Paul Christopher reflects on how Guernsey has dealt with the consequences of the global financial crisis and how it has positioned itself for the future.
When discussing the history of mankind Mao Tse Tung observed: “Man has constantly to sum up experience and go on discovering, inventing, creating and advancing. Ideas of stagnation, pessimism, inertia and complacency are all wrong. They are wrong because they agree neither with the historical facts of social development over the past million years, nor with the historical facts of nature...” The past 12 months have served as a period of time in which to reflect on and deal with the consequences of the global financial crisis. This article intends to cover any discernable trends for Guernsey which have evolved during that period.
A positive note was sounded in March 2010 by Michael Foot, author of the report commissioned by HM Treasury into British Crown Dependencies and overseas territories published in October 2009. He recognised that whilst the global financial crisis had resulted in greater scrutiny of so called ‘offshore centres’, Guernsey specifically had responded positively, and, in his view, was well positioned for the future: “A jurisdiction like Guernsey has its own future in its own hands and it needs to be left to get on with that within a framework of good governance” said Mr Foot. “You have the flexibility and ability to sit down in a room and talk - industry, regulatory and government…about what really matters and plan for the future”.
Against this background Guernsey has initiated a number of internal consultations; chronologically the first of which was in relation to corporate governance for licensed businesses and was issued by the Guernsey Financial Services Commission (GFSC) in the first quarter of the year. The response to the consultation from industry was so overwhelming that a further consultation is anticipated.
Corporate Tax Review
Consultations in other important areas have also taken place in relation to amendments to the Company Law (introduced in 2008) and the corporate tax regime generally, the outcomes of which are still pending. It has, however, already been confirmed that investment funds and their structures will continue to benefit from a tax exempt status.
Given the similarity of the Guernsey corporate regime to that of Jersey and the Isle of Man, which are at the time of writing under review in relation to the EU Tax Code of Conduct, those reviews will no doubt, have consequences in relation to Guernsey’s own proposals for its future tax system. In particular Guernsey’s government has made a number of statements asserting its desire to work together with the other Crown Dependencies on future tax regimes. To the extent that a new tax regime is required it is anticipated that this will not be before 2015 at the earliest.
Earlier this year Nils Johnson from Spence Johnson who authored the report ‘Offshore Evolution’, that was published in 2009 in association with the Society of Trust and Estate Practitioners, noted: “Guernsey’s benefit is there is no legacy of non-compliant portfolios clogging up their books….where that can manifest itself as a strength is where it starts to focus on emerging elements of wealth, where family wealth is growing rapidly, such as India and Russia”.
Guernsey Finance, the promotional body for the finance industry in Guernsey, lead a delegation of government and industry to India in October 2010 and at the time of writing, is shortly to be leading a similar delegation to China. Xiao Jie, Commissioner of the State Administration of Taxation, People’s Republic of China, visited Guernsey to sign a tax information exchange agreement on 27 October 2010. That was the 19th agreement that Guernsey has finalised with another territory. Guernsey’s Chief Minister in the forthcoming delegation to China is expected to sign a memorandum of understanding (MoU) with the Shanghai Municipal Financial Services Office to promote exchange and cooperation in financial services between the two centres. The delegation also will seek approvals for Guernsey companies to list on the Hong Kong Stock Exchange, will progress the signing of an MoU with the China Banking Regulatory Commission and move forward signing a similar MoU with the China Securities Regulatory Commission.
Tax Information Exchange Agreements
Guernsey is close to conclusion of a further 12 Tax Information Exchange Agreements (TIEAs), in addition to the 19 that it has already entered into, which it expects to sign in the near future. TIEAs have been entered into with the following jurisdictions: Australia, China, Denmark, Faroe Islands, Finland, France, Germany, Greece, Greenland, Iceland, Ireland, Netherlands, New Zealand, Norway, Portugal, San Marino, Sweden, the United Kingdom and the United States of America.
Anecdotally Guernsey now appears to be the jurisdiction of choice for Qualifying Recognised Overseas Pension Schemes (QROPS). The fiduciary business in the Island has also been re-invigorated by the opportunities which it perceives in the emerging markets. Guernsey has also been seen as a favourable jurisdiction for the establishment and operation of family limited partnerships as well as more conventional wealth structuring arrangements. It also continues to be a jurisdiction which attracts complex and high value business as a response to the sophistication and experience of the service providers and the judiciary.
Guernsey’s position as a leading fund domicile has been further endorsed by a series of new administrators and managers establishing a presence in the Island. JP Morgan and BNY Mellon both added their names to the list of fund administrators in Guernsey. BlueCrest Capital Management – one of Europe’s largest hedge fund managers – and stockbroker Shore Capital relocated significant aspects of their business from London to the Island during the first half of 2010.
Private equity firm, Terra Firma, also expanded its Guernsey office in parallel with Chairman, Guy Hands, taking up residence in the Island. Other private equity managers including Primera, EQT, Alchemy and John Moulton’s, Better Capital also have significant funds administered in Guernsey.
Statistical information in relation to investment funds also shows that the net asset value of total funds under management and administration grew by £18.9 billion (8.4 per cent) over the quarter ended 30 September 2010 to £243.1 billion. For the year since 30 September 2009 total net asset values increased by £61.6 billion (33.9 per cent).
Asset management and stock broking information at the time of writing also showed substantial increases of gross assets under management as well as a substantial increase of turnover of stock broking activities.
According to data direct from the Market Authority the London Stock Exchange (LSE) statistics to the end of September 2010 also showed that there are more Guernsey incorporated companies listed on the markets of the LSE than any of its competitor finance centres,
LSE statistics to the end of September 2010 show there are more Guernsey-incorporated companies on each of the UK Main Market, the Alternative Investment Market (AIM) and the Specialist Fund Market (SFM) than any competitor jurisdiction.
In addition, Guernsey also leads the way in terms of numbers of “equity investment instruments” – the majority of investment funds – listed on the exchanges both individually and collectively. This includes the fact that it has more equity investment instruments listed on AIM than any other jurisdiction, including the UK and more than the UK, Jersey and the Isle of Man combined.
The figures from the LSE website indicate that there had been more new listings so far in 2010 from Guernsey than other jurisdiction.
The LSE website also shows that there are 106 Guernsey-incorporated companies with a market value of £21 billion listed on the LSE markets as of 30 September 2010. Of these, 60 were invested on the UK Main Market, 41 on AIM and five on SFM. There were 66 equity investment instruments from Guernsey on the exchanges at this time, with 44 on the Main Market, 19 on AIM and 3 on SFM.
In relation to banking licenses there continues to be a downward trend in the number of bank licenses which are issued by the GFSC from 54 in 2004 to 44 in 2009 representing 15 different countries of origin. Total assets and liabilities in relation to deposits held at Guernsey banks at the end of September 2010 decreased 3.5 per cent over the year in Sterling terms. However, the GFSC commented “Swiss fiduciary deposits were “essentially stable”. Swiss deposits represented 33.9 per cent of all deposits at the end of September 2010.
Any Other Business
During 2011 the GFSC will conduct a 'root and branch review'of financial regulation in Guernsey. The GFSC will appoint consultants to undertake the study in an attempt to identify the requirements for regulation for the next 10 years and the most efficient methods of delivery.
In terms of its international personality Guernsey has established an office in Brussels along with Jersey to enable the islands to engage at the heart of Europe. The strategies of Guernsey and Jersey working together and at the same time developing their respective international personalities is one which looks set to continue. Local press, for example, has noted that senior politicians in both Jersey and Guernsey have identified scope for pan-island financial services regulation, auditor general and possibly even a fused legal profession. Local debates are also being held at a senior and academic level in relation to the 'loosening' of the ties with the UK.
British Virgin Islands, Cayman Islands, Guernsey, Hong Kong, Jersey and London.