Revamped regulation of Gibraltar funds
By Jay Gomez, Senior Associate and Javi Triay, Associate,Triay & Triay Financial Services Team
It has now been just over a year since the United Kingdom voted to leave the European Union. The Gibraltar funds industry however, is adamant that the infamous vote, which brought with it a heavy dose of pessimism and uncertainty, can instead be good news for Gibraltar in furthering its offering as an emerging and growing hub for investment funds and managers.
Following extensive consultation between the Gibraltar Funds and Investments Association (GFIA) and its members, the Gibraltar Financial Service Commission (GFSC) and the Minister with responsibility for Financial Services, the new legislative framework for investments funds has been drawn up.
The new legislative framework creates Gibraltar’s dual-fund regime which maintains the status quo (i.e. EU access pre-Brexit) and provides a duality so that the necessary vehicles post-Brexit are permitted and clients may continue operating outside of the EU and, subject to the Brexit deal agreed between the UK with the EU, a vehicle which will allow access to the EU’s single market on the basis of reciprocity and/or equivalence.
Some of the key changes include:
‑ Private schemes that are not structured as family offices and/or not managed by an authorised firm will have a maximum number of 15 investors.
‑ Continues to be a vehicle for a small group of investors, and as such will require an investor acknowledgement concerning the fund’s status (i.e. not regulated by the GFSC).
‑ Private schemes structured as a family office can have a maximum number of 50 investors.
‑ Private schemes managed by an authorised firm (either an EU regulated firm or firm which the GFSC has consented to) can have a maximum number of 50 investors.
‑ On establishing a private scheme, a legal opinion will be required to confirm that it complies with the Financial Services (Collective Investment Schemes) Act and Financial Services (Collective Investment Schemes) Regulations.
‑ The requirement for an annual audit may now be waived, but must be waived by all investors. Where the requirement is not waived, audited financial statements should be prepared within 6 months of the year end or, in the case of closed-ended schemes, within 9 months of the year end.
‑ Private schemes are now eligible for ‘upgrading’ to an Experienced Investor Fund whenever it deems it appropriate.
Experienced Investor Funds (EIF)
‑ Every EIF will require a minimum of 2 EIF directors. At least 1 EIF director has to be resident in Gibraltar but the GFSC will now have the power to dispense with this requirement. Any EIF director not being ordinarily resident in Gibraltar has to be approved by the GFSC – this does not,
however, mean that the EIF director will need to be licensed by the GFSC.
‑ The new regulations further clarify the term “Experienced Investor” to include, amongst others, persons who invest €100k into an existing EIF. The lower threshold of €50,000 on the basis of having been advised by a professional advisor has been left unchanged.
‑ The EIF’s unique deemed authorisation route clarified – i.e. if the board resolves to become an EIF and a notification is submitted to the GFSC with all the required documents as stipulated by the Regulations within the 10 days. Once that is completed, the EIF is deemed to be authorised by the GFSC from the date of the board resolution. With this clarification, the EIF continues to be the funds vehicle with the best speed to market on the European continent.
‑ The controllers of the EIF are responsible for ensuring that arrangements are in place with a bank and/or broker to keep the relevant assets of the EIF safe and accounted for.
‑ For closed-ended EIFs, the submission date to the GFSC for audited accounts has been extended to 9 months from the year end. This change has been brought about to allow greater flexibility to, for example, private equity funds.
‑ Clarification on the ability of promoters of EIFs (which are in the process of being established) being able to discuss the investment with potential investors before the EIF is established.
‑ The requirement to disclose service providers in the private placement memorandum has been clarified to include material service providers: directors, investment managers, investment advisors, legal, administrator, secretary, bank, broker and auditor.
Gibraltar Alternative Investment Fund (Gibraltar AIF)
Under the new framework, EIF’s which are “in-scope” or have opted-in to the Alternative Investment Fund Manager Directive (AIFMD), have to rebrand and become a Gibraltar AIF. It would also be required to comply with the Financial Services (Experienced Investor Funds) Regulations and the Financial Services (Alternative Investment Fund Managers) Regulations. This has effectively created a new product that is part of a ‘dual-regime’ offering the opportunity to be an EU compliant AIF.