Chief Executive of Guernsey Finance, Fiona Le Poidevin, spoke to Zoya Malik of Banker Middle East about the Island's financial services and interests for Middle East investors.
What is the role of Guernsey Finance?
Fiona Le Poidevin (FLP): Guernsey Finance is the promotional agency for the Island's financial services industry internationally. We concentrate our marketing efforts across the four main pillars of Guernsey's finance industry which are:
- Private wealth – Over 150 licensed fiduciaries, ranging from multinational organisations to independent, boutique operations.
- Investment funds – more than 50 fund managers, administrators and custodians with total net asset value of funds under management and administration of nearly half a trillion US dollars.
- Banking – There are 31 licensed banks comprising subsidiaries and branches of groups from around the world.
- Insurance – The Island is the largest captive insurance domicile in Europe and number four globally.
Businesses in these sectors are supported by a network of professional services, including multi-jurisdictional law firms and global accountancy practices. A major advantage that Guernsey has over other jurisdictions is that it is located in between the UK and continental Europe. This means that it offers quick and easy access to both these markets and, being in the same time zone as the UK, enables business to be conducted easily with the Middle East.
What are the services that Guernsey offers that are of interest to GCC clients?
FLP:The GCC investment community already utilises Guernsey as an investment fund domicile.
The introduction of the EU's Alternative Investment Fund Managers Directive (AIFMD) is considered by many non-EU asset managers to be an unnecessary burden to doing business in Europe. However, Guernsey is able to offer the solution of access to Europe, but from a non-EU platform.
Guernsey is in Europe geographically but it is not in the EU and therefore, is not required to implement EU directives, such as AIFMD. Instead, Guernsey has introduced a dual regulatory regime whereby it is possible to continue to distribute Guernsey funds into both EU and non-EU countries.
The point is that Guernsey's dual regulatory regime provides optionality that allows clients to be serviced according to their specific circumstances. Other than funds, our private wealth offering is also particularly attractive to those in the Middle East, providing a third country location from which individuals and families spread across the globe, can protect and manage their wealth and assets in a tax efficient manner for the benefit of future generations through a variety of sophisticated structures including trusts, companies or foundations.
What are the arrangements for trusts in Guernsey?
FLP: Unlike some other jurisdictions which promote the use of 'off the shelf companies', Guernsey's use of sophisticated structures such as the Private Trust Company (PTC) ensures that trusts can be built bespoke to client requirements. For many clients, the idea of handing over control of their wealth and assets is an uncomfortable prospect. Yet, Guernsey can address these concerns. Firstly, Guernsey has well-established legislation and supporting legal infrastructure including courts which have many decades of experience in dealing with judicial matters. Secondly, within the arrangements of a standard Guernsey trust there are special provisions which allow for the Settlor to take some control of the wealth or assets; the use of structures involving a PTC or purpose trust gives the Settlor greater control – they may sit on the board of the PTC and also be in command of the purpose trust which is the ultimate authority over the PTC board.
More recently Guernsey introduced its own Foundations legislation, a concept arguably more familiar in the Middle East. The Guernsey Foundation can be used as an alternative to the PTC and purpose trust arrangements that have traditionally been used to allow Settlors to retain control over assets and wealth.
What is your reach / presence in the Middle East at the moment?
FLP: Middle East asset managers with Guernsey-domiciled investment funds in recent years include the likes of Arab Bank, Ahli United Bank, Global Investment House, Kuwait Investment Company, MENA Capital, Mubadala, the National Bank of Abu Dhabi and Strategia Investment Company.
Arab Bank for example has a number of investment products domiciled in Guernsey. The funds, structured within Protected Cell Companies (PCCs), have been set up to attract investment from institutional clients in the MENA region and include the AB MENA Feeder Fund, the IIAB Sukuk & Murabaha MENA Fund and the IIAB MENA Feeder Fund. All three are listed on the Channel Islands Securities Exchange (CISE) and were established adhering to Shariah principles.
There are also other MENA investment houses such as SHUAA Capital and the Islamic Development Bank which have their funds domiciled elsewhere but choose Guernsey for the administration due to our mature infrastructure and expertise.
In terms of private wealth business in Guernsey that originates in the Middle East, figures from the GFSC suggest that around 8 per cent originates from the Middle East and that the proportion is growing. "Guernsey also has a truly international captive insurance client base, with firms from around the world – including from the Middle East – establishing entities in the Island.
What's involved in setting up a bank subsidiary or an administered bank in Guernsey? What would be the benefits for regional GCC and international banks?
FLP: Ahli United Bank in the UK already has a branch in Guernsey and there is scope for other GCC banks to follow similarly, in particular as a way to service globally mobile high net worth individuals and families originating from the Middle East
Guernsey offers a particularly unique solution to help banking groups establish a presence in the Island – the administered bank. This is where a group new to the Island utilises the infrastructure and expertise of an existing provider to establish a presence in Guernsey. It is a cost-effective, time-efficient way to establish a banking subsidiary or branch in Guernsey which can act as a 'test-bed', or incubator, for something more substantial in the future.
In a similar way, a Managed Trust Company (MTC) is the arrangement by which an existing licensed service provider takes responsibility for the operational functions of a trust business, set up and owned by another company. For example, it allows company 'A' to beneficially own a Guernsey MTC 'B', which then provides services to company A's clients. This MTC would be administered by a Guernsey based fiduciary services company which would provide all necessary officers and infrastructure to ensure it complies with local regulations.
What are the tax provisions for GCC BFI institutions?
FLP: Guernsey is able to provide Middle East clients with a full service proposition in a tax-neutral environment. Excluding some regulated financial services business, the standard rate of corporate income tax is zero per cent. In Guernsey, there is no withholding tax for dividends, nor capital gains tax or inheritance tax; there is no income tax levied on 'non-Guernsey' income generated from trusts whose beneficiaries include no Guernsey residents.
What is the criteria for acquiring new clients?
FLP: Guernsey abides by high international standards when it comes to acquiring new clients. An IMF report from early 2011 showed that Guernsey's legal and regulatory framework has the highest level of compliance with the Financial Action Task Force (FATF) standards on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) of any jurisdiction globally, which has been so far assessed.
Guernsey has never had banking secrecy laws, we follow international standards on tax transparency and exchange of information and our corporate service providers are not only regulated but are required to hold beneficial ownership information. There are moves in the UK and the EU to introduce public registers of beneficial ownership but this is something that Guernsey will not be introducing because we believe in client confidentiality and not respecting this right to privacy could lead to unintended consequences."
An original version of this article was published by Banker Middle East, November 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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