It has been a particularly active time for Guernsey’s financial services sector over the past six months.
Across all the key pillars of our industry there have been positive stories to tell and examples of our standing within the mainstream of international finance.
One of the most demonstrable instances came in May when KPMG published its report, International Capital Flows. The report reinforced Guernsey’s reputation as a leading funds domicile after revealing the extent to which the island facilitated the flow of capital globally, including £105 billion of investment in Europe – 49 per cent of which originates from investors located outside Europe itself.
The report highlighted Guernsey as an integral conduit facilitating the raising of capital from investors in different countries, subsequently allowing for the redeployment of this capital into global assets. The report emphasised the fact that global investors are comfortable utilising Guernsey structures, in large part due to the island’s reputation, regulatory track record and high standards of transparency. Similarly, it reaffirmed Guernsey’s particular expertise in alternative investment assets – a key asset class for many investors.
This was followed in July by the European Securities and Markets Authority (ESMA) announcing its recommendation to grant Guernsey a ‘third country’ passport under the Alternative Investment Fund Managers Directive (AIFMD). Guernsey is one of only three jurisdictions to receive the recommendation, which, if approved by the European Commission, Parliament and Council later this year, would further enhance Guernsey’s position to distribute funds into Europe.
Guernsey has had its own opt-in equivalent AIFMD regime fully operational since 1 January 2014 in order to demonstrate the high standards that its funds industry works to, but the ESMA recommendation would further solidify this position and enable Guernsey to operate on a level playing field with its European counterparts once approved by the relevant European authorities.
As a non-EU jurisdiction with close proximity and business ties to the EU, it is essential that we are able to comply with AIFMD for those clients obliged to or who wish to take advantage of the regime. Our opt-in equivalent regime may make commercial sense for a fund manager marketing almost exclusively to Europe and who therefore may require full AIFMD compliance. However, being able to offer both EU and non-EU solutions from one location, means Guernsey is ideally placed to serve the global fund industry.
Within the ESMA advice the strong relationship between Guernsey’s fund industry and the European marketplace was evidenced by data that showed Guernsey was the third largest non-EU fund domicile, behind the US and Cayman Islands, for the number of non-EU Alternative Investment Funds (AIFs) and non-EU Alternative Investment Fund Managers (AIFMs) marketing into the EU Member States of the UK, Ireland, Sweden, the Netherlands, Luxembourg, Finland, Denmark and Belgium for the nine-month period up to March 2015.
Similarly, the Guernsey Financial Services Commission (GFSC) has previously reported that managers have used our National Private Placement regime to market AIFs into markets including the UK, Germany, France, Ireland, the Netherlands, Sweden, Norway and Finland as well as Belgium, Denmark, Austria, Luxembourg, Estonia, Portugal and Romania.
Separately to the ESMA advice, Guernsey itself has recently extended market access to EU AIFMs and AIFs doing business in Guernsey.
By amending our Investor Protection regulations for AIFMs and AIFs based in Member States that have fully implemented AIFMD, Guernsey's Government has enabled easier movement between Guernsey and EU markets. The move to reciprocate market access under AIFMD is a clear demonstration of our belief in the benefits of increased trade and competition in the funds sector that the AIFMD passport facilitates.
OECD Convention Extension
In August, a clarification from the Organisation for Economic Co-operation and Development (OECD) clarification, agreed by the UK’s HM Treasury and Ministry of Justice, about Guernsey’s position within the OECD further reinforced our standing within the international funds environment.
The statement, agreed to inform EU and EEA authorities of Guernsey’s position, states that:
“The OECD Convention was extended to Guernsey on 20 July 1990. This means that the OECD Convention applies to Guernsey and it is part of UK's membership of the OECD. OECD decisions and recommendations apply to the same extent to Guernsey as they do to the UK."
The clarification over whether or not a fund's domicile is in the OECD has become increasingly important in order to meet requirements of certain market regulators. For example, in some jurisdictions there are prohibitions on the marketing of funds which do not originate from an OECD country.
While those working with or in the island’s funds industry already knew our position within the OECD, the fact that Guernsey was included through the UK's membership, was not always known by others.
Further positive news for the funds sector came in October when the VinaCapital Vietnam Opportunity Fund announced it was to migrate its domicile from the Cayman Islands to Guernsey. The closed-ended investment company, which had net assets of US$681 million at the end of August, focuses its investment strategy across the key growth sectors of the Vietnam economy.
In explaining the reasons for the planned migration, the fund’s directors said it had become apparent that its place of domicile was a barrier to certain potential new investors, while reasons for choosing Guernsey included its well-established infrastructure for the administration of closed-ended funds listed on the London Stock Exchange and a robust regulatory and compliance regime.
Our banking sector has also been boosted in recent months.
Firstly, when the island’s newest bank, FNB Channel Islands (FNBCI), officially opened for business in July. FNBCI, the Guernsey branch of FirstRand Bank Limited – South Africa’s largest banks by market capitalisation – enhances FirstRand's presence in Guernsey as it already provided a wide range of fiduciary services through FNB International Trustees Limited.
This was then followed by ABN AMRO’s announcement at the end of September that it was to transfer its Jersey private banking business to the Guernsey subsidiary.
Jeroen Rijpkema, CEO of ABN AMRO Private Banking International, said integrating its Channel Islands activities into Guernsey would enable ABN AMRO to strengthen its value proposition, leverage its scale, create synergies and simplify governance.
A Fit for Fintech
Guernsey is also positioning itself to take advantage of opportunities in the digital age. A strategy document to guide the future of Guernsey’s fintech sector was published by PwC and Guernsey’s Commerce and Employment Department in July.
The paper included analysis of the Guernsey and international environment within the fintech sector to identify key market attributes and the future direction and involvement of local and off-island industry experts and stakeholders. The PwC research highlighted that Guernsey is already doing much in the fintech sector and that if some key areas, as identified in the report, continue to be addressed, then the island is well placed to take advantage of and become an even more important player for fintech.
In Guernsey’s favour is the fact that it is so well connected to the rest of the world, sitting at the centre of a hub of subsea fibre cables linking the UK with the Americas, Europe, the Middle East and Africa. This ensures Guernsey possesses the highly secure data connectivity and resilience that its global finance sector and world-leading e-gaming industries require, not to mention the cutting edge data centres which are required to underpin this infrastructure. Guernsey has identified that being a trusted and secure jurisdiction, in a digital age, is a differentiation that financial business are actively looking for as Boards seek to improve their resistance to cyber attack.
The GFSC’s open door policy with fintech entrepreneurs also enables the Commission to work with practitioners to develop new regulatory responses where they are required to meet the needs of innovative products and emerging markets.
Company Law Updates
In a move that impacts all sectors, updates to Guernsey's Company Law came into force at the beginning of September. Changes in legislation and associated regulations had made amendments to the Law necessary in order to address practical issues and to ensure that Guernsey remains a highly regarded and competitive jurisdiction.
Amendments were designed around feedback from industry users and now include companies being able to register an alternative name in a non-roman script i.e. using foreign characters.
Feedback from industry and practitioners is that the amendments have made a number of administrative processes more straightforward and corporate actions such as amalgamations, migrations and takeovers more efficient.
Middle East Development
From a Guernsey Finance perspective, we have recently appointed our first Middle East representative. Zoë Cousens relocated to the region in September and will help to promote Guernsey's financial services industry in the Middle East and be an on-the-ground presence for Guernsey Finance. Based in Dubai, she will be the main point of contact for Middle Eastern firms and clients interested in Guernsey and will assist in hosting and arranging meetings, seminars or events for Guernsey businesses visiting the region.
The creation of this role reflects the increasing focus on the region of many Guernsey businesses. Zoë has spent more than 30 years working in the financial services industry in Guernsey, London and Hong Kong across the investment, private wealth and funds sectors. Her experience in the Middle East includes sitting on the Board of an investment company in the Dubai International Finance Centre and attendance at a wide range of conferences and events in the region. She already has a well-established network of contacts there, which will be expanded upon as she continues in her role.
What is clear to see from a snapshot of just six months is that Guernsey’s finance industry continues to thrive and develop. It is most definitely an exciting time, but we will not rest on our laurels. Work is always ongoing to further enhance Guernsey’s financial services environment so as to ensure that the Island provides its clients with the very best products and services.
Dominic Wheatley is Chief Executive of Guernsey Finance, the promotional agency for Guernsey's finance industry. His role includes business development and the promotion of Guernsey's finance industry in the Island's target markets including Europe, the US and the emerging markets, technical research to support promotional activities and liaison with industry associations and government. He was previously Chief Marketing Officer of the Willis Global Captive Practice and Managing Director of its Guernsey business, and has over 25 years of finance experience in London and, for the past 19 years, in Guernsey.