A Class A fund corresponds to a UK authorised unit trust or OEIC and may be marketed to retail investors in specific jurisdictions, including the UK, following registration in the relevant jurisdiction. .
A Class A scheme subject to the Collective Investment Schemes (Class A) Rules 2002 (the “Class A Rules 2002”) was eligible up until July 2013 to apply to the UK Financial Conduct Authority, (the “FCA”) under section 270 of the Financial Services and Markets Act 2000 (“FSMA”) to be marketed in the UK.
That position changed as a result of the Alternative Investment Fund Managers Directive (“AIFMD”) and a Class A fund will now be required to apply on a scheme-by-scheme basis by means of section 272 FSMA.
Whilst Guernsey introduced and published new and updated Class A Rules in 2008, those rules did not become approved or recognised for the purposes of section 270 FSMA. For that reason, they have tended not to be used in practice and the Class A Rules 2002, which have not been repealed, have continued to be applied.
A Class A fund under the Class A Scheme Rules 2002, will be categorised as a securities fund, a money market fund, a futures and options fund, a geared futures and options fund, a property fund, a warrant fund, a feeder fund, a fund of funds or an umbrella fund. The main characteristics of the Class A Rules 2002 are as follows:
- The fund must be incorporated or constituted under Guernsey law.
- Investment restrictions for each type of fund are set out in the Class A Rules 2002. They are similar to the FCA Rules and UCITS requirements.
- A designated manager (who conducts the day-to-day administration of the fund) and a designated trustee/custodian (who undertakes custodial duties and conducts oversight on the manager). Both these designated persons must be resident in Guernsey and are subject to the Commission’s regulation.
- The method of valuation of assets is set out in the Class A Rules 2002.
- The method of dealing in units is set out in the Class A Rules 2002. The manager may act as principal or agent and may operate a box.
- The expenses and fees which may be charged to the fund are set out in the Class A Rules 2002. All usual fees and expenses are permitted.
- Annual and interim accounts are required.
- Annually reviewed scheme particulars are required
Unless they can be classed as Qualifying Investor or Registered Funds, which are both subject to a turnaround time of 3 working days, there is a three-stage process which applies to Class A funds.
- Stage One: Outline Authorisation, following a review of Form GFA
- Stage Two: Interim Authorisation, following a review of Form APA, APB or APQ
- Stage Three: Formal Authorisation, once all issues have been resolved
Stage One – Outline Authorisation
This entails the submission of a fully completed Form GFA and such supporting documentation as required by the Form.
Form GFA is usually submitted by the designated manager, fund manager or advocate acting for the promoter, but requires the supporting signature of the proposed designated manager and the proposed trustee/custodian.
Completion of the Form requires basic details of the scheme structure and objectives, the promoters and associated parties, fees to be charged and any unusual features of the scheme. All questions should be completed and the form signed and dated. If information cannot be provided at this stage (for example, if plans are provisional) this should be stated, but late changes to a scheme may result in the application being delayed, or in extreme cases, refused.
Where parties not known to the GFSC are to be associated with the scheme, additional documentation will need to be submitted, as specified on the form. If the promoter is already known to the GFSC, or has received a positive response after submitting a New Promoters Introductory Checklist, the amount of information required by Form GFA (and the time taken for it to be processed) should be considerably reduced.
It is not necessary to submit a prospectus (scheme particulars, or equivalent offer document) at this stage as it will not be reviewed by the Commission.
If all parties meet the policy of selectivity and the detailed proposals otherwise appear acceptable to the Commission, the scheme will receive a letter granting ‘Outline Authorisation’.
If outline authorisation is not to be granted immediately, a letter requesting further information or clarification will be sent.
Stage Two – Interim Authorisation
The applicant should submit a near-final draft of the prospectus for the scheme (or equivalent offer document), together with a copy of any application form the scheme will employ and the non-refundable application fee.
Applicants are advised not to submit multiple redrafts of the prospectus, as this absorbs Investment Business Division (“IBD”) staff time, requires several rounds of correspondence and will delay the application. Any additional drafts which are submitted must be black-lined with reference to the previous copy submitted to the GFSC. Revised drafts which are not black-lined will not be reviewed.
The applicant should also submit a fully completed and signed Application Form APA plus drafts of all constitutive documents with the prospectus:
The application forms include disclosure checklists which adhere to the requirements of the Class A Rules. Any matter specified by the schedules to be included in the prospectus must be so included. The applicant is asked to indicate on the disclosure checklist how each requirement is satisfied: this is done by identifying the page number of the prospectus upon which a relevant disclosure may be found.
Where the documents do not adequately satisfy a stated requirement (or IBD staff have been unable to find adequate reference) a point will be raised with the applicant.
The Application form requires a signature by each of the proposed designated persons which will demonstrate to the GFSC that all parties are fully aware of the detail contained within the prospectus.
If the proposals have changed to a material extent since the completion of Form GFA, this should be brought to the attention of IBD staff at the time the application form is submitted. Such changes may result in the application being delayed.
The general criteria the GFSC will consider when reviewing the scheme particulars are:
- Is there is an adequate spread of risk?
- Are there comprehensive risk warnings?
- Is the investor profile consistent with the scheme’s objectives and minimum subscription levels?
- Are all material facts, including fees and the names of associated parties fully disclosed in the scheme particulars?
The above is not exhaustive and other criteria may need consideration.
It is the GFSC’s intention to review the prospectus and disclosure checklist and issue a letter granting Interim Authorisation within ten working days of receipt. The ten-day period is indicative and, although every effort will be made to adhere to it, the GFSC cannot in any way be bound by it.
Any requests for derogations or modifications from applicable rules should be made to the GFSC at this stage. Please note the onus is on the applicant. The Class A Rules may not be modified and no derogations will be granted.
All points raised in the Outline or Interim letter must be resolved to the satisfaction of the GFSC before formal authorisation can be considered. Applicants should be aware that late changes to the scheme (for example, the introduction of new parties) will cause proportionate delays to any final authorisation, and may in extreme cases result in authorisation being refused.
Stage Three – Formal Authorisation
Formal authorisation is granted only when all the following conditions are satisfied:
- All outstanding points and queries have been resolved to the satisfaction of the GFSC and all requested information received.
- The GFSC has received a certified copy of the final version of the prospectus.
- Evidence that the scheme has been formed, e.g. a certificate of incorporation.
- The GFSC has received signed or certified copies of all final constitutive documents. Constitutive Documents would include, for example: Trust Deed, Memorandum and Articles of Incorporation, Management Agreement, Custodian agreement, Administration Agreement, Investment Advisory/Management Agreement, Registrar’s Agreement, Sub-Custodian Agreement, Delegation agreement.
- The GFSC has received a certificate from an approved law firm confirming that the principal documents and scheme particulars comply with such rules as relate to their contents or giving such confirmation subject to such exceptions as are detailed in the certificate.
Any formal conditions to be imposed upon the authorisation of a Class A fund will be incorporated into this certificate. Applicants should note that the Class A Rules may not be modified and no derogations will be granted. An annual authorisation fee is payable, but is reduced pro rata in the first year of authorisation. The amount due will be stated in the authorisation letter and will be followed by the posting of an invoice within five business days.
The designated manager is normally deemed responsible for payment of all fees. Current fee scales are set out here.
Incorporated Cell Companies and Protected Cell Companies
For an Incorporated Cell Company (ICC) or Protected Cell Company (PCC) a separate formal approval needs to be issued following outline authorisation in order that the vehicle can be registered with the Guernsey Registry. This will not normally be granted until the scheme has reached “outline” stage and requires a specific request from the applicant.