Guernsey To Offer Dual Regime Solution To AIFMD
The small island of Guernsey—a renowned European offshore jurisdiction—is planning on operating two parallel regulatory regimes for alternative investment funds in a bid to navigate strict new European Union laws that are aimed at harmonizing regulatory standards in the 27-nation bloc.
Part of the Channel Islands and located off the northern coast of France in the English Channel, Guernsey is not, however, part of the EU and will not be subject to the upcoming Alternative Investment Fund Managers Directive (AIFMD), the European Union’s controversial first attempt at overseeing the hedge fund and private equity spheres.
Although, Guernsey and other prominent offshore hedge fund jurisdictions—such as Jersey, Bermuda and the Cayman Islands—had initially been fearful that the AIFMD regime, which is set to come into force from July next year, may have encroached on their offshore haven statuses and the operations of many of their resident alternative managers, these worries have diminished somewhat although questions still remain over access to EU institutional investors by non-EU hedge funds.
It is thus Guernsey’s intention to introduce one regime which is fully AIFMD compliant, while also maintaining existing regulations for those investors and managers not requiring an AIFMD fund.
“As a leading international funds centre, Guernsey has been closely following the development of AIFMD, has been active in the debate in Brussels and is well advanced in its preparations to offer an AIFMD compliant regime from as early as July 2013,” said Fiona Le Poidevin, chief executive of Guernsey Finance, an agency for the island’s finance industry.
With the AIFMD due to be transposed into national law by July 2013 across all 27 nations of the EU, many of the detailed technical standards have still yet to be decided upon. Initially, the European Commission had said that the more detailed Level 2 text would be announced this September but there is still no firm indication as to when this text will be now adopted—which is adding to the uncertainty surrounding the AIFMD.
In the meantime, some EU countries have started to adopt the AIFMD—which, so far, is only made up of its basic Level 1 text—into national law. The Netherlands has already approved implementation of the AIFMD, while Luxembourg expects adoption by the end of this year. Germany has published a draft bill implementing the AIFMD which goes beyond the directive’s minimum requirements while Ireland is expected to sanction the directive by January.
“With the continued delay to the publication of the [Level 2] rules, it is important for existing clients that Guernsey is clear on its intentions now,” said Le Poidevin. “It is our intention that Guernsey will operate a full AIFMD equivalent regime for those EU investors and managers who are obliged to take this route or any investors or managers who choose this as their preferred option.
“For non-EU investors and managers, investing in the EU and globally, there will remain a parallel regime with its own appropriate set of regulations. This will also be available to EU investors who are able to take advantage of the national private placement regime in the immediate term or those who fall outside the scope of AIFMD.
“What we are planning to do is provide clients with the flexibility to choose a regime which best suits their needs from a jurisdiction that has always regulated managers and funds across all sectors to leading international standards. We believe that this proposition will prove very attractive and as such, will ensure that Guernsey remains a leading global fund domicile in the future.”
The AIFMD is the first attempt by the European Union to oversee hedge funds and private equity by harmonizing regulatory standards across the EU. When it was first mooted back in 2009, the directive was heavily criticized for its potential to stifle Europe’s fund management industry. But, after endless arguments and negotiations, there is now little more than a year to implementation date and industry opinion has now turned to muted acceptance and a desire to work with authorities to make the best out of the situation.
“As a non-EU jurisdiction with close proximity and business ties to the EU, it is essential that we seek to comply with AIFMD for those clients obliged to or who wish to take advantage of the regime in the coming years,” said Neale Jehan, executive director at accountant KPMG in Guernsey and chairman of the technical committee of the Guernsey Investment Fund Association, a trade body.
“However, we must recognize that we have clients whose business does not touch the EU at all in terms of management or marketing of funds and it is important that these clients have the choice to elect to fall under the AIFMD regime or remain outside, as is their right. In being able to offer both EU and non-EU solutions from one location, Guernsey will be ideally placed to serve the global fund industry.”
Changes in delegation could lead to increased costs for investors and retaliation from other domiciles.
EU funds routinely delegate portfolio management to hubs including New York, Tokyo and Hong Kong.
The regulator recommended changes in 19 areas including harmonizing the AIFMD and UCITS regimes.
Most funds are managed cross-border using passporting rights.
KPMG is researching how the alternative fund regulation has worked in practice.