Originally published in the Hassell Blampied Directors and Senior Managers Survey, August 2012
The global financial crisis came to a head in 2008, yet four years later and the wave of repercussions continues, particularly in the Eurozone but also through the ongoing worldwide economic downturn. As a leading international finance centre, Guernsey cannot be completely immune from these issues yet the key indicators are suggesting that the Island is proving extremely resilient.
However, the financial crisis and its aftermath have also brought a renewed focus on International Finance Centres (IFCs) from the UK, EU and globally. In particular, within the last year, the UK Government has hardened its rhetoric and stepped up its action in the face of what it deems to be abuses of its tax regime through the use of structures based in IFCs.
Of course, independent reports show that Guernsey meets the highest international standards in relation to financial regulation (IMF) and tax transparency (OECD/G20) yet the UK Government is no longer simply interested in the legality but also the morality of tax practices. The challenge for the UK Government will be to determine where the boundary lies in terms of which tax planning will be deemed acceptable, or not. Nevertheless, the reality is that the UK Government will continue to focus on protecting its tax revenues in these difficult times.
Therefore, the pressure on centres such as Guernsey is unlikely to abate and so we must keep the lines of communication open and try and educate UK politicians and officials more fully. In particular, we can focus on the fact that we are British, we provide niche products not otherwise available to UK companies and individuals and we contribute billions to the UK economy each year, with net inflows to the city providing liquidity to the London markets. We must encourage the UK to look at the bigger picture and think about the long term, while locally we must maintain the Guernsey tradition of being prepared to adapt to the changes around us so that we can continue to prosper in the future.
Diversity is a key strength of Guernsey's finance industry, where the four major sectors comprise fiduciary services, banking, investment funds and insurance. Guernsey Finance has been and continues to be at the forefront of efforts to ensure that the Island maintains and indeed, enhances both its range of products and the markets that it services.
Establishing a representative office in Shanghai at the end of 2007, we recognised that in the future Guernsey would not be able to rely solely on business from its traditional main introducer centres of the UK, principally the City of London, and Europe but it would also have to look further afield to the emerging markets. Since then, we have carried out considerable work to raise awareness of the Guernsey brand not just in the Far East and especially China but also India, Russia and more recently, Latin America. It is extremely encouraging to see that a number of firms based in Guernsey are now actively promoting their services in these marketplaces.
This expansion is particularly important considering that it is these developing economies which are experiencing the highest growth and this contrasts with general economic malaise in the US, UK and Europe, the ongoing uncertainty surrounding the Eurozone and current perceptions, particularly within the UK, relating to IFCs.
Guernsey's fiduciary sector is particularly active in seeking out new business opportunities further afield. There are more than 150 full corporate licensees, which together hold more than £350 billion of wealth in trust and company structures.
However, while our practitioners have considerable experience and expertise in providing asset security and wealth enhancement using trusts, they have found that this concept – rooted in the common law of countries such as the UK, the US and India – is less well understood in civil law jurisdictions. As such, Guernsey is set to introduce foundations during this year and we believe they will be of particular interest to clients from civil law jurisdictions not just in Europe but also in China, Russia and Latin America. In addition, Guernsey is to become the first jurisdiction in the world to introduce specific intellectual property legislation for image rights, with this also set to be approved during 2012. These initiatives, along with a new aircraft registry, will enable local practitioners to offer an expanded range of wealth management products and services to their clients.
Our wealth management offering is enhanced by the breadth and depth of private banking services available in Guernsey. This has been further boosted by the announcement that HSBC is consolidating its Channel Islands private banking operations in Guernsey and we are also aware of initial inquiries from other banks who are considering establishing bases in the Island.
Figures to the end of March 2012 show that there are 35 licensed banks in Guernsey holding nearly £101 billion of deposits. There has been a contraction in both numbers of licensees and value of deposits in the last few years due to the ongoing global economic downturn.
Global economic conditions also continue to impact the investment funds sector, where the total value of business grew by £8.7 billion (3.3%) during the first three months of the year. This first quarter growth took the total net asset value of funds under management and administration in the Island to £270.1 billion at the end of March 2012, which represents a rise of £6.4 billion (2.4%) year on year.
Existing and new promoters are particularly attracted to Guernsey by our reputation for servicing closed-ended, listed structures. Indeed, a Private Equity News / State Street survey revealed that 61% of Chief Financial Officers (CFOs) chose Guernsey as their preferred destination for private equity outsourcing. In addition, data direct from the London Stock Exchange (LSE) shows that at the end of last year there were more non-UK entities listed on its markets from Guernsey than any other jurisdiction globally.
Guernsey is also one of the world's leading risk management centres. During the first half of this year, both Business Insurance and Captive Review have published surveys which show that the Island remains the largest captive insurance domicile in Europe and number four globally. The number of new licences being issued really accelerated as we moved through last year and this trend has continued during the early months of 2012. There were 739 international insurance entities licensed in the Island at the end of May 2012 compared to 687 at the end of December 2011. There have been 63 new licences issued and 11 surrenders, which represents net growth of 52 entities domiciled in the Island.
We are seeing new licences issued across the different types of structures available but there has been especially strong growth in the number of cell companies being formed. As at 31 May 2012, there were 344 international insurers, comprising 254 companies, 68 Protected Cell Companies (PCCs), 5 Incorporated Cell Companies (ICCs) and 17 ICC cells, as well as 395 PCC cells.
The right conclusion
Guernsey's finance industry is performing resiliently but it has not been immune from the impact of the global financial meltdown and the ongoing worldwide economic downturn. In addition, the crisis and its aftermath have also brought a renewed focus on IFCs such as Guernsey. This has only heightened our drive to diversify the markets we service and the products we offer. Indeed, Guernsey is renowned for providing niche products and during the last year, Guernsey Finance has also been at the forefront of highlighting the Island's capacity to service the various financial aspects of cleantech and renewable energy projects.
We believe that this sort of forward thinking approach means that Guernsey's finance industry is extremely well placed to extend past success far into the future.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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