The Commission’s approach to crypto currency funds

The Guernsey Financial Services Commission is open to innovation and is committed to creating an enabling environment where good business can grow. The Commission recognises that crypto has been evolving, and some crypto currencies, such as Bitcoin, appear to be entering a more mature period. 

Guernsey, as a long standing and experienced funds centre, considers that collective investment schemes can, when appropriately run, provide vehicles for a range of investors to invest indirectly in crypto currencies. This is provided that the fund investor is well informed of the risks and is able to bear any potential losses. The Commission remains cautious in respect of Virtual Asset Service Providers (VASPs), including those providing retail exchange services.

Recently Gillian Browning (Deputy Director General – Investment, Fiduciary and Pension Division) reinforced Guernsey’s position as a forward-thinking financial hub that is open to embracing digital assets at Money 20/20 Europe. Speaking on the Meet the Regulator: Shape the Future panel, Gillian discussed Guernsey’s appetite for crypto and fund tokenisation, and how Guernsey can create an enabling environment for regulated, innovative investment solutions.  

To assist prospective businesses in understanding the Commission’s expectations, it is sharing factors that will be considered as part of the application process. These include:

• track record, experience and resources; 
• detailed risk warnings if targeting non-institutional or professional investors; 
• a clear and compelling business model; and 
• risk awareness and appropriate cyber security and operational controls.

Additionally, there are specific expectations of any funds with crypto exposure, including:

• mechanisms to ensure that retail investors have received professional advice; 
• mechanisms to ensure retail investors do not commit more than they can afford to lose; 
• the regulated status of service providers, including any custodian; and
• detailed consideration in the Business Risk Assessment to ensure appropriate compliance monitoring plans, testing and risk management processes. 

These are in addition to standard risk mitigations applicable to all regulated funds, which include: fund board oversight; administration by a licensed fund administrator; and disclosure.  

The Commission’s staff are happy to talk to those who wish to discuss innovative structures or prospective applications. More information can be found on the Innovations page of the Commission’s website.