Guernsey's Chief Minister, Lyndon Trott, examines the Island's credentials as a risk management centre and assesses the regulatory and fiscal steps being taken to maintain and even enhance its position as the leading captive insurance domicile in Europe.
Good afternoon. I am delighted to be here today, and I am very grateful to our good friends and colleagues at Aon for inviting me.
I have already met some of you in person, and hope to get the opportunity to meet more of you during the course of the day. However one conclusion I have already drawn is that there are three things that we will all certainly have in common: we share an entrepreneurial approach; we share a sense of determination; and we share a commitment to innovation and excellence.
Let me start by giving you some key facts. Guernsey is the leading captive insurance centre in Europe, and among the top four in the world. More than 40 per cent of FTSE 100 companies choose Guernsey when establishing a captive insurance vehicle. 95 of the Global 1500 companies have captives in the Island. The City of London Corporation recently established its captive insurance vehicle in Guernsey. Our captive industry is global. In addition to UK companies a number of firms in Europe, USA, Middle East, Asia, South Africa, Australia and the Caribbean have established captives in Guernsey.
So Guernsey is a place where you can do business. You'll hear much on the subject today. For my part I will tell you a little more about Guernsey and its place in the world. About how we are dealing with the changing nature of global regulation, about our track record in captive insurance and about our position on Solvency II and equivalence.
So firstly, Guernsey and the global economy
Having recently become Guernsey's longest-serving Chief Minister, I would argue that I have as a good an understanding as anyone of how Guernsey punches its weight in the global economy.
Our relationships with the UK and the members and institutions of the European Union are vital. But Guernsey is able to look so much more widely than that.
Last autumn I visited Shanghai, where Guernsey concluded both a Tax Information Exchange Agreement with the Chinese government, and a Memorandum of Understanding with the Mayor of Shanghai to work closely on developing financial services and economic links. While in China I was interviewed live on a news programme that I am told had an audience of around 300 million people. 300 million people who heard about the commitment that their country had made to work more closely with Guernsey.
And it was only a few years earlier, while on a visit to China, that a Guernsey captive insurance expert was approached by Chinese officials who wanted to learn more about captive insurance.
Other International Finance Centres still talk about how they are going to work more closely with China. Guernsey is already doing it. Punching above our weight on the world economic stage.
Back in January I welcomed the publication of six International Monetary Fund evaluation reports into Guernsey. These reports recognised and commended the high standards of financial regulation, supervision and stability that we have developed and put in place. The IMF was invited to re-assess the Guernsey's financial, regulatory and criminal justice structure, and that assessment also included evaluating financial stability elements in the banking and insurance sectors.
Guernsey's contribution to maintaining and promoting international financial stability and to combating and preventing financial crime has been substantiated by a number of international reviews, objective measures, reports and assessments over the last 10 years. In addition to the IMF's assessments, this includes those of the Financial Action Task Force, the Financial Stability Forum, and the Organisation for Economic Co-operation and Development.
The IMF found that Guernsey's macroeconomic performance is excellent, that it has a highly developed legal system, and that financial sector regulation and supervision are of a high standard across all sectors. It was also pleasing to see recognition that the Guernsey Financial Services Commission is well-resourced, is considerably independent and has strengthened powers. The ratings that have been achieved by Guernsey in the IMF assessment are the highest awarded to any jurisdiction.
Shortly after that IMF report, the Global Forum on Transparency and Exchange of Information for Tax Purposes confirmed that Guernsey had not only followed through its 2002 commitment to observe the OECD principles on transparency and exchange of information, but had in fact made substantive developments in expanding its exchange of information network. The report also confirmed that Guernsey has in place all the necessary legal and regulatory powers to ensure it can meet the internationally agreed standard on obtaining and exchanging information for tax purposes.
I was delighted that, hard on the heels of a very favourable report from the IMF, Guernsey received this further endorsement of its legal and regulatory framework from a supra-national body such as the Global Forum. The report confirmed our long-standing commitment to meeting international standards. It is another independent endorsement that Guernsey is a well regulated, transparent and co-operative member of the international community. The fact that this report was prepared by our peers in the Global Forum, and has measured Guernsey's system as being equal to some of the largest and most important countries on the planet has not gone unnoticed.
Guernsey has a policy commitment to meeting the highest international standards of tax transparency. We don't just talk the talk – we also walk the walk. We saw the fruit of that commitment with the OECD white listing of 2009, which confirmed our place in the premier league of International Finance Centres. What does all of this mean? It means that when you work in Guernsey, you can be sure that you are working to the very highest international standards, in a competitive environment, in a stable environment – and in a place that can stand toe to toe with some of the biggest economic powers in the world, particularly when it comes to captive insurance.
I now wish to focus briefly on Guernsey and global regulatory developments
Recent times have seen greater global economic uncertainty. Our economy has exhibited robust resilience, most likely in part due to a more diversified banking and finance sector than perhaps some International Finance Centres.
However the economic environment does remain highly uncertain particularly for the UK and Europe. And in Guernsey we are vigilant and confident, but never complacent.
The economic uncertainty has lead to increased regulatory uncertainty. Global regulation is becoming pervasive, burdensome, creating more and more potential risks to the finance industry and it is a challenge that we must respond and rise to. The moniker of macro-prudential regulation will be used as a cover, time and time again, for political objectives. This will demand ever greater vigilance by ourselves and our friends in the UK.
The new regulatory architecture that is being constructed has a much reduced role for national regulators and the principle of one 'European' lead has now common acceptance. How this will all play out remains to be seen, but clearly the risk is in increased costs of capital, reduced investment and reduced long term growth. And whilst the regulatory rebuilding takes place, it merely adds to the uncertainties faced by the finance sector.
Now to Corporate tax matters
Change in global thinking has also extended to the fiscal arena. We have seen Ireland's corporate tax rate come under attack and nearer home to us our neighbours, Jersey together with the Isle of Man, have been reviewed by the EU Code of Conduct Group on Business Taxation and had their regimes judged harmful and non-compliant by the Code Group in February. The recent announcements by both jurisdictions that they will remove their deemed distribution and attribution regimes is now subject to further review which we understand is underway.
With regards to Guernsey's own review of our corporate tax regime, we published a consultation document last June, reported back in November and a further round of consultation is envisaged for later this year.
We have always stated that any regime we have in place must be: internationally competitive; internationally acceptable; promote a sustainable economy in Guernsey; based on a simple, solid rationale; and give rise to reciprocal benefits. In that respect nothing has changed. We have always maintained that we will not place our economy at a competitive disadvantage by this review process. As I've also personally made clear on many occasions the final outcome of the EU Code of Conduct review of the Jersey and Isle of Man regimes will inform Guernsey's final assessment of any changes. And at the risk of overkill, I would like to reassure this audience that at the forefront of our deliberations is the need to retain the competitive edge of our insurance industry and that we fully appreciate the need to retain tax neutrality for the captive industry.
However our actions in Guernsey make clear that we believe in positive engagement and believe that such actions will best serve our long-term interests. That is how we approach our relationships with the UK, the European Union and all international bodies.
I not only believe it is one of the reasons why Guernsey is held in such high regard on the international stage, I am told so by our international partners.
It is important to remember, throughout the process that we going through, that the UK's economic interests are aligned to our economic interests. It is easy now to forget, a little over 18 months after its publication, the HM Treasury-commissioned review of the Crown Dependencies and Overseas Territories. This made an overwhelming case in support of the economic importance of the Crown Dependencies to the City of London.
So now, importantly to Guernsey and the captive insurance sector
Our commitment to the captive insurance industry in Guernsey is clear, and it is also long-standing. The insurance industry in Guernsey has its origins dating back to the 18th century and captives have been incorporated in the Island since 1922.
Last year studies such as those by Business Insurance and Captive Review demonstrated that Guernsey is the leading captive insurance centre in Europe and among the top four in the world. We did not rest on our laurels when we were awarded those accolades. We have worked hard over the past months to ensure that we remain right up in the top tier with the very best globally.
Our robust yet pragmatic regulatory environment, has built a wealth of experience and expertise in providing management and administration of captives. It is that leadership position that makes it important for me to make clear today Guernsey's current position on Solvency II and equivalence.
Guernsey has been following developments on Solvency II closely for the past few years. I think I can say without doubt or risk of any contradiction that that Directive has not just created controversy but also a degree of uncertainty in the global insurance industry. It is also apparent that during the course of the past few years there had developed a perception that Guernsey intended to seek equivalence under Solvency II. How that perception developed is not clear. But there was a significant amount of speculation that a decision had been taken to pursue equivalence.
Now, the first point to clarify here is that Guernsey is not part of the European Union and so is not obliged to introduce European Union regulatory laws. The second, and hugely important point to make, is that Guernsey's insurance industry is substantially different from that which exists within the European Union. As I said at the beginning of this address, more than 40 per cent of FTSE 100 companies choose Guernsey when establishing a captive insurance vehicle. 95 of the Global 1500 companies have captives in the Island. Our captive industry is global. So with that context established, I should now re-emphasise that Solvency II is not designed for captives. It is in fact designed for large commercial insurers and reinsurers with a very different risk profile to that faced by most captives.
As a result of the uncertainty surrounding Solvency II and in particular how it will treat captives, which is still not yet fully determined, the States of Guernsey conducted research to determine what was the most appropriate route for Guernsey to take. Our research concluded that, given the uncertainty surrounding the treatment of captive insurance vehicles, Guernsey should not take any steps towards seeking equivalence until that uncertainty is resolved.
Instead what Guernsey intends to do is continue to monitor developments in Solvency II, and also focus on the evolving international standards being developed by the International Association of Insurance Supervisors. It may be, that at sometime in the future, there is a clear advantage for Guernsey in seeking equivalence under Solvency II. But until we are satisfied that there is a clear advantage to Guernsey, or at the very least no disadvantage to Guernsey, then we will not be seeking equivalence.
That does not mean that Guernsey has set its face against equivalence forever. It simply and clearly means that at the present time we do not plan to seek equivalence.
So, in closing
Guernsey's watch word on captive insurance is commitment – commitment to excellence, and commitment to innovation. Guernsey plc is in very good shape. We're in good shape to meet the challenges that will come. And in good shape to take advantage of opportunities that arise. We are a stable economy that meets the highest international standards – and is seen to meet those standards by other governments and by august supra-national bodies such as the Global Forum, the OECD and the IMF.
My thanks to Aon
Ladies and Gentlemen – thank you for listening.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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