Mariana Enevoldsen, Director, Heritage International Fund Managers Limited, discusses the structures available and the regulatory requirements applicable in Guernsey to Funds and Licensees.

1. The Investment Funds Regime in Guernsey
Mariana Enevoldsen

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Contents
 The Investments Fund Regime in Guernsey
 Types of Funds
 Authorised and Registered Funds
 Open-Ended and Closed-Ended Funds
 Non-Guernsey Schemes
 Licensees
 Fast Track Regime
 Qualifying Investor Funds
 Registered Collective Investment Schemes
 Licensees
 AIFMD
 AIFMD’s Dual Regime
 Manager Led Product
 Future developments

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The Investment Funds Regime in Guernsey
 The Guernsey Financial Services Commission (“GFSC”) regulates
the investment sector pursuant to The Protection of Investors
(Bailiwick of Guernsey) Law, 1987 as amended (“POI”) and a
number of rules and regulations made thereunder
 This means that funds as well as those providing services to funds
(e.g. investment manages, administrators, etc.) are required to be
licensed by the GFSC under POI.

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The Investment Funds Regime in Guernsey
 The applicable rules are:
 AIFMD (Marketing) Rules 2013
 Authorised Closed-Ended Investment Schemes Rules 2008
 Authorised Collective Investment Schemes (Class A) Rules 2008
 Collective Investment Schemes (Qualifying Professional Investor
Funds) (Class Q) Rules 1998
 Licensees (Conduct of Business and Notification) (Non-Guernsey
Schemes) Rules 1994
 Prospectus Rules 2008
 Registered Collective Investment Scheme Rules 2015
 Authorised Collective Investment Schemes (Class B) Rules, 2013 (The
Class B Rules)
 The Licensees (Conduct of Business) Rules 2014
 The Licensees (Capital Adequacy) Rules 2010

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Types of Funds
AUTHORISED FUNDS REGISTERED FUNDS
CLOSED-ENDED OPEN-ENDED
Authorised Closed-
Ended Scheme
Rules
Class A Rules Class B Rules Class Q Rules
CLOSED-ENDED OPEN-ENDED
Registered
Collective
Investment
Schemes Rules
Prospectus Rules

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Types of Funds
Authorised or Registered
 Authorised Funds
Subject to on-going supervision by the GFSC , or
 Registered Funds
Not authorised and subject to a lighter touch regime
Guernsey funds, whether authorised or registered can be either:
Open or Closed-Ended
 Open-Ended Funds
A vehicle that allows investors to have their holdings redeemed or repurchased at a
price that relates to the value of the underlying assets
 Closed-Ended Funds
Investors are not entitled to redeem at a price related to the value of the underlying
assets

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Types of Funds
Authorised funds
AUTHORISED FUNDS
CLOSED-ENDED OPEN-ENDED
Authorised Closed-
Ended Scheme
Rules
Class A Rules Class B Rules Class Q Rules

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Types of Funds
Authorised funds
 May be open-ended or closed-ended
 Applicable Rules
 Class A, B or Q Rules
 Authorised Closed-Ended Investment Scheme Rules 2008
 Funds are authorised and subject to the continuing supervision of
the GFSC
 Funds must be established with the objective of spreading risk
 Offering Document disclosures in accordance with the applicable
Rules
 Provisions for immediate and periodic notifications to the GFSC

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Types of Funds
Registered funds
REGISTERED FUNDS
CLOSED-ENDED OPEN-ENDED
Registered
Collective
Investment
Schemes Rules
Prospectus Rules

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Types of Funds
Registered funds
 May be open-ended or closed-ended
 Applicable Rules
 Prospectus Rules 2008
 Registered Collective Investment Schemes Rules 2015
 Funds are not authorised and are subject to a lighter touch
regulatory regime benefiting from a fast track registration process
 Funds must be established with the objective of spreading risk
 Offering Document disclosures in accordance with the Prospectus
Rules
 Provisions for immediate and periodic notifications to the GFSC
 May now be offered to the public in Guernsey

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Types of Funds
Non-Guernsey Schemes
 The Licensees (Conduct of Business and Notification) (Non-
Guernsey Schemes) Rules 1994 require Guernsey licensed service
providers wishing to undertake the restricted activities of
management, administration or custody to open-ended funds not
requiring registration or authorisation under POI to provide prior
written notice to the GFSC of such proposal
 The GFSC must give specific approval to a local licensee before the
commencement of the service to the scheme
 Thereafter, non-Guernsey Schemes are subject to on-going
notification requirements
 A two day fast track approval process (subject to warranties) is
available in addition to the traditional approach

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Types of Funds
 Structural considerations
 Capital base: closed-ended funds provide permanent capital and they
are not subject to withdrawals
 Dealing facilities: the Manager or Administrator must provide dealing
facilities for investors in open ended funds and bears the risks of any
issues arising in the valuation which may result in investor
compensation
 Type of asset: illiquid assets such as property are not suitable for
open-ended schemes
 Target investor: certain investors may require or prefer regulated
funds
 Custodian: Guernsey open-ended funds require the appointment of a
Guernsey custodian

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Types of Funds
 Trends in Guernsey
 Closed-ended funds are more prevalent than open ended funds
 Most closed ended funds are now launched as registered funds due
to the availability of the Fast Track Regime
 In the open-ended sector, Class B Schemes are the most popular
choice

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Licensees
 A licence is required by any person who carry one or more
restricted activities in accordance with Schedule 2 of POI:
- Promotion - Management
- Subscription - Registration
- Dealing - Administration
- Advising - Custody
- Operating an investment exchange
 A restricted activity may be undertaken in respect of Category 1
(collective investment schemes) or Category 2 (general securities
and derivatives) controlled investments
 Applications may either be traditional or Fast Track (10 business
days with warranties provided by the administrator)

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Licensees
 Funds may be structured with a Guernsey investment
manager/licensee. Usually such licensees engage an investment
advisor from another group entity based outside of Guernsey.

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Licensees
 GFSC Licensing Criteria
 Selectivity: the applicant must be ‘fit and proper’ which embraces
honesty, competence and solvency. High rather than minimum
standards are expected
 Compatibility: the specific nature of the proposed business should be
compatible with the protection of the reputation of the Bailiwick
 Due Diligence Checks: no adverse findings expected in relation to any
parties involved
 Structure: the structure of the group and the ultimate beneficial
ownership must be established
 Track Record: the applicant should be able to demonstrate an
acceptable track record in the field in which it proposes to operate
 Directors: at least one Guernsey resident director will be required
and in some circumstances two resident directors. Directors are
expected to be individuals rather than corporate entities

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Licensees
 GFSC Licensing Criteria (continued)
 Four Eyes: the ‘four eyes’ principle must be satisfied by having at
least two competent professionals able to exercise control over the
day to day operation of the Guernsey business. They must be either
executive directors or persons granted executive powers
 Delegation: any delegation of responsibilities to existing licensees or
other organisations must be acceptable to the GFSC
 Resources: the applicant or its delegate must have adequate human
and physical resources to conduct operations, including record-
keeping, compliance, internal controls and other systems
 Financial Resources: the requirements within The Licensees (Capital
Adequacy) Rules 2010 must be satisfied
 Domicile: the applicant’s restricted activities should be conducted
substantially within or from within the Bailiwick
 Compliance Officer and MLRO: the Compliance Officer may be a
corporate entity with a named compliance officer of its own but the
MLRO must be an individual

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Fast Track Regimes
 Certainty on authorisation timings
 3 business days for Qualifying Investor Funds and Registered
Collective Investment Schemes
 10 business days for licensees
 The are 3 Fast Track Application Regimes available:
 Qualifying Investor Funds (“QIF”)
 Registered Collective Investment Schemes
 Licensees to QIFs and Registered Schemes

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Fast Track Regimes
 Qualifying Investor Funds (“QIFs”)
 May be open or closed ended authorised funds (or compartments
sub-funds, cells and share classes of existing funds)
 Available only for Qualified Investors
 Qualified investors are those deemed able to:
 Evaluate the risks and strategies of investing in a QIF
 Able to bear the economic consequences, including the possibility of any
loss arising from the investment
 Qualified investors can be
 Professional Investors
 Experienced Investors
 Knowledgeable Employee

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Fast Track Regimes
 Registered Collective Investment Schemes
 May be open or closed ended registered funds (or compartments
sub-funds, cells and share classes of existing funds)
 Administrator makes specific declarations (warranties)
 Administrator must have documentary evidence supporting the
warranties given and to produce the same immediately upon request
 Administrators may be excluded from participation in the Registered
Collective Investment Schemes self-certification programme
 Licensees
 Only available for parties seeking to provide management services to
QIFs or Registered Collective Investment Schemes
 Administrator makes specific declarations (warranties)

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Alternative Investment Fund Managers Directive
 A combination of the Madoff investment scandal and the financial
crisis led to a raft of new regulations being introduced globally
 In Europe, the Alternative Investment Fund Managers Directive
(“AIFMD”) was introduced to bring managers of alternative
investment funds under a harmonised regulatory umbrella in
order to provide:
 Certainty of assets
 Independent verification of assets
 Control of the investment management process
 Segregation of asset management from risk management
 AIFMD came into force in July 2011 with Member States having 2
years to transpose into national law

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Alternative Investment Fund Managers Directive
 AIFMD covers areas such as
 Substance
 Remuneration
 Transparency
 Depositary requirements
 AIFMD applies to Alternative Investment Fund Managers
(“AIFMs”) established in the EU but also applies to non EU AIFMs
to the extent that they manage or market funds in the EU
 Small AIFMs (i.e. when the AIFM manages funds whose aggregate
AUM do not exceed EUR 100m including assets acquired using
leverage or do not exceed EUR 500m where the funds are
unleveraged and don’t give investors a right to redeem within 5
years) may opt into the full requirements of AIFMD

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Guernsey’s Dual AIFMD Regime
 The AIFMD Rules, 2013 have introduced an AIFMD equivalent
regime in Guernsey which can be used by managers who, due to
particular commercial reasons, need to comply with AIFMD
 Managers not requiring an AIFMD compliant fund, including those
using National Private Placement Regimes (“NPPRs”) or marketing
outside Europe, can continue to use the existing fund structures
 AIFMD originally envisaged the phasing out of NPPRs in favour of
the EU-wide marketing passport for non EU AIFMs
 The European Securities and Markets Authority (“ESMA”) will
produce an updated opinion on the functioning of the EU
passport and NPPRs in time for the planned review of AIFMD due
to start in 2017

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Guernsey’s Dual AIFMD Regime
 In July 2015, ESMA issued positive advice to the European
Parliament, Council and Commission on the extension of the third
country passport to Guernsey, Jersey and Switzerland
 In its final assessment in July 2016, ESMA issued advice on 12
jurisdictions and included Guernsey in a group of 5 jurisdictions
with unqualified positive assessments
 Within 3 months, the Commission should adopt a delegated act
specifying the date when the relevant rules become applicable in
all Member States and the passport can be extended to third
countries

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Manager Led Product
 In April 2016 the GFSC issued a consultation paper on the
Manager Led Product (“MLP”) following discussions with industry
 After a short consultation period, the MLP was launched in May
2016
 A similar approach has been adopted by other jurisdictions such
as Luxembourg (RAIF) and Malta (NAIF)

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Manager Led Product
 Main features
 Aimed at AIFMs seeking to market an AIF into a host country in
Europe under NPPR
 Placing of regulations on the AIFM only
 Avoids duplication of regulatory requirements over several entities
whilst maintaining reporting requirements
 Licensing within 24 hours of open or closed ended funds as well as
general partners or managers formed solely for the purpose of such
funds
 Capital adequacy requirements apply only at AIFM level

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Future developments
 The GFSC has stated its intention to develop some further
investment products
 A product using the same principles as the MLP but with a
discrete set of rules enabling managers to target markets
excluding Europe
 Private funds