While the BVI and Cayman seem to be the Coca Colas and Pepsis of the offshore world for Asian clients, Fiona Le Poidevin, Chief Executive of Guernsey Finance reveals the ways in which Guernsey might be particularly attractive to wealthy Asians – both in and outside of Asia.
When seeking solutions for structuring their wealth, Asian investors are fairly open to placing their assets in offshore locations. But there is a tendency for Asian clients – and advisers – to stick to what they know, and for this reason, the BVI and the Cayman Islands remain the preferred choices for offshore wealth structuring.
Historically, Guernsey's primary introducer markets for new business flows have been the UK, continental Europe and the US. However, the maturity of these markets and the impact of the global financial crisis have impacted new business opportunities in these markets, explains Fiona Le Poidevin, chief executive of Guernsey Finance.
As such, over the last few years, there has been a refocusing of the Island's drive for new business to include emerging markets, such as Asia.
"Asia offers Guernsey diversification from reliance on our traditional core introducer markets," says Le Poidevin.
Similarly, placing funds in Guernsey can offer Asian clients diversification for asset protection purposes. Having some assets held offshore can protect them from potential domestic issues in the client's home country. Some geographical diversification is also logical – for example, a client might choose to hold some assets in the Caribbean, some in Asia, and some in European jurisdictions.
As well as onshore Asian high net worth individuals and families, the large diaspora of globally mobile Asians also represents a significant opportunity to Guernsey. This group includes second generation high net worth family members who have been educated in the UK or Europe and have opted to remain overseas either for work or because they prefer the lifestyle. The Island's proximity to both London and continental Europe means that it is a convenient offshore option for these clients: easily accessible, and in the same time zone.
Guernsey Finance is a joint industry and government initiative to defend and promote the long term reputation, stability and development of Guernsey as a leading international centre for financial services. Numerous visits and exchanges with government officials, regulators, sector network associations and intermediaries have helped to raise Guernsey's profile in Asia. The agency has also had a representative office in Shanghai since 2007, and has relationships with Shanghai Municipal Financial Services Office, the China Insurance Regulatory Commission (CIRC), the China Securities Regulatory Commission (CSRC) and the China Banking Regulatory Commission (CBRC).
In November 2013 Guernsey Finance attended the STEP Asia conference in Singapore and a series of other meetings, including the Monetary Authority of Singapore (MAS). And in the same month, the Guernsey
Financial Services Commission (GFSC), signed a Memorandum of Understanding (MoU) with CSRC to facilitate the exchange of information between the authorities, to ensure compliance with their respective regulatory requirements. This aims to promote investor protection and the integrity of the investment products.
Balancing transparency and confidentiality
"The Island has a reputation for being well regulated," says Le Poidevin. "Its high standards are delivered within an environment which is not secret but which is still able to offer clients the assurance of appropriate security and confidentiality."
Guernsey was one of the first jurisdictions to regulate trust and corporate service providers. And independent assessments by the IMF and the OECD continue to place the Island in the top tier of international finance centres in terms of its standards of both regulation and transparency and exchange of information for tax purposes.
"As early as 2011, for instance, the Island moved over to automatic exchange of information in relation to equivalent measures under the EU Savings Tax Directive," reveals Le Poidevin. "Other jurisdictions are only now adjusting to this concept."
More recently, Guernsey signed a FATCA style agreement with the UK government – and will shortly sign a Model
1 intergovernmental agreement with the US under FATCA, which requires foreign financial institutions to report
US accounts to the Internal Revenue Service via local tax authorities. It could be argued that Guernsey's thorough regulatory regime and high standards of transparency could be off-putting for some clients. Many clients in Asia don't feel comfortable with institutions having their personal data, for security reasons. In some Asian countries, kidnapping and blackmail are a real threat for wealthy families.
However, Guernsey employs high data protection standards to ensure client security and privacy, Le Poidevin assures. Client data held in Guernsey is only available to the relevant Corporate Service Provider (CSP) and the appropriate regulatory authorities. And in addition, Guernsey's innovative and up-to-date private client laws are particularly attractive to clients around the world.
Innovative structuring tools
The jurisdiction has a 50 year history of establishing and administering private wealth structures. Today this offering includes a variety of structures that have been developed to meet the specific needs of wealthy individuals and families. A Guernsey private trust company (PTC) can be used for succession purposes, but also offers clients the flexibility to maintain management and control of the underlying assets during their lifetime. Many clients take advantage of Guernsey's purpose trust to hold shares in a PTC.
A Guernsey purpose trust has no registration or disclosure requirements under Guernsey law, meaning the ownership of the PTC can be confidential. Guernsey was the first jurisdiction to introduce a protected cell company (PCC), back in 1997. The PCC allows clients to create one or more cells within the company, the assets and liabilities of which are segregated from the non-cellular assets, and from the assets and liabilities of other cells. This ring-fencing of assets means that when a cell incurs liabilities, such liabilities are attributable to that cell only.
And in 2006 Guernsey brought in the incorporated cell company (ICC).
An ICC may create one or more incorporated cells, the assets and liabilities of which are segregated from the assets and liabilities of the ICC and of the other incorporated cells. Guernsey Foundations were introduced at the start of 2013. Whilst Guernsey is a common law jurisdiction, the law has been drafted in such a way as to reflect legal drafting in civil law jurisdictions – which do not usually recognise trusts, but are familiar with foundations. Guernsey foundations are expected to be of particular interest to wealthy individuals, family businesses and entrepreneurs in emerging market countries, many of which are civil law jurisdictions. An example would be mainland China.
It's crucial that a jurisdiction can offer clients the services and support necessary to set up and maintain these sorts of structures. Guernsey boasts more than 150 licensed fiduciary services providers, ranging from multinational organisations to independent, boutique firms. It also has more than 50 licensed fund managers, administrators and custodians, currently managing assets of GBP286 billion (US$463 billion). And there are more than 30 licensed banks with deposits of £90 billion (US$146 billion). These businesses are supported by a network of professional support services, including multi-jurisdictional law firms and global accountancy practices.
"Our long and strong heritage in servicing private clients over the last 50 years also means that we have a tried
and tested infrastructure, including a robust legal system which is renowned for its independence – especially in relation to judgements made by foreign courts," says Le Poidevin.
"We will never profess to be the cheapest jurisdiction, and would never want to be. But we provide a bespoke service for our clients in order to ensure that their assets are administered in the best possible way, and protected for the benefit of future generations."
Originally published in the Hubbis Guide to Wealth Planning 2013, December 2013.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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