The Bailiwick of Guernsey comprises three main islands: Guernsey, Alderney and Sark. Alderney and Sark are dependencies of Guernsey but have certain legislative powers of their own.
The Bailiwick is not part of the United Kingdom and therefore is not represented in the UK Parliament. Acts of Parliament do not apply in the Bailiwick unless extended by Order in Council. The UK Government is, however, responsible for the Bailiwick’s international representation and external defence. In the case of international representation the Bailiwick is currently seeking to enhance and increase its international profile.
Guernsey is not a member of the European Union. Terms were negotiated for the Channel Islands on the UK’s accession to the Common Market. These are contained in Protocol 3 to the Treaty of Accession. The effect of the protocol is that the Bailiwick is within the Common Customs Area and the Common External Tariff (i.e. it enjoys access to EU countries of physical exports without tariff barriers). Other Community rules do not apply to the Bailiwick.
The Bailiwick regulatory authority for the finance sector is known as the Guernsey Financial Services Commission (commonly referred to as the Commission). The Commission was established by the Financial Services Commission (Bailiwick of Guernsey) Law 1987, as amended. The Commission’s primary objective is to regulate and supervise financial services in Guernsey. The general functions of the Commission are set out at section 2 of the 1987 Law and include the regulation of the four main areas of finance business being, investment business, banking, insurance business and those areas of business covered under the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law 2000.
As mentioned above, financial services businesses carrying on activities regulated by the Commission must be authorised.
- The Protection of Investors (Bailiwick of Guernsey) Law 1987 to 1998 (as amended) (the "POI Law")
For the purposes of the POI Law "controlled investment" includes collective investment schemes and general securities and derivatives and "restricted activities" include the activities of "Promotion", "Subscription", "Registration", "Dealing", "Management", "Administration", "Advising", "Custody", and operating an investment exchange as those terms are defined under the POI Law.
- The Banking Supervision (Bailiwick of Guernsey) Law, 1994, as amended
- Insurance Business (Bailiwick of Guernsey) Law, 2002
- Domestic insurance - comprises local insurers, overseas insurers, recognised insurers and intermediaries who advise on or arrange contracts of insurance in or from within Guernsey.
- International insurance - includes captive insurers, protected cell companies and life assurance companies who arrange contracts of insurance from within Guernsey, covering international risks.
In addition to the above there is further legislation in force in the form of the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002.
- Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000, as amended
The Bailiwick was one of the first jurisdictions in the world to introduce a comprehensive system for the regulation and supervision of trust and corporate service providers (including company directors). The above law came into effect on 1 April 2001.
Since 1960, companies and individuals have paid income tax at the rate of 20%. There is no separate corporation tax. Guernsey levies no capital gains, inheritance, capital transfer, value added (VAT / TVA) or general withholding taxes.
For companies registered in Guernsey there is the opportunity for exemption for the purposes of liability to Guernsey income tax, in which case, the company in question will only be liable to tax in Guernsey in respect of income arising in Guernsey, other than bank deposit interest. It is a condition of exemption that no investment or other property situated in Guernsey, other than the relevant bank deposit or an interest in another body to which an exemption from tax has been granted, is required or held.
On 25 November 2002, the Advisory and Finance Committee (now the Policy Council) of the States of Guernsey announced a proposed framework for a structure of corporate tax reform within an indicative timescale. In September 2005, the Fiscal and Economic Policy Steering Group published detailed proposals on Guernsey’s future economic and taxation strategy. In March 2006 an independent Working Group set up at the request of the Treasury and Resources Department confirmed the earlier recommendation that the general rate of income tax to be paid by all Guernsey companies (other than certain regulated banking entities and Guernsey utilities companies) would be reduced to 0 per cent. in respect of the tax year 2008 and subsequent years. This recommendation was approved by the States of Guernsey in June 2006. It is intended that companies and other entities which operate as investment funds will continue to be able to apply for exempt taxation status from 1st January 2008.
As described in "Background" above, Guernsey does not form part of the EU, but it may from time to time implement the tenor of EU directives and legislation, such as implementing equivalent measures to those of the European Union Savings Directive, by passing the Ordinance entitled the Foreign Tax (Retention Arrangements) (Guernsey and Alderney) Ordinance, 2005, which was enacted by the States of Guernsey on 29th June 2005. It has not adopted any of the legislation in respect of the Prospectus Directives, the Markets in Financial Instruments Directive (MiFID) or UCITS Regulations.
The Takeover Panel accepts jurisdiction over Bailiwick registered companies in many circumstances including if any of their securities are admitted to trading on a regulated market in the United Kingdom or on any stock exchange in the Channel Islands.
The Channel Islands Stock Exchange
The Channel Island Stock Exchange (commonly known as the CISX) was launched on 27 October 1998. Based in St Peter Port, Guernsey, the CISX provides a listing facility and screen-based trading. Trading members do not have to be established in the Channel Islands, but must be licenced, regulated or supervised by a regulatory body in a jurisdiction recognised by the CISX.
The CISX provides for the listing of the following core products:
- Specialist Securities, including, Eurobonds, Structured Debt, Warrants and SPVs;
- Investment funds;
- Primary and secondary listings of securities and shares issued by Channel Islands' companies;
- Primary and secondary listings of securities and shares issued by overseas companies; and
- Channel Islands Depository Receipts (CIDRS).
The CISX is licenced to operate as an investment exchange under The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and is itself regulated by the Guernsey Financial Services Commission. The CISX received approval from the UK Financial Services Authority, with effect from the 1 February 2004, as a Designated Investment Exchange within the meaning of the Financial Services and Markets Act 2000.
In September 2002, the US Securities and Exchange Commission designated the CISX as a Designated Offshore Securities Market, within the meaning of Rule 902(b) under Regulation S of the Securities Act of 1933.
The listing of securities on the CISX are governed by the Listing Rules, which set out, inter alia, the requirements for issuers to gain admission to listing, the continuing obligations of listing, the enforcement of those obligations and suspension and cancellation of listing of securities on the CISX.
The Commission, and more specifically the Policy and International Affairs Division, is specifically responsible for establishing and coordinating policies on countering financial crime and the financing of terrorism.
The key laws in place to combat financial crime are contained in the following legislation:
- The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 as amended;
The above law was enacted on 17th August 1999 and amended by The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) (Amendment) Regulations, 2002 which came into force on 28th June 2002. Together they introduced (effectively) equivalent provisions in Guernsey to those introduced in the UK in 1993, including the Money Laundering Regulations. They contain investigatory, confiscatory and enforcement powers and specific offences in connection with money laundering.
- The Money Laundering (Disclosure of Information) (Guernsey) Law, 1995;
- The Misuse of Drugs (Bailiwick of Guernsey) Law, 1974;
- The Drug Trafficking (Bailiwick of Guernsey) Law, 2000;
- The Terrorism (United Nations Measures) (Channel Islands) Order 2001;
- The Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands)
- Order 2002; and
- The Terrorism and Crime (Bailiwick of Guernsey) Law, 2002.
In addition to above the Commission endorses the Financial Action Task Force on Money Laundering’s (FATF’s) Forty Recommendations, the Twenty-Five Criteria Defining Non-Cooperative Countries or Territories and the Eight Special Recommendations on Terrorist Financing.
The Data Protection (Bailiwick of Guernsey) Law 2001 came into force in 2002. The Law requires data controllers to register with the Data Protection Commissioner and confers rights in respect of personal data, including a right of access. The law is very similar to that passed by the United Kingdom in 1998.
The Data Protection Commissioner is an independent public official appointed by the States of Guernsey to administer the Law and the Regulations that implement the Directive on Privacy and Electronic Communications that came into force in 2004.
The Commissioner is responsible for ensuring that organisations which process personal data, both in the private and public sectors (data controllers) do so in accordance with the Law and that individuals (data subjects) are able to exercise their rights under the Law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.