Oliver Godwin of Bedell Group examines the fund landscape of Guernsey.
HFMWeek (HFM): Over the last 12 months, what regulatory changes have been of the most significance to Guernsey and why?
Oliver Godwin (OG): Regulation is constantly changing, not only within Europe, but worldwide. This ever-evolving process creates an air of uncertainty for many jurisdictions, although, Guernsey continues to more than just meet its regulatory obligations on the local and international stage.
The proof of this is evidenced by Esma recommending that Guernsey be given the third country passport under AIFMD. This recommendation highlights that Guernsey is receiving recognition for its hard work in having a regime that meets the requirements of the AIFMD rules, being OECD compliant for tax transparency and having appropriate AML laws in place.
Other developments have come in the form of the manager led product (MLP), which is aimed at AIFMs establishing themselves in Guernsey to market AIFs into the EU under the applicable national private placement regime. It ensures a proportionate risk-based level of regulation by placing the regulations on the AIFM only, avoiding duplication of regulatory requirements over several entities. Within 24 hours of receipt of a notification the GFSC will license open-ended or closed-ended funds, as well as general partners or managers formed solely for the purpose of such funds. Guernsey committed itself to the adoption of the global Common Reporting Standard on Automatic Exchange of Information (CRS) with effect from the beginning of this year, with first reporting taking place in 2017. Guernsey is one of approximately 60 jurisdictions working to this implementation timetable, including all EU member states (with the exception of Austria, which will have an extra year before implementation of the CRS).
HFM: Guernsey is well known for its high standard of transparency, how did it achieve this reputation and how will it maintain it?
OG: Guernsey has strong presence in international finance and has firmly cemented itself in the funds market. With over 50 years' experience of being an international financial centre, Guernsey has worked extremely hard to achieve its reputation. A key contributing factor to this success has been a willingness to engage with external authorities, for instance the UK and the EU, to give a level of transparency that provides a truly comfortable environment. Additionally, Guernsey is keen to work with other jurisdictions to ensure that it is transparent from a tax perspective.
Guernsey has traditionally listened to, and implemented, all of the requirements and rules raised by international organisations such as the OECD and FATF. It has been a conscious movement of ours to comply with the highest levels of transparency available so, in relation to the Base Erosion and Profit Shifting (Beps) and tax transparency, Guernsey is tax transparent and has tax neutral structures. Ultimately, we hope to be seen as the epitome of dependability by both onshore and off shore jurisdictions. This reputation, in conjunction with a strong regulatory system and a very knowledgeable regulator, acts as an impressive attraction for those considering Guernsey.
HFM: How does Guernsey innovate to differentiate from other jurisdictions?
OG: The island has always been an innovator. Guernsey has consistently been at the epicentre of the launch of new products, for example, we were pioneers of the protected cell company (PCC) structure, which is now being copied all around the world in various forms. The PCC has been an incredibly popular product which has allowed Guernsey to explore different markets, i.e. the funds market and the insurance market.
Additionally, Guernsey's industry always works hard with the local regulator to ensure that there is flexibility in our regulatory framework. This typifies our business friendly attitude. Despite being relatively small in size, Guernsey uses its stature in its favour, allowing for the utmost in versatility and enabling a speed of conducting affairs that is second to none. Our history speaks for itself and works as our best attraction.
Guernsey boasts an amalgamation of flexible structures and regulators, laws, courts and experienced professionals who can come together to push the industry forward.
HFM: Which fund structures are the most popular in Guernsey, how much variety is there?
OG: The popularity of the structure corresponds to the type of business. One of the structures more commonly used is the limited partnership structure, which is utilised for private equity funds and cleantech funds. Guernsey is used as a tax neutral jurisdiction which allows pension funds and internationally-based investors to really enhance their return. The Class B funds regime, which is an open-ended fund regime, is also quite prevalent. The PCC structure is widely used for fund platforms and insurance products because it permits the segregation of assets and liabilities. In a similar vein, we have the incorporated cell companies where each cell is its own separate legal entity, under an umbrella. Ultimately, there is a vast variety of structures in place. Furthermore, Guernsey has just started consulting on very private funds, which is almost like a club deal and will require less regulation, thus will be quicker to get to the market.
HFM: How is Guernsey's relationship with the London Stock Exchange?
OG: Our relationship with the London Stock Exchange (LSE) is deeply ingrained. We have something resembling an 'open mic' relationship with them, and are in constant contact, directly and through lead counsel in London. The listing of Guernsey structures on the AIM market of the LSE, where Guernsey is a market leader, is a key driver in the relationship.
HFM: What other crucial components attract managers and institutions to Guernsey?
OG: A key attraction is our very strong legal system which has its roots in Norman-French law, but is clearly recognisable to those used to common-law jurisdictions. Another huge factor is our position as a tax neutral and tax transparent jurisdiction. It all adds up to a solid and reliable offering for international investors who don't want to be onshore.
HFM: What key industry trends will impact Guernsey the most over the next 18 months?
OG: The main obstacle that is perhaps of the most importance, and is certainly the most pressing, is that of a 'Brexit', which is ultimately more than just an "in" or "out" choice. There are two fundamentally different paths which the UK could follow and at the helm of this decision are the British public. I think that in the short-term there will be disruption whatever the outcome, and as polls continue to see fluctuations in potential voting patterns and the outcome continues to remain uncertain, everyone is on the edge of their seat. Despite things looking slightly uncertain now, Guernsey is well-placed to react to either outcome. Much work has already been done by the States of Guernsey to understand the impact on Guernsey should the UK decide to leave the EU, and how to mitigate that impact. Indeed, Guernsey's States Assembly has been told that the island is 'well placed' to deal with any challenges that occur, in the event of the UK voting to leave the EU and the potential change for Guernsey will be 'less substantial' than the potential change for the UK given that the Crown Dependencies are relatively stable in respect of their EU relationship, compared to the UK.
An original version of this article was first published in HFMWeek's 2016 Guernsey report, June 2016.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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