Over the last four decades Guernsey has established itself as a leading international finance centre with the highest reputation and standards, providing an extensive range of financial services to a global market. The Island’s mature, innovative and service-oriented financial services sector is based on a balanced range of providers broadly comprising:
- Investment funds
- Fiduciary services (trust and company administration)
- An independent stock exchange – the Channel Islands Stock Exchange
- A bespoke training facility – the Guernsey Training Agency
There is positive collaboration and a team spirit among these key businesses who work with an independent regulator, the Guernsey Financial Services Commission, to international standards. Several hundred financial services businesses are now located in Guernsey, attracted by the unique local environment.
Guernsey, situated in the English Channel, 25 miles from France and 60 miles from England, is 24 square miles in size and has a population of 60,000. The Island is a British Crown Dependency, with over 800 years of self-government. It is legislatively and fiscally independent of the United Kingdom and has its own democratically elected parliament, the States of Guernsey. States members vote on matters as individuals as there are no political parties which means the Island is less prone to pendulum swings in regime or policy.
Guernsey also enjoys a special relationship with the European Union. Terms negotiated on the UK’s accession to the EEC mean that the Bailiwick is within the Common Customs Area and the Common External Tariff; essentially it enjoys access to EU countries for physical exports without tariff barriers. Other rules and directives do not apply though, unless voluntarily accepted.
It is this environment that provides the platform for a world-class finance centre:
- Legislative and fiscal independence means the Island can and does respond quickly to the needs of business
- Continuity within the Island’s democratically elected parliament has and continues to deliver political and economic stability on which business can rely
- The unique relationship with the EU means that businesses based on the Island have some of the advantages of being in the Euro-zone without all the implications of operating in a jurisdiction that is a full member of the EU.
- Doing business in Guernsey is made easy because the Island is English speaking, deals in the British pound and in the same time zone and within close proximity to London and Europe, with frequent air links to the UK
The sophisticated financial services industry is the dominant force in the Guernsey economy, although traditional industries such as agriculture, horticulture and fishing remain. For many years, given the natural and beautiful landscape, the Island has also been a popular tourist destination. Entrepreneurs have thrived in Guernsey, more recently particularly in the pharmaceutical and optical sectors. The government continues to promote a diverse economy, including exploring the opportunities of E-commerce, Intellectual Property and patents. Unemployment has continued at low levels and stands at less than 1% of the workforce. The Island’s Gross Domestic Product (GDP) was £1,433m in 2004 (£24,538 per head of population at 2005 values) and is estimated to have been £1,508m in 2005. Finance is the mainstay of the economy. In 2006, of the 31,156 people employed in Guernsey 7,164 (23%) were employed in the finance sector itself, which is the most profitable (43%) and largest earning (36%) sector, also making up around 70% of the Island’s export economy.
Banks have played a key role in the development of Guernsey as a top tier international finance centre. The first merchant bank was established in 1963 and today there are 50 licensed banks in the Island.
The sector comprises retail banks – all major UK Clearing Banks are present on the Island together with the Guernsey subsidiaries of UK building societies – and international banks, representing institutions from an array of countries. Services offered include deposit taking, lending, brokerage, investment management, structured products and derivatives. As of the end of 2006 deposits held by Guernsey banks had reached a new high of more than £92bn. – an increase of 14.4% year on year.
At the same time the overall value of funds under management and administration in Guernsey also reached a new high in excess of £130bn. – up more than 30% in twelve months.
The Island plays host to an extensive array of investment businesses, including investment advisers, stockbrokers, and a significant number of fund managers, custodians and administrators, who in combination offer a range of products and services for both retail and institutional investors from the general to the more specialised. The international marketplace for Guernsey open and closed-ended funds is illustrated by the fact that funds are promoted or sponsored by leading institutions in 45 countries. The Island is growing a reputation as an excellent location in which to conduct fund business and in particular alternative investments such as fund of hedge funds, private equity and property as well as more esoteric asset classes such as wine, art and timber.
Qualifying Investor Funds (QIFs) were introduced in 2005 to significantly reduce authorisation times for funds targeting experienced investors and they have proved particularly popular with 78 approved by the Commission as of the end of 2006. More recently there has been a root and branch review of investment sector legislation. The working party headed by Advocate Peter Harwood made a number of recommendations including that the focus of regulation should be on the licensed Guernsey administrator, reducing the number and scope of funds that will be regulated directly. The first tier of these changes, a new registered closed ended funds regime, was introduced in February 2007 and the remaining proposals will be implemented during 2007.
Guernsey has an insurance industry that is renowned for its innovation and professionalism in providing a range of risk management solutions. As well as a domestic insurance sector there has been significant development in recent years in international life insurance. However, the Island is most renowned for captive insurance.
Since the first captive insurance company was formed in Guernsey in 1922 the Island has become the leading captive insurance domicile in Europe with over 600 captive entities and is in the top four in the world in terms of premiums written. Indeed, approximately 40% of the FTSE 100 companies have captives in Guernsey, although a number of firms from across the globe have established captives in Guernsey.
Guernsey’s international insurance industry has 27 authorised managers looking after gross assets of £14.8bn, a net worth of £5.6bn and writing premiums of £3.2bn. The Island plays host to subsidiaries of major companies such as AIG, Aon, Catlin, Converium, Generali, Heath Lambert, Hiscox, Jardine Lloyd Thompson, Marsh, Old Mutual, Royal & SunAlliance and Willis. Independent, boutique operators such as Heritage Insurance Management and Alternative Risk Management (ARM) are also present, providing a holistic environment for insurance solutions.
The Island was the first jurisdiction to introduce Protected Cell Company (PCC) legislation. It was pioneered in Guernsey in response to the needs of its pre-eminent captive insurance industry. It is a tribute to Guernsey’s success that the PCC concept, in various guises, has been replicated by other jurisdictions. However, the Island is still recognised as the pioneer of the PCC. The Island has now also introduced the innovative Incorporated Cell Company (ICC) concept.
Guernsey is a leading international fiduciary centre with 50 years experience of supplying trust and corporate services.
The Island plays host to some 140 licensed trust companies, ranging from large organisations to independent, boutique operations, holding some £200bn of assets and employing around 2,500 members of staff. In addition, there are many licensed individuals who can act as directors, co-trustees or trust protectors. There is substantial expertise in using the innovative modern structures that are available on the Island for the preservation of both institutional and individual/family wealth and assets.
Guernsey is growing an excellent reputation in the emerging niche market of the Family Office, where it can build on its track record of providing trust services for individuals and families. In addition, the Island remains a jurisdiction of choice for corporate settlors using trusts for the administration of pension schemes and employee share plans. Corporate structures are utilised to hold assets and investments of all types including residential and commercial property, intellectual property rights and yachts. Estate and inheritance planning are key elements of the Island’s wealth management offering.
Guernsey was also one of the first jurisdictions to introduce an effective licensing and supervision system in relation to trust administration services, company management and ancillary services. It is the businesses that manage and provide fiduciary services that are regulated, rather than the trusts themselves.
A further working party, led by Advocate Rupert Evans, has been reviewing the Trust Law and how it can be updated to benefit the fiduciary sector. The final report recommends extensive changes to the Trust Law and proposes the introduction of Foundations and Purpose Trusts, all of which will come on-stream during 2007.
A Business-Friendly Environment
In striving to maintain its position as a leading international finance centre, Guernsey continually reviews and amends its legal framework, where appropriate, or introduces new legislation.
This year the final proposals from a review of Company Law should also go before the States, while complimentary work continues on the modernisation, including automation, of the Company Registry. Similarly, Guernsey’s Intellectual Property (IP) environment is in the midst of being overhauled. A dedicated office, solely responsible for its administration and regulation, opened in spring 2006 and a suite of IP-related legislation will continue (with trade marks and design rights having already come into affect) to be rolled out this year.
At its June 2006 sitting the States of Guernsey agreed to a set of economic and taxation changes - the main strands of which will come into effect from 1 January 2008 - that includes as standard a zero rate of corporate tax. In addition, Guernsey-resident shareholders will be taxed on distributed company profits only. In terms of personal taxation, Guernsey residents will continue to be taxed at 20% on assessable income but this will be limited to a maximum contribution of £250,000. There has also been a commitment NOT to introduce wealth taxes like inheritance tax or capital gains tax. The agreement to this package highlights the government’s continued commitment to an enterprise economy and to the finance industry, the main contributor to the Island’s economy.
Independent Stock Exchange
The independent Channel Islands Stock Exchange (CISX) has experienced considerable growth since it was established in Guernsey in 1998. During 2005 passed the milestone of attracting its 1,000 listing and now has more than 1,600.
It offers a service and structure unique in the European time zone. The CISX prides itself on its speedy turnaround time and consistency of response, competitive pricing and cost effectiveness. It embraces international standards of issuer regulation and has a pragmatic approach to disclosure requirements.
The CISX, which now also has an office in Jersey, continues to attract international recognition as demonstrated by the designation of the CISX by the US Securities and Exchange as a Designated Offshore Securities Market under Regulation S of the Securities Act 1933, the recognition by the UK Inland Revenue of the CISX under Section 841 of the Income and Corporation Taxes Act 1988 and the designation of the CISX by the UK Financial Services Authority as a Designated Investment Exchange within the meaning of the Financial Services and Markets Act 2000.
A Highly Skilled Workforce
Guernsey has a skilled, experienced and highly motivated on-Island workforce. In addition to in-house training the finance industry provides training for its staff through the Guernsey Training Agency. It provides proactive, top quality training, catering for the specific needs of a growing financial services industry. It has now been accredited university centre status, adding to the number of postgraduate courses run by university tutors that are available on-Island.
As the principal sectors of Guernsey’s financial services industry have evolved and matured a network of specialist support services has developed. There is a comprehensive, sophisticated and easy accessible range of legal, tax, accounting, investment and actuarial expertise. This support infrastructure means that the island provides a flexible ‘one stop shop’ to meet the evolving needs of the finance industry, while also serving the non-financial businesses located in the Island.
Robust and Pragmatic Regulation
Responsibility for the regulation of all authorised financial activities lies with the Guernsey Financial Services Commission, which was established in 1988. The Commission’s primary objective is to regulate and supervise financial services in Guernsey, with integrity and efficiency, and in so doing help to uphold the international reputation of Guernsey as a finance centre.
Guernsey has a comprehensive regulatory framework and supervisory structure and there is a strong rapport between the GFSC and the financial services businesses in Guernsey. It is well respected and has grown a reputation for its robust and pragmatic approach to regulation, meaning that business can respond to new opportunities as they arise and work is carried out to international standards.
Indeed, it is through scrutinisation and endorsement from third parties such as the International Monetary Fund and the Financial Action Task Force that Guernsey can justify its claim to be a well regulated and first-class international finance industry.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com p>
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