GUERNSEY: Private investment fund regime launched

Thursday November 17 2016

The Guernsey Financial Services Commission has launched its regime for Private Investment Funds (PIFs). The key points of the new regime are as follows:

The Application Process

The duration of the applications process will be one business day. The application Form PIF requests both a licence, under section 4 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended (“the Law”) and for fund registration under section 8 of the Law.  Strong corporate governance is ensured through the requirement for a manager licensed under the Law.  Thus, the licence and fund application is made in tandem and is turned around in one business day by the Commission. An application should be accompanied by the relevant licensing and registration fees.

Key features of the proposed regime

The Private Investment Fund is a regulated product with a focus on strong corporate governance, including managing conflicts of interest.

Private Investment Funds may be either open-ended or closed-ended and will be subject to the Private Investment Fund Rules which contain requirements for:

• Managing conflicts of interest;
• Submitting annual returns notifying of any changes to the warranties made;
• Submitting annual audited accounts within six months of period end; and
• Mandatory characteristics of a private investment fund .

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 a wider group of stakeholders.  This may be, for example (but not exhaustively): 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.

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.

Other rules include:

• No attempt must be made to limit the number of investors to whom the private investment fund may be marketed.
• The PIF requires a licensed manager in the structure. No rules should be applied against the licensed manager.
• The PIF cannot entertain a structure whereby there are separate investment advisers acting in respect of individual cells. There must be one adviser to the entire structure.
• As part of the applications process, the proposed licensed manager provides warranties not only on the fitness and propriety of the promoter, but also on the ability of the investors to assume loss.

The Commission has not required the Private Investment Fund to be a sub-threshold product for AIFMD and that the product may be incorporated as either a protected cell company or incorporated cell company.

The Commission intends to undertake a review of the use of the Private Investment Fund around its first anniversary to ensure it is being used as is anticipated.

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