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Legal changes complete new fund regime

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Over the past three years Guernsey has undertaken a wholesale restructuring of its regulatory regime for investment funds, designed to make the jurisdiction more attractive for promoters of alterna

Over the past three years Guernsey has undertaken a wholesale restructuring of its regulatory regime for investment funds, designed to make the jurisdiction more attractive for promoters of alternative investment vehicles by moving toward a system of regulation of service providers rather than individual fund products.

These changes, which are designed to make the process of fund establishment and approval easier and significantly quicker without affecting Guernsey’s reputation for flexible yet effective regulation, are based on a blueprint produced by a committee chaired by Advocate Peter Harwood. The process of turning the report’s recommendations into law is now almost concluded.

The key step that remains to be taken involves placing open-ended funds on the same regulatory platform as closed-ended funds, which are currently covered by the Registered Funds regime introduced in February last year and which enjoy a three-day turnaround for regulatory approval. Legislation that will offer open-ended funds the same ease of approval was passed earlier this year and the new regime is now awaiting implementation of the accompanying regulatory framework, which should be in place before year-end.

Once the new legislation is in force, Guernsey will offer promoters a straightforward choice between regulated open- ended and closed- ended funds, which can be marketed to the general public, and registered open-ended or closed-ended funds, which are aimed at the high net worth and institutional end of the market through the private placement route.

The new regime may complete the implementation of the Harwood report’s recommendations, but Guernsey is not about to rest on its laurels and the government, regulator and industry members remain ready to examine new ideas should they appear beneficial both for the jurisdiction and for financial sector participants.

For example, companies have discussed with the Guernsey Financial Services Commission the possible benefits of a regime that would allow hedge funds to be established in Guernsey without undergoing significant regulation, similar to the Unregulated Funds structures introduced in Jersey earlier this year. However, no consensus has yet emerged on whether this type of fund is necessary or desirable.

It’s extremely rare to encounter any kind of legal or regulatory problem in terms of timing or structure that would prevent a fund being established in Guernsey, since the island’s regulatory approach is already highly flexible. And for many clients the fact that a fund is regulated in Guernsey is an important selling point.

The industry has also benefited from legal changes in other areas. Its new companies law has moved away from the traditional capital maintenance model, with its central focus on authorised share capital and constraints regarding distributable reserves, to a solvency model that makes it easier for companies to pay dividends or make other kinds of distribution. This makes the Guernsey company much more versatile and attractive for the island’s financial sector and its clients.

The new law has also established a modern registry accessible via the web. In practical matters, this enables companies potentially to be incorporated in Guernsey within a couple of hours.

Today Guernsey has modern legislation, internationally compliant regulations and perhaps most important, a business-friendly regulator that maintains an open-door policy toward the industry. We have every confidence the island will continue to deliver solutions to the fund industry.

Ben Morgan and Tom Carey are partners with Carey Olsen in Guernsey

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