Guernsey: A New Standard For Offshore TCSPs

Last Updated: 6 May 2015
Article by Philip Nicol-Gent

Most Read Contributor in Guernsey, November 2016

Philip Nicol-Gent, a lawyer at the Guernsey Financial Services Commission, submitted his private opinion about beneficial ownership to the International Compliance Association conference in London recently. His speech, sponsored by Offshore Red, appears here in article form with some editorial comments.

A new standard has come forward to govern trust and corporate service providers that can be summed up in one sentence: "Hold the beneficial ownership with the trust and corporate service provider because that is how you ensure that you have accurate, up-to-date information because they are (certainly amongst the international finance centres) well-regulated."

Among international standard-setters everyone has heard of Basel, IOSCO (the International Organization of Securities Commissions) for investors and the IAIS (the International Association of Insurance Supervisors) for insurers. You might not have heard of the GIFCS – the Group of International Financial Centres Supervisors, which has 18 member-jurisdictions: Guernsey, Jersey, the Isle of Man, Gibraltar, Macao, Bermuda, and some Caribbean islands. They have been around for 15 or 20 years now. They have observer status with the Basel committee of banking supervisors and with the Financial Action Task Force (FATF) and attend its 'plenary meetings' about 3 times a year in Paris.

They have been taking and setting up for the first time an international standard for the regulation of trust and corporate service providers. It is particularly important for bankers because in a way, when you are opening accounts and there are corporates involved, the fact that a gatekeeper is there and the gatekeeper is regulated should give you added assurance that the person coming to see you comes with some element of approval and/or oversight because they are provided to you by trust and company service-providers (TCSPs) who are themselves regulated and subject to enforcement action. Regulators are on hand to ensure that they have appropriate procedures and controls, and not just for money laundering and terrorist finance.

The first piece of work that the GIFCS undertook was in 2002, when (under its former name) it issued a statement of best practice for TCSPs. The International Monetary Fund has used this around the world in assessing jurisdictions that have TCSPs.

We all know that practice evolves and supervisory trends change. Bankers know that Basel I and Basel II happened, then we had Basel III and somehow we have bits of Basel I back again. Best practice changes and sometimes the old is shown to be as useful as the new.

Initial discussion about a standard

The GIFCS started looking at [the idea of a new standard for TCSPs] in 2011. The time-line is important. At the meeting of the GIFCS alongside the Basel committee meeting in 2012, which happened to be in Istanbul, the working party was formed with me as its chairman, developing the international standard. By early 2013 we were very well underway.

Obviously, there was a big fanfare with the G8 in 2013 at Loch Erne, but actually by that stage the IFCs had been looking at this and considering what the best approach was and actually doing what has been sent to me, interestingly, by multinational bodies actually taking to the stage, taking our expertise and sharing it, and indeed in scenarios where the IFCs are able to show some leadership, because the crucial point is that in the IFCs you have regulation of TCSPs, whereas in the majority of the onshore world you don't.

In some cases there is oversight in respect of AML obligations, but it is not across the board in the way that it is offshore. By 2014, six months ago, and in all places in Tianjin in China, the GIFCS adopted the standard and that is where we are now.

Recitals to the standard

[A recital is an enumeration or listing of connected names, facts, or events. Nicol-Gent, however, seems to be using the word almost as a legal one, although he is describing a mere international agreement and therefore no law is involved. The word 'recital' does, coincidentally, have its own legal meaning; it is the preamble to a deed in English law and begins with the word 'whereas'. This is a formal statement or a setting-forth of some facts to explain the reasons upon which the transaction is founded, redolent of the old preambles to English statutes before the Second World War, which also began with 'whereas'. This is as far as our speculation can take us. - Ed]

Here are some of the important aspects of what we have been looking at. The recitals state [apart from a reference to TCSPs being important for the surveillance of their own customers for the benefit of the FATF and how all countries ought to regulate them] that TCSPs can be important in ensuring that their organisations are not used as conduits for financial crimes such as money laundering, bribery, corruption and tax-evasion or the holding of stolen assets. Their usefulness against these problems shows that they can provide banks with a good deal of reassurance.

The recitals also state that FATF research involving the Caribbean Financial Action Task Force has shown that higher standards exist for money- laundering control and terrorist finance control in jurisdictions where TCSPs are regulated.

An academic did some mystery shopping a little while ago, ringing around the jurisdictions [and, presumably, posing as someone with dodgy money to launder]. The number of calls it took in the onshore world before someone said "oh yes, we can do that for you" were in many cases four or five times fewer than the number of calls it took to the offshore centres. That is partly because offshore TCSPs are licensed and they know that their regulators are keeping a careful eye on them.

The standard

Let us look at the standard very briefly. The regulators' expectations are much as you might expect with any international standard. You have to have a regulator which is independent of its government [something that no country has yet achieved - Ed]; is properly resourced [ditto] and is in a position to finance itself properly by raising fees [this phrase is only used when someone is describing the British model of 'guild regulation' - Ed]. It must be able to share appropriate information with regulators and law-enforcement bodies around the world; it has to take a risk-based approach to the job of regulating; [still not a universal requirement for other forms of regulation - Ed] and, crucially, it has to have effective mechanisms for enforcement.

Imperialism with a standard

I would like to look briefly at what the standard requires of jurisdictions. At clause 5.5 the standard actively encourages jurisdictions that do not regulate TCSPs to consider introducing legislation and regulatory regimes in accordance with it and promote practices to meet it.

How does the standard operate?

The standard contains an awful lot of knowledge acquired over time. It says that a jurisdiction has to licence its TCSPs and nobody can operate without a licence. This is how the Guernsey regime works, for example. In line with other standards, the document requires the regulators to look at corporate governance, ensuring that the people who run TCSPs are 'fit and proper' [another British phrase] and requiring each TCSP to have a physical presence in the jurisdiction in which it is regulated, overseen by two key individuals who, in turn, have obtained regulatory approval.

This last rule is to ensure that each TCSP's affairs are conducted in a prudent and financially sound manner. This includes the ability to detail the ultimate beneficial ownership of all the vehicles that each TCSP is responsible for overseeing.

It should go without saying, I should hope, that strong corporate governance is essential and particularly important when TCSP-type work is involved. Boards must collectively comprise an effective balance of skills, knowledge and competence. Other than in very small companies there will always be some delegation of duties. That delegation and the controls around it should be undertaken appropriately.

Untoward controllers

On the subject of controllers and 'key persons', both types of people must, in that well-worn Basel/IOSCO phrase, be 'fit and proper.' This is, effectively, a requirement of integrity, competence and financial soundness.

With regard to ownership, it is very important that the people in control of the way a TCSP ultimately operates should be free from 'inappropriate influence' so that the companies that they control cannot be influenced by untoward controllers.

We have lived in times of austerity and continue to. The standard therefore also recognises the important role that the holder of a debt or an option can have in having effective control over a corporate. It is therefore important that regulators should understand where the debts and where other elements of inappropriate control could creep in. I shall come back to this in a moment when I look at the prudential elements of this standard.

In developing this standard, the danger was to say that TCSP control is all about money laundering and terrorist finance and nothing else. Actually, we have also introduced requirements to do with conduct, with prudence and with the administration of TCSPs. The question of conduct is obvious for banks and insurers, but you may wonder why we thought it was necessary in this context.

Actually, it is linked to AML obligations and compliance. A company must be able to interact with its clients properly and then make informed decisions about them. It must have appropriate terms and conditions, its advertising must be clear and ethical, it must not go 'round promoting breaches of legislation, and it must follow appropriate complaints-handling procedures. None of that ought to be rocket-science!

Prudential issues

One would prudential issues to arise elsewhere in the financial service sector, but why for TCSPs? This is linked to the previous point about conduct and the next one about administration. Administration is a complex thing these days; it is no longer just about straight-forward transactions.

Requirements of 'customer due diligence'[a term that the Basel committee began to use around 2001 to refer to 'know your customer' controls – Ed] and verification of information(VOI) count here. On top of that, there are other requirements to do with 'source of funds' and knowing exactly what is going on.

IT systems

If you need to be in that position, you need to have proper systems in place. You need proper IT. That does not just happen; that requires capital. If you are holding beneficial ownership information, which is customary in offshore centres, then you have to have systems that work. You must have the liquidity to train your staff. You must have the cash-flow to be able to make sure that, if the regulator comes knocking and says "right, I want the beneficial ownership of that company," it is not sitting in a box in the archives somewhere. It has to be readily accessible.

Financial crime

The standard falls into two parts over financial crime: ML/TF; and bribery and corruption. This is because of the direction of travel from the World Bank and the International Monetary Fund, which helped in the drafting of the standard.

It is, like all international standards, necessarily vague, but it does address an important area that influences money-flows. As a body, the Group of International Financial Centres Supervisors does not have the same international acclaim as Basel or IOSCO and does not trip off the tongue as easily, but it is one model.

An original version of this article was published in Offshore Red, March 2015.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.