Guernsey: Guernsey As A Finance Centre

Last Updated: 17 November 1999
Article by David Archer
The finance sector of the Island's economy now employs over 6,000 people and generates some 60% of export earnings. It has continued to expand steadily in all its primary aspects, namely banking, insurance, investment management, collective investment fund administration and trust and company administration. Much of the growth is organic, that is to say attributable to long-established financial services operations, although there have also been changes through mergers as well as growth with the arrival of new institutions.

At 30 June 1999 Guernsey had 79 banks holding deposits totalling a record of nearly £56.6 billion. About 65% of this sum was held in foreign currency, mainly US dollars, Swiss francs and euro. This compares with 56 banks at 30 June 1988 holding deposits totalling just over £10 billion. While nearly 30 of Guernsey's deposit-takers are ultimately owned by British banks and building societies, the remainder have origins in 19 other countries. This is one of the many indications of how international the financial services sector of Guernsey's economy has become.

It has been a similar story in respect of the insurance sector in that it grew both in terms of additional business and in terms of geographical spread, especially in respect of Guernsey's speciality, captive insurance. This is a form of self-insurance for companies, professional practices and organisations looking to insure particular risks, such as professional and public liability, product guarantee, pollution and catastrophe outside the conventional insurance market where cover can be expensive or difficult to find. At 30 September 1999, Guernsey, for some years quite rightly regarded as Europe's premier captive location, had 346 captives and 20 offshore life companies, the latter specialising in marketing life and pensions products around the world. Ten years ago there were only 118 captive and other offshore insurance companies.

Growth has also continued in the authorised collective investment funds area which, in the year from 30 June 1998 to 30 June 1999, increased in number from 381 to 409 with the number of investors worldwide rising from 135,000 to 143,000. The value of funds under management also increased from just under £16 billion to £19 billion. This increase was largely due to the increasing number of funds and the recovery from the 1998 turmoil in the Asian markets, from just under £16 billion to £19 billion. In addition, at 30 June there were 121 non-Guernsey schemes, with a value of £6.6 billion, administered in the Bailiwick.

In February 1997 the Island introduced legislation permitting the establishment of protected cell companies (PCCs). In essence, this legislation allows the assets of one cell (class) within a PCCs to be legally protected from the liabilities of another, thereby preventing contagion between cells.

As envisaged, PCCs have proved popular as innovative vehicles for the setting up of umbrella collective investment funds, particularly where one or more classes might be investing in specialist risk areas, and in the setting up of captive insurance companies, especially those designed as 'rent-a-captive' structures. PCC mean that the concept of captive insurance, previously restricted to medium and large sized corporations and organisations who could afford their own stand-alone captives, can be extended to smaller companies and organisations.

There are now 36 protected cell companies in Guernsey. Nineteen (with 51 classes) have been established as vehicles for collective investment schemes with umbrella structures. Seventeen (with 52 cells) have been established to carry out various kinds of insurance business.

The Commission is committed to maintaining its programme of new legislation.

The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended was recently extended to include all forms of investment business and to provide the Commission with the locus to regulate Guernsey based investment exchanges. In addition, new Class Q Rules were introduced to ease investment restrictions on funds aimed at professional investors.

Other legislative matters which have borne fruit in 1999 include an extension to the Insurance Business (Guernsey) Law, 1986, as amended to provide for the effective supervision of insurance intermediaries.

In addition, the Commission is progressing a proposed law governing the regulation of directors and fiduciary and administration businesses. This law, which is expected to be agreed by all interested parties in 2000, will be pioneering legislation. It is likely that other jurisdictions will seek to introduce meaningful regulation in these areas and I expect Guernsey's law to be widely copied.

Another important initiative is the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999. This strengthens Guernsey's anti-money laundering systems in accordance with the highest global standards. Historically, it was accepted internationally that money laundering activity arose in particular with drugs trafficking and terrorism but, during the 1990s, there has been an increasing consensus that money laundering may arise from all crimes. The new law recognises that consensus.

The Commission's view is that the only way forward for Guernsey is to remain ever-vigilant, to ensure that our standards of supervision comply with the highest international standards and expectations and that our laws are as up-to-date as possible.

During the last two years the Island's finance sector has come under scrutiny by a new United Kingdom Government. Whilst this review was unprecedented it was not altogether surprising, coming from a new government needing to understand and define its responsibilities for, and relationship with, overseas jurisdictions, Crown dependencies and territories.

The States of Guernsey fully co-operated with the review as did all its departments, the Commission and financial institutions. The Island has always enjoyed close and historic links with the City of London and acts as a corridor for billions of pounds worth of business per year to that finance centre.

Significantly, the review report, produced in 1998, made only a few minor suggestions with regard to the Commission's traditional regulatory areas of banking, insurance and investment. The area where most change has been called for is in the fiduciary sector where the suggestion was for fiduciary businesses and directors of companies outside the finance sector to be regulated. The Commission was already committed to regulating fiduciaries and, as can be seen above, the Commission is making progress in this difficult area.

Finally, it is worth repeating the core elements which continue to contribute to Guernsey's ongoing success as an international finance centre.

They are: political stability; constitutional independence from the United Kingdom; excellent communications with other financial centres; a convenient time zone; an excellent commercial infrastructure; comparatively low administrative costs; a good informal working relationship between government and commerce; no exchange controls; and confidentiality.

Confidentiality is one of the most important elements and is offered to clients who wish to keep their financial matters private and who pass the test of respectability. Put another way, the intention of Guernsey's authorities is that customers with legitimate business should enjoy the fully confidentiality and that it should be denied to customers who prove to be criminals.

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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