Corporate Governance Best Practices for Fund Directors

According to PwC's 2024 Global Investor Survey "investors cite corporate governance as the most important (including oversight, risk management, control and ethics) to their valuations of companies." The survey further found that "about two-thirds of investors trust management boards to make decisions for the long term [and] 86% of investors agree that the agility of a company to manage through a crisis is an important factor in their investment decision-making."

Codes of Conduct

In Gibraltar’s dynamic funds landscape, robust corporate governance for fund directors is a strategic imperative upon which investor confidence is built, risks are mitigated, and long-term value is created. Recognising this importance, GFIA published a Corporate Governance Code for Gibraltar Collective Investment Schemes in 2013 followed by an addendum Corporate Governance Code for Gibraltar Crypto Funds in 2018- the first of its kind in the world- the second edition of which was published in 2022. These Codes of Conduct have been endorsed by the Gibraltar Government and the Gibraltar Financial Services Commission and follow the “comply or explain” principle.

Effective corporate governance is about cultivating a culture of accountability and transparency across every aspect of a fund’s operations. In today’s highly competitive industry, this acts as a differentiator, attracting discerning investors who prioritise trust, ethical conduct and responsible oversight. For Gibraltar-based funds, a commitment to these best practices strengthens the jurisdiction’s standing as a reputable financial centre, including in the innovative crypto funds space. 

There are several key principles that form a strategic approach to corporate governance:

1. Integrity and ethical conduct

Directors must act with honesty and prioritise the best interests of the fund and its investors above all else. This includes adhering to the duties of skill, care and diligence and upholding fiduciary responsibilities to act loyally and in good faith. 

2. Independence and objectivity

The presence of independent directors in board discussions and strategic and operational decision brings an objective perspective to the firm and ensures that management decisions and the fund’s strategic direction align with investor interests. 

3. Accountability and transparency

As per Gibraltar’s Funds legislation, Directors are ultimately responsible for overseeing a fund’s operations and performance and managing the risks associated with its investment strategy. They must therefore be transparent in their communications with investors. 

4. Competence and experience

Effective corporate governance requires skilled and experienced directors who have the knowledge to thoroughly understand the fund’s operations and add value to them, assess risk effectively, and make informed, strategic decisions. For crypto funds, this should include a foundational understanding of the relevant technology and the maintenance of a robust control environment, including effective cybersecurity measures and due diligence on service providers. 

5. Risk management

An effective risk management framework is a strategic tool. By proactively identifying and mitigating risks and keeping a close eye on market developments (specifically in the crypto space), directors can protect investors and enhance the fund’s resilience in the face of market uncertainty. For crypto funds, directors should also assess and mitigate risks specific to digital assets including custody and cybersecurity. 

6. Segregation of authority

A critical but sometimes overlooked aspect of sound corporate governance is the segregation of financial authority. According to the Corporate Governance Code for Gibraltar Collective Investment Schemes (Section 11.4B), at least two regulated/authorised signatories must approve any transfer of a fund’s assets or cash to third parties, including service providers. No single individual should ever hold sole control over a fund’s accounts. Requiring dual or multiple signatories for material transactions is one of the most effective internal control measures available to protect investor assets and prevent misuse of funds. Implementing multi-signatory approval not only reduces operational and fraud risk but also demonstrates a fund’s commitment to transparency and disciplined stewardship of investor capital.

Long term success

The corporate governance structure at a fund is a dynamic framework that guides a fund throughout its lifecycle. From the outset, directors play a crucial role in establishing a strong and strategic governance foundation by defining the board composition and ensuring that the fund’s marketing and promotion complies with all regulations and restrictions that apply to different fund types. Directors are also responsible for the contents of the fund’s offering document where the fund’s strategy must be clearly articulated, providing investors with transparent and comprehensive information. 

As such, most corporate governance happens well before a fund is launched. It’s all in the structure. This early-stage work is critical as it embeds the values of accountability, transparency and investor protection into the fund’s operations from before day one. 

Once a fund becomes operational, governance naturally evolves. Regular board meetings (ideally conducted quarterly) provide a forum for ongoing oversight, risk assessment and strategic decision making. When challenges arise at the fund, the directors must adopt a proactive approach in seeking information and taking necessary action including monitoring the funds liquidity and communicating with the regulator where necessary. Ad-hoc board meetings must also be convened where strategic decisions need to be made.

This commitment to sound corporate governance fosters a culture of accountability and transparency at a fund and directly contributes to its long-term success. It is our view that corporate governance should not be seen as a cost of doing business, and in Gibraltar, it is rather recognised as a competitive advantage. Our approach is that sound corporate governance is a strategic asset that drives performance, attracts the right investors and enhances the reputation of the jurisdiction and the financial services it has to offer. 

First published in Gibratlar International Magazine - Nov/Dec/Jan 25/26 Edition.