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Regulator statement opens door to fund tokenisation in Guernsey

16 May 2024

The Guernsey Financial Services Commission's positive statement clarifying its approach and stance on fund tokenisation is a welcome one, and fits the Commission's encouraging but measured approach in respect of digital assets.

In summary, the Commission has demonstrated its support for innovation and recognition of the role tokenisation could play in improving the efficiency within capital markets, and clarified that:

  • The Bailiwick's regulatory regime permits fund tokenisation (which it usefully defines as the register of units or holders of an authorised collective investment scheme using distributed ledger technology)
  • Any such scheme would still have to comply with applicable rules, including those on protection of investors
  • The administrator of such a scheme would remain responsible for administering the scheme under the law, including the Proceeds of Crime regime
  • A token as described above would not constitute a virtual asset under the Lending Credit and Finance Law (Bailiwick of Guernsey) Law, 2022

The commission's statement adds welcome clarification, showing that Guernsey is open to the kind of innovation that tokenisation can represent, while drawing a helpful line between allowable tokenisation, and areas where it believes that there is significant risk, including crypto and virtual asset issuances to retail investors.

It also usefully sets out that other tokenisation structures, including public, permissionless blockchains, may pose additional risks and may not be consistent with the Bailiwick's regulatory framework.

Professionals in the financial services sector will also have taken note of the Commission's statement that it will continue to proactively engage with the industry where current laws and rules are impeding the trial and development of new technology, either on a trial / waiver basis, or redrafting rules or laws where necessary.

For more information or guidance, please contact partner John Scanlan.