The new Financial Services (Experienced Investor Funds) Regulations 2012 (the ‘Regulations’) took effect in Gibraltar on the 12th April, and represent a significant step forward for Gibraltar as a European Fund Domicile.
Non-Gibraltar Based Fund Administrators
There are a number of significant changes in the Regulations, but the headline amendments start with the re-definition of an administrator to include administrators established in the European Economic Area, or in a jurisdiction with legislative and regulatory equivalence to Gibraltar, and which the Financial Services Commission (‘FSC’) have approved with the consent of the Minister.
This, along with the principle of permitting the delegation of certain management and control functions to entities that are specifically authorized or entitled to provide such service in the state or territory that the service is being provided from, follows an international trend that has seen success in other jurisdictions.
In Malta for example, functionaries of Professional Investor Funds do not necessarily need to be established in Malta. However, having provided services to Malta funds over a period of time has led to the establishment of those service providers in the Jurisdiction and has been a clear catalyst for growth.
All sections and representative bodies of the various associations in Gibraltar affected were fully consulted on the proposed amendments and the FSC have also been quick to clarify that the change permitting non-gibraltar administrators is not geared simply towards allowing funds to be administered externally. Rather, the change is aimed at allowing ‘brand name’ administrators to provide services to Gibraltar EIF’s. The idea is clear, Funds that may otherwise not have considered Gibraltar as a fund domicile, on the basis that an ongoing relationship with their fund administrator would not be permitted, now have another option in terms of the ever more important decision of fund domicile. In this way, the jurisdiction is for the first time allowing itself to potentially plug into the vast client base of these Companies. The idea is to win business that would otherwise not have considered Gibraltar. The importance of this change cannot be underestimated and represents a natural and important progression.
Change to definition of ‘Experienced Investor.’
There have been a series of changes to the ‘Experienced Investor’ definition which now include a cross reference to the ‘professional investor’ definition from MiFID, as well as a participant who invests a lower minimum of €50,000 but is also professionally advised in respect of his investment. An investor can also invest an aggregate of €100,000 across a series of Experienced Investor Funds and also qualify, while under the previous legislation the minimum applied in respect of a single investment.
Very importantly, the change also allows the FSC to permit participants of re-domiciled funds(either by fund by or category of fund, from a particular jurisdiction ) to qualify. This is critical as Gibraltar continues to position itself as a realistic EU alternative fund domicile. The advent of the Alternative Investment Managers Directive for one is likely to widen the gap between EU and non-EU fund domiciles for marketing and distribution purposes (within the EU). An EU Alternative Fund Manager (AIFM) managing a non-EU Alternative Investment Fund (AIF) may be able to rely on local private placement rules after the 22nd July 2013, but there is no guarantee of what those private placement rules will look like. Similarly, after 2018, such distribution channels may become unavailable. What is also clear is that a passport will automatically apply to the marketing of an EU AIF by an EU AIFM from the date of transposition, while the pan European passport may only apply to the marketing of a non-EU AIF after 2015 (and subject to certain conditions).
The Regulations also introduce an additional option for the authorization process of an EIF. The post launch notification process remains, and is in fact now a distinguishing and attractive feature for Gibraltar. However, funds may also choose to apply to be registered prior to launch by notifying the FSC at least 10 (business) days before the establishment of the EIF. Unless further information or clarification is requested, the fund will be registered and if no request is made the fund will be deemed to be authorized at the end of the 10 day period.
This is unique to Gibraltar after the recent change to Luxembourg law on the 6th March 2012 (Bill no 6318) which amended the law on specialized investment funds and removed the possibility of having prior authorization thereby losing one of its predominant characteristics.
There are many other changes to the Regulations that are beyond the scope of this article. The clarification of the principal duty of an EIF Depositary is a welcome addition as are the details relating to additional disclosures on procedural and notification matters.
Gibraltar is well placed to take advantage of developments in the international ‘onshore’ fund industry and the amendments to the Regulations are an excellent first step. The recent partial revision of the Swiss Federal Act on Collective Investment Schemes (CISA) are arguably also geared in part towards AIFM and could also put Gibraltar on the map for the Swiss Asset Management Industry concerned about the extending FINMA regulation, and EU market access.
As stated by Minister Licudi in the Government press release on the Regulations, “as part of the EU, Gibraltar provides access to a market of over 500 million people and the Government anticipates an increase in the flow of business to Gibraltar in the area of funds and hedge funds as a result of this legislative improvement.”