Guernsey: Guernsey- Thriving In The ‘Goldilocks Zone'

Last Updated: 14 January 2016
Article by William Mason

Most Read Contributor in Guernsey, September 2018

IFC Economic Report editor, Ciara Fitzpatrick, spoke to Guernsey Regulator, William Mason about the difficulties for IFCs in keeping up with regulatory changes sweeping the international finance industry and how Guernsey maintains it competitive edge in an ever changing professional landscape.

Keeping ahead of the torrent of international financial regulation flooding the globe in recent years while maintaining a successful financial centre is undoubtedly a complex task.

For Guernsey's Regulator, William Mason, it has entailed creating good quality regulation without overegging it or, in his words, finding the Goldilocks zone of regulation – a regime that is neither too hot, nor too cold but just right.

The financial services sector has been fundamental to Guernsey's economic growth over the last few decades; the driving force behind this success has been the jurisdiction's competitive edge,

Guernsey's unwillingness to stand still and let another IFC take its leading global position.

For Mr Mason, who has been Director General of the Guernsey Financial Services Commission (GFSC) since 2013, there is no question about the need for a high standard of regulation - as he explains, from a regulatory perspective, it will always be more cost effective and less damaging to stop bad businesses starting up on the island in the first place than to manage or close them down. The incentive to attract high quality business is already there. And the competition that exists between international finance centres helps to ensure the high standards of regulation are met.

Guernsey's reputation as a well-regulated financial centre has been established for many years but what gives the GFSC that competitive edge is its ability to combine top tier regulation with an approachable and reassuring style. Being smaller than the onshore centres, Guernsey is able to hold on to traditional methods of dealing with the individual business to create a bespoke approach to maintaining the existing high standards on the island. The motto the regulator takes is 'bring a coffee, not a lawyer', let's sit down and work this out together.

Uniquely positioned in Europe but outside the Union, Guernsey is able to independently grow and adapt to developments in the global financial industry. It can also take a more flexible position when considering regulatory options. Take Solvency II, as Mr Mason explains:

"Guernsey not being part of the EU would have meant we had to ask for equivalency to Solvency II and we decided not to go through that quite intensive equivalency process. The decision was based on proportionality. I sit on the IAIS ExCo (International Association of Insurance Supervisors), where I represent small jurisdictions. We are putting our energies into producing insurance capital standards for global use rather than a merely European use.

"So what have we done in Guernsey instead? We have the risk based solvency capital standard that we introduced in the last 12 months and we will carry on updating that if needs be to match the IAIS' international capital standards"

As Mr Mason continued: "Guernsey's insurance sector is focused on the international arena, not exclusively on the Eurozone economy, which made Solvency II an unnecessary excess of regulatory pressure for the jurisdiction."

The flip side of this is the EU's Alternative Investment Fund Managers Directive (AIFMD) where Guernsey made the decision to seek equivalence. Being a leading fund domicile, it made sense for the jurisdiction to seek full equivalence to the EU AIFMD, the decision was made based on the needs of the sector as opposed to being swept along in the tidal wave of indiscriminate regulatory demands.

In September Guernsey was recommended by the European Securities and Markets Authority ESMA) for the AIFMD third country passport. The figures that came out of the ESMA recommendation revealed that Guernsey is the third largest non-EU fund domicile behind only the US and Cayman for the number of non-EU AIFs and non-EU AIFMs marketing in the EU member states as of March 2015.

Guernsey's response to the AIFMD had been to introduce a dual regulatory regime through which it is possible to continue to distribute Guernsey funds into both EU and non-EU countries. Guernsey's opt-in equivalent regime, which has been in place since January 2014, is appropriate for funds requiring full AIFMD compliance, allowing use of the EU's National Private Placement regimes.

As Mr Mason stressed: "We put a lot of effort and energy into that as a Commission and we were delighted that ESMA recommended us for a third country passport and it is good recognition of our regulatory strength."

The question arises, however, is there a danger of the compliance burden becoming too much, becoming 'unfair' for smaller financial centres, like Guernsey, institutions or individuals?

Mr Mason feels 'unfair' may be over stating it, however, the administrative burden, he says, is much higher than it used to be, which makes some clients less economically viable than they once were. Take, for example, a US citizen of modest means who once was able to get banking quite cheaply but who now has become an expensive proposition because of the compliance burden the US is prepared to pass on to foreign regulators and service providers alike in the shape of FATCA.

The waves of regulation that were generated by the financial crisis obviously raised concerns as to the debilitating effect of too much regulation. Mr Mason refers to the "sand in the machine" with regard to the stymieing effect of too much regulation. He feels strongly about not putting impediments in the way of international trade – freeing up international trade will, he says, enable the world's increasing population to sustain itself. And we thus arrive at the importance of international standard setters keeping international regulatory standards in the 'Goldilocks zone' – with the porridge of regulation being neither too hot nor too cold but being just right for the situation it is dealing with.

But are there difficulties in making the so called 'regulatory porridge' just right for all? Can regulation work as effectively in Guernsey or Cayman as it does in London or New York? Mr Mason acknowledges that yes, some issues, specifically technical ones, may arise as to the interpretation of regulation for smaller jurisdictions but does he buy into the notion that one size of regulation cannot fit all? Not entirely.

"I think you need proportionate implementation. If you are not trading billions or trillions of dollars of FX you perhaps need a slightly lower key implementation of the market's regime than you do if you are the City of London – where you have a different set of issues to worry about. If you are going to have international trade it is quite helpful to have standards that everyone knows about - everybody's bank is capitalised to Basel III and therefore should be equally resistant to failing. And I am certainly a supporter of the international capital standards, which the IAIS is developing for the insurance sector.

"The challenge is, of course, to make sure that regulation is proportionate – you don't want to damage economic growth by setting standards that are too austere."

And what about those vocal critics of the business being conducted in IFCs? Mr Mason quotes Matthew 7.3 to me:

"Why do you see the speck that is in your brother's eye and not notice the log that is in your own eye?"

Maybe it is time the critics checked that their own houses are in order before jumping on the bandwagon that offshore bashing has become.

As Mr Mason sees it – politicians or commentators in struggling economies find it difficult to implement reforms that will encourage economic growth in their own jurisdictions and it is often much easier for them to "throw bricks" at other economies that are doing better than their own than deal with the problems they have.

The facts lend themselves to this statement - the IMF, on their last visit to Guernsey, acknowledged the very high standards of anti-money laundering regulation in place and HMRC raised very little through their tax disclosure agreement with Guernsey, indicating that the notion that there are billions of pounds sheltering in Guernsey is an exaggeration.

Mr Mason believes overriding the traditional negative stance towards IFCs will be difficult because many people simply do not understand what it is they do, where they fit into the "machine of global trade".

"But we have to ask them to be empirical and evidence-based because the evidence is that we [in Guernsey] have a very tight, tough regulatory regime, we cooperate with international law enforcement and we take tough action on those who do not play by the rules.

"The mantle that is sometimes put on us of non-cooperation is palpably false and the notion that we are allowing people to do something they should not be doing is also false. But you have some politicians, academics from economies that are very wedded to high taxes, which are suffering from very low growth and high levels of unemployment who don't really feel intellectually inclined to revisit their own country's economic model. It is much easier to throw stones at more successful models such as our own relatively free market, relatively low tax model."

Meanwhile, developments continue apace in Guernsey. PRISM is in use across all regulated sectors, a platform also used by the ECB and Central Bank of Ireland which provides risk based supervision. The GFSC is also working on developing online returns that will integrate seamlessly with the PRISM system to allow straight-through processing for the checking of data, all with the aim of freeing up the regulator to do the important stuff – oversee and maintain an efficient, successful and well-regulated financial centre.

Guernsey continues to adopt international protocols on money laundering and conclude tax treaties in order to maintain its reputation as a compliant jurisdiction, while the jurisdiction's regulatory flexibility allows it to remain steadfastly in the 'Goldilocks zone', much to the satisfaction of its regulator who feels this is key to the island staying ahead of the competition. "We are politically stable; we have low levels of national debt – which makes Guernsey, honestly, quite unusual and quite a good place to invest. There are still relatively few jurisdictions around the world that have that combination of things going for it."

"Yes... you could say we are pretty positive about the future."

An original version of this article was published in IFC Economic Report, December 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
Related Topics
 
Related Articles
 
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
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions