Originally published in Private Client Practitioner Guernsey Supplement, December 2011
Guernsey is widely recognised as one of the leading offshore jurisdictions. How well has it fared during the global economic downturn and how can it remain at the top of its game. Peter Niven of Guernsey Finance takes a look at the island's current situation and next steps.
The global financial crisis initially came to a head in 2008, yet more than three years later and we continue to see the repercussions, particularly in the eurozone but also through an ongoing worldwide economic downturn.
Guernsey has proved extremely resilient, but as a leading international finance centre, we cannot be completely immune from these worldwide issues. However, the key indicators are suggesting that the island is performing more strongly than many of our closest competitors.
The financial crisis and its aftermath have also brought renewed focus on so-called 'offshore' centres. I am very pleased to say that during the last 12 months the International Monetary Fund (IMF), Organisation for Economic Cooperation and Development (OECD) and the Financial Stability Board (FSB) – which was reporting to the G20 – have each given Guernsey more than just a clean bill of health.
The fact that we are recognised as within the top tier of international finance centres provides the island's finance industry with great confidence. Our fiduciary sector is building on its experience and expertise to unlock niche opportunities in the wealth management space as well as looking to attract new flows of business from the emerging markets.
Guernsey's fiduciary sector has been a mainstay of the island's finance industry during the last 50 years. Looking back over the last decade we can see that superficially the sector hasn't really changed. Today, there are some 150 full corporate licensees (as well as more than 50 licensed individuals who can act as directors, co-trustees or trust protectors) employing more than 2,000 members of staff. These figures are not particularly dissimilar to those from ten years ago.
However, technological developments assisting the administrative functions for maintaining and indeed, enhancing this wealth have allowed us to significantly increase assets held in trusts and companies in Guernsey so that the total value now stands at more than £350 billion.
During the last 10 years, the ratio of the number of independent trust companies to those owned by corporate entities from other sectors – notably banks – has remained fluid. Yet, regardless of formal ownership status, there has been without question ever-increasing integration and cooperation between sectors.
For example, the close links with the banking sector remain and notably these providers benefit from the assets coming into the fiduciaries. At the end of June 2011 deposits with the 39 licensed banks in Guernsey reached nearly £114 billion. These figures have also been swelled by the island's thriving investment funds industry, where the value of funds under administration and management reached a new record high of more than £274 billion at the end of June 2011.On the back of such success, fiduciaries have increasingly looked to develop a funds presence in terms of providing administration and company secretarial services.
Within the investment world, the partnership structure has been a familiar concept for many years and yet more recently it has been adopted by the wealth management sector to offer the Family Limited Partnership (FLP). The FLP provides similar levels of asset protection and flexibility in management to a trust but allows lifetime gifts without the charges to inheritance tax.
The cell company concept was pioneered in Guernsey for our pre-eminent captive insurance industry but both the protected cell company (PCC) and now the incorporated cell company (ICC) are being increasingly used within the fiduciary sphere.
In addition, Guernsey's asset management and stockbroking sector now has more than £81 billion under management, including increasing amounts from fiduciaries, especially those providing trust structures for life insurance products and overseas pensions.
Guernsey's heritage in fiduciary services has been a significant factor in the island becoming the jurisdiction of choice for Qualifying Recognised Overseas Pensions Schemes (QROPS) and related products. Data direct from Her Majesty's Revenue & Customs (HMRC) shows that during the first half of 2011 there were more pension transfers into QROPS in Guernsey than any other jurisdiction globally.
Within this overseas pension space, the island has displayed its ability to adapt and be fleet of foot. We are now looking to maximise these characteristics to unlock the potential from other niche areas such as providing the financial infrastructure around films and cleantech. In addition, Guernsey's Government has agreed to establish a registry for aircraft belonging to local residents and those held through fiduciary structures on behalf of clients.
The aircraft registry will provide the local fiduciary sector with an extra tool to meet client needs, and comes at a time when Guernsey is to become the first jurisdiction in the world to recognise image rights in law and provide them with a register. This will be managed by the Island's Intellectual Property Office – which is part of the Guernsey Registry – and will add a further dimension to our cutting edge IP offering.
The Guernsey Government has also been consulting on draft foundations legislation. The introduction of foundations will provide another tool for practitioners to meet the needs of clients. In particular, we expect the foundation structure will be attractive to clients based in civil law jurisdictions in Europe and also in 'emerging' markets such as China, Russia and Latin America where the trust concept is less familiar than in common law countries such as the US, Canada and the UK.
Indeed, we are already seeing that our practitioners are increasingly attracting clients from further afield. The traditional sources of the UK and Europe are being supplemented by new business from India, Russia, the Middle East and the Far East. 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.
The introduction of foundations is part of that strategy, and I'm hopeful that by early next year Guernsey practitioners will be able to offer a foundation, which enables clients to preserve and enhance their wealth and assets through a highly regarded structure in a reputable jurisdiction.
Guernsey's reputation was further enhanced earlier this year when the IMF published six evaluation reports, which commended Guernsey's high standards of financial regulation, supervision and stability along with our robust criminal justice framework.
Guernsey's proactive stance regarding tax transparency and exchange of information means that earlier this year the OECD built on our 'white listing' in April 2009 by endorsing our continued commitment to tax transparency and exchange of information.
In addition, an FSB report prepared for the G20 meeting in Cannes recognised Guernsey as within the top tier of jurisdictions adopting international standards and thereby demonstrating strong commitment to financial stability.
Guernsey has now signed TIEAs with 29 jurisdictions globally, and financial institutions in Guernsey were given a window from 1 January 2011 to 1 July 2011 for moving to automatic exchange of information as part of equivalent measures the island adopts in relation to the EU Saving Tax Directive.
What we can see is that Guernsey never rests on its laurels and is always looking to the future but we do continue to face challenges. For example, the 'zero-10' corporate tax regimes of the three Crown Dependencies have come under scrutiny from the EU. We are currently reviewing our position, but it has been made clear already that we must adopt a regime which is both compliant and competitive in the long term.
So, not everything in the garden is rosy but we are confident of being able to take the necessary steps to ensure that Guernsey remains a leading international fiduciary centre well into the future.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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