Originally published in Private Banker International, February 2012
Fiona Le Poidevin, Deputy Chief Executive of Guernsey Finance, explores how the financial crisis has initiated a new era for international finance centres, such as Guernsey.
The financial crisis, which initially came to a head some three or more years ago, has proved to be a "game changer" for international financial centres.
The pre-2008 world of sustained growth is now long forgotten as we experience a continued Western economic downturn. As a leading international finance centre, Guernsey cannot be completely immune from these worldwide issues.
However, we have been able to absorb some of the most severe impacts due in no small part to our 50-year heritage in providing a wide range of financial products and services, including insurance, investment funds, fiduciary administration and banking.
Banking in Guernsey was purely domestic and largely conducted by the major British high street clearing banks until the mid-1960s when a clutch of merchant banks established subsidiary operations on the island to relay the benefits of offshore banking to their international clients.
Since then, international banking groups with head offices in Switzerland, Europe, the US and the UK, among other locations, have established subsidiaries on the island.
Today, there are 37 licensed banks in Guernsey holding more than £114bn ($180bn) of deposits. The sector provides products ranging from retail banking and savings through international wealth management to institutional business and specialist lending. Importantly, it services the other financial services sectors on Guernsey.
Historically, a significant client base has been the retail deposit taking market comprising principally UK expatriates who find offshore a convenient way to organise their financial affairs, and UK residents choosing these accounts due to the preferential interest rates. However, the financial crisis has not only brought about a low interest rate environment but also a change in regulatory requirements for the banks, which together have removed much of the marginal benefits and consequently there has been a marked contraction in this marketplace.
The post-crisis environment has also triggered greater scrutiny of tax havens or offshore centres. However, in Guernsey, we not only believe but also have considerable evidence that the island stands up to independent scrutiny:
- Guernsey agreed to enact measures equivalent to the EU Savings Tax Directive from July 2005, and in 2011 we moved to automatic exchange of information.
- In 2009, a UK government review carried out by Michael Foot, reported that the Crown Dependencies of Guernsey, Jersey and the Isle of Man were within the very top tier of international finance centres.
- Guernsey has signed tax information exchange agreements (TIEAs) with 34 jurisdictions, and our leadership in this area has been consistently recognised by international agencies such as the OECD, its Global Forum on Transparency and Exchange of Information for Tax Purposes and the Financial Stability Board.
- Furthermore, in January 2011, the IMF published a series of evaluation reports which commended Guernsey's high standards of financial regulation, supervision and stability along with our robust criminal justice framework.
In addition, during 2009, Guernsey commissioned Lord Hunt to undertake a review of the island's banking sector. One of his key recommendations was that Guernsey should look to concentrate on attracting higher added value business in the form of private banking. In particular, this is complementary to Guernsey's long-standing fiduciary sector and its ability to service the needs of high net worth individuals.
There are more than 150 fully licensed corporate fiduciaries in the island ranging from large, multinational organisations to independent, boutique operations. Together, they hold more than £350bn-worth of client wealth and assets. Guernsey has an experience and expertise in utilising trust and company structures but it is also set to expand the product range by bringing foundations on-stream during 2012.
The game may have changed but Guernsey's adaptability, flexibility and innovation means that it remains very well placed to maintain its position as a leading international finance centre.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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