Originally published in Private Client Practitioner, Guernsey Supplement, November 2009
Guernsey features alongside the United Kingdom and United States on the OECD "white list" that was published at the conclusion of the London G20 summit in April 2009. Here, Peter Niven, chief executive of Guernsey Finance, looks at how the Island continues to address the issues of transparency, secrecy and confidentiality to ensure that it remains attractive to clients as a jurisdiction within the very top tier of international finance centres.
Writing in this supplement at the same time last year I remarked that we were in the midst of a major financial crisis, although the full extent still remained unclear. Since then, we have seen a global economic downturn of unprecedented proportions.
As a leading international finance centre Guernsey cannot be completely immune, although the Island has to a large extent remained resilient in the face of these pressures. Perhaps the most significant fallout though has been the increased focus on so-called "tax havens" or "offshore" centres. For its part, Guernsey continues to embrace transparency and eschew secrecy but not at the expense of confidentiality or privacy for its clients.
The economic conditions have demonstrated the way in which today, more than ever before, we are part of a global financial community. Guernsey has been adamant throughout that it has not exported instability but has been subjected to it and as a leading international finance centre we have not been able to completely shelter from the impact. However, one of Guernsey's great strengths is the breadth of finance business that is carried out in the Island. So, while the general downturn has adversely impacted business flows within some sectors such as banking and funds, others like (captive) insurance and fiduciary services are seeing an upswing or have identified new prospects.
Guernsey's fiduciary sector has been a mainstay of the Island's finance sector over the last 50 years and this heritage has developed significant expertise and infrastructure. Today, we play host to more than 150 licensed fiduciary providers, ranging from large multinational organisations to local, independent boutique operations. Together they hold more than £300 billion worth of assets in trust. Guernsey also boasts substantial expertise in using innovative modern structures that are available for the preservation of both institutional and individual/family wealth.
What we have seen during the past year is that globally there has remained a significant amount of private wealth looking to take advantage of appropriate structures for asset protection or estate planning (and – albeit to a lesser extent – corporate monies seeking sound investment opportunities). In addition, the financial crisis triggered something of a "flight to quality."
With Guernsey having introduced a new Trust Law, new Company Law and a new Company and Intellectual Property Registry – which were instrumental in the Island being named International Finance Centre of the Year at the STEP Private Client Awards 2008/9 – it is perhaps not surprising that our fiduciary providers are reporting real buoyancy in business flows.
What we are also seeing is that practitioners are increasingly attracting new clients from further afield. The traditional markets of the UK and Europe are being supplemented by new business from India, the Middle East and the Far East. We are working closely with industry to increase awareness of the Guernsey brand in these regions so that the Island's wealth management sector has a further pool of potential new business flows in the future.
An international citizen
One of the key developments resulting from the financial crisis has been the increased focus on so-called "tax havens" or "offshore" centres. Guernsey has during its 50 years as a finance centre and particularly during the last decade or so faced scrutiny from the likes of the UK Government (the 1997 Edwards Report), the EU, the IMF, FATF and the OECD/G20.
The Island has always cooperated in these processes and on each occasion been placed within the premier division of international finance centres. For example, Guernsey features alongside the UK and US on the OECD "white list" that was published at the conclusion of the London G20 summit in April 2009. We also, understand that the current review of the British Crown Dependencies and Offshore Territories by Michael Foot on behalf of HM Treasury will similarly place Guernsey within the top tier. In addition, there is every reason to believe that Guernsey will do well when the Island is assessed by the IMF in the first half of 2010.
Guernsey however never rests on its laurels but is always looking to the future. The Island continues to show its commitment to meeting international standards of tax transparency through the signing of further Tax Information Exchange Agreements (TIEAs). Our very first was with the US in 2006 and we have now signed a total of 15, with the prospect of more in the coming months.
An important point to make though is that Guernsey, while continuing to embrace transparency and eschew secrecy, does not do so at the expense of confidentiality or privacy for clients. The concept of confidentiality is not new and is provided to clients by all major finance centres worldwide. But this confidentiality is not enshrined in the Law neither in Guernsey nor indeed in the UK – it is case Law that gives us our marker and the Tournier Case of 1924 in particular is the reliably held English Court precedent.
This case decided that a bank owes all its customers a duty to keep their affairs confidential. But importantly it also gives us four occasions when this duty can be over-ridden and specifically these are: where the law compels it where there is a duty to the public to disclose the information where the bank's own interests require it, and where the customer permits it. While there are these overriding areas where there is potentially a break in the duty of confidentiality, we must ensure that for the vast majority of clients confidentiality is real and seen to be real. For this reason Guernsey has comprehensive Data Protection Laws.
A comprehensive series of Laws is also available to ensure that the Island mitigates, as far as possible, the potential abuse of the international finance system to fund the drugs trade, terrorist activities or hide the proceeds of crime through money laundering. There is no place for that type of business in Guernsey and as part of the international financial community we must be prepared to divulge information in those cases and under the law we have that duty to disclose.
And here I believe is where the distinction lies between confidentiality and "secrecy." Guernsey, again like the UK, does not have a banking secrecy law and has no intention of introducing one. Other jurisdictions may have such legislation (or have had this in place) but not Guernsey.
Embracing transparency and eschewing secrecy is though at no cost to confidentiality for those who are undertaking legitimate business. There have been many scaremongering stories about "leaky buckets," with information being made available to all and sundry and at the drop of a hat but this could not be further from the truth. In particular, within each TIEA there is a very specific procedure for accessing information and this ensures that there is an underlying bona fide reason for the information request and that fishing expeditions will not be allowed. Only those with something to fear will indeed have something to fear.
And the future?
The Island was ranked 15th in September's Global Financial Centres Index (GFCI) 6, behind the leaders
London and New York and in the very top echelon of the so-called "offshore" centres. However, we are currently facing challenges in a variety of guises – tax transparency, corporate tax rates, a revised EU Savings Tax Directive (EUSTD) and sector specific EU initiatives, such as the Alternative Investment Fund Managers (AIFM) Directive. Having said that, we have also been challenged many times in the past and the Island has always proved more than capable of negotiating and adapting to survive.
For example, Guernsey worked very closely with Jersey and the Isle of Man regarding the original EUSTD and we are intending a similar level of cooperation again now, not least in the need to review corporate tax rates. In addition, the Island is stepping up its representation within the corridors of power in both the UK and the EU. Guernsey is determined to do all it can to ensure that it remains attractive to clients as a jurisdiction within the very top tier of international finance centres.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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