if they were European AIFMs. As a consequence, European competent authorities will have responsibility for supervising compliance with the AIFMD by AIFMs situated in non-EEA countries. In order to do this the European authorities would need the co-operation of the relevant non-EEA authority.

What level of co-operation is required of Guernsey with EEA Member States from 22 July 2013?

AIFMD allows non-EEA AIFMs to manage and market AIFs in the EEA so long as they comply with the specific rules in chapter VII of AIFMD.
 
The European Securities and Markets Authority (“ESMA”) has approved the co-operation arrangements between the Commission and the EEA securities regulators for the supervision of AIFs.  ESMA has negotiated the agreement with the Commission on behalf of all 27 EU Member State securities regulators as well as authorities from Croatia, Iceland, Liechtenstein and Norway.
 
The co-operation arrangements include the exchange of information, cross-border on-site visits and mutual assistance in the enforcement of respective supervisory laws.  This co-operation will apply to Guernsey fund managers that manage or market AIFs in the EEA and to EEA AIFMs that manage or market AIFs in the Bailiwick of Guernsey.  The arrangements also cover co-operation in the cross border supervision of depositaries and AIFMs’ delegates.  The agreement will take the form of a bi-lateral Memorandum of Understanding (MoU) between each of the EEA securities supervisors and the Commission.  The Commission is currently awaiting the signatures to these co-operation agreements. 
 
The key elements of the EEA-Guernsey co-operation arrangements are:
 
·         EEA and Guernsey supervisors will be able to supervise fund managers that operate on a cross border basis in the Bailiwick and the EEA;
 
·         The co-operation between the authorities includes the exchange of information, cross border onsite visits and assistance in the enforcement of the respective laws;
 
·         EEA authorities will be able to share relevant information received from the Commission with other EEA authorities, ESMA and the European Systemic Risk Board, provided appropriate safeguards apply;
 
·         The existence of co-operation arrangements between the EEA and Guernsey authorities is a precondition of AIFMD for allowing managers from Guernsey to access EEA markets or perform fund management by delegation from EEA managers; and
 
·         The EEA-Guernsey co-operation arrangements are applicable from 22 July 2013 and enable cross-border management and marketing to professional investors of AIFs.
 
Guernsey has signed co-operation agreements with the following 27 EU/EEA securities regulators:
 
CountryEU/EEA Authority
AustriaFinanzmarktaufsicht 
BelgiumFinancial Services and Markets Authority
BulgariaFinancial Supervision Commission
CyprusCyprus Securities and Exchange Commission
Czech RepublicCzech National Bank
DenmarkFinanstilsynet
EstoniaEstonian Financial Supervision Authority
FinlandFinanssivalvonta
FranceAutorité des marchés financiers
GermanyBundesanstalt für Finanzdienstleistungsaufsicht
GreeceHellenic Capital Market Commission
HungaryPénzügyi Szervezetek Állami Felügyelete
IcelandFjármálaeftirlitiđ
IrelandCentral Bank of Ireland
LatviaFinanšu un kapitāla tirgus komisija
LiechtensteinFinanzmarktaufsicht
LithuaniaBank of Lithuania
LuxembourgCommission de Surveillance du Sector Financier
MaltaMalta Financial Services Authority
The NetherlandsAutoriteit Financiële Markten
NorwayFinanstilsynet
PolandPolish Financial Supervision Authority
PortugalComissão do Mercado de Valores Mobiliários
RomaniaFinancial Supervisory Authority
Slovak RepublicNárodná banka Slovenska
SwedenFinansinspektionen
United KingdomFinancial Conduct Authority

The co-operation arrangements include the exchange of information, cross-border on-site visits and mutual assistance in the enforcement of respective supervisory laws. This co-operation will apply to Bailiwick of Guernsey alternative investment fund managers (AIFMs) that manage or market alternative investment funds (AIFs) in the EU and to EU AIFMs that manage or market AIFs in the Bailiwick of Guernsey. The arrangements also cover co-operation in the cross border supervision of depositaries and AIFMs’ delegates. The agreement takes the form of a Memorandum of Understanding (MoU) between the national securities supervisors in EU countries and the GFSC.

What marketing routes into the EEA are available to Guernsey AIFMs and Guernsey AIFs?

Prior to the introduction of a pan-European passport in approximately 2015/2016 for non-EEA AIFMs, Guernsey fund managers will be able to market Guernsey funds and EEA AIFs to EEA professional investors under Member States’ national private placement regimes. However, from the date of transposition of AIFMD (i.e. by 22 July 2013), subject to any transitional periods introduced by EEA Member States, Guernsey Fund Managers and self-managed Guernsey AIFs must comply with certain transparency and disclosure requirements and regulatory co-operation agreements have been concluded between the Commission and the EEA competent authorities in accordance with Article 42 of AIFMD. 
 
The United Kingdom has inserted a one year transitional period into their regulatory regime and this includes third country (non-EEA) AIFMs.
 
Listed below are details on using the National Private Placement arrangements for specific EU member states.
The information provided here is accurate at the time of publication however, it should not be wholly relied upon and Guernsey AIFMs are reminded it is their responsibility to contact the competent authority (financial services regulator) in the EU member state into which marketing is being undertaken. It should also be noted that the information does not constitute legal advice. Other jurisdictions will be added as information becomes available.

 
Competent AuthorityProcedure for National Private Placement
Finanzmarktaufsicht (FMA)Austria has transposed AIMFD in Austrian legislation.  The Alternative Investmentfonds Manager-Gesetz (“AIFMG”) sets out the requirements to market AIFs to both professional and retail investors in Austria.  Article 47 permits a Non-EU AIFM to market an AIF to professional investors via a legal representative with a registered office in Austria.  Article 49 permits five types of AIF to be marketed to retail investors in Austria.  A fund manager that intents to market to professional or retail investors in Austria must send a Notification Letter to the Austrian FMA together with a confirmation from the home country competent authority and the relevant information as required in Annex II of the AIFMG.  These notifications and attachments can be sent to [email protected].
Financial Services and Markets Authority (FSMA)The AIFMD has not yet been transposed into Belgium law. A 'questions and answers' document is on FSMA's website regarding the transitional period provided for by the AIFMD. This document draws a distinction between the transitional period from 22 July 2013 to the entry into force of the Belgian Law transposing the AIFMD ("Period A") and the period starting from the entry into force of the Belgian Law transposing the AIFMD ("Period B"). During these two periods, the process may be different for different for marketing alternative investment funds to professional or retail investors in Belgium.
During Period A for marketing to professional investors it is recommended that Guernsey AIFMs voluntarily adhere to the conditions provided for by Article 42 of AIFMD. In this context the Guernsey AIFMs are encouraged to submit a dossier to us demonstrating that the conditions of Article 42 are fulfilled. Marketing to retail investors in Belgium is possible as long as AIFMs comply with the Law of 3 August 2012 Articles 160 to 185 and the Royal Decree of 12 November 2012 Articles 221 to 225.
During Period B Guernsey AIFMs marketing to professional investors will be obliged to adhere to the provisions of the Belgian Law transposing Article 42 of the AIFMD. Marketing to retail investors in Belgium will only be possible if, in addition to the above-mentioned conditions, the additional rules provided for by the Belgian Law transposing the AIFMD are complied with. AIFMs are requested to submit a dossier to us demonstrating that the above-mentioned conditions are fulfilled. 
Bulgaria Financial Supervision Commission (FSC)AIFMD has been transposed into Bulgarian legislation, however an English translation is not yet available.
Cyprus Securities & Exchange Commission (CySEC)AIFMD has not yet been transposed in Cyprus.
Finanstilsynet (Danish Financial Supervisory Authority)
The Executive Order nr.821 of 29 June 2013 applies to the marketing of third country AIFs by fund managers established in a third country. The executive order is currently available only in Danish but an authorised English translation will be available soon.
A fund manager that intends to market an AIF established in a third country to professional investors in Denmark is required to send a Notification Letter (application form) to the Danish FSA together with relevant information as required in article 3 of the executive order. The application processing time can take up to 3 months after the complete application file has been submitted to the Danish FSA. The Notification Letter (application form) referred to above is available on the Danish FSA’s website (see link to left).
Question 6) of the Notification Letter (application form) requires a statement from the supervisory authoritites of the non-EU AIF to the effect that the home country is prepared to grant similar Danish AIFs access to market their units ore shares in the country in question. An overarching statement dated 31/10/13 has been issued to the Danish FSA stating that the Commission is willing to permit the promotion of the Danish Alternative Investment Funds into the Bailiwick of Guernsey through an entity licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended. Reference to this statement may be made in response to question 6) in any application to the Danish FSA.
Marketing to retail investors in Denmark of AIFs is currently not permitted for fund managers established in a third country. Neither is it possible for third country managers to apply for authorisation to market its funds to retail investors.
Estonian Financial Supervision Authority (FSA)AIFMD has not yet been transposed in Estonia. The full transposition of AIFMD is expected to take place in the second quarter of 2014.
Finassivalvonta (FIN-FSA)AIFMD transposition is expected by the end of 2013.
Authorite des Marches financiers (AMF)Following the AIFMD implementation into French law completed last July, the applicable rules for the marketing to professional investors of non-EU AIFs by non-EU AIFMs in France without a passport are set out in Articles L. 214-24-1, L. 214-138, and D. 214-32 of the French code monétaire et financier (see attached, the text is only available in French at present).

You should refer in particular to article D. 214-32. For a non-EU AIF to be marketed in France by a non-EU AIFM (to professional investors), the following preconditions should be met :

- a prior notification to the AMF for each AIF the marketing of which is contemplated in France ;
- the non-EU AIFM must comply with all legal and regulatory provisions normally applying to an authorized AIFM. An entity must be appointed to carry out the depositary duties of cash monitoring, safe keeping of assets and oversight in respect of that AIF (identity of that entity must be provided to the AMF) ;
- a cooperation agreement (MOU) must be in place between the AMF and the supervisory authority of the country where the non-EU AIFM is established and, if applicable, of the country where the non-EU AIF is established (note : in the case of Guernsey, the MOU signed by both our authorities last June will serve the purpose);
- the third country in which the non-EU AIF or the non-EU AIFM is established is not listed as a Non-Cooperative Country and Territory by Financial Action Task Force;
- when the non-EU AIF is open-ended, the AIFM must obtain a prior authorization from the AMF permitting the marketing of its units or shares in France. The AMF will grant such an authorization only if the non-EU AIF is subject to investor protection and transparency rules that are equivalent to the French rules.

AMF are currently preparing a guidance note which they plan to issue in the coming weeks.

Bundesanstalt fur Finanzdienstleistungsaufsicht (Bafin)
On 22 July, the Act Implementing the Alternative Investment Fund Managers (AIFM) Directive entered into force. By virtue of the Act Implementing the AIFM Directive, the Investment Act was repealed and replaced by the Investment Code (Kapitalanlagegesetzbuch –KAGB).
Attached are translations of the most relevant passages of the Investment Code and of a guidance notice on marketing third-country AIF in Germany.   However, please note, that these are only convenience translations. In case of deviation, the German version shall prevail.
Hellenic Capital Market Commission (HCMC)AIFMD has been transposed in Greek legislation, with the exception of Article 42 regarding the conditions for marketing into Member States without a passport of AIFs managed by a non-EU AIFM which has not been transposed.
Central Bank of Ireland (CBI)

Marketing of non-EU AIFs managed by non-EU AIFM to professional investors in Ireland is subject to Regulation 43 of the AIFM Regulations, guidance on this process will shortly be published on the Central Bank of Ireland website.

Marketing of AIFs to retain investors in Ireland is subject to Regulation 44 of the AIFM Regulations and the Central Bank AIF Rulebook (Chapter 1, Part III) sets out the requirements which need to be satisfied in order to market into Ireland. The policy which was applied to marketing AIFs to retail investors pre-AIFMD in Ireland is currently still in force for the time being.

Finansu Un Kapitala Tirgus Komisija (FKTK)
All the rules and procedures for the non-EEA alternative investment funds that are wishing to market in Latvia are established in the Law on Alternative Investment Funds and their Managers. The Law came into effect on 8 August 2013. When a non-EEA manager (registered or licensed in its home country) intends to market or manage AIFs in Latvia it has to undergo a registration or licensing process according to the Law.
Finanzmarktaufsicht (FMA)
Liechtenstein, being a member of the EEA, has implemented the AIFMD by its Act on Alternative Investment Fund Managers. The incorporation of the AIFMD into the EEA agreement has not yet been completed. This incorporation is essential for obtaining the European passport. Therefore it has been necessary to postpone the effective date of the relevant provisions in the Liechtenstein Act until the incorporation in the EEA agreement is completed.
During the interim period the foreign AIF will be treated in Liechtenstein as an Investment Undertaking to the Law on Investment Undertakings of May 19, 2005 and not as an AIF pursuant to the Act on Alternative Investment Fund Managers. As a consequence the AIFM has to appoint a representative and a paying agent in Liechtenstein.
Commission De Surveillance Du Sector Financier (CSSF)Article 42 of the AIFMD has been transposed into Luxembourg domestic legislation by the Luxembourg law transposing the AIFMD. Offerings to professional investors under article 42 of AIFMD require that the conditions under this article are being fulfilled. Any retail offering will be required to undergo a formal approval process with the CSSF.
Transitional provision: With respect to non-EEA AIFMs marketing AIFs in Luxembourg prior to 22 July 2013, marketing under the existing Luxembourg placement rules will continue to be permitted until 22 July 2014 and will not be affected by the Luxembourg law transposing the AIFMD.
Malta Financial Services Authority (MFSA)Article 42 of the AIFMD has been transposed into Maltese legislation. Any Guernsey AIFM wishing to market into Malta should approach the MFSA directly or through an appropriate legal adviser.
Autoriteit Financiel Markten (AFM)The Dutch Government has stated that Guernsey will remain designated as an equivalent country until 2018.
 
A notification form for managers of alternative investment funds,  has recently been released by the AFM. The annex to the form makes the following statement:
 
"The following document needs to be submitted with this notification form:
 
An attestation of the competent authority of the AIFM   in which it confirms that it is able to effectively comply with the cooperation agreement between that competent authority and the AFM as set out in article 1:13b section 1 and 2 Wft in respect of the specific AIFM identified under question 1.
 
This attestation does not need to have a specific format. Any form of attestation is acceptable as long as its content satisfies the AFM and DNB that the notified entity is a ‘covered entity’ under the cooperation agreement and that the competent authority of the AIFM is consequently able to effectively impose the agreed terms under the cooperation agreements in relation to the particular non-EU AIFM which is notified pursuant to this notification form."
 
September 2014 Update
The AFM has accepted an overarching statement from the Commission, therefore, individual attestations will no longer be required, however, the AFM requires confirmation that Guernsey AIFMs are appropriately licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended.  The AFM has confirmed that a screen print from  http://www.gfsc.gg/Investment/Regulated-Entities/Pages/Licensees.aspx would satisfy this requirement.
 
Please note the above arrangement is specific to Guernsey AIFMs and is not an arrangement that has been extended by the AFM to all non-EEA AIFMs.
Polish Financial Supervision Authority (PFSA)AIFMD has not yet been transposed in Poland.
Comissao do Mercado e Valores Mobiliarios (CMVM)AIFMD has not yet been transposed in Portugal.
Romanian Financial Supervisory Authority (CNVM)

AIFMD has not yet been transposed in Romania. Until this national legislation is in place fund managers from third countries may perform marketing activities in Romania under the current applicable legal framework. Article 176 of Regulation no. 15/2004 covers the authorisation and functioning of investment management firms, collective investment undertaking and depositories. Article 10 of Executive Order no. 9/2010 covers the marketing activities of collective investment schemes. Attached are English versions of the relevant provisions. However, please note, that these are only convenience translations. In case of deviation, the Romanian version shall prevail.

Narodna banka Slovenska (NBS)
Slovakia has transposed AIFMD into Slovak legislation under Act No. 206/2013 amending Act No. 203/2011 on Collective Investment Schemes. 
An AIFM which intends marketing in the territory of the Slovak Republic is obligied to notify the National Bank of Slovakia of its intention.  The notification should be in writing, in language common in the sphere of the international finance and should contain information listed in the Annex III of the AIFMD Directive as well as documentation which proves the fulfilment of the requirements listed in Article 42(1)(a) of the AIFMD Directive.
National Bank of Slovakia shall review the completeness of the notification and documentation sent by the non-EU AIFM and in the period of 20 working days shall notify the non-EU AIFM  whether it may commence the marketing of the units or shares of the relevant AIFs listed in the notification.  National bank of Slovakia may prohibit such marketing only if the requirements listed in Article 42 (1) of the AIFMD Directive are not complied with or the management of the AIFs is not compliant with the requirements of the AIFMD Directive.  The non-EU AIFM may commence the marketing of the units or shares of the relevant AIFs only after receiving the notification of the National Bank of Slovakia confirming that the marketing may commence.  Marketing to retail investors requires an additional licence issued by the National Bank of Slovakia.
Finansinspektionen (FI)
The Swedish regulator will contact the Commission once an application from a Guernsey entity has been received.
Financial Conduct Authority (FCA)
Firms based in non-EEA (3rd country) jurisdictions wishing to market AIFs in the UK will be required to comply with the FCA’s National Private Placement Regime as well as the FCA’s financial promotion rules. The Treasury has put in place transitional arrangements for the regime, for firms to be able to continue to carry on non-EEA activities on the basis of existing requirements.
EEA firms or full scope UK AIFMs managing non-EEA AIFs and wishing to use the National Private Placement Regime can find more information on the FCA’s NPPR page.
To be able to market under NPPR, the AIFM needs to satisfy a number of conditions, as detailed in regulations 57, 58 and 59 of the UK Alternative Investment Fund Managers Regulations 2013 (the Treasury’s Regulations). For example, for full-scope AIFMs, there needs to be a memorandum of understanding on supervisory co-operation arrangements (MoU) between the UK (or EEA member state in the case of an EEA AIFM) and each relevant non-EEA competent authority. For further details of the current status of MoUs see the FCA’s latest news. Another condition for non-EEA AIFMs is that the AIFM is the person responsible for complying with the implementing provisions relating to the marketing of the AIF.

What should existing regulated Guernsey fund managers and Guernsey self-managed funds do next?

Guernsey fund managers and Guernsey self-managed funds should check their distribution networks to ascertain whether their funds are marketed to investors in EEA. 

Article 42 of AIFMD
 
As you are aware, Article 42 of AIFMD permits EEA Member States to operate a national private placement regime for EEA AIFMs marketing non-EEA AIFs and non-EEA AIFMs marketing EEA or non-EEA AIFs, however this is at the discretion of the EEA Member State.  The Commission is aware that several EEA Member States will be operating a national private placement regime, however many EEA Member States, for example the UK, will require prior written notification to the applicable regulatory authority.  It is also apparent that EEA Member States have differing transitional arrangements, for example the UK has transitional arrangements in place until 22 July 2014.  Notwithstanding that some EEA Member States have put in place transitional arrangements, licensees should first consider whether they are required to register with an EEA Member State regulatory authority and secondly take note of how long it will take that authority to process that registration. i.e. Transitional arrangements do not mean that AIFMs can do nothing until July 2014.
 
The AIFMD (Marketing) Rules, 2013 (“the Rules”) came into operation on 22 July 2013.  The Rules have been introduced to ensure that any Guernsey AIFM and Guernsey AIF to whom the Rules apply, shall take all reasonable steps with a view to ensuring that any form of marketing in a country or territory within the EEA is effected in accordance with the laws and regulations in force in the relevant Member State and that the Commission is notified of that marketing within 14 calendar days of commencement.  However, it is important to note that the detailed reporting required by Article 42 is to the EEA member state regulatory authority and not the Commission.
 
For the avoidance of doubt the scope of the Rules does not extend to Guernsey AIFs with non-Guernsey AIFMs.
 
AIFMD Equivalent Opt in Regime
 
AIFMD provides for an EEA passport for non-EEA AIFMs. This passport could potentially be applicable from 2015 or 2016. The principle of the passport is that, in order to enjoy the same rights, non-EEA AIFMs should comply with the same obligations, which means that non-EEA AIFMs will be able to benefit from the European passport so long as they abide by the rules of AIFMD. This does not mean that the non-EEA country where an AIFM is established would need to have AIFMD-equivalent rules, but that non-EEA AIFMs willing to operate in the EEA will have to comply with the AIFMD rules of a nominated EEA Member State of Reference as if they were European AIFMs. As a consequence, European competent authorities will have responsibility for supervising compliance with the AIFMD by AIFMs situated in non-EEA countries.  
 
Whilst the Bailiwick of Guernsey does not need to put in place an AIFMD equivalent regime to allow a Guernsey fund manager to apply to a nominated EEA Member State of Reference, the Commission understands that a Guernsey AIFMD equivalent regime may assist in this application process.   Furthermore, some EEA Member States may require a non-EEA AIFM to be AIFMD equivalent in order to market into their territory under its respective national private placement regime.  Accordingly, the Commission considers that an equivalent opt in AIFMD regime for Guernsey AIFMs, Depositaries and Non-Financial Asset Depositaries may assist in this respect.   The AIFMD Rules, 2013 which will govern the regime will be effective from 2 January 2014.

Do you plan to market a non-EEA AIF to EEA professional investors through private placement or seek to rely on reverse solicitation?

​Firms marketing through private placement are required to comply with a number of provisions of the AIFMD.  These include certain disclosure and reporting requirements and the so-called 'depositary-lite' regime.  Reliance on, and compliance with, reverse solicitation (i.e. at the initiative of the investor) will avoid a number of these requirements altogether.  Those wanting to market through private placement will need to monitor the private placement rules in the countries they are targeting, many of which are still unknown. Those relying on reverse solicitation will require clearly defined procedures, as well as enhanced compliance monitoring and oversight, to ensure that they do not undertake marketing.

What are the main requirements of AIFMD for EEA AIFMS and those Guernsey AIFMs which opt in to comply with the AIFMD Rules 2013?

AIFMD requires EEA AIFMs to be authorised by the European national supervisory authority that is competent for their supervision. AIFMD imposes a number of obligations on EEA AIFMs: they have to hold initial capital and own funds, ensure the good reputation and experience of persons conducting the business and comply with a number of operating conditions (act honestly, with due skill, in the best interest of the AIFs and the investors and the integrity of the market, avoid conflicts of interest, treat all investors fairly, etc). EEA AIFMs should also apply sound remuneration practices, implement and employ sound risk and liquidity management policies and practices, comply with certain rules when investing in securitised assets and employ appropriate human and technical resources.
 
AIFMD also imposes certain rules if EEA AIFMs delegate functions to other entities and in relation to the depositary that has to be appointed for each AIF. EEA AIFMs are subject to a number of transparency requirements: they need to produce an annual report for each AIF under management, disclose certain information to investors and report to the competent authority on a number of aspects. Finally, the EEA AIFMs should employ reasonable leverage limits and comply with certain rules on asset valuation, and when acquiring major holdings or control of non-listed companies on behalf of an AIF (rules include notifying competent authorities on the acquisition, disclosing certain additional information and avoiding engaging in asset stripping).

How will The AIFMD Rules, 2013 be applied to Guernsey AIFMs and Guernsey Depositaries which have both EEA and non-EEA business?

Firstly, Guernsey AIFMs and Guernsey Depositaries are only required to comply with The AIFMD Rules, 2013, if they opt-in to comply with those rules.  In order to opt-in to the regime, Guernsey AIFMs and Guernsey Depositaries are required to complete a Form GAIFM or DAIFM, respectively.  As part of this notification, Guernsey AIFMs and Guernsey Depositaries will be required to state which AIFs they would like The AIFMD Rules, 2013 to be applied to.  In the case of AIFs structured as Protected Cell Companies (“PCC”) and Incorporated Cell Companies (“ICC”), Guernsey AIFMs and Guernsey Depositaries will be able to apply The AIFMD Rules, 2013 to specified cells.
 
Once the Commission has concluded its consideration of an application, The AIFMD Rules, 2013 will be imposed as a condition on the authorisation, registration or licence of the Guernsey AIFM or the licence of a Guernsey Depositary.  It is the Commission’s intention that the condition will detail the specific AIFs that The AIFMD Rules, 2013 apply.
 
The Commission considers that the above approach will give Guernsey AIFMs and Guernsey Depositaries flexibility to use the same corporate vehicle to service both EEA and non-EEA business.  Furthermore, this approach will also allow Guernsey AIFMs and Guernsey Depositaries to offer services to both AIFs marketed under national private placement and passported AIFs, should passporting be extended to non-EEA AIFMs and AIFs. 
 
Guernsey AIFMs and Guernsey Depositaries are reminded that the memoranda of understanding signed between the Commission and EEA competent authorities permits those authorities to conduct on-site visits to Guernsey AIFMs and Guernsey Depositaries; therefore those entities may wish to consider setting up different corporate structures to service both EEA and non-EEA business.  Furthermore, some EEA competent authorities may not recognise the attributes of a PCC and/or ICC structure and may require reporting on the whole PCC and/or ICC, rather than on a specified cell.  The Commission considers that this is a commercial rather than a regulatory issue to consider, and therefore, Guernsey AIFMs and Guernsey Depositaries should seek their own external advice in this regard.  Should Guernsey AIFMs and Guernsey Depositaries decide to split their EEA and non-EEA business, then a licence application under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 will be required for any new corporate structures created.
 
Licensees and their professional advisers are encouraged to talk to the Commission in respect of any of the above issues.

Do The AIFMD (Marketing) Rules, 2013 apply to sub threshold AIFMs?

The AIFMD (Marketing) Rules, 2013 do not apply to sub threshold AIFMs as reflected in Article 3 of the Alternative Investment Fund Managers Directive.

What are the transitional requirements in respect of The AIFMD (Marketing) Rules, 2013?

Rule 7.1 of The AIFMD (Marketing) Rules, 2013 states: - 

“Persons within the scope of these Rules who prior to 22 July 2013 manage and propose to market AIFs and/or Guernsey AIFs on or after 22 July 2013 to professional and/or retail investors in one or more Member States, shall comply
 
7.1.1 with Rules 3 and 4, with effect from 22 July 2013; and
 
7.1.2 with the notification and filing requirements pursuant to Rule 5, by no later than 21 July 2014."
 
Rule 7.2 of The AIFMD (Marketing) Rules, 2013 states: -

"Persons within the scope of these Rules who with effect from or after 22 July 2013 commence management of and propose to market AIFs and/or Guernsey AIFs to professional and/or retail investors in one or more Member States, shall comply with these Rules in their entirety with effect from the commencement of the above activities of management and/or marketing."

The Commission is aware that some EEA jurisdictions have not implemented AIFMD or have provided transitional arrangements for EEA and/or non-EEA AIFMs.  In such cases the Commission does not require the notification pursuant to Rule 5 of The AIFMD (Marketing) Rules, 2013 until 21 July 2014.

How is “pre-marketing” interpreted by the Commission under The AIFMD (Marketing) Rules, 2013?

For purposes of AIFMD, "marketing" means a direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled in or with a registered office in the European Economic Area (“EEA”). This broad definition would capture circumstances where a fund is promoted via intermediaries or through distribution or placement agents.
 
The Commission is aware that some EEA competent authorities have interpreted this to apply to "pre-marketing" activities of the types sometimes conducted by fund sponsors to familiarize potential investors with their general capabilities and experience.  This has led to non-EEA AIFMs having to register under the applicable national private placement register. 
 
Usually “pre-marketing” activity such as the issue of a “red herring prospectus” is undertaken by Guernsey AIFMs prior to them being licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (“the POI Law”).  The Commission considers that this remains acceptable, and therefore, the notification requirements under The AIFMD (Marketing) Rules, 2013 do not commence until the relevant Guernsey AIFM and/or Guernsey AIF is appropriately licensed, authorised or registered under the POI Law.

Clarification of Rule 5.3 of the AIFMD (Marketing) Rules, 2013.

The Commission has been requested to provide a clarification on Rule 5.3 of the AIFMD (Marketing) Rules, 2013.  Rule 5.3 states that the Guernsey AIF or Guernsey AIFM should notify the Commission when marketing has ceased.  This rule had been drafted with open-ended schemes in mind and the Commission is not expecting to be advised when the final closing had been reached in respect of a closed-ended fund.

What are the pre-passporting depositary requirements for a Guernsey AIF managed by an EEA AIFM?

Under Article 36 of AIFMD an EEA AIFM shall ensure that one or more entities are appointed to carry out the depositary duties referred to in Article 21(7), (8) and (9). The EEA AIFM shall not perform those functions. 
 
The Commission does not consider that Guernsey Depositaries need to opt into the proposed AIFMD Rules, 2013 to provide such a service.  It is considered that depositaries can provide these services on a contractual basis with the EEA AIFM.
 
Article 21(7) of AIFMD
 
The depositary shall in general ensure that the AIF’s cash flows are properly monitored, and shall in particular ensure that all payments made by or on behalf of investors upon the subscription of units or shares of an AIF have been received and that all cash of the AIF has been booked in cash accounts opened in the name of the AIF or in the name of the AIFM acting on behalf of the AIF or in the name of the depositary acting on behalf of the AIF at an entity referred to in points (a), (b) and (c) of Article 18(1) of Directive 2006/73/EC, or another entity of the same nature, in the relevant market where cash accounts are required provided that such entity is subject to effective prudential regulation and supervision which have the same effect as Union law and are effectively enforced and in accordance with the principles set out in Article 16 of Directive 2006/73/EC.
 
Where the cash accounts are opened in the name of the depositary acting on behalf of the AIF, no cash of the entity referred to in the first subparagraph and none of the depositary’s own cash shall be booked on such accounts.
 
Article 21(8) of AIFMD
 
The assets of the AIF or the AIFM acting on behalf of the AIF shall be entrusted to the depositary for safe-keeping, as follows:
 
(a)  for financial instruments that can be held in custody:
 
(i)   the depositary shall hold in custody all financial instruments that can be registered in a financial instruments account opened in the depositary’s books and all financial instruments that can be physically delivered to the depositary;
 
(ii)  for that purpose, the depositary shall ensure that all those financial instruments that can be registered in a financial instruments account opened in the depositary’s books are registered in the depositary’s books within segregated accounts in accordance with the principles set out in Article 16 of Directive 2006/73/EC, opened in the name of the AIF or the AIFM acting on behalf of the AIF, so that they can be clearly identified as belonging to the AIF in accordance with the applicable law at all times;
 
(b)  for other assets:
 
(i)   the depositary shall verify the ownership of the AIF or the AIFM acting on behalf of the AIF of such assets and shall maintain a record of those assets for which it is satisfied that the AIF or the AIFM acting on behalf of the AIF holds the ownership of such assets;
 
(ii)  the assessment whether the AIF or the AIFM acting on behalf of the AIF holds the ownership shall be based on information or documents provided by the AIF or the AIFM and, where available, on external evidence;
 
(iii) the depositary shall keep its record up-to-date.
 
Article 21(9) of AIFMD
 
In addition to the tasks referred to in 21 (7) and (8), the depositary shall:
 
(a)  ensure that the sale, issue, re-purchase, redemption and cancellation of units or shares of the AIF are carried out in accordance with the applicable national law and the AIF rules or instruments of incorporation;
 
(b)  ensure that the value of the units or shares of the AIF is calculated in accordance with the applicable national law, the AIF rules or instruments of incorporation and the procedures laid down in Article 19;
 
(c)  carry out the instructions of the AIFM, unless they conflict with the applicable national law or the AIF rules or instruments of incorporation;
 
(d)  ensure that in transactions involving the AIF’s assets any consideration is remitted to the AIF within the usual time limits;
 
(e)  ensure that an AIF’s income is applied in accordance with the applicable national law and the AIF rules or instruments of incorporation.

What are the capital requirements for depositaries which do not opt in to Guernsey equivalent AIFMD regime?

Guernsey depositaries must comply with the Licensees (Capital Adequacy) Rules, 2010.  Depositaries of open-ended AIFs must have net assets of £4,000,000 and Guernsey depositaries of closed-ended AIFs must have net assets of £25,000 or net assets equal to the expenditure based requirement, whichever is the greater and minimum professional indemnity insurance cover of £250,000, (or three times total revenue, whichever is greater), the excess of which must not exceed 20% of the total insured. However whilst this is Guernsey’s regulatory framework, industry participants should take into account that some EEA Member States’ national private placement regimes may impose stricter depositary requirements.

Is a Guernsey depositary required for a Guernsey AIF?

The existing regulatory regime remains the same.  An open-ended authorised or registered collective investment scheme is required to have a Guernsey Designated Custodian, unless it is subject to the Commission’s flexible hedge fund policy.  In the case of a closed-ended authorised or registered scheme, providing that there is full disclosure of the provisions that are in place to ensure the assets of a scheme are adequately safeguarded, the Commission will give consideration to the appointment of a custodian/trustee that is either domiciled or not domiciled in the Bailiwick of Guernsey.  Currently, some licensed Designated Managers provide safekeeping services to closed-ended schemes and the Commission will continue to accept fund applications on this basis.  However, whilst this is Guernsey’s regulatory framework, industry participants should take into account that some EEA Member States’ national private placement regimes may impose stricter depositary requirements.

For entities not opting in to the AIFMD Rules, 2013 what is the application process to act as a Guernsey Fund Manager i.e. an AIFM or a Guernsey depositary (Custodian/Trustee) of open ended or closed ended AIFs?

AIFMs
 
At this stage, the primary legislation, being the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (“POI Law”) is not being altered. Therefore, any entity which proposes to perform risk management or portfolio management in respect of an AIF, in or from within, the Bailiwick, may continue to apply for a licence for the restricted activity of “management”, and any other applicable restricted activities, under the POI Law. New applicants should continue to use the Form RA1 and those entities already licensed but seeking to extend their licence should apply using the Form RA2. The Commission is ready to receive applications now
 
The AIFMD (Marketing) Rules, 2013 take effect from 22 July 2013, therefore applicants’ business plans should also detail how AIFMs propose to comply with Articles 22 (annual report), 23 (disclosure to investors) and 24 (reporting obligations to EEA competent authorities) of AIFMD in respect of each AIF marketed by it pursuant to Article 42 of AIFMD and with Articles 26-30 (control of non-listed companies) where an AIF marketed by it pursuant to Article 42 falls within the scope of Article 26(1) of AIFMD.
 
In respect of those entities which are already licensed for the restricted activity of “management” under the POI Law, the only additional Guernsey regulatory requirement is compliance with The AIFMD (Marketing) Rules, 2013.  Although no additional application needs to be made to the Commission, AIFMs’ compliance with The AIFMD (Marketing) Rules, 2013, where applicable, will be checked as part of the Commission’s on-site visit regime.
 
Whilst this is Guernsey’s regulatory framework, industry participants should take into account that some EEA Member States’ national private placement regimes may impose stricter requirements.
 
Depositaries (Custodians/Trustees)
 
Any entity which proposes to act as depositary (for the purposes of the POI Law, the Designated Custodian/Trustee or Custodian) to an AIF, in or from within the Bailiwick, may apply for a licence for the restricted activity of Custody, and any other applicable restricted activities, under the POI Law. New applicants should continue to use the Form RA1 and those entities already licensed but seeking to extend their licence to include for example the restricted activity of Custody should apply using the Form RA2. The Commission is ready to receive applications now.
 
If it is the applicant’s intention to act as Depositary to AIFs which are managed by an EEA AIFM, Article 36 of AIFMD will apply from 22 July 2013.  Therefore, the applicant’s business plan should detail how it proposes to comply with Articles 21(7),(8) and (9) of AIFMD.
 
In respect of those entities which are already licensed for the restricted activity of “custody” under the POI Law, depositaries compliance with Articles 21(7),(8) and (9) of AIFMD, where applicable, will be checked as part of the Commission’s on-site visit regime.
 
Whilst this is Guernsey’s regulatory framework, industry participants should take into account that some EEA Member States’ national private placement regimes may impose stricter depositary requirements.

Does the Commission’s Flexible Hedge Fund Policy still apply?

Guernsey AIF marketed to non-EEA investors
 
AIFMD does not apply and therefore the Commission’s Flexible Hedge Fund Policy will continue to apply. 
 
Guernsey AIF marketed under an EEA’s national private placement regime
 
The Commission will continue to apply the Flexible Hedge Fund Policy; however practitioners should ensure that the structure of the AIF complies with an EEA’s national private placement regime.  The Commission requests that this confirmation is provided at the time of an application for waivers in connection with the use of prime brokers.
 
EEA AIFM managing a Guernsey AIF
 
Under Article 36 of AIFMD an EEA AIFM shall ensure that one or more entities are appointed to carry out the depositary duties referred to in Article 21(7), (8) and (9). The EEA AIFM shall not perform those functions.  Please see FAQ: What are the pre-passporting depositary requirements for a Guernsey AIF managed by an EEA AIFM? for further details.
 
The Commission will continue to apply the Flexible Hedge Fund Policy; however practitioners should ensure that the structure of the AIF complies with an EEA’s national private placement regime.  The Commission requests that this confirmation is provided at the time of an application for waivers in connection with the use of prime brokers.
 
Guernsey AIFs which have opted into Guernsey’s AIFMD equivalent regime
 
Guernsey’s proposed AIFMD opt-in equivalent regime requires an AIFM to ensure that each AIF it manages appoints a single depositary.  A Prime Broker may not be appointed as a depositary for an AIF unless it has functionally and hierarchically separated the performance of its depositary functions from its tasks as prime broker and the potential conflicts of interest are properly identified, managed and disclosed to investors in the AIF.
 
For institutional and expert investor hedge funds, the Commission will be prepared to continue waiving the requirement for a locally licensed custodian and will be prepared to designate as custodian a prime broker, regulated in an acceptable jurisdiction and having substantial net worth.  The Commission requests that confirmation be provided at the time of an application that the structure complies with AIFMD and its associated regulations together with guidance issued by ESMA.
 
Previously for hedge funds targeted at retail and less sophisticated investors, the Commission has waived the requirement that the custodian take control of the fund’s property, provided that the property is held by a prime broker in an acceptable jurisdiction and having substantial net worth.  Under Guernsey’s proposed AIFMD opt-in equivalent regime, the Commission would not be prepared to grant a Guernsey Depositary such a waiver.  It’s the Commission’s current understanding that the Guernsey Depositary would need to appoint the prime broker as its sub-custodian. The Commission will liaise with Guernsey’s investment fund industry in developing further detailed guidance in this regard.

What are the reporting requirements under The AIFMD Rules, 2013?

Guernsey Depositaries, Non-Financial Asset AIF Depositaries and Guernsey AIFMs which have opted in to comply with The AIFMD Rules, 2013 are required to submit reports to the Commission.  The various reporting requirements are set out in The AIFMD Rules, 2013 in Section 17 – Depositary and Section 19 - Reporting obligations to the Commission.
 
Guernsey AIFMs
 
Guernsey AIFMs are required to make their reports to the Commission using the ESMA approved templates, please see the following web link for further information;

https://www.esma.europa.eu/document/consolidated-aifmd-reporting-template-revised

 
Guernsey Depositaries and Non-Financial Asset AIF Depositaries
 
Guernsey Depositaries and Non-Financial Asset AIF Depositaries are required to make their reports using a Commission form called Form DST.
 
For the avoidance of doubt, these reporting obligations are only in respect of Guernsey Depositaries, Non-Financial Asset AIF Depositaries and Guernsey AIFMs which have opted in to comply with The AIFMD Rules, 2013.