Originally published in Asian Investor, December 2012
Fiona Le Poidevin, Chief Executive of Guernsey Finance, explains what Guernsey has to offer to Asian clients.
There is a growing awareness in Asia of the products and services that offshore centres can provide to Asian individuals and companies.
An offshore jurisdiction provides a third country location from which Asian families can protect and even enhance their wealth for the benefit of future generations, and Asian companies can establish entities for investing both out of or back into their home region.
However, what we are finding is that many in Asia still equate offshore with only those jurisdictions in the Caribbean, and in particular, the British Virgin Islands (BVI) and the Cayman Islands.
Asian clients and their advisers need to understand that offshore extends beyond those jurisdictions; indeed, not only are there other international finance centres but these offer a very different and in many cases better proposition. For example, the European-based British Crown Dependency of Guernsey is able to provide Asian clients with a full service proposition in a tax-neutral environment, with close proximity and strong links to the City of London.Guernsey is recognised by international organisations as meeting robust standards in terms of corporate governance, regulation and tax transparency. These attributes have gained added significance in the wake of the global financial crisis and provide extra comfort to both clients and their advisers.
In addition, it is our understanding that while the initial, upfront costs of doing business in Caribbean jurisdictions may be less than using Guernsey, in fact, over the longer term, the expense is likely to be broadly comparable.
The Guernsey offering
During the last 50 years, Guernsey has established itself as a leading international finance centre.
Today, the four main pillars of the Island's finance industry are:
* Banking – There are 33 licensed banks holding more than £103 billion ($164 billion) worth of deposits;
* Fiduciary services – There are 154 licensed fiduciaries, ranging from multinational organisations to independent, boutique operations, employing more than 2,000 members of staff;
* Investment funds – There are 50 fund managers, administrators and custodians with total net asset value of funds under management and administration of £271 billion ($430 billion); and
* Insurance – The Island is the largest captive insurance domicile in Europe and number four globally.
These sectors are supported by a network of professional services, including multi-jurisdictional law firms and global accountancy practices. Guernsey firms provide a wide range of products and services at the highest standards to clients from around the globe, including Asia.
Guernsey Finance, the promotional agency for the Island's finance industry, has long recognised that there is significant opportunity to increase business from Asia given the growth of private and corporate wealth in the region. As such, we established an office in Shanghai in 2007 and this has been followed by a number of Guernsey-based firms developing their own presence in the region. For example, law firm Ogier has offices in Hong Kong and Shanghai, Mourant Ozannes is now established in Hong Kong, and Collas Crill has set up in Singapore. Fiduciaries Louvre, Nerine and Newhaven have established offices in Hong Kong, and Richmond Fiduciary Group is in the process of opening an office in Shanghai. In addition, fund administrator International Administration Group (IAG) has established an office in Hong Kong, has opened another in Singapore and has established a partnership with Exceedor in Shanghai, which allows it to provide onshore renminbi-denominated private equity fund administration services in China. Guernsey's expertise within the funds industry is being utilised by the Chinese government and the country's fund managers to enhance the way its own funds sector is operated and regulated. Julian Carey, managing director of IAG's Asian operations, says discussions are concentrated on enhancing the reporting and corporate governance standards in China.
IAG's presence in the region is particularly pleasing because it means that there is a Guernsey firm in the region promoting the benefits of the Island as a centre from which Asian companies can establish entities for investing both out of or back into their home region.
Investment funds centre
Guernsey has a strong heritage in providing a domicile for corporate entities acting as investment vehicles and especially funds. This experience means that the Island has built a wealth of expertise and firstclass infrastructure for servicing not just traditional funds but also alternative asset classes.
Managers with a presence in Guernsey include major names such as Apax, Permira and Terra Firma. Other promoters of Guernsey funds include Better Capital, Coller Capital and KKR. Administrators based in Guernsey range from specialist boutiques to global players such as HSBC, JP Morgan, Northern Trust, RBC and State Street, which can also act as custodians. The majority of their business relates to servicing Guernsey open and closed-ended funds, which are now promoted by leading institutions from more than 55 financial centres globally.
However, Guernsey-based firms are also able to service schemes established in other jurisdictions, such as the Cayman Islands. What is more, it is not unheard of for promoters to be so satisfied with their experience of the Island through the 'non-Guernsey' route that they decide to redomicile their funds to Guernsey. Certainly, this provides more weight and substance from a tax perspective as the majority of services are provided from the jurisdiction in which the fund is domiciled.
Accessing capital markets
Guernsey has built a strong reputation as a domicile for private-equity funds and also infrastructure funds, in particular where there is demand to list on a stock exchange. For Asian clients, Guernsey provides an ideal gateway to accessing European capital markets. Guernsey entities can be listed on a range of stock exchanges, including the London Stock Exchange (LSE) and the local Channel Islands Stock Exchange (CISX), among many others. There are more non-UK entities from Guernsey listed on the markets of the LSE than any other jurisdiction globally. Examples include the Main Market-listed Macau Property Opportunities Fund Limited, which invests in a range of property within Asia, and the AIM-traded China Growth Opportunities Limited, which invests in companies within China.
In addition, Guernsey entities can also be listed on the Hong Kong Stock Exchange (HKEx) and we have been holding discussions with the authorities in both Shenzhen and Singapore with a view to reaching a similar conclusion in respect of their exchanges.
Guernsey's vast experience as an international finance centre means we are tried and tested but we are also dynamic and forward-thinking, as demonstrated by the launch of our own regional stock exchange, the CISX, and our innovation of the cell company concept. In addition, the Guernsey Financial Services Commission (GFSC) has built a reputation for robust yet pragmatic regulation. For example, 'fast track' routes have been introduced which allow for the speedy launch of funds targeted at professional investors, and yet those investors also have the security of knowing that all Guernsey funds are regulated.
The Island is also providing certainty by announcing that it plans to provide a dual regime under the EU's Alternative Investment Fund Managers Directive (AIFMD). It is Guernsey's intention to operate a full AIFMD equivalent regime for those marketing funds within the EU or who choose this as their preferred option, while retaining a parallel regime with its own appropriate set of regulations for those with structures not touching the EU. The GFSC also ensures that funds follow the appropriate local or international codes of corporate governance and the fact that the Island has a pool of experienced and qualified non-executive directors reassures investors and promoters. This means that agencies such as the International Monetary Fund are able to declare that the Island is working to robust international standards. The Guernsey government also continues to ensure we adopt international standards of tax transparency so that, for example, the Island was within the first wave of jurisdictions placed on the OECD/G20 'white list' in April 2009.
Further, we are well advanced to signing double-tax arrangements (DTAs) with both Singapore and Hong Kong. Even in advance of those coming into effect we have a corporate tax regime where all financial products are either taxed at 0% or are tax exempt.
A different offshore centre
The Asian market has traditionally used offshore centres in the Caribbean but this article highlights to clients and their advisers that Guernsey provides a different proposition which is more in tune with the future direction of the global financial services industry.
Guernsey: In Brief
Situated in Europe between the UK and France
A British Crown Dependency
Not part of, but a special relationship with, the European Union (EU)
Currency: British pound Sterling (GBP)
Same time zone as the UK
Links to both London and Europe
Guernsey as a finance centre: Quick facts
OECD/G20 'white list'
Signed 38 TIEAs, including China
A growing network of DTAs
IMF commended regulation
The Banker rankings: No. 2 Specialist Finance Centre*
Global Financial Centres Index: No. 2 Offshore Finance Centre (28th overall)*
*Both published September, 2012
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.