Guernsey Finance Chief Executive Fiona Le Poidevin explains why the jurisdiction introduced its own foundations legislation and how it differs from others in the fiduciary world.
Guernsey has a heritage dating back more than 50 years as a top tier jurisdiction in the servicing of private clients.
Today, there are 150 lead corporate fiduciary licensees, ranging from multinational organisations to independent, locally-owned firms, who in total employ nearly 2,500 members of staff that have contributed to a well-deserved reputation for offering cutting edge wealth management solutions. The fiduciaries are complemented by the broader financial services industry in the Island, including banking, investment and insurance sectors as well as a strong network of professional support services, including multi-jurisdictional law firms and global accountancy practices.
A key part of Guernsey's continued success has been its ability to respond to market demands and to come up with new and innovative solutions for the preservation of both institutional and individual/family wealth and assets. At the end of 2012, Guernsey became the first jurisdiction globally to recognise image rights in law and provide them with a register. The ability to register image rights in an environment which recognises them by statute provides greater clarity in the definition of these rights and a higher degree of protection from unauthorised use by third parties than is currently on offer anywhere in the world. Guernsey further added to its range of wealth management tools when at the start of this year the Island introduced the Foundations (Guernsey) Law 2012.
Its introduction offers local practitioners another device - in addition to the existing wide range of structures available, such as trusts, companies and the family office - for meeting client needs and in particular, asset protection, estate and succession management, philanthropy and wealth planning for globally mobile individuals and families.
Although the foundation has been available in other jurisdictions for some time, the Guernsey foundation is quite different from other models. It was tailored to meet the wishes of international private client advisers, who wanted the opportunity to use a foundation solution from a well regulated and respected jurisdiction, such as Guernsey which, although renowned for administering trusts, has built up considerable infrastructure and expertise in managing the wealth of private clients. The Island also boasts a judicial system that is experienced in dealing with fiduciary matters - something else that puts advisers' minds at ease.
Guernsey's introduction of the foundation provides clients with the ability to use the Island even if they were previously uncomfortable with the trust structure, which because of its common-law roots is familiar to those in the Anglo-Saxon world of the UK, US and Canada, for example, but less well understood in civil law jurisdictions such as continental Europe and some of the 'emerging' markets which are the major sources of new and rapidly growing private and corporate wealth.
The Guernsey foundation is an incorporated entity with a separate legal personality. As such, on face value, it looks more like a company than a trust. However, unlike a company, it does not have shareholders to whom the board are accountable. Instead, the foundation holds assets (in its own name) on behalf of beneficiaries, particular purposes, or both, in accordance with the foundation's constitution. Therefore, although it looks similar to a company, its operation is more akin to that of a trust. However, a foundation is neither.
The foundation's constitution comprises a charter setting out the foundation's purpose, initial assets and duration (which may be unlimited) as well as rules prescribing, among other things, the functions of the council and procedures they must follow. There are no 'trustees' and instead, council members perform a similar role by having a duty to the foundation to act in good faith, and cannot, without express authorisation, profit directly or indirectly from their position.
Guernsey has taken note of the fact that some clients may worry about confidentiality because as foundations are registered entities, they are, unlike trusts, publicly visible. In Guernsey, only limited details are available to the public (although full disclosure must be made to the registrar) whereas in other jurisdictions such as Jersey and the Isle of Man, the whole charter is commonly visible. Yet, Guernsey's approach also means that this limited visibility offers the benefit of being able to prove the foundation's existence quickly when dealing with third parties.
One innovation of the Guernsey foundation is the classification of beneficiaries of a foundation as either being 'enfranchised' or 'disenfranchised'. Enfranchised beneficiaries will have rights to certain information regarding the foundation, whereas disenfranchised beneficiaries are not entitled to any information at all. Where there are disenfranchised beneficiaries then the foundation is required to have a guardian.
The guardian also owes the beneficiaries a duty of care in the discharge of his duties, thereby ensuring that the council remains accountable while shielding the disenfranchised beneficiaries from information which might be damaging to them. It means the constitution of the foundation can specify how a beneficiary from one class can become a beneficiary of the other, such as reaching a certain age or having demonstrated an ability to provide for their own family.
The early foundation registrations in Guernsey have predominantly been set up for philanthropic purposes. We anticipate that this type of foundation will continue to prove popular going forward and that the Island will also see structures set up for more traditional private wealth management, estate planning purposes and other family arrangements. Additionally, we may also see Guernsey foundations used to hold 'orphan' structures where the assets of a particular entity can be held in a foundation, rather than having a parent company and being an asset on that company's balance sheet. This means that the foundation may be used in fund structuring as well as other corporate purposes, including subordinated debt, private equity structuring and providing employee benefits.
What we are hearing from a number of local practitioners is that there is great interest from clients who have foundations currently domiciled in other jurisdictions that are considering the migration of these to Guernsey now that the legislation has been enacted. This is principally due to the specific provisions of the new law but also due to the heritage we have in providing trust and corporate services as well as, of course, our reputation for being a well regulated and tax transparent international finance centre.
Indeed, Guernsey's history as a reputable jurisdiction has been reinforced by the fact that external agencies such as the IMF, OECD and Financial Stability Board (FSB) continue to place the Island within the very top tier of leading international finance centres globally.
The introduction of the Guernsey foundation adds another tool to our armoury and that of the Island's fiduciary sector in its ability to service private clients and the ever changing demands of the family office.
Originally published in Campden FO, May 2013
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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