A leading advisor says that Guernsey Qualifying Investor Funds will require a disciplined response from the industry to ensure continued growth and success.
Peter Franks, a partner at Ernst & Young, said: "The challenge now goes out to licensed Guernsey applicants and the industry to perform their due diligence in a timely manner to ensure that we do not have a transfer of time between the pre and post-regulatory application.
Franks said: "The industry will also need to ensure robust frameworks exist to prevent non-Qualifying investors joining QIFs."
The newly-introduced three-day regulatory approval process for QIFs, both open and closed-ended funds, is aimed at professional, experienced and knowledgeable people. In addition, the applicant must conduct due diligence on the promoter and other parties and be satisfied with the fund's economic rationale and the disclosure of any associated risks, in order to obtain approval.
Only qualified investors will be permitted to invest in a Qualifying Investor Fund. Such investors are deemed able to evaluate the risks and strategy of investing in a QIF and to bear the economic consequences of investment in the QIF.
"While many may view this new regime as a catch-up to similar initiatives launched by other offshore jurisdictions over the past years, it is extremely welcomed by the Guernsey funds industry as the former regime had been seen as a negative against choosing Guernsey as a domicile," said Franks.
"There may be initial concerns that there has been a shift in the performance of the due diligence from the regulator to the industry, but we have seen the success of similar initiatives in other jurisdictions over the past year in encouraging new business in the increasing level playing field of offshore fund locations," he said.
The Guernsey Financial Services Commission has defined qualifying investors as professional investors, experienced investors and/or a knowledgeable employee.
Experienced investors comprise people or entities who have, in any period of 12 months, frequently entered into securities and derivatives transactions or made investments in open-ended collective investment schemes. They can be expected to understand the nature of, and the risks involved in, transactions of that description; or can provide a certificate from an appropriately qualified investment advisor confirming that the investor has obtained independent advice.
Professional investors comprise governments, local authorities, public authorities, supra-nationals, and people or entities whose ordinary business includes acquiring, underwriting, managing, holding or disposing of investments whether as principal or agent, or the giving of advice on investments.