Originally published in Global Business Magazine, May 2012
As a leading international finance centre, Guernsey has continued to demonstrate its resilience in the face of the worldwide economic downturn. While many jurisdictions struggle to react to the changing global economic landscape, the key indicators suggest that Guernsey remains a popular location for doing business and continues to outperform many of our closest competitors. For example, the results of an independent survey published earlier this year by 'Fund Domiciles.com' found Guernsey to be the most popular fund domicile among a sample of UK-based alternative investment fund managers. That report followed a report in September 2011 by 'The Banker' magazine, which ranked us the number one specialist finance centre in Europe and second in the world.
One area this island demonstrates this specialist expertise is international insurance. The latest research – based on figures to the end of 2011 – shows that we have strengthened our position as the largest captive insurance domicile in Europe, while also remaining the fourth biggest globally. New insurance business has also come on board in the first two months of this year, with the island's regulator, the Guernsey Financial Services Commission (GFSC), reporting that the number of international insurance entities licensed in the island has risen from 687 at the end of December 2011 to 695 at the end of February.
Other positive news for our insurance market includes JLT Insurance Management (Guernsey) Limited establishing a Protected Cell Company (PCC) that will provide insurance to lenders under the UK government-backed NewBuy scheme, which is offering prospective owners newly built homes with 95% mortgages underwritten by house builders and the government.
Guernsey is proving resilient to the global economic downturn but equally neither is the island completely immune. For example, the sovereign debt crisis and continued low interest rates provide a challenging environment for our banking sector, with the value of deposits held by banks in Guernsey falling during the final two quarters of 2011 to stand at £107.5 billion at the end of 2011, representing a fall of £3.4 billion over the course of the last year.
The nervousness in the global markets has also impacted the value of investment funds under management and administration in Guernsey, with contraction in the second half of last year in the face of continued fears about the Eurozone. However, overall there has been growth from £200.4 billion at the end of 2008 to £261.1 billion at the end of 2011, including an increase over the past 12 months of £4 billion (1.6%). In particular, the island continues to grow its reputation for excellence in alternative and niche funds, especially private equity. This has been reaffirmed by a Private Equity News / State Street survey where 61% of Chief Financial Officers (CFOs) responded, saying that Guernsey was their preferred destination for private equity outsourcing.
One of the island's great strengths is the ability for Guernsey vehicles to list on the local Channel Islands Stock Exchange (CISX), which now lists more than 4,300 securities, including amongst others, the London Stock Exchange (LSE). Data direct from the LSE to the end of December 2011, shows that there are more Guernsey-incorporated companies and securities listed on its markets than there are entities from any other competitor jurisdiction. In addition, in May 2011, Guernsey received approval for its companies to list on the Hong Kong Stock Exchange (HKEx).
Diversification – Products & Markets
Guernsey has developed a reputation for its ability to adapt and be fleet of foot. Not only are we looking to maximise these characteristics to unlock the potential from other niche areas such as providing the financial infrastructure around films and cleantech, we have also taken steps to put the necessary legislation in place which will enable Guernsey practitioners to offer clients an even greater choice of services.
Our fiduciary sector for example boasts more than 150 licensed providers, ranging from large multinational organisations to locally owned boutiques, who together hold more than £350bn worth of assets in trust and company structures.
Guernsey's government has agreed to establish a registry for aircraft belonging to local residents and those held through fiduciary structures on behalf of clients. This comes at a time when Guernsey is to become the first jurisdiction in the world to recognise image rights in law and provide them with a register. This will be managed by the island's Intellectual Property Office – part of the Guernsey Registry – and adds a further dimension to our cutting edge IP offering. We expect the foundation will be especially attractive to clients based in civil law jurisdictions in Europe and also in 'emerging' markets such as China, Russia and Latin America where the trust concept is less familiar than in common law countries.
Our practitioners are already increasingly attracting clients from further afield, with the traditional sources of the UK and Europe being supplemented by new business from India, Russia, the Middle East and the Far East. Towards the end of 2010 we held our first official delegation to India and since then have returned on several occasions. Guernsey has grown a reputation as the domicile of choice for Indian-related entities listing on the LSE's Alternative Investment Market (AIM) and this is a position we reinforced during our latest visit to Mumbai in December 2011 – the same month the Guernsey government signed a Tax Information Exchange Agreement (TIEA) with India.
The island has also seen increased business from Russia in the last few years, especially within the private wealth and investment sectors. We held our first official delegation to Moscow in May 2011 and have already visited again this year, meeting officials and attending the Russian Funds Forum in February.
It is now over four years since we established our representative office in Shanghai and during that time we have built some very strong relationships. This is highlighted by the fact that towards the end of 2010, the Guernsey Government signed a Memorandum of Understanding (MoU) for exchange and cooperation with the Shanghai Municipal Financial Services Office and a TIEA with the Chinese central government tax authorities. In addition, the GFSC has now signed a statement of cooperation with the Chinese central banking regulator, the China Banking Regulatory Commission (CBRC).
Awareness of the Guernsey brand is also being enhanced by the fact that a number of locally-based service providers are establishing operations in Asia. These developments have no doubt been given impetus by the approval for Guernsey companies to list on HKEx. Now we are in discussions with the equivalents in Singapore, Shenzhen and Shanghai, to see if we can develop relationships that will help facilitate the listing of Guernsey companies on those exchanges in the future.
Enhanced Reputation
One of the key messages to our audiences in the emerging markets is that Guernsey is a well-regulated and transparent leading international finance centre – a reputation that has been further enhanced since the beginning of last year. In January 2011, the IMF published six evaluation reports that commended Guernsey's high standards of financial regulation, supervision and stability along with our robust criminal justice framework. Later that same month, the OECD's Global Forum built on the fact that we were among the first wave jurisdictions placed on its 'white list' (at the G20 summit in London, April 2009) by endorsing our continued commitment to tax transparency and exchange of information. In addition to this, an FSB report prepared for the G20 meeting in Cannes last November recognised Guernsey as being within the top tier of jurisdictions adopting international standards and thereby demonstrating strong commitment to financial stability.
Indeed, Guernsey has now signed TIEAs with 35 jurisdictions globally and we are also extending our network of Double Taxation Arrangements (DTAs). Guernsey signed a DTA with Malta in March, which is our third comprehensive arrangement – the other two being with the UK and Jersey. It is our 13th overall and several others are now in the pipeline.
The 'Zero-10' corporate tax systems of the Crown Dependencies have come under European scrutiny. In April this year, the EU Code of Conduct Group in Brussels deemed Guernsey's zero-10 tax regime to be harmful. It is expected that we will be able to finalise our position later this year. However, the island has been clear from the outset that we will ensure our regime is both compliant and also competitive, i.e. continued tax neutrality of financial services products. Indeed, the fund industry's exempt regime for collective investment schemes is not under threat and is even in the process of being extended.
The waters ahead are unlikely to make for plain sailing, but we will take the necessary steps to ensure that the conditions remain in place for Guernsey to continue as a leading international finance centre well into the future.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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