By Robin Fuller, Head of HSBC Securities Services in Guernsey
The introduction of the Qualifying Investor Regime represents an important step for the hedge funds sector in Guernsey and in particular the Island's fund administration industry. The most important change is the self-certification process, which transfers responsibility for due diligence on new funds from the Guernsey Financial Services Commission (GFSC) to the service provider.
This is intended to speed up the authorisation process. In return for administrators shouldering the self-certification responsibility, the regulator guarantees a turnaround of authorisation within three working days. This ensures the promoter has a higher degree of transparency and understanding about the authorisation process.
In fairness, the GFSC has always been responsive and achieved rapid turnaround for fund authorisations. If there has been a delay, it has usually been because the fund promoter hasn't provided all the documentation or due diligence material required. This is especially an issue with new promoters, of which there are a lot in the alternative fund industry.
In effect, the self-certification process transfers risk from the GFSC to the licensee. From informal comments, the Guernsey industry seems to be comfortable with this transfer of risk. Obviously we carry out due diligence on new clients anyway, and Alternative Fund Services within HSBC has an internal approval process that meets regulatory requirements. The real difference is that we are now fully accountable for due diligence as opposed to waiting for the regulator to sign it off.
The fund administration sector in Guernsey is very buoyant. Since the 1980s the type of business serviced here has largely shifted from retail funds to institutional and alternative vehicles, and we have built up the expertise to service this client base. However, we are also looking ahead to ensure we can continue to service the industry as new frontiers approach.
In Guernsey, as elsewhere, the phenomenal growth of the alternative fund industry has thrown up issues of resources. We spend a lot of time and money on training staff. The island has benefited greatly from its Training Agency, set up in 1995 as a joint venture between the government, regulator and industry.
Over the past couple of years, the fund administration industry has seen the entry of new players, including HSBC, which acquired Bank of Bermuda and its Global Fund Services division, and further consolidation is likely in the future.
With the range of international fund administration offices now present in Guernsey, others that currently have a presence in Dublin or Luxembourg may decide they need a foothold outside the EU, where promoters are not subject to the costs of the EU's regulatory and compliance burdens.
For Bank of Bermuda, the alternative fund services industry was always a specialist area but having the internationally recognised name of HSBC behind the business provides access to a more institutional client base that is attracted by the HSBC name. This combination of local expertise and international reach can help to boost the overall development of the fund administration sector in Guernsey.