Guernsey and Jersey have emerged as leading funds jurisdictions. Over 800 investment schemes currently operate under bailiwick governance. Recent statistics value assets at circa £290 billion, underscoring the island's prominence within the global fund's industry. Prospective sponsors can benefit from Guernsey's robust yet adaptable regulatory framework, which notably includes designated area status under the UK's Financial Services and Markets Act.
Establishing an investment fund in Guernsey: Key considerations
Political and economic stability form key pillars of Guernsey's ongoing appeal to asset managers and institutional investors. The jurisdiction offers tax-neutrality, while regulatory developments drive standards and best practice. Flexible migration options mean managers can seamlessly redomicile existing funds in a clear, streamlined manner.
The Guernsey Financial Services Commission (GFSC) oversees fund authorisation and ongoing compliance. All collective investment schemes fall under The Protection of Investors Law and regulations, which mandate governance standards around key areas like disclosure, valuation, and safekeeping of assets. Sponsors must appoint locally licensed functionaries — most notably an administrator and custodian. Robust oversight of these service providers ensures proper fund servicing and protection of investor interests.
The quality and depth of Guernsey's professional infrastructure underpins the jurisdiction's strong international reputation. Listing on TISE provides international distribution capacity, including unhindered access to UK and EU investors under national private placement regimes. Recent IOSCO endorsement of Guernsey regulatory standards offers further international credibility.
Overall, Guernsey presents a robust and flexible funds platform. Ongoing regulatory evolution aligned with global standards ensures investment schemes meet sophisticated expectations of international manager and investor communities. Prospective sponsors should engage professional advisers to fully capitalise on the jurisdiction's capabilities in supporting global fund distribution. Are you interested in assistance in registering a fund in Guernsey? Contact us.
The Protection of Investors Law, defines collective investment schemes subject to regulation by the GFSC. Arrangements are typically classified as funds where there is:
- Pooling of deposits from multiple external investors
- Delegation of investment management to a third party
- Exposure to investment risk
Single investor vehicles or single asset structures generally fall outside the regulatory perimeter.
Two categories of regulated funds authorised in the Bailiwick
|
Type |
Description |
|
Registered |
Registered with the GFSC after the administrator confirms suitability. The administrator assumes ongoing monitoring duties. |
|
Authorised |
Authorised by the GFSC based on in-depth review of all aspects of the proposal. This route accords authorised status. |
Different classes of the funds described above exist under GFSC Rules and Guidance
|
Type |
Description |
|
Open-ended |
Provide investors redemption rights at a price linked to the net asset value. |
|
Subcategories |
|
|
Class A Retail Funds |
Equivalent to EU UCITS funds, governed by prescriptive CIS (Class A) Rules, 2008. They benefit from the Guernsey investor compensation scheme and can distribute to UK retail investors after notification. |
|
Class B |
Target both retail and professional investors. Governed by CIS (Class B) Rules, 2013, providing greater flexibility on investments and borrowing. Full disclosure of all non-standard powers are required in offering documents. |
|
Class Q Professional Investor Funds |
Only available for ownership by professional financial investors. These funds operate under the loosest rules under CIS Rules 1998 to support investment flexibility. |
|
Green Funds |
Expand investor access to green investments. Contributes to the achievement of internationally agreed climate change mitigation targets. |
|
Closed-ended |
No redemption rights. Investors access liquidity in the secondary market. |
Understanding the nuances between regulatory categories and fund types is critical when establishing funds' structures compliant with Guernsey legislation.
Funds’ forms
Guernsey offers multiple options to establish compliant and commercially efficient open or closed-ended investment fund structures for international managers and investors.
The Companies Law provides flexibility regarding legal form. Retail funds pursuing tax transparency often opt for:
|
Structure type |
Description |
|
LLC |
Traditional corporate funds issue various share classes to investors. Most retail unit trusts utilize this structure. |
|
SPC or PCC (segregated portfolio company) |
One core entity housing multiple segregated portfolios in distinct cells, each ringfenced with independent assets and liabilities. Mainly used for institutional funds seeking operational efficiencies. |
|
ICC (incorporated cell companies) |
Cells function akin to subsidiaries, each constituting a distinct legal entity, while sharing the administrative infrastructure of the core. |
Partnership and unit trust structures remain additional flexible routes to achieving particular commercial objectives. The latter are governed specifically under the Trusts Law and issue investors with redeemable units backed by fund assets.
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Dual regime for EU AIFM
As a third country jurisdiction, Guernsey maintains a flexible dual regime to support compliance with the EU's AIFMD.
The first track facilitates continued distribution of Guernsey fund interests in EU/EEA states under NPPRs. GFSC cooperation agreements govern such marketing. Typically, only partial compliance with AIFMD provisions applies under NPPRs, which lowers operating costs and boosts investor returns.
The second opt-in track establishes a fully AIFMD-compliant platform for managers and depositaries eyeing utilisation of the pan-EU marketing passport once extended to Guernsey. However, uncertainties persist around if and when third country passport extension will occur.
Nonetheless, two ESMA reviews have confirmed no obstacles to Guernsey acquiring passport rights. But Brexit complexities continue to muddy the landscape. Sponsors should consider both existing NPPR facilitated access and full AIFMD compliance readiness offered by Guernsey's dual regime. Advisers ensures navigating the nuances to optimally structure EU-directed funds.
Authorisation process for investment funds
Open-ended funds setting up procedure
Two discrete authorisation pathways exist for Class A, B or Q retail funds — the standard authorisation process and the expedited Qualifying Investor Fund (QIF) process allowing a 3-day approval window. Special considerations apply for foreign funds seeking distribution locally.
Standard process key steps:
- Founders' appointment and assessment prior relevant experience
- Confirm regulatory acceptance of the proposition
- Submit fund's scheme overview and appoint administrator/custodian
- Gain the GFS's ‘in principle’ approval
- Provide final documents (e.g. prospectus, form corresponding to the proposed fund class)
- Ensure adherence to applicable Class rules
- Issuing authorisation once all conditions fully met
QIF setting up procedure
The expedited QIF route requires fund (B or Q classes) terms to restrict investment only to professional/experienced investors.
The designated manager submits the QIF application once, after which due diligence is carried out on both sides and the fund structure and the fund documents are in final (or near final) form.
The registration process mirrors the streamlined QIF application procedure. However, investor eligibility criteria prove less restrictive, allowing retail participation.
Overall, engaging professional advisors assists sponsors in navigating nuances between authorisation pathways when launching compliant and commercially effective funds.
Close-ended funds setting up procedure
Two routes exist for GFSC authorisation of closed-ended investment schemes — the standard authorisation process or the expedited QIF procedure.
Standard authorisation process:
The QIF process fast-tracks launch for closed-ended funds, limiting investors to professional/experienced categories.
Thus, sponsors should engage advisers in assessing optimal authorisation pathways for proposed closed-ended investment strategies. Navigating Guernsey regulations smoothly facilitates efficient time-to-market while upholding governance and transparency expectations.
Tax treatment of Guernsey funds
There is an attractive taxation regime for establishing hedge funds in Guernsey. Subject to payment of an annual £1,200 fee, funds structured as companies can apply for exempt tax status under the Income Tax Law.
Exempt funds do not constitute Guernsey tax resident entities. As such, they legally sidestep local income, capital gains, and withholding taxes. Furthermore, Guernsey levies no value added tax, capital transfer tax, asset taxes, or inheritance taxes from which funds could conceivably suffer exposures.
Guernsey's fund benefits include regulatory expertise, platform infrastructure, and tax-neutrality — key components sustaining the jurisdiction’s strong reputation internationally.
Key fund's functionaries
Guernsey legislation mandates appointment of certain licensed local service providers for authorised funds, while allowing investment management delegation.
The investment manager commonly assumes this role. The promoter remains ultimately accountable to the GFSC for activities. For QIF and registered funds, the designated manager conducts sponsor due diligence in accordance with GFSC criteria — assessing promoters' reputation, capabilities, and track record.
An administrator or designated manager licensed by the GFSC must be appointed. Guernsey's extensive professional ecosystem means administrators are typically locally based.
Delegating investment decisions to third-party managers (onshore or offshore) is permissible, albeit the designated manager retains oversight duties as per GFSC outsourcing guidance.
Strict conduct (COB) and capital adequacy (CA) rules also govern designated managers under the Protection of Investors Law. Sufficient resources must be maintained to meet liquidity needs and risks. Robust compliance and monitoring controls must embed.
In summary, oversight and responsibility for Guernsey funds ultimately sits locally. Appointing an administrator conversant with this landscape aids efficient delivery of authorised fund structures. Investor-friendly tax neutrality combines with flexibility to support varied alternative investment strategies.
While certain differences exist between authorisation and distribution pathways, Guernsey ensures navigation remains straightforward with appropriate guidance. Managers consistently highlight the operational efficiency derived from launching platforms in the jurisdiction. Accessing EU markets also proves well established through National Private Placement Regimes. As a result, appropriately structured Guernsey funds tend to present managers with a compelling value proposition capable of sustaining profitability over the long term.
Contact legal advisers well-versed in Guernsey’s fund regulation and best practice considerations. This helps ensure smoothly capitalising on the jurisdiction’s capabilities in supporting successful global investment fund distribution.
