Consultation Paper on Proposals for Private Investment Funds (December 2020)

Summary

This is a Guernsey Financial Services Commission consultation paper (opened 9 December 2020, closed 1 February 2021) on proposed changes to the Private Investment Fund (PIF) Rules made under the Protection of Investors (Bailiwick of Guernsey) Law, 1987. It proposes two additional routes for registering a scheme as a PIF that do not rely on a Guernsey-licensed fund manager, alongside the existing manager-led route. The paper also sets out the resulting Feedback Statement and the finalised Private Investment Fund Rules and Guidance, which the Commission made on 20 April 2021 and brought into operation on 21 April 2021.

• Route 1 (existing): PIF Licensed Manager route: requires a POI-licensed manager who makes declarations on investor loss-bearing capacity, maximum investor numbers and application accuracy; no marketing restriction applies.
• Route 2 (new): Qualifying Private Investor PIF: does not require a licensed manager; limited to offers made to no more than 200 persons (increased from the originally proposed 50) to preserve the fund's private nature; the designated administrator has an ongoing duty to ensure only Qualifying Private Investors are admitted.
• Route 3 (new): Family Relationship PIF: a registration route for family investment vehicles (e.g. family offices), with an intentionally non-exhaustive definition of family relationship that can include family employees who meet Qualifying Private Investor criteria.
• Manager declaration (Route 1): Managers must additionally undertake to document their assessment of investor declarations and make evidence of that assessment available to the Commission on request.
• Promoter due diligence guidance: New guidance requires licensees to assess promoters' and investment managers' integrity, solvency and competence, document findings, and consult the Commission where materiality of an issue is uncertain; newly formed promoters remain eligible.

The finalised PIF Rules also retain core structural requirements applicable to all PIFs regardless of route, including appointment of a qualified auditor, duties of designated administrators and directors to act in accordance with the principal documents and Rules, custody arrangements, conflicts of interest provisions, and immediate, annual and quarterly notification obligations to the Commission.

Key obligations

• All PIF applicants must satisfy the registration criteria of one of the three routes set out in Schedule 1 (Route 1, 2 or 3) before the Commission will grant registration
• The manager or designated administrator of a proposed PIF must submit the appropriate application form and any further information the Commission requires
• A PIF must appoint a qualified auditor for the scheme
• A PIF registered under Route 1 must appoint a licensee as manager, who must manage the scheme in accordance with the principal documents, the Rules and any information particulars
• The designated administrator must administer the scheme in accordance with the principal documents, the Rules and any information particulars, and must remain satisfied as to the competence of any delegate
• Under Route 1, the manager must document its assessment of investor declarations and make that evidence available to the Commission upon request
• Licensees must conduct and document due diligence on promoters and investment managers (integrity, solvency, competence) and consult the Commission where materiality of an identified issue is uncertain, prior to formal application
• Designated administrators under Route 2 must ensure ongoing restriction of the scheme to Qualifying Private Investors and must not exceed the permitted number of offers (200)
• PIFs must comply with immediate notification, annual notification, annual report/financial statement, and quarter-end statistical information requirements to the Commission

Applies to

Private Investment Funds (PIFs), POI-licensed fund managers, designated administrators, custodians, qualified auditors, promoters and investment managers, family offices and family investment vehicles

Deadlines

• 1 Feb 2021: Closing date for responses to the consultation paper
• 20 April 2021: Date the Commission made the revised Private Investment Fund Rules 2021
• 21 April 2021: Date the revised PIF Rules came into operation; Commission began accepting applications under the revised Rules from this date