The UK's three IOFCs, Jersey, Guernsey and
the Isle of Man have each developed some specialisations;
Guernsey stands out as a captive insurance
centre, but also has substantial banking and
trust management sectors. Like the other two
'British' IOFCs, Guernsey has extremely strong
professional services and pays great attention
to regulatory standards. As a rather broad
generalisation, the business environment in
Guernsey has shown a marked tendency to become
more international over the last ten years,
partly because of the usefulness of the island
to multinationals setting up in the EU, and
partly because of increasingly tough anti-avoidance
rules that have made it difficult for UK citizens
to make productive use of trusts.
This section of the
site describes the most important
types of offshore business activity carried
out from the island.
Guernsey Trade Marketing and Distribution
Even more than Jersey, its competitor and
companion, Guernsey is prevented by its small
size and limited resources from acting as
a base for physical warehousing, processing
or distribution into the vast EU market that
lies so temptingly close by. Financial services
have understandably tended to dominate the
island's business development in the last
quarter of a century. Given the level of sophistication
of Guernsey's business infrastructure, this
could be seen as wasteful, and it may be that
the Internet is about to make it possible
for the island to develop a new life as a
commercial entrepot.
Along with other offshore jurisdictions,
Guernsey is a suitable place in which to base
e-commerce services for retail or wholesale
distribution of material or non-material goods:
see Offshore-e-com.com for extended
descriptions of how such businesses can take
advantage of the combination of offshore and
e-commerce.
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Guernsey Investment Fund
Management
Open ended funds may be established as Class
A, B or Q funds and are constituted as companies,
protected cell companies or unit trusts.
Closed ended investment funds are constituted
as companies, unit trusts, limited partnerships
or protected cell companies.
Open ended schemes are authorised and entities
involved in controlled investment business
are licensed under the Protection of Investors
(Bailiwick of Guernsey) Law, 1987, as amended.
The Commission has made a number of rules
under the Law which set out the detailed
requirements to be followed by all authorised
schemes and licensees. These include:
- The Collective Investment
Schemes Rules 2002 (which cover Class
A schemes); The Collective Investment
Schemes (Class B) Rules 1990 (which cover
Class B schemes);
- The Collective Investment
Schemes Qualifying Professional Investors
(Class Q) Rules 1998 (which cover schemes
designed for qualifying professional investors);
- The Collective Investment
Schemes (Designated Persons) Rules 1988;
- The Licensees (Conduct of
Business and Notification)(Non-Guernsey
Schemes) Rules 1994.
Class A schemes are those which meet the
Commission's Collective Investment Schemes
Rules 2002 and are therefore eligible for
recognition by the UK Financial Services Authority
for sale to the public in the United Kingdom
under section 270 of the Financial Services
and Markets Act 2000.
The rules for Class B schemes incorporate
a measure of flexibility. This policy recognises
that Class B schemes range from the retail
fund aimed at the "general public" via institutional
funds to the strictly private fund established
solely as a vehicle for investment by a single
institution. Their investment objectives and
risk profiles are similarly wide-ranging.
The Class Q Rules seek to provide a clear
and concise set of requirements for the operation
of professional investor funds and have been
designed to encourage innovation.
A Qualifying Investor Fund (QIF) regime was
Introduced following consultation with the
financial services industry in the latter
half of 2004, and was welcomed by the island's
fund industry. Under a streamlined application
process, the Commission undertakes to grant
fund approval within 3 working days provided
that an appropriately licensed Guernsey applicant
has certified that: the fund will be restricted
to professional, experienced and knowledgeable
investors; the applicant has conducted due
diligence on the promoter and associated parties
and has found them to be fit and proper; and
the applicant is satisfied as to the fund's
economic rationale and the disclosure of any
risks associated with the investment vehicle.
New criteria for Qualifying Investor Funds
released by the Guernsey Financial Services
Commission in 2006 met with support from the
island’s finance industry.
Chief executive of GuernseyFinance, Peter
Niven, suggested that the move "will serve
to bring more business to the island", whilst
Chairman of the Guernsey Investment Fund Association,
Mike de Haaff, announced that:
"GIFA welcomes the change in criteria as
it brings Guernsey in line with other offshore
jurisdictions. The change in definition of
a professional investor will encourage more
take up of QIFs and can only be seen a positive
move for the island’s fund industry."
Under the new rules, the definition of Professional
Investor has been widened to include an individual
investor who invests a minimum of US$100,000
in such a fund.
The revised guidance note issued by the FSC
also re-emphasised the due diligence obligations
which Guernsey Licensees undertake when submitting
applications for Guernsey Qualifying Investor
Funds.
According to figures published in November, 2007, by the Guernsey
Financial Services Commission, funds under
management and administration on the Island
grew by GBP8.9bn (5.7%)
over the quarter ended 30 September 2007, to reach a
total of GBP164.5bn –
a rise of GBP44bn (36.5%) over the year.
Within these totals, the Closed-ended fund
sector saw continued growth, with increases
of GBP5.2 billion (8.4%) over the quarter
and GBP23.9 billion (54.7%) over the year
since 30 September 2006, to reach GBP67.6
billion. Guernsey domiciled open-ended funds
grew by GBP2.5 billion (4%) over the quarter
and by GBP11 billion (20.4%) over the year
since 30 September 2006 to reach a total of
GBP65 billion.
Non-Guernsey schemes, for which some aspect
of management or administration is carried
out in the Bailiwick, again saw growth and
increased by GBP1.2 billion (3.9%) over the
quarter and by GBP9.1 billion (39.5%) over
the year to reach a record high of GBP31.9
billion.
In the year to 30 September, a total of 65
Qualifying Investor Funds were approved. Since
inception of the QIF regime in February 2005,
a total of 130 QIF vehicles have received
consent or approval. On 1 February 2007, a
Registered Closed-ended Fund regime was introduced.
By 30 September, a total of 55 Registered
Closed-ended Investment Funds had received
consent since the launch of the regime. Since
30 September a further 12 Registered Closed-ended
Investment Funds have received consent under
this regime.
Peter Moffatt, Director of Investment Business
at the Guernsey Financial Services Commission,
observed that:
“These figures are evidence, despite recent
market turbulence and the impact of movements
in currency exchange rates on net asset values,
of continuing confidence in the Guernsey investment
fund sector.
As the figures show, the Qualifying Investor
Fund and Registered Closed-ended Investment
Fund Regimes are being extensively used by
local firms to service the needs of their
fund promoter clients”.
The growing use of Guernsey structures as
vehicles for hedge funds has highlighted a
number of areas where the investment fund
framework can create problems, leading the
GFSC to issue a consultation document: ‘The
regulatory framework for Hedge Funds in Guernsey’
in November 2003. This culminated in a report
issued in the latter half of 2004 which advocated
more flexibility in certain aspects of the
legal regime governing funds, including: dispensing
with the need for a Guernsey-domiciled and
licensed custodian to fill the role of a suitably
qualified prime broker; waiving complex segregation
requirements for prime brokers holding fund
assets; waivers for funds which can demonstrate
a need to use estimates of net asset value
in advance of final NAV determination; and
where estimation is permitted, a possible
waiver of client money rules requiring segregation
of subscription and redemption monies.
The GFSC has also recently issued guidance
on the disclosure regime for closed-end investment
funds. That guidance re-emphasised the flexible
nature of the Commission’s approach. Guernsey
domiciled closed-end funds are subject to
Guernsey company law and the Control of Borrowing
regime, and it is clear, from the closed-end
hedge funds already established under those
arrangements, that few structural problems
arise. In the open-ended sector, the position
is more complex. Open-ended funds are subject
to the Protection of Investors (Bailiwick
ofGuernsey) Law 1987, as amended, (“POI”)
and to rules and regulations made under that
law. POI provides, inter alia, that all Guernsey
open-ended funds must be authorised by the
Commission - there is no provision for “unauthorised”
funds – and that each fund must have a designated
manager and a designated trustee or custodian.
Plans were announced in mid-2006 to dramatically
change the legislation and regulation relating
to investment and fund business in Guernsey.
The proposed changes include:
- The introduction of a new
Prospectus Law covering the disclosure
requirements for Guernsey investment funds
and other local entities that are raising
capital through the offering of securities;
- The placing of greater emphasis
on the regulation of licensed service
providers rather than individual investment
funds;
- A new Funds Law to cover
both open- and closed-ended investment
funds; and
- Categorisation of funds into
“regulated” and “registered” and streamlining
the regulatory process by removing registered
funds from that process
Peter Niven, the chief executive of GuernseyFinance,
observed at the time
that:
“Guernsey’s fund business is at an all time
high, with year-on-year growth in funds under
management and administration of 47.4% to
the end of March 2006. The timing of these
recommendations could not be better to capitalise
on this result and pave the way for further
success.”
He continued: “Guernsey’s growth in investment
business had been partly down to an increasing
appetite for alternatives, in particular fund
of hedge funds, property funds and private
equity funds. Guernsey had also attracted
a number of alternative fund managers to relocate
to the island in recent years. In addition,
traditional sources of new business are continuing
to come through very positively."
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Guernsey Banking
Banks in Guernsey are regulated and licensed
by the Guernsey Financial Services Commission
(GFSC) under the Banking Supervision (Guernsey)
Law 1994 as amended. The Commission is extremely
careful to exclude doubtful operations.
Originally, banks coming to Guernsey set
up fully-staffed local branch offices or subsidiaries,
but in recent years, as in many other IOFCs,
in response to shortage of resources, the
administered unit has become more popular.
Under this scheme, an established Guernsey
bank provides services for an incoming bank,
which therefore does not need to open its
own office or recruit staff. However, the
Financial Services Commission applies the
same standards of supervision to an administered
bank as to an established bank. About one
third of the banks in Guernsey are 'administered'.
The banking sector, in common with other
financial services businesses, is subject
to stiff money laundering controls under the
Criminal Justice (Proceeds of Crime) (Bailiwick
of Guernsey) Regulations, 2002.
Financial services businesses which suspect
that a customer or transaction are associated
with money laundering, terrorism, or the financing
of terrorism, must report this to the Guernsey
Financial Intelligence Service.
As of June 2005, there were 50
licensed banking institutions in Guernsey.
Figures released by the Guernsey Financial
Services Commission in November, 2007, showed
that the total value of deposits held with
Guernsey banks reached a record record high
of GBP112.7bn as at September 30, 2007 – up
GBP23.3bn (26%) year on year. That represents
an increase during the quarter of GBP4.6bn
(4.2%).
“The fact that the banking sector has been
able to deliver such results in what has been
a difficult quarter is testament to the robust
nature of what is a mature segment of the
Island’s finance industry," announced Peter
Niven.
“It also illustrates the benefits of having
a diverse spread of banking business on the
books, which includes strong flows of corporate
deposits relative to retail business and this
is a feature we encourage for the future.
In particular there is substantial business
coming from the other parts of the Island’s
finance industry, in particular investment
funds and especially private equity, demonstrating
the continued buoyancy of these sectors,"
he added.
The figures showed that new deposit business
came principally from financial institutions
in Guernsey, banks elsewhere, corporate customers
and particularly from Swiss fiduciary deposits
(up 8.9%). Therefore, although Sterling business
fell during the period, the overall currency
mix saw growth in Swiss Franc, US Dollar and
Euro business.
Speculation that the EU Savings Tax Directive
would impact on balances held offshore has
so far proved unfounded.
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Guernsey Trust Management
Trust management, particularly for wealthy
UK individuals, was the island's traditional
business. Successive tightenings of UK anti-avoidance
legislation have reduced the possibilities
for UK citizens, but Guernsey's trust business
has continued to grow based on a more international
clientele. Many Collective Investment Funds
are also of course based on trusts.
Some 200 firms offer fiduciary trust services
on Guernsey, employing more than 1,000 people,
and managing more than GBP50 bn in trust assets,
excluding Collective Investment Funds. The
island has a very well-developed legal and
financial infrastructure for trust management;
the highly sophisticated professional services
which support the trust sector include lawyers,
accountants, investment managers and stockbrokers.
The Trusts Law 1989 provides a modern statutory
basis for trust management activity. The Edwards
Report acknowledged that Guernsey ranks highly
among IOFCs for the quality of its regulation.
Unlike the banking sector, however, the Guernsey
trusts industry had not been subject to any
formal system of supervision. Partly as a
result of the Edwards Report, a law was prepared
by the States' Advisory and Finance Committee
under the name of The Regulation of Fiduciaries
and Administration Businesses (Bailiwick of
Guernsey) Bill 2000. The law - known as the
Fiduciary Law - came into effect on 1 April,
2001.
Individuals and businesses involved in the
provision of fiduciary services had to submit
a licence application to the Commission by
31 May 2001. The Commission received a total
of 179 applications for a full fiduciary licence
and 70 applications for a personal fiduciary
licence.
The law contains a 'four eyes' rule, standards
for capital adequacy and compulsory indemnity
insurance. The offer or provision of fiduciary
services without a licence will incur criminal
sanctions. A full licence is required by any
company, wherever registered, providing fiduciary
services in the Bailiwick and by Guernsey-registered
companies providing fiduciary services anywhere
in the world and individuals, acting as directors
or trustees by way of business, need a personal
licence. Prudential rules have also been imposed;
clients' funds need to be segregated from
other trust assets; and new accounting safeguards
have been installed.
The annual fee for a full fiduciary licence
is dependent upon the annual turnover from
regulated fiduciary activities. See Offshore Legal and Taxation
Regime for full details.
The law provides extensive powers to the
GFSC in the granting, refusal, revocation,
and application of conditions to fiduciary
licences. It will also have authority to control
the names of, and advertising by, fiduciary
businesses, rights to obtain information and
documents, and powers to conduct investigations.
The Commission states that the Bailiwick of
Guernsey is one of the first jurisdictions
to establish a statutory system of fiduciary
regulation.
Click on Formation of Trusts or Taxation of Trusts for further
information.
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Guernsey Insurance
See Offshore Business Review – Insurance
for a more general treatment of captive insurance
companies.
The Guernsey insurance sector can be broadly
divided into two main areas: domestic insurance
- comprising local insurers, overseas insurers,
recognised insurers and intermediaries who
advise on or arrange contracts of insurance
in or from within Guernsey; and international
insurance - embracing captive insurers, protected
cell companies and life assurance companies
who arrange contracts of insurance from within
Guernsey, covering international risks.
Access to protected cell status was enlarged
in 2001 under The Protected Cell Companies
(Special Purpose Vehicle) Regulations 2001,
under which two further classes of company
were permitted to be incorporated as, or converted
into, a protected cell company. The first
additional class of company is one that is
'established principally for the purpose of
issuing bonds or other debt securities where
the repayment is to be funded from the proceeds
of the company's investments.' The second
type of company is one that performs the 'carrying
on of finance business' with the exception
of those supervised under specific laws such
as the Protection of Investors Law, the Insurance
Business Law, the Banking Supervision Law
and the Regulation of Fiduciaries. The new
law took full effect from 6 February 2001.
Both categories of insurers in Guernsey are
required to be licensed under The Insurance
Business (Bailiwick of Guernsey) Law, 2002.
The minimum capital requirement for insurers
writing general insurance business is GBP100,000.
For insurers writing long term insurance business,
the minimum capital requirement is GBP250,000.
For offshore insurers there is an incorporation
fee of GBP3,535, an annual registration
fee of GBP3,535, and a considerable
amount of solvency and business information
is required annually.
At 31st October 2007,
there were in total 638 international insurance
companies registered in Guernsey, comprising
303 captives, 71 PCCs and 262 PCC cells. Total assets
in 2006 stood at GBP18.8
billion. Additionally, in the areas
of PCCs, there is rising interest in special
purpose vehicles (SPVs), although these are
usually only arranged by well capitalised
companies.
A survey conducted by Reactions Magazine
in June, 2006, saw Guernsey voted the best
domicile in Europe for PCC (Protected Cell
Company) legislation, highly commended for
its tailored legislation, and commended for
its cost efficiency.
According to GuernseyFinance, the survey
comes at a time when the growth in numbers
of Captive Insurance companies slowed globally
in 2005.
Peter Niven Chief Executive of GuernseyFinance
commented:
“These accolades show the insurance industry
recognizes Guernsey as a leading domicile
for Captive Insurance and particularly for
PCCs. This is set to continue with our pragmatic
approach to legislation and our continuing
drive to ensure that Guernsey is a good place
to do business.”
Captives in Guernsey can choose between various
tax regimes; see Offshore Legal and Tax Regimes:
Taxation of Offshore Entities
and Domestic Corporate Taxation
for details.
In the domestic market, there were 24
domestic insurers as at 31st October, 2007,
and 48 registered intermediaries. In
addition, a number of 'Recognised Insurers'
write business in Guernsey without having
a physical presence. A recognised insurer
cannot write business in the Bailiwick without
being licensed in their home jurisdiction.
Registered insurance companies may take advantage
of the Protected Cell (Guernsey) Ordinance
1997, under which multiple cells may exist
within one company; the taxation basis of
protected cell companies will probably be
equivalent to that of exempt companies. Protected
cell company status under the 1997 Ordinance
is generally reserved for authorised collective
investment schemes, insurance companies and
closed-ended investment companies.
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