How Guernsey is setting a new private fund standard

As the jurisdiction’s regulator seeks to revise the rules of its Private Investment Fund, Dr Andy Sloan, deputy CEO for strategy at Guernsey Finance, talks to Funds Europe about the developments.

The Guernsey Financial Services Commission (GFSC) is consulting on changes to the Private Investment Fund (PIF), to make it more user friendly for family offices and sophisticated investors, while keeping protections to safeguard less sophisticated savers.

The PIF, first launched in 2016, has been very popular because it has matched the risk appetite of the jurisdiction and the regulator with what limited partners (LPs) were looking for.

“As a jurisdiction, we’re always looking to hone the regulatory environment to ensure we have the most competitive and complimentary regime in the market, and make improvements that work for all stakeholders,” says Andy Sloan, deputy CEO, strategy at Guernsey Finance.

Andy_SloanAt the same time, he says Guernsey needs to “safeguard the reputation of the Bailiwick” to “ensure that sufficiently high standards of anti-money laundering and tax transparency are applied”.

The GFSC is consulting on introducing two alternative routes that would enable a PIF to be created without needing to apply for a manager licence under the Protection of Investors Law (PoI).

When considering an application for registering a PIF, the GFSC currently relies on declarations made by the proposed licensed manager. This includes the prospective investors’ ability to sustain losses, the maximum number of investors, and the completeness and accuracy of the application.

While this approach helps to protect the underlying investors and ensures the regulator is comfortable with the manager, Sloan says it is “not what everybody needs”.

“If there’s an alternative route to ensuring that you’re comfortable about the level of risk being taken by the investors, then removing the manager requirement makes it a more streamlined approach.”

Alongside the current method, which will continue, the first proposed alternative route will be for qualifying investors only, and the second route will be for family relationships.

“As long it’s clear and consistent that the LPs in the fund are sufficiently capitalised and knowledgeable about the risks, then the manager requirement can be removed,” says Sloan.

Through the alternative route for family offices, there would be a family relationship between investors and no capital raising from investors outside it.  

Sloan says Guernsey is making a “global first in creating a true family office fund arrangement”, which will enhance Guernsey as a “jurisdiction of choice for family offices”.

The GFSC is consulting on the proposed changes to the PIF regime until 1 February 2021. Sloan believes the changes will develop a new standard or benchmark for the private funds sector.

As a result of engagement between the regulator, government, legal services, lawyers, fund providers, managers and clients, Guernsey now has a range of private funds to accommodate varying requirements.

“No other suite of products available in the wider market is this comprehensive, particularly in the family space,” says Sloan.

It comes after a busy 2020 for Guernsey’s funds sector, after the regulator introduced faster track manager and LP migration regimes in the summer.

The jurisdiction has three main strategic priorities, says Sloan: “We look to preserve private wealth, focus on family offices and also incorporate sustainability across everything we do in the finance sector.”

© 2020 funds europe



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