Guernsey: Guernsey – A World Class International Finance Centre

Last Updated: 9 April 2008
Article by Peter Niven

Most Read Contributor in Guernsey, September 2018

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 Islands mature, innovative and service-oriented financial services sector is based on a balanced range of providers broadly comprising:

  • Banking
  • Insurance
  • Investment funds
  • Fiduciary services (trust and company administration)
  • An independent stock exchange the Channel Islands Stock Exchange (CISX)
  • A bespoke training facility the Guernsey Training Agency (GTA) University Centre

There is positive collaboration among these key businesses (and the supporting professional services) who work with an independent regulator, the Guernsey Financial Services Commission (GFSC), to international standards. Several hundred financial services businesses are now located in Guernsey, attracted by the unique local environment.

Guernsey, 30 miles west of Northern France and 70 miles south west of 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 UKs 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. For example, in terms of its constitutional status (and associated political make-up):

  • Legislative and fiscal independence means the Island can and does respond quickly to the needs of business;
  • Continuity within the Islands democratically elected parliament has and continues to deliver political and economic stability on which business can rely; and
  • The unique relationship with the EU means that the Island has some of the advantages of being inside the confederation, without all the implications of operating in a jurisdiction that is a full member.

In addition, Guernsey offers the advantages of:

  • Being English speaking;
  • Using the British pound (Sterling);
  • Being in the same time zone as the UK, which means business can be conducted during the day with not just Europe but also both the Americas and the Middle/Far East;
  • Situated in an area free from major natural disasters like hurricanes, earthquakes and flooding and with a temperate climate;
  • Located close to both the UK and continental Europe to where there are daily links by sea and air, the latter including Paris and London, which is less than an hour away
  • Having many of the key institutions located close together, which means that significant amount of business can be conducted during a day-trip.

The Island also boasts a high capacity, resolute and globally linked information technology system that is unsurpassed offshore and has its own power supply (with relevant back-up facilities).

The States of Guernsey recognises the labour needs of local employers (not just in the finance industry but across the economy as a whole) but is also conscious of the pressure on resources and therefore, as a way of balancing these factors, operates two housing markets. The Island has a highly skilled workforce drawn from a population where there is a nucleus of locally qualified persons they can automatically buy and live in property from the local market. Businesses wanting to bring in specific expertise can ask the government for a housing licence so that their recruit, although not locally qualified, can buy and live in local market property. All British passport holders or EU nationals can buy and live-in property in the open market, where there are approximately 1,600 properties available (10% of the Islands dwellings). These persons can also work in the Island. Guernseys Anglo-Saxon/Norman heritage has bred a cosmopolitan culture where there is an easy acceptance of new arrivals, including expatriates.

The Island can also boast first class public services such as schools, hospitals and leisure centres, quality utilities that are supervised by the Office of Utility Regulation (OUR) and a modern transport network.

Also on offer are the elements that make the Island a great tourist destination: a temperate climate; sandy beaches; cliff-path walks; heritage sites; stunning scenery; the nearby islands of Alderney, Sark and Herm; an array of hotels, guesthouses and self-catering accommodation; and dining experiences to match the very best internationally.

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 Islands Gross Domestic Product (GDP) is £1,905m. (£31,750 per head of population). Finance is the mainstay of the economy; of the approximately 31,700 people employed in the Island, around 7,500 (24%) are employed in the finance sector itself, which is the most profitable (43%) and largest earning remuneration and profits (36%) sector, also making up around 70% of the Islands export economy.

Banking

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.

International banking groups with head offices in Switzerland, Europe, USA, the United Kingdom and a number of other international locations have established subsidiaries on the Island. Some of the most highly respected names in international finance have chosen to place their operations in Guernsey alongside independent, boutique providers.

The sector provides products ranging from retail banking and savings through international wealth management to institutional business and specialist lending. Importantly it services the other financial services sectors on the Island (insurance, investment funds and fiduciary services). Flows from these sectors and in particular the funds industry, have helped propel the value of deposits held by Guernsey banks to record levels. They rose 6% in the final quarter of 2007 and 29% year on year to reach a new high of £119bn. at the end of December 2007.

Insurance

Guernsey has an international insurance industry that provides a range of risk management solutions but is particularly renowned for its captive expertise.

Since the first captive insurance company was formed in Guernsey in 1922 the Island has become the leading captive insurance domicile in Europe and is in the top four in the world. Indeed, approximately 40% of the FTSE 100 companies have captives in Guernsey and half of the captives established by UK companies are based in the Island, although a number of firms from across the globe have established captives in Guernsey.

Ten years ago the Island pioneered the protected cell company (PCC) concept in response to the needs of its pre-eminent captive insurance industry. The PCC has become an increasingly popular tool for a range of financial services businesses and Guernsey has also introduced the innovative Incorporated Cell Company (ICC) concept.

As of the end of 2007 there were 298 captives, 69 PCCs with 257 cells and one ICC with seven cells totalling 632 entities. They are writing business with £18.8bn of gross assets, a net worth of £6.5bn and premiums of £3.4bn.

Investment funds

At the end of December 2007 funds under management and administration in Guernsey reached a new record high of £178bn. up 8% during the quarter and 37% in twelve months.

The Island plays host to an extensive array of investment businesses, including 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 also growing a reputation as a centre of excellence for alternative investments like funds of hedge funds, private equity and property, as well as more esoteric asset classes such as fine wine, fine 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 the Commission having approved 173 by the end of December 2007.

There has also been significant interest from fund promoters and sponsors in the Islands new registered closed-ended funds regime. Indeed, in the period between its introduction on 1 February 2007 and the end of December this year, 82 such funds have been given consent by the GFSC. A further series of related changes will come on-stream during 2008.

Another area of expansion is the asset management sector. Subsidiaries of large groups as well as independent investment boutiques provide wealthy private clients, their advisers and the institutional marketplace with services, including stockbroking and dealing arrangements, for funds and discretionary investment management portfolios.

Fiduciary services

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 fiduciaries, ranging from large organisations to independent, boutique operations, holding between £200bn and £300bn of assets in trust. 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.

A new Trusts Law, which includes the introduction of Purpose Trusts and the abolition of the personal liability of directors in Private Trust Companies (PTCs), is now effective. Work continues on the introduction of Foundations.

A business-friendly environment

The Islands already business-friendly environment is constantly being enhanced.

On 1 January 2008, the Island introduced a standard zero rate of income tax for corporate entities (and there is already no withholding tax on dividends paid, no capital gains tax, no inheritance tax and no value added or general sales tax).

In addition, the Islands parliament, the States of Guernsey, has approved a new Companies Law. It will introduce a streamlined company incorporation process that from the summer of 2008 will be facilitated by a modernised Company Registry. Similarly, Guernseys 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 to be rolled out during 2008.

Well supported

As the principal sectors of Guernseys 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 investment, legal, tax, audit, accounting and actuarial expertise. There is also a large pool of experienced and qualified non-executive directors. 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.

Independent stock exchange

The independent Channel Islands Stock Exchange (CISX) has experienced considerable growth since it was established in Guernsey in 1998. It now has more than 2,000 security listing and is the exchange of choice for a growing number of quality issuers.

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 continues to attract international recognition, a list which now includes the UKs Financial Services Authority (FSA) and HM Revenue and Customs (HMRC), the US Securities and Exchange Commission (SEC) and the Australian Stock Exchange.

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 (GTA) University Centre.

It provides proactive, top quality training, catering for the specific needs of a growing financial services industry. Accredited university centre status adds to the number of postgraduate courses run by university tutors that are available on-Island.

Robust and pragmatic regulation

Responsibility for the regulation of all authorised financial activities lies with the Guernsey Financial Services Commission (GFSC), which was established in 1988. The Commissions 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. 

The right conclusion

Guernseys unique local characteristics make it a particularly attractive location to conduct finance business. The Islands finance industry is indeed thriving and also confident of continuing to see further growth into the future.

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.

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