Region

Jurisdiction

Regulator

2025-05-15

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

The Guernsey Financial Services Commission issued this consultation paper proposing updates to the Private Investment Fund Rules to replace the 2016 regime. The proposals establish three registration routes for Private Investment Funds and define requirements for management, administration, custody, and audit. Key regulatory changes include detailed provisions for managing conflicts of interest and mandating arm's length transactions between funds and relevant persons.

Guernsey

Guernsey Financial Services Commission

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Appendix 1 1 THE PRIVATE INVESTMENT FUND RULES and GUIDANCE, 20XX Made: Coming into Operation: The Private Investment Fund Rules are set out in this document with guidance provided by the Guernsey Financial Services Commission. Guidance is set out in blue boxes.

Appendix 1 2 Contents INTRODUCTION ................................................................................................................3 1.1 Application............................................................................................................................3 REQUIREMENTS FOR REGISTRATION.........................................................................4 2.1 Registration of Private Investment Funds ........................................................................4 2.1 Application for registration ................................................................................................4 2.2 Registration declaration ......................................................................................................4 2.3 Undertakings ........................................................................................................................5 MANAGEMENT, ADMINISTRATION, CUSTODY AND AUDIT .............................6 3.1 Management .........................................................................................................................6 3.2 Administration .....................................................................................................................6 3.3 Custody of the scheme property........................................................................................7 3.4 General provisions applicable to the designated administrator of a PIF.....................8 3.5 Appointment of a qualified auditor..................................................................................8 CONFLICTS OF INTEREST ...............................................................................................9 4.1 Conflicts of interest..............................................................................................................9 NOTIFICATIONS ..............................................................................................................12 5.1 Immediate notifications.....................................................................................................12 5.2 Annual notifications ..........................................................................................................12 5.3 Annual reports and financial statements........................................................................12 5.4 Quarter-end statistical information.................................................................................13 GENERAL PROVISION....................................................................................................14 6.1 Interpretation......................................................................................................................14 TRANSITIONAL ARRANGEMENTS, REVOCATIONS, AMENDMENTS, CITATION AND COMMENCEMENT...........................................................................................17 7.1 Transitional Arrangements...............................................................................................17 7.2 Revocations .........................................................................................................................17 7.2.1 Revocation of The Private Investment Fund Rules 2016 ......................................17 7.3 Savings.................................................................................................................................17 7.4 Amendments ......................................................................................................................17 7.5 Citation and commencement............................................................................................17 SCHEDULE 1 Private Investment Scheme Fund Registration Routes………………………17

Appendix 1 3 INTRODUCTION 1.1 Application (1) The Private Investment Fund Rules, 202* replace The Private Investment Rules, 2016. (2) The Commission may in its absolute discretion, by written notice, exclude or modify the application of any provision of these Rules if the Commission is satisfied that any such derogation will not prejudice the interests of investors. (3) The Commission may issue supplementary guidance regarding the standards of conduct and practice expected in relation to any aspect of the regulatory framework. Such guidance will not constitute rules of the Commission. (4) Unless specifically agreed otherwise by the Commission, these Rules apply to registered collective investment schemes that have elected to be within the private investment fund regime.

Appendix 1 4 REQUIREMENTS FOR REGISTRATION 2.1 Registration of Private Investment Funds (1) All funds applying for registration, with the Commission, as Private Investment Funds (“PIFs”), must fulfil all of the criteria set out at Schedule 1 for either - (a) POI Licensed Manager PIF – Route 1; (b) Qualifying Private Investor PIF – Route 2; or (c) Family Relationship PIF – Route 3. 2.1 Application for registration (1) The manager, or designated administrator of a proposed PIF seeking a declaration of registration, from the Commission, must submit the appropriate application form and must also provide such other information as the Commission may require. 2.2 Registration declaration (1) The Commission may grant registration, under section 8 of the Law, to a PIF, by declaration if it is satisfied with the undertakings required, and the application made, in accordance with these Rules.

Appendix 1 5 2.3 Undertakings (1) As a condition of the registration of a scheme as a private investment fund, the Commission is entitled to require any undertakings, indemnities, bonds, guarantees and assurances as they may determine in order to secure compliance with these Rules.

Appendix 1 6 MANAGEMENT, ADMINISTRATION, CUSTODY AND AUDIT 3.1 Management (1) A PIF registered under Route 1 of Schedule 1 must appoint a licensee as manager and it is the duty of the manager to manage the scheme in accordance with – (a) the principal documents; (b) these Rules; and (c) where applicable, the most recent information particulars. 3.2 Administration (1) There is no obligation to produce information particulars for a private investment fund. Where these are produced, the manager, or designated administrator, must take responsibility for their preparation and publication. (2) It is the duty of the designated administrator of a private investment fund to administer the scheme in accordance with – (a) the principal documents; (b) these Rules; (c) the most recent information particulars, where applicable; and

Appendix 1 7 (d) in the case of a company scheme, subject to any proper directions given by the manager and directors and, in the case of a limited partnership scheme, subject to any direction given by the general partner, or corporate trustee of a unit trust scheme as applicable. (3) It is the duty of – (a) the directors, in the case of a company; (b) the directors of the manager; (c) the directors of the general partner of a limited partnership, in the case of a limited partnership; and (d) the directors of the corporate trustee, in the case of a unit trust, not to give any directions or exercise any powers, duties or discretions that cause the scheme to operate other than in accordance with the principal documents and information particulars of these Rules. (4) Subject to any restrictions in the principal documents, the designated administrator may, at its discretion, delegate any function to any person provided that the designated administrator is satisfied at the outset, and continues to remain satisfied, that the delegate is competent to undertake the function in question. 3.3 Custody of the scheme property (1) A custodian that is not domiciled in the Bailiwick may be appointed to the PIF. Guidance Note: Any such arrangement must be made in accordance with the Commission’s “Guidance Note on Outsourcing of Functions by Entities Licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987”.

Appendix 1 8 3.4 General provisions applicable to the designated administrator of a PIF (1) The duties of the designated administrator set out in these Rules, in the principal documents and in the information particulars, are in addition to the duties otherwise imposed by the applicable law. 3.5 Appointment of a qualified auditor (1) A PIF must appoint a qualified auditor as the auditor of the scheme. Guidance Note: A private investment scheme is not required to appoint a custodian. If the private investment fund is open-ended, a designated custodian must be named under the Law, however the Commission is prepared for such party to be the designated administrator. Further the Commission is willing to consider the appointment of a custodian that is domiciled outside Guernsey.

Appendix 1 9 CONFLICTS OF INTEREST 4.1 Conflicts of interest (1) The directors, the general partner and the corporate trustee, where applicable, must each take all reasonable steps to ensure that there is no breach of any of the following requirements of this rule by any “relevant person”, meaning – (a) the designated administrator; (b) in the case of a unit trust, the corporate trustee; (c) any investment adviser; (d) any manager; (e) the fund itself (if a legal person); (f) in the case of a company, the directors of the company; (g) in the case of a limited partnership; directors or general partner of the general partner, and the general partner itself; (h) the custodian; and (i) any associate of any person described above. (2) Cash forming part of the scheme property may be placed in any current, deposit or loan account with a relevant person if the arm’s length requirement is satisfied. (3) A relevant person may lend money to the PIF if the arm’s length requirement is satisfied. Loans that form part of an investor’s commitments do not fall into this category.

Appendix 1 10 (4) A relevant person may not sell or deal in the sale of property to the PIF unless the arm’s length requirement is satisfied. For the purpose of this section a sale includes any lease or other transaction under which scheme property is made available by the PIF. (5) A relevant person must not purchase scheme property from a PIF unless the arm’s length requirement is satisfied. For the purpose of this section, a purchase includes any lease or other transaction under which the scheme property of the PIF is made available to the relevant person. (6) A relevant person must not vest property in a PIF against the issue of shares, unless – (a) the arm’s length requirement is satisfied; or (b) it is vested for the purpose of arrangements under which the whole or part of the property becomes the initial scheme property of the PIF. (7) A relevant person must not enter into a stock lending transaction, in relation to the PIF, unless the arm’s length requirement is satisfied. (8) A relevant person must not provide services, for the PIF, unless the services are provided on terms which satisfy the arm’s length requirement. (9) The arm’s length requirement is that the arrangements between the relevant person and the PIF are at least as favourable to the PIF as would be any comparable arrangement effected on normal commercial terms negotiated at arm’s length between the relevant person and an independent party. The arm’s length requirement is deemed to be satisfied when – (a) the transaction satisfies the criteria for best execution on-exchange – (i) if the property is an approved security or an approved derivative; and (ii) the transaction is effected with or through a member of the relevant exchange under the rules of that exchange;

Appendix 1 11 OR (iii) there is evidence in writing of the effecting of the transaction and of its terms; and (iv) the manager has taken all reasonable steps to effect the transaction or to ensure that it is effected on the terms which are best available for the PIF in the circumstances; OR (b) the transaction satisfies the criteria for independent valuation if – (i) the value of the property is certified in writing for the purpose of the transaction by a person selected or approved by the directors, in the case of a company, or the general partner in the case of a limited partnership, or the manager or corporate trustee in the case of a unit trust, as – (A) independent of any relevant person; and (B) qualified to value property of the relevant kind; and (ii) the directors in the case of a company, the general partner in the case of a limited partnership , or the manager or corporate trustee in the case of a unit trust, are of the opinion that the terms of the transaction are not likely to result in any material prejudice to holders. (10) Sections (2) to (7) are subject to any provision in the principal documents or the information particulars forbidding the utilisation of any or all of them. Guidance Note: Where the principal documents or information particulars, of the scheme, prohibit any of the actions set out at (2) to (7) this Rule does not override that prohibition and, even if the arm’s length requirement is satisfied, they must not be undertaken.

Appendix 1 12 NOTIFICATIONS 5.1 Immediate notifications (1) A change of the designated administrator, or in the case of an open-ended PIF the designated custodian or trustee, is not effective until the Commission varies the declaration of registration. (2) The designated administrator must give immediate written notice, to the Commission, in respect of any proposal to reconstruct, amalgamate, terminate prematurely, wind-up or extend the life of the PIF. 5.2 Annual notifications (1) A designated administrator must notify the Commission, each year, of any change in respect of the information contained in the application form submitted for registration as a PIF or, in the absence of any change, notify the Commission of no change. (2) Such notifications must be submitted to the Commission together with the audited annual reports and accounts for the PIF as required under these Rules. 5.3 Annual reports and financial statements (1) The designated administrator must submit, to the Commission, copies of the audited annual report and accounts for the PIF, no later than six months following the end of the annual accounting period.

Appendix 1 13 5.4 Quarter-end statistical information (1) The designated administrator must submit, to the Commission, a statistical return relevant to the PIF for each quarter. The information to be contained in such a return is as required by the Commission and must be made within the Commission’s agreed timeframes.

Appendix 1 14 GENERAL PROVISION 6.1 Interpretation (1) In these Rules terms have their ordinary meaning unless specifically defined in the Law or in these rules. (2) In these rules the following definitions should be followed - “administration agreement” is the agreement by which a designated administrator is appointed to a private investment fund to discharge the duties of the administration of a private investment fund; “annual accounting period” is the period, normally of 12 months, as specified by the governing legislation or specified in the information particulars or principal documents; “approved derivative” means a derivative that is traded or dealt in or on a regulated derivatives market; “approved security” means a transferable security that is admitted to official listing on the International Stock Exchange, or in the UK, or in an EEA State, or is traded on or under the rules of a regulated securities market; “corporate trustee” in relation to a private investment fund that is a unit trust, means the trustee of the unit trust, which must be licensed under the Law; “custodian” means a body corporate appointed to hold the property of a private investment fund, other than a unit trust, which must be licensed under the Law and a “custodian agreement” may be interpreted in that context; “holder” in relation to a share in a private investment fund, means the person who is entered in the register as the holder of the share or unit or limited partnership interest or the first named holder in the case of joint holders; “designated administrator” in relation to a PIF, means the person appointed to discharge the duties contemplated by an administration agreement, and has the status of designated manager under the Law; “designated custodian” in relation to an open-ended PIF, other than a unit trust, means the custodian of the PIF as designated in the Commission’s registration of the PIF under section 8 of the Law; “designated trustee” or “trustee” in relation to an open-ended PIF that is a unit trust, means the trustee of the unit trust, as designated in the Commission’s registration of the PIF under section 8 of the Law;

Appendix 1 15 “information particulars” means particulars of a private investment fund and includes a prospectus, scheme particulars, offering memorandum, explanatory memorandum, term sheet, application form, subscription agreement, admission document, listing particulars or any other similar document or any combination of these. Information particulars do not include the disclosure statement required for registration under Route 2; “investment adviser” means a person who, under a commercial arrangement not being a mere contract of employment, provides the manager or the board of directors, the general partner of a limited partnership and the manager or corporate trustee of a unit trust of a private investment fund with advice as to the merits of investment opportunities available to such private investment funds whether or not they regularly exercise a discretionary power over investments for the account of that scheme; “manager” means the person, licensed under the Law, appointed manager of a PIF, and might be appointed to the company, be the general partner of a limited partnership, or be the corporate trustee of a unit trust (appointed under a unit trust instrument or management agreement); “principal documents” means, in relation to – (a) a unit trust, the trust instrument and the management agreement; (b) a company, the articles of incorporation of a Guernsey company (or an equivalent document under the applicable law of a non-Guernsey body corporate), the management agreement, administration agreement and the custodian agreement; (c) a partnership, means the limited partnership agreement, the partnership agreement, the partnership management agreement and the custodian agreement; and (d) a private investment fund other than a unit trust, a company or limited partnership; the documents dealing collectively with the same or similar obligations and duties as the principal documents constituting a unit trust, a company or a limited partnership and, further, the administration agreement and custodian agreement; “qualified auditor” means a person who holds a current practising certificate issued by –

Appendix 1 16 (a) The Institute of Chartered Accountants in England and Wales; (b) The Institute of Chartered Accountants in Scotland; (c) The Institute of Chartered Accountants in Ireland; (d) The Association of Chartered Certified Accountants; or (e) Any body, outside the United Kingdom and Ireland, undertaking a similar regulatory role and having equivalent professional standards for membership as any of the bodies specified above; “share” means a share, limited partnership interest, or unit or similar interest in a private investment fund; “unit trust” means a private investment fund, other than a limited partnership, under which the property of the scheme is held in trust for the investors.– (3) The Interpretation and Standard Provisions (Bailiwick of Guernsey) Law, 20161 applies to the interpretation of these rules. (4) A reference in these rules to an enactment should be taken to include any amendments, re-enactments (with or without modification), extensions and applications.

1 Order in Council No. V of 2018, as amended.

Appendix 1 17 TRANSITIONAL ARRANGEMENTS, REVOCATIONS, AMENDMENTS, CITATION AND COMMENCEMENT 7.1 Transitional Arrangements 7.2 Revocations 7.2.1 Revocation of The Private Investment Fund Rules 2016 (1) The Private Investment Fund Rules, 2016, are revoked. 7.3 Savings 7.4 Amendments 7.5 Citation and commencement (1) These rules may be cited as the PIF Rules 20XX. (2) These rules come into force on ********.

Appendix 1 18 SCHEDULE 1 Private Investment Fund Registration Routes ROUTE 1 – POI Licensed Manager In order to register as a POI Licensed Manager PIF, the scheme must fulfil the following criteria – (a) the number of investors must be no more than 50 legal or natural persons holding an ultimate economic interest in the PIF, except where the investment is made by an investment manager acting as agent for a wider group of stakeholders; (b) the scheme must be limited to no more than 30 new ultimate investors being added in the preceding twelve months; (c) the scheme must be a collective investment scheme; and (d) there must be a licensee responsible for its management. ROUTE 2 – Qualifying Private Investor In order to register as a Qualifying Private Investor PIF, the fund must fulfil the following criteria – Guidance Note: This may be, for example but not exhaustively, a manager acting as agent for investors in a collective investment scheme or equivalent, pension holders in an occupational pension scheme, or government funds – whether local or sovereign.

Appendix 1 19 (a) all investors must fit within the definition of a Qualifying Private Investor (“QPI”); (b) the number of investors must be no more than 50 legal or natural persons holding an ultimate economic interest in the PIF. (c) any marketing must be specifically targeted to individual investors who have been identified as QPI’s and the number of offers of units for subscription, sale or exchange must not exceed 50; (d) the fund must have a designated administrator appointed to it but there is no requirement to appoint a manager; (e) the designated administrator must make a declaration, to the Commission in the format required, that effective procedures are in place to ensure restriction of the scheme to QPIs; and (f) all investors have received a disclosure statement in the format prescribed by the Commission. For the purposes of this Route a “Qualifying Private Investor” means an investor who is able –  to evaluate the risks and strategy of investing in a PIF; and  to bear the consequences of investment in the PIF, including the possibility of any loss arising from the investment. Qualified Private Investors must be Professional Investors, Experienced Investors or Knowledgeable Employees where – a Professional Investor is –  a Government, local authority, public authority or supra-national body, either in the Bailiwick or elsewhere;  a person, partnership or other unincorporated association or body corporate, whether incorporated, listed or regulated in an OECD country or otherwise, whose ordinary business or professional activity includes, or it is reasonable to expect includes, acquiring, underwriting, managing, holding or disposing of investments whether as principal or agent, or the giving of advice on investments;  an affiliate of a PIF or an associate of an affiliate of a PIF – where the terms “affiliate” and “associate of an affiliate” refer to financial services

Appendix 1 20 businesses or financial services professionals associated, directly or indirectly, with the operation of the PIF; or  an individual investor who makes an initial investment of not less than US$100,000 or equivalent, where the amount invested represents no more than 25% of the individual’s investable assets, into the fund; an Experience Investor is –  a person, partnership, or other unincorporated association or body corporate which has in the period of twelve months, whether on their own or in the course of their employment by another person, so frequently entered into transactions of a particular type in connection with – o open-ended and closed-ended collective investment schemes; o general securities and derivatives as defined in Schedule 1 of the POI Law; being transactions of substantial size entered into with, or through the agency of, reputable persons who carry on investment business, that he can reasonably be expected to understand the nature of, and the risks involved in, transactions of that description; or who provides a certificate from an appropriately qualified investment adviser confirming that the investor has obtained independent advice; a Knowledgable Employee is –  a person who is, or has been within a period of three years up to the date of application for investment in the PIF, an employee, director, general partner, consultant or shareholder of, or to, an affiliate appointed by the PIF to advise, manage or administer the investment activities of the PIF, who is acquiring an investment in the PIF as part of their remuneration or an incentive arrangement or by way of co-investment, either directly or indirectly through a personal investment vehicle, such as a trust, for or substantially for, that person; or  any employee, director, partner or consultant to or of any person who falls under the definition of a Professional Investor, or anyone who has fulfilled such a role in respect of any person who falls under that definition within a period of three years up to the date of application for investment in the PIF. The term “employee” only covers persons who are, or have been, employed in a relevant role and does not extend to clerical, secretarial or administrative roles. “Offer” means an offer that is capable of acceptance and is not intended to capture premarketing material.

Appendix 1 21 ROUTE 3 – Family Relationship In order to register as a Family Relationship PIF, the fund must fulfil the following criteria – (a) all investors must have direct family links, either by birth or by marriage; (b) the PIF cannot be marketed outside the family group; (c) the fund must have a designated administrator appointed to it but there is no requirement to appoint a manager; and (d) the designated administrator must make a declaration, to the Commission in the format required, that effective procedures are in place to ensure that all investors fulfil the requirement of being related.

1 Guernsey Financial Services Commission Consultation Paper on Proposals for Private Investment Funds Issued 9 December 2020

2 Contents Background .............................................................................................................................................4 Consultation feedback and analysis........................................................................................................5 Option A Placing reliance on a declaration made by fund directors..................................................5 Option B Placing reliance on a declaration made by an associated fiduciary licensee......................5 Option C Defining a “qualifying private investor”..............................................................................6 Alternatives Suggestions.........................................................................................................................7 Proposals.................................................................................................................................................8 Route 1 – PoI Licensed Manager.............................................................................................................8 Route 2 – Qualifying Private Investor .....................................................................................................8 Route 3 - Family relationship ..................................................................................................................9 Other PIF proposals...............................................................................................................................10 Basis of declaration...............................................................................................................................10 New promoters .....................................................................................................................................10 Additional classes, sub-funds and cells.................................................................................................10 APPENDIX 1...........................................................................................................................................12 APPENDIX 2...........................................................................................................................................13 APPENDIX 3...........................................................................................................................................14 APPENDIX 4...........................................................................................................................................15 APPENDIX 5...........................................................................................................................................16 APPENDIX 6...........................................................................................................................................17

3 Responses to this Consultation Paper are sought by 1 February 2021. We welcome and encourage respondents to provide feedback or comment on any section and question. Feedback may be provided via the Consultation Hub section of the Commission’s website (www.gfsc.gg).

4 Background In July 2020 the Guernsey Financial Services Commission published a Fund Growth Omnibus Discussion Paper1 (the “Discussion Paper”) seeking feedback on proposals in relation to the Private Investment Fund Rules 2016 (the “PIF Rules”)2 . The PIF Rules require that a Private Investment Fund (“PIF”) has within its structure a licensee responsible for management. When considering an application for the registration of a proposed PIF, the Commission relies on certain declarations made by the proposed licensed fund manager. The fund manager makes declarations in respect of:  prospective investors’ ability to sustain losses;  the maximum number of investors; and  the completeness and accuracy of the application. The Discussion Paper invited comments on three proposed alternative approaches to PIF registration which might be introduced in addition to the current approach. Each suggested approach would not place reliance on a licensed manager, thereby potentially removing the need to make a related Protection of Investors Law3 (PoI) licence application, along with the associated costs, in respect of each new PIF application.

1 https://www.gfsc.gg/sites/default/files/20200707%20-%20Funds%20Growth%20Omnibus%20Discussion%20Paper_0.pdf 2 The Discussion Paper made a number of different proposals in addition to those relating to the PIF Rules. Each of these proposals will be addressed in separate consultations, based on appropriate timetables, with a Consultation Paper on Proposals for Non-Guernsey Schemes due to be published in December 2020. 3 Protection of Investors (Bailiwick of Guernsey ) Law, 1987

5 Consultation feedback and analysis There was a healthy response to the Discussion Paper and the Commission would like to thank all those parties who provided comment. Although much constructive feedback was received other than broad agreement that an alternative option for PIF registration not involving an associated PoI licensed manager was desirable, there was little consensus as to an appropriate alternative. Option A Placing reliance on a declaration made by fund directors This proposal effectively suggested replacing the manager’s declaration with a fund director declaration while at the same time extending PoI powers over the responsible fund directors. Feedback received Some respondents made the argument that fund directors may not be well placed to provide a declaration as to the investors’ ability to absorb loss because they may not have a relationship with those investors, particularly in the case of non-executive directors. There was also a lack of support for, and some objections to, the proposal to extend PoI powers over fund directors. Some responses suggested that the Commission’s powers in respect of directors within the existing legal framework were sufficient for the Commission to place reliance on any declaration made. Others thought that these powers might be extended through rules amendment or that the Rules might be amended to limit the directors’ responsibility to ensuring that there was a process in place to assess investor suitability. Commission response The Commission is sympathetic to the argument that in the case of many fund directors there may be no pre-existing relationship with investors and that such directors may simply not be in a position to make the necessary declarations. This of course would not be true of all directors but the question of the Commission’s relationship with the declaring party must also be considered. Where this party is a PoI Licensee the Commission has a range of statutory powers which could be brought to bear in the uncommon event that vulnerable investors are put at risk as a result of a false declaration. The Commission is of the view that, even if there was an extension of powers under the Rules, that the same level of investor protection could not be assured. Option B Placing reliance on a declaration made by an associated fiduciary licensee This option suggested placing reliance on a local licensed fiduciary, instead of a fund manager, to make the investor-related declaration. Feedback received Generally this option was not well supported. First, the involvement of a licensed fiduciary in the origination of fund business was not regarded as a common circumstance and therefore this

6 proposal was regarded as likely to have limited impact if implemented. Second, a number of respondents raised the fundamental concern about the involvement of an entity licensed under the fiduciaries regime operating within an area governed by the PoI regime. It was suggested that such activity may stray into the scope of PoI licensable activity as the licensed fiduciary would be subject to obligations under this law. Commission response The Commission recognises both the cross-regime challenges represented by this particular proposal and also the relative lack of industry support and is not minded to pursue this option further. Option C Defining a “qualifying private investor” This proposal provides for an alternative whereby investment in a PIF is restricted to only qualifying private investors, a category of investor which would be strictly defined in such a way so as to bar “retail” investment in the fund. Feedback received A diverse range of views were received on this proposal. Some respondents were in favour of the concept of offering an alternative PIF qualification route based on a defined investor type although there was no consistent view on qualification criteria. There were suggestions that the criteria used in the existing Qualifying Investor Fund4 (“QIF”) overlay, or similar criteria, may be appropriate. Another suggestion was that the UK/EU concepts of professional client may be used. There was also some support to add a minimum individual investment as an alternative qualifying criteria. Of those supporting this approach there was generally little support for the addition of further elements to this proposed PIF qualification route which might enhance investor protection such as limitation on marketing or increased disclosure. Another view expressed in response to option C was that, as it is a truly private structure, investment in a PIF should not be restricted to persons meeting prescriptive, regulator-defined criteria but should be individually set by each fund. This view also aligned with a view that some restriction on marketing was appropriate given that investors should have an existing relationship with the fund promoter. Commission response While it is to some extent a simplification, it is possible to place responses into three groups. The first group is not in favour of option C at all and broadly concerned with limiting any perceived increase in complexity in the PIF regime. The Commission is sympathetic to this view and this specific concern may be addressed through clear messaging on the continuing availability of the current qualification route and also through building on existing frameworks such as the QIF in looking to offer alternative PIF routes.

4 https://www.gfsc.gg/sites/default/files/QIF%20Guidance%20Note_0.docx

7 The second group are broadly supportive of option C, using local or internationally recognised investor eligibility criteria but is not supportive of other accompanying measures. A key consideration for the Commission is to ensure that the bar is set sufficiently high to ensure investor protection objectives continue to be met. The third group take the view that investor eligibility criteria should be set by the fund itself because such criteria reflect a private, “bespoke” arrangement which is not marketed with a view to attracting third party capital. The Commission observes that funds would be free to apply narrow investor eligibility restrictions within a broader regulatory eligible investor definition but also recognises that where a fund is not publicly offered and restricted only to a defined group, such as a family, that the level of required regulatory investor protections may be lower. Alternatives Suggestions As part of feedback received there were a number of other suggested possible amendments to the PIF regime which included: removal of the requirement for annual audit and relaxation of the requirement for the completion of Personal Questionnaires by applicants. The Commission is not minded to view such suggestions favourably as these are fundamental elements of our approach to protecting investors. Another suggestion made was that we look to expand declaring parties beyond locally licensed fund managers to other Bailiwick financial institutions or entities regulated in other jurisdictions. The former raises the same concerns as discussed in relation to option B, as described above, while the latter may raise issues of cross-border enforceability.

8 Proposals Given the breadth of views expressed in response to our Discussion Paper it is clear that while there is strong support for amendment to the existing PIF Rules to offer greater flexibility, there are divergent views on how this might be achieved. A number of common themes can, however, be identified from responses:  The current framework does work well for certain providers and clients, and should continue to be available.  An alternative to the current licensed fund manager-reliant regime is broadly supported.  Keeping the PIF framework simple and easy to understand is important.  The PIF is not viewed as an appropriate investment for retail investors and in seeking to expand the PIF framework appropriate levels of investor protection must be maintained. The proposals below are offered with the above considerations very much in mind but it should be appreciated that striking the appropriate balance between these sometimes less than fully aligned objectives is challenging. A draft version of amended PIF Rules is provided at Appendix 1. Route 1 – PoI Licensed Manager The option to register a PIF in exactly the same way as one does today will remain. There will be no change to the applicable rules 5 at the time of application. This will be described as “Route 1”. Route 2 – Qualifying Private Investor Recognising the strong support for a PIF model without an attached PoI licensed manager and an alternative route to registration is proposed with the following elements: a) All investors must meet qualifying criteria consistent with the definition of qualifying investor under the QIF regime6 . b) The number of offers of units for subscription, sale or exchange must not exceed 50. c) Written disclosure must be made to prospective investors providing at a minimum information on the regulatory status of the scheme, investor suitability and risk warning. A draft form of guidance on the form of the disclosure is provided at Appendix 4. Subject to the above, the PIF Rules as currently in place would apply. At the time of application the PoI licensed fund administrator would be required to provide confirmations equivalent to those currently provided by a fund administrator in respect of any QIF application. A draft wording for the declaration is provided at Appendix 3.

5 The structure of the draft rules in Appendix 1 has been amended to reflect modern drafting standards, the addition of new application routes and in anticipation of revision to the PoI Law. 6 It should be noted that there is a proposed enhancement to the criterion for an individual investor who makes an initial investment of not less than US$100,000 or equivalent, requiring that the amount invested represents no more than 25% of the individual’s investable assets.

9 Route 3 - Family relationship Taking into account the view from a section of Discussion Paper respondents that the PIF should be a truly private structure it is proposed that a third route to registration as a PIF should be offered. This would firmly place the PIF as a private wealth structure, as opposed to a private wealth product. Using this route there would be a family relationship between investors and no capital raising from investors outside this relationship. It is proposed that the following restrictions would apply: a) A family relationship must apply between all of the investors b) No capital may be raised by the fund from investors outside the family relationship There would be no requirement to appoint a PoI licensed fund manager. At the time of application the PoI licensed fund administrator would be required to provide confirmation that effective procedures are in place to ensure restriction to only eligible familyrelated investors. A draft wording for the declaration is provided at Appendix 5. Changes to existing PIFs All currently registered PIFs would continue to be registered under the proposed regime as they will meet the requirements under Route 1. If a currently registered PIF seeks to change the basis of its registration, to use either the new Route 2 or 3, then this will be treated as a new PIF application with a corresponding application fee being payable. Similarly if an existing PIF seeks to change registration to the RCIS Rules (“de-PIFing”) then it is proposed that a new application must be made which will incorporate a relevant form and fee. Q1: Do you have any comments on the proposed Route 2 PIF qualification route? Q2: Do you have any comments on the proposed Route 3 PIF qualification route? Q3: What additional steps might be taken to ensure the PIF application process remains efficient?

10 Other PIF proposals Basis of declaration The Discussion Paper proposed that where an investor declaration is relied upon as a part of a licensed fund manager’s assessment of investors’ ability to sustain loss then an explicit requirement be placed on the manager to retain evidence of this assessment and to make this available to the Commission upon request. This proposal was broadly supported and it is proposed that an additional manager declaration be included in the application form for what would become a Route 1 application. Draft wording is provided in Appendix 2. New promoters The Discussion Paper proposed issuance of additional guidance to clarify the Commission’s expectations in respect of due diligence to be performed by the administrator in respect of its declaration as to the fitness and propriety of the fund promoter. Respondents were broadly in favour of additional guidance but some cautioned that such guidance should be clear, concise and not introduce overly prescriptive requirements. Taking these comments into account it is proposed that guidance be issued, consistent with the long standing guidance applicable under the RICS regime. The proposed guidance on PIF promoter due diligence is provided at Appendix 6 7 . Additional classes, sub-funds and cells The Discussion Paper proposed the creation of a standardised declaration form for additional classes, sub-funds and cells. This was broadly welcomed by respondents and such a form will be made available. Q4: Do you have any comments on the proposed addition to the manager declaration under Route 1? Q5: Do you have any comments on the proposed promoter due diligence guidance?

7 The proposed guidance uses wording broadly consistent with guidance currently applicable to other fund types. The Commission in the future intends to review the content of promoter due diligence guidance across the board to ensure that this is current and appropriately consistent.

11 Q6: Please provide any further comments you may wish to share with respect to the proposed revised PIF Rules and Guidance?

12 APPENDIX 1 PROPOSED AMENDED PRIVATE INVESTMENT FUND RULES AND GUIDANCE, 20XX [SEE SEPARATE DOCUMENT]

13 APPENDIX 2 ADDITIONAL DECLARATION BY THE PROPOSED MANAGER UNDER PROPOSED ROUTE 1 In making the above declarations on the ability of investors to sustain loss, where we have relied, or will rely, upon a declaration from an investor or prospective investor, we undertake to document our assessment of such investor declaration and make evidence of this assessment available to the Commission upon request.

14 APPENDIX 3 DECLARATION BY THE PROPOSED DESIGNATED ADMINISTRATOR UNDER PROPOSED ROUTE 2 I confirm that we, as proposed designated administrator of the scheme, have performed sufficient due diligence to be satisfied that the promoter of, and the associated parties to, the scheme are fit and proper and that in this respect consideration has been given to all of the issues set out in the Guidance on PIF Promoter Due Diligence dated [XXXXX]. I confirm that we, the proposed designated administrator of the scheme, have effective procedures in place to ensure restriction of the scheme to qualifying private investors. We certify that the private investment fund will contain no more than 50 legal or natural persons holding an ultimate economic interest in the private investment fund. I confirm that we, the proposed designated administrator of the scheme, are content that prior to subscription all investors will receive a disclosure statement in the format as prescribed in the relevant Commission guidance. I confirm that the information supplied is complete and correct to the best of my knowledge and belief at the time of submission and that there are no other facts material to the application of which the Commission should be aware. I am aware it is an offence, under The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended in respect of which the Commission exercises its functions, to knowingly or recklessly provide the Commission with information, which is false or misleading in a material manner.

15 APPENDIX 4 PROPOSED GUIDANCE ON INVESTOR DISCLOSURE STATEMENT UNDER PROPOSED ROUTE 2 General guidance The disclosure statement should state all material information (including risk disclosures) that an investor would reasonably require to enable such investor to make an informed judgement about the merits and risks of investing in the PIF. Specific statements The disclosure statement should include the following statements (or words of equivalent effect):- “The scheme is a registered closed-[open-] ended investment scheme registered pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and the Private Investment Fund Rules 2021 issued by the Guernsey Financial Services Commission (the “Commission”). The Commission, in granting registration, has relied upon specific warranties provided by X], the Company’s Designated Administrator.” “The Commission takes no responsibility for the financial soundness of the [Scheme] or for the correctness of any of the statements made or opinions expressed with regard to it.” “The scheme has been established in Guernsey as a Private Investment Fund. It is only suitable for those who fall within the definition of a Qualifying Private Investor as defined in the Private Investment Fund Rules 2021. Regulatory requirements which might provide a higher degree of protection appropriate for retail investors are not applied to this scheme. This scheme is not suitable for retail investors.” Acknowledgement of receipt of the disclosure statement The Designated Administrator should receive written acknowledgment from prospective PIF investors that they have received and understood the disclosure statement.

16 APPENDIX 5 DECLARATION BY THE PROPOSED DESIGNATED ADMINISTRATOR UNDER PROPOSED ROUTE 3 • I confirm that we, as proposed designated administrator of the scheme, have performed sufficient due diligence to be satisfied that the promoter of, and the associated parties to, the scheme are fit and proper and that in this respect consideration has been given to all of the issues set out in the Guidance on PIF Promoter Due Diligence dated [XXXXX]. • I confirm that we, the proposed designated administrator of the scheme, have effective procedures in place to ensure that investment in the scheme is restricted to only eligible familyrelated investors. • I confirm that the information supplied is complete and correct to the best of my knowledge and belief at the time of submission and that there are no other facts material to the application of which the Commission should be aware. • I am aware it is an offence, under The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended in respect of which the Commission exercises its functions, to knowingly or recklessly provide the Commission with information, which is false or misleading in a material manner.

17 APPENDIX 6 DRAFT GUIDANCE ON PIF PROMOTER DUE DILIGENCE

The promoter and/or investment manager should be a skilled investment person or an institution regulated and in good standing, or, if conducting activities which do not require regulation, otherwise in good standing.
Good standing would imply that the promoter and/or investment manager itself, its directors, controllers and senior managers had not during the past 5 years been the subject of material disciplinary action by a regulator or professional body, or subject to any conviction for fraud, dishonesty or related offences of a financial nature.
The designated administrator must certify to the Commission that it has performed sufficient due diligence to be satisfied that the promoter and/or investment manager are fit and proper. In that regard, such service providers should take account of the issues referred to at 8(a), (b) and (c) below and should document their findings and conclusions accordingly. When assessing the fitness and propriety of a Promoter and/or Investment Manager the Fund Administrator should also be cognisant of its obligations to perform customer due diligence as required by Paragraph 4 of Schedule 3 to the Proceeds of Crime Law and Chapter 4 of the Handbook on Countering Financial Crime and Terrorist Financing.
For the avoidance of doubt, applications on behalf of newly formed promoters and/or investment managers will be considered. The Guernsey licensed service provider who is seeking the scheme’s registration will need to consider the track record and experience of the controllers, directors and management of such entities taking into account their previous employment history. Such previous employment history should demonstrate that the individuals possess relevant experience in relation to managing or advising on investors’ funds using similar investment strategies to those that will be adopted by the Private Investment Fund. The licensed service provider’s consideration of these matters and conclusions arising should be documented.
Where applicants are aware of issues in relation to a promoter and/or investment manager (which term should be taken to include their controllers, directors and management) and associated parties, but are uncertain of their materiality or possible impact on the subject application, they should consult the Commission prior to submitting the formal application at the time they become aware of the issue.
The Commission will assess licensees’ application due diligence as part of their postfacto monitoring of licensees. If the Commission were to find that declarations provided were defective, or misleading, the Commission could take action against the licensee and in appropriate cases could exclude that licensee from future participation in the fast track regime.
The Commission expects each licensee to ensure that its due diligence in respect of the promoter and/or investment manager and associated parties is updated on a regular basis. The Commission will not prescribe the means by which this requirement is to be achieved but as set out in 3 above licensees should take account of the issues at 8(a), (b) and (c) below and should document their findings and conclusions. Where licensees become aware of issues in relation to a promoter and/or investment manager (which term should be taken to include their controllers, directors and management) and

18 associated parties, but are uncertain of their materiality or possible impact on the subject Private Investment Fund, they should consult the Commission, prior to the submission of a formal application to the Commission, at the time they become aware of the issue. 8. Promoters and/or investment managers (including their directors, controllers and senior managers) must be fit and proper. This can be defined as being a requirement for integrity (or honesty), competence and solvency. Guernsey licensed service providers should ensure that the following issues are covered as part of their due diligence procedures in respect of new client relationships and that their findings and conclusions are documented. a. Integrity Promoters and/or investment managers (which term should be taken to include their controllers, directors and management) should be of a good reputation and standing. Poor reputation would be considered to be a negative factor. The promoter and/or investment manager must carry on their business with prudence, professional skill and honesty. In the case of promoters and/or investment managers with a limited history, due to the fact that they are newly or recently established, the integrity of the controllers, directors and management should be assessed in the light of previous employment and experience. b. Solvency Promoters and/or investment managers should be solvent. A firm regulated in another jurisdiction should also comply with the solvency, capital adequacy or financial resources requirement (as appropriate) laid down by the relevant regulatory body to which it is accountable. Past performance in this respect should also be considered to ensure that relevant requirements have been consistently met in the past. c. Competence The most obvious way to demonstrate competence is to have established a favourable track record, in a business similar to that to be conducted in the Bailiwick. The promoter and/or investment manager should be able to demonstrate an acceptable complaints history. In the case of promoters and/or investment managers with a limited history, due to the fact that they are newly or recently established, Guernsey licensed service providers may wish to consider whether the controllers, directors and management of such entities have been subject to significant complaints whilst employed by other firms. Promoters and/or investment managers should have staff of adequate skills, knowledge and experience to undertake and fulfil their duties efficiently and effectively.