Always an innovator in financial services, Guernsey once again showed itself to be a world leader in 2019 across several areas of the finance industry that ensures it continues to be a leading global finance centre.
In addition to new products and services, Guernsey demonstrated its key strengths of stability, security, sustainability and substance, which stand out in a time of such great uncertainty.
Green And Sustainable Finance
In green finance, Guernsey built on the foundations laid in 2018 – the launch of Guernsey Green Finance, the Guernsey Green Fund, and membership of the United Nations’ Financial Centres for Sustainability (FC4S) network – and made significant progress.
Stephen Nolan, Managing Director of FC4S, praised the island’s progress in green finance during a visit to the island in June.
Key to this initiative was the commissioning and publishing of research into attitudes towards investing in green and sustainable initiatives. The first survey looked at green finance’s relationship with private equity, which revealed that the political backdrop was encouraging private equity managers to consider more investment in green and sustainable finance, but they also wanted to see more transparency in those funds. A rising interest in green investment from managers was checked by the fact they had underestimated the funding requirements and commercial opportunity for limiting global warming.
Three-quarters of those surveyed had increased exposure in green and sustainable finance and everyone surveyed planned to do so in the near future. They said that external drivers, such as investor demands and competitive forces, including the ‘Attenborough Effect’, where the veteran broadcaster David Attenborough is credited with making people more conscious about the impact of their consumption, were the main reasons for doing so.
They also agreed that transparent verification and certification, such as that offered by Guernsey’s world-leading Guernsey Green Fund, a regulated fund offering verification that 75 per cent of the fund’s investments are allocated in certified green assets, would catalyse investor demand.
Guernsey Finance’s most recent green research looked at the relationship between family offices and the sustainable sector. It found that more focus is needed in engagement with investment managers and investors on the aims of green and sustainable finance, and the benefits of responsible investing. Capital is being fed into the sector, but individuals and family offices appear to be looking for greater confidence in returns, and in the green credentials of their investments.
That certainty on credentials gave rise to the idea of a framework for unregulated private capital, analogous to the Guernsey Green Fund regulatory framework. This will provide confidence to investment managers and investors and is being seen as crucial to unlocking the flow of investment capital from private investors, family offices and private equity, into the green and sustainable investment space.
Using the framework developed by the FC4S network, Guernsey Green Finance also published a jurisdictional self-assessment of progress towards establishing itself as a leading global centre for green finance. The report identified that Guernsey had made good progress, exploiting its connected institutional foundations to rapidly develop green and sustainable finance products and services, while working to promote and raise awareness of the cause in the industry.
As well as its relationship with FC4S, Guernsey Green Finance also developed ties with the UK Green Finance Initiative, with the two organisations confirming mutual support and commitment to collaboration in the promotion of the sector.
In further good news for Guernsey’s green sector, the first fund to achieve Guernsey Green Fund status, the food-focused Cibus Fund, successfully closed at more than US$320 million in January, while a first London-listed green investment fund – the Bluefield Solar Income Fund – received accreditation in April.
Additional funding of £300,000 from the island’s government, the States of Guernsey, for 2020 will provide opportunity to research new green products and services and market initiatives.
With potential to be included in these plans is the development of green insurance products, with a strategic view set out between Guernsey Green Finance and the Guernsey International Insurance Association in response to a discussion paper from the Guernsey Financial Services Commission (GFSC). Ideas for short-term action and long-term strategy include discounted regulation fees for green insurance, promotion of insurance-linked securities more strongly as a green product and broadening the island’s jurisdiction strategy to extend climate risk insurance to developing nations.
Family offices have been a key component of Guernsey’s finance strategy in 2019. Guernsey Finance carried out research into global trends in the family office sector and the factors driving their development, learning that substance requirements are becoming so significant that they are now influencing where high net worth individuals are basing family office arrangements.
Economic substance mean Guernsey is increasingly being considered a jurisdiction of choice for global family offices in order to manage their wealth structures in a secure and stable environment.
Guernsey’s business-friendly environment, including regulatory responsiveness and flexibility, provides the ideal platform for the establishment and operation of family offices.
The advancement in the application of technology in financial services continues to be progressed.
Early in 2019, the deployment of technology in the anti-money laundering (AML) process was clarified when the GFSC outlined greater regulatory reassurance in the application of electronic client due diligence (CDD).
Guernsey also demonstrated its global leadership with new laws to offer certainty in the use of ‘Electronic Agents’ in transactions and contract matters, and to create a smart, secure environment for the exploitation of technology for specialist financial services. This law allows the formation of a contract through the interaction of electronic agents, on the presumption that natural persons intended to create a legally binding contract and covers interactions between an electronic agent and a natural person.
The laws of most jurisdictions do not yet explicitly address electronic agents. Guernsey’s move was seen as an important development in progressing the island’s digital ambitions, and positioning Guernsey law as the international law of choice for commercial contracts for those seeking to use smart contract technology.
According to statistics from the GFSC released in 2019, Guernsey reached its highest-ever level of private equity business at end of Q3 2018, its value passing £120 billion for the first time.
Guernsey’s strengths in London Stock Exchange listings were highlighted with a move of a fund and fund manager from the Cayman Islands to the island as part of a move to list on the LSE’s Main Market. Carey Olsen and Carey advised Vietnam Holding and fund manager Dynam Capital on their migration.
It was part of a wave of migrations following confirmation of the EU’s substance requirements and Guernsey’s positioning. In the second half of the year, lawyers reported that they had never been so busy in this sector.
Guernsey is the global leader for London Stock Exchange listings outside of the UK, with over 110 entities listed on the LSE, more than 40 ahead of its nearest rival.
Guernsey’s innovation was most apparent in 2019 in the insurance sector with the introduction of two new products/services. Carey Olsen Partner Christopher Anderson created the world’s first hybrid vehicle for use in the Insurance-Linked Securities (ILS) sector, which was announced publicly in April.
The Guernsey hybrid is a protected or incorporated cell company that is both a licensed insurance company and a regulated investment fund. It means ILS managers will no longer have to 'rent' cells of protected cell or segregated account companies to act as Special Purpose Insurers and which are often established in a different jurisdiction and operating entirely separately from the ILS manager's fund. It is expected to lead to increased simplicity and efficiency for ILS fund managers.
Confirmation of 30-day rollover for ILS cells established in the island also demonstrated the island as an innovator in this sector and has encouraged other ILS markets to review their approach. The 30-day rollover provisions – which mean that for a 30-day period at the start of a transaction, including a renewal, an ILS cell is not considered to breach its fully-funded requirements if collateral were not yet in place – were announced at the end of 2018 and were well received in the market. The move has been seen as advantageous for ILS fund managers and cedants.
Guernsey’s captive insurance expertise was recognised again as it retained its title of Domicile of the Year at the UK & EU Captive Review Awards and Best Non-Asian Domicile at the Asia Captive Review Awards.
Reputation And Substance
At a time of much political instability and uncertainty around the globe, Guernsey continues to be a stable centre in which people are comfortable doing business.
Guernsey’s global competitiveness as a finance sector was boosted in March following confirmation from the EU Council’s Code of Conduct Group and the European Council of Finance Ministers that the island had satisfied its legal substance requirements for entities operating in or through the jurisdiction.
The following month, the States of Guernsey published its guidance on economic substance, having consulted with industry to clarify legislative and reporting requirements to meet the EU Council Code Group’s standards, also working closely with the other Crown Dependencies and the EU Commission.
Guernsey’s approach is proportionate, requiring companies that are tax resident in Guernsey and undertaking specific activities to demonstrate that they have sufficient substance in the island.
Guernsey faced challenges in 2019 but came through them with flying colours, confirming its position as a global financial specialist of substance and stability. It has demonstrated world-leading qualities in insurance and sustainable finance, the latter especially showing Guernsey’s finance industry can be a force for global good and provide solutions to real-world issues.
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.