Originally published in FSC Report, May 2012
The global financial crisis initially came to a head in 2008, yet more than three years later we continue to see the wave of repercussions, particularly in the eurozone but also through an ongoing worldwide economic downturn. Guernsey, as a leading international finance centre, cannot be completely immune from these worldwide issues however, the Island has proved extremely resilient, says Fiona Le Poidevin, Deputy Chief Executive of Guernsey Finance.
The recovery is not uniform across the different facets of our industry but in fact its broad-based nature means that while some sectors continue to be more adversely impacted by the economic downturn, others have seen an upswing or identified new prospects.
The value of deposits held by banks in Guernsey fell 5.8% during the final quarter of last year to reach £107.5 billion at the end of 2011, which is down 3.1% compared to the previous year. Currency movements continue to have an impact on the figures expressed in sterling terms but the banking sector also faces broader challenges in terms of the unprecedented low interest rate environment and the sovereign debt crisis in the Eurozone.
Indeed, uncertainty in the Eurozone and the upheaval in the international markets are also impacting the Guernsey investment funds sector. The value of investment funds under management and administration in Guernsey fell 3.7% in the final quarter of last year, taking the total value of funds business to £261 billion at the end of 2011. However, this is an increase of 1.6% year on year and, in particular, we have seen strong growth in alternative and niche funds, especially private equity.
One of Guernsey's great strengths is the ability for its vehicles to list on the local Channel Islands Stock Exchange (CISX) – which now has more than 4,300 securities listed – as well as Euronext Amsterdam, the stock exchanges in Toronto, Australia and Frankfurt, among others, and the London Stock Exchange (LSE). Data from the LSE to the end of December 2011, shows that there were more Guernsey-incorporated companies and securities listed on its markets than from any other competitor jurisdiction.
In March 2011, Guernsey received approval for its companies to list on the Hong Kong Stock Exchange (HKEx). We are also in discussions with the equivalents in Singapore, Shenzhen and Shanghai to facilitate the listing of Guernsey companies on those exchanges in the future. Guernsey's non-fund investment sector, the asset managers and stockbrokers, have also continued to see growth, with gross assets under management reaching £87.3 billion.
Guernsey has consolidated its position as the largest captive insurance domicile in Europe and number four in the world. During 2011, 72 international insurance licences were issued, which is up more than 50% on the previous year and took the total number of licensed entities to 687.
There is strong evidence to suggest that this success is, at least in part, a result of our decision at the start of 2011 not to seek equivalence with Solvency II, which is the EU's proposed regulatory regime for insurance and reinsurance entities. Guernsey will continue to meet the standards of the International Association of Insurance Supervisors (IAIS) but its proportionality principles mean that we will provide a more attractive environment for captive owners and other niche insurers.
The fiduciary sector boasts more than 150 licensed providers which together hold more than £350 billion worth of assets in trust and company structures.
This heritage has been a significant factor in the island becoming the location of choice for Qualifying Recognised Overseas Pension Schemes (QROPS) and related products. Data from the UK Revenue showed that during the first half of 2011 there were more UK pension transfers into QROPS in Guernsey than any other jurisdiction globally. The Island also took the lead by introducing a code of practice for QROPS providers during 2011.
We are now looking to unlock the potential from other niche areas such as providing the financial infrastructure around films and cleantech.
Diversification – products & markets
The government has agreed to establish a registry for aircraft belonging to local residents and those held through fiduciary structures on behalf of clients and, in September 2011, the Guernsey parliament approved a policy letter proposing the creation of the world's first Image Rights Register. This would enable registration of a registered personality right, a property right, which would also provide rights in the registered personality's associated images.
Drafting time was estimated at about four months and it is hoped the legislation will be in place before the London Olympics in 2012.
The government has further been consulting on draft foundations legislation and I'm hopeful that a local foundation structure will be made available during 2012. 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. In particular, it is hoped that foundations will provide a vital addition to the Guernsey environment that will enable it to become a hub for philanthropic clients.
Diversification – geographical
The traditional sources of the UK and Europe are being supplemented by new business from Russia, the Middle East and Asia. We are working with the Guernsey Government, regulator and industry to build key relationships and raise awareness of our offering in these regions so that we have access to a further pool of potential new business flows in the future.
Towards the end of 2010, the government signed a Memorandum of Understanding (MoU) for exchange and cooperation with the Shanghai Municipal Financial Services Office and a Tax Information Exchange Agreement (TIEA) with China's central government tax authorities. The Guernsey Financial Services Commission (GFSC) has also now signed a statement of cooperation with the Chinese central banking regulator, the China Banking Regulatory Commission (CBRC).
In January 2011, the IMF published six evaluation reports which commended Guernsey's high standards of financial regulation, supervision and stability along with its robust criminal justice framework. Guernsey scored the highest of any jurisdiction so far assessed.
Later that same month, the OECD's Global Forum built on its 'white listing' of Guernsey at the G20 summit in London in 2009 by issuing a Phase 1 Peer Review of Guernsey, which found that a satisfactory legal and regulatory framework was in place in respect of international standards of tax transpatency and exchange of information. A Phase 2 review is scheduled for the second half of 2012.
Indeed, Guernsey has now signed TIEAs with 34 jurisdictions globally and, as of 1 July 2011, it moved to automatic exchange of information as part of equivalent measures adopted by Guernsey in respect of the EU Savings Tax Directive.
Another positive note is that the US government has scrapped its jurisdiction "black list". Although this has now been replaced by the Foreign Account Tax Compliance Act (FATCA), it does at least create a level playing field across jurisdictions.
'Zero-10' corporate tax regime
Finally, the zero-10 corporate tax systems of the Crown Dependencies have come under European scrutiny.
The Guernsey Government expects to be able to finalise our position in the middle of this year, however, it has already made clear that Guernsey is committed to retaining a regime which is both compliant and competitive i.e. the zero product and tax neutrality for Guernsey's international client base will remain.
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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