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GUERNSEY
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TABLE OF STATUTES
MONEY LAUNDERING LAW
TRUST LAW
BANKING LAW
INSURANCE COMPANIES
INVESTMENT FUNDS
RELATED INFORMATION

The Law Of Offshore


Guernsey Table of Statutes

This is a non-exhaustive list of the main Guernsey statutes affecting offshore and non-resident business. The statutes are listed in alphabetical order – click on the statute for a fuller description of the statute, the legal regime it forms part of, or in some cases the text of the law.

Banking Supervision (Bailiwick of Guernsey) (Amendment) Law, 2003
Collective Investment Scheme Rules 1988
Companies (Guernsey) Law 1994
Companies (Guernsey) Law 2008
Company Security (Insider Dealing) (Guernsey) Law 1996
Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002
Financial Services Commission (Guernsey) Law 1986
Gambling (Betting) (Alderney) Ordinance 1999
Guarantee Companies Ordinance 1997
Immigration Act 1991 (UK)
Income Tax (Guernsey) Law 1975
Insurance Business (Guernsey) Law 1986
Insurance Business (Bailiwick of Guernsey) Law, 2002
Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002

Limited Partnerships (Guernsey) Law 1995
Migration of Companies Ordinance 1997
Partnership (Guernsey) Law 1995
Protected Cell Companies Ordinance 1997

Protected Cell Companies (Special Purpose Vehicle) Regulations 2001

Protection of Investors (Guernsey) Law 1987
Trusts Law (Guernsey) 1989
Trusts (Guernsey) Law, 2007
Regulation of Fiduciaries and Administration Businesses (Guernsey) Law 2000

In April 2009, it was announced that Guernsey had launched the Island’s first legal resources website. The site is the result of a joint initiative between Guernsey’s Royal Court and the Law Officers of the Crown and provides access to a comprehensive collection and database of Guernsey’s legal material:

  • Guernsey laws, including consolidated versions and recent changes
  • Unreported judgements
  • Guernsey Law Reports
  • Guernsey Law Journal and the Jersey and Guernsey Law Review

“The launch of this site is an extremely positive development for Guernsey as a leading international finance centre,” said Peter Niven, Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry – said at the time.

“Guernsey prides itself on having modern legislation, especially for financial services like the new Trusts Law and new Company Law that we introduced last year and we now have all this available in a user-friendly online resources centre."

“Having such a comprehensive ‘one stop shop’ will make accessing materials a much more streamlined process for anyone wanting information on Guernsey’s legal framework. The resources will be of particular benefit to lawyers and other intermediaries who now at the touch of a button will be able to see exactly what Guernsey can offer their clients.”

Guernsey features alongside the likes of the United Kingdom and the United States on the OECD’s ‘white list’ that was published at the conclusion of the G20 summit in London at the start of April and was ranked 12th in that year's Global Financial Centres Index (GFCI) which was published in March 2009.

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Guernsey Money Laundering Law

Also see below under Banking.

In its Annual Report for 2003, the Guernsey Financial Services Commission (GFSC) drew attention to the publication during the year of the International Monetary Fund's (IMF) report on the Bailiwick's financial regulation and criminal justice framework, revealing that Guernsey was assessed by the IMF to have a high level of compliance with international standards of regulation in banking, insurance, securities, trust and company service provision, anti-money laundering and combating the financing of terrorism.

Additionally, the report announced that during 2003, the Commission was involved in a number of initiatives with industry, working to ensure that the Bailiwick maintains its competitive edge whilst adhering to recognised standards. Director general of the GFSC, Peter Neville observed that: "2003 was a very good year for the Commission. We received an excellent IMF report, which commended our high regulatory standards. These same standards were cited by Robert Finch, the Lord Mayor of the City of London, as good reason to do business with the Island and he acknowledged that we stand alongside the City in terms of our integrity, innovation and standards of service."

In March, 2004, the Financial Services Commission issued a statement on anti-money laundering standards for existing customers following the issue of revised Recommendations by the Financial Action Task Force in 2003. The statement requires financial services businesses to assess the risk of each business relationship and to make sure that they have customer due diligence information appropriate to the level of risk.

It allows businesses in the financial services sector to consider whether simplified or reduced information is appropriate for low risk businesses and lower risk customers. This could mean for example, locally resident retail customers who have a relationship which is understood by the financial services business.

"The Commission has worked with the Guernsey Joint Money Laundering Steering Group, which contains representatives from across the finance sector, in developing this new statement,” explained Peter Neville. “The statement extends the existing flexibility provided by the Commission's Guidance Notes on the Prevention of Money Laundering and emphasises that unnecessary demands on lower risk customers should be avoided," he added.

The Commission said that it was not issuing more detailed recommendations at that stage on how the FATF standard should be applied in practice. It further announced that it intended to consult with industry by way of observation during on-site visits and by way of discussions, to develop such recommendations for inclusion in the revised Guidance Notes. A revised version of the Guidance Notes was to be issued only after full consultation with industry and the other Crown Dependencies.

Following discussions between the IMF and the Commission at the end of 2008, it was agreed that the IMF would undertake its assessment of the Bailiwick of Guernsey late in 2009. This assessment was originally scheduled to take place in January 2009, but the IMF took into account the severe effects of the global crisis, including the problems experienced at Northern Rock Guernsey and Landsbanki Guernsey.

The areas to be covered by the assessment were unchanged. A significant aspect was to do with the stability of Guernsey’s financial sector. It was also to cover banking, insurance and investment sector supervisory legislation and practice, together with anti-money laundering and counter terrorist financing legislation and its implementation.

Peter Neville, Director General of the Commission said: “The Commission is eager to participate in the IMF’s assessment process and looks forward to the broader perspective a later assessment will bring. For substantially more than a year we have been presented with significant challenges in crisis management. We have met these challenges. The very positive findings of the inquiry by Michael Foot of the Promontory group into the role played by the Commission in the Landsbanki Guernsey case should stand Guernsey in good stead."

He added: "We hope that one of the outcomes of the IMF’s future assessments will be the pulling together of the lessons learned by supervisors around the world during the crisis. Here in Guernsey the response has already included the introduction of a depositor compensation scheme. The hard look that Guernsey will be taking at the nature of its banking sector and the relationship between the financial industry in Guernsey and its counterparts in the UK will also be relevant to the IMF’s assessment. The IMF will want to gauge the effects of the financial crisis and the global economic downturn on the shape of the finance industry and the products and services it offers.”

In December 2008, a new regulation was introduced in Guernsey to prevent money laundering, which restricts the sale or purchase in the course of certain businesses of precious metals, precious stones or jewellery, where the payment is made in cash and exceeds GBP10,000. These regulations were proposed by the Guernsey Financial Services Commission, which sought to extend the Bailiwick’s anti-money laundering regime in order for it to meet international standards.

The Regulations are made under Sections 49A and 54 of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 and are titled The Criminal Justice (Proceeds of Crime) (Restriction on Cash Transactions)(Bailiwick of Guernsey) Regulations, 2008 and were effective from December 1, 2008. Any person who contravenes the restriction commits an offence and is liable, for a first offence, to a fine of up to twice the value of the cash involved. The Guernsey government has asked that dealers in precious metals, precious stones or jewellery should report any attempted transactions in excess of GBP10,000 as suspicious to Guernsey’s Financial Intelligence Service.

In December 2009, the Guernsey Financial Services Commission proposed changes to its AML/CFT that will require postage stamp dealers, bullion dealers, firms of accountants which are currently not registered with the Commission, and firms (including sole practitioners) of insolvency practitioners, auditors and tax advisors to register with the Commission and to comply with the AML/CFT regulations, and with the rules in the Commission’s handbooks.

As the Commission is conscious that the requirements of the regulations may appear complex and onerous, especially to firms which have not previously been subject to any form of AML/CFT regulation or supervision, the guidance note provides information to assist such firms.

The guidance paper, available on the Commission’s website, provides a simplified overview of the requirements of the regulations and the rules in the Handbooks.

In April 2010, the Guernsey FSC announced the launch of a consultation on proposals to overhaul legislation that governs the prevention of money laundering and the financing of terrorism in the island.

The consultation paper proposes extensive amendments, namely to the following legislation:

  • The Financial Services Commission (Site Visits) (Bailiwick of Guernsey) Ordinance, 2008;
  • The Insurance Business (Bailiwick of Guernsey) Law, 2002;
  • The Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002;
  • The Protection of Investors (Bailiwick of Guernsey) Law, 1987;
  • The Banking Supervision (Bailiwick of Guernsey) Law, 1994;
  • The Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008;
  • The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000;
  • The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007; and
  • The Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) (Bailiwick of Guernsey) Regulations, 2008.

The first part of the consultation discusses harmonizing the Commission’s on-site inspection powers throughout all governing legislation.

The definition of “regulatory laws” is also to be amended to provide a consistent definition across governing legislation. In particular this will improve the Commission’s checks when considering a license, by broadening the pool of relevant contraventions of regulatory laws that the Commission may take into account when considering an application.

It is also proposed that a textual amendment be made to legislation which governs penalties, namely harmonizing the texts of Section 88 of the Insurance Business Law, 2002 and Section 65 of the Insurance Managers and Insurance Intermediaries Law, 2002.

In addition, as part of a larger review of the definition of “FSB Regulations,” the Commission proposes inserting a new provision into the FSB Regulations which enables financial services businesses to disclose information to other financial services businesses and prescribed businesses, where it appears necessary for the purposes of forestalling, preventing or detecting money laundering and terrorist financing. This amendment is supported by the recommendation in recent IMF reports of other jurisdictions that they should consider including explicit provisions to provide for the sharing of information between financial services businesses.

The consultation paper is available on the Commission’s website, and interest parties were asked to submit comments by May 21, 2010.

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Guernsey Trust Law

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 has 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 April 1, 2001.

Anyone who, by way of business, carries on regulated fiduciary activities in or from within the Bailiwick of Guernsey requires a fiduciary licence granted by the Commission under the Fiduciary Law. Section 2 of the Fiduciary Law sets out the activities which are regulated, and section 3 provides for exemption in some circumstances. A 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.

There are two categories of fiduciary licence:

  • A full fiduciary licence can only be granted to a company or a partnership, and authorises all regulated fiduciary activities. A full fiduciary licence authorises the licensee and its directors or partners, managers and employees to carry on regulated fiduciary activities (where the directors, etc. do so in the course of their duties to the licensee).
  • A personal fiduciary licence can only be granted to an individual and authorises the holder to carry on a restricted range of fiduciary activities. Those include acting as a company director, as trustee (but not as a sole trustee), and as executor of a will or administrator of an estate. The holder of a personal fiduciary licence is prohibited from advertising by The Regulation of Fiduciaries (Fiduciary Advertisements and Annual Returns) Regulations, 2001.

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 incurs criminal sanctions. Prudential rules are also imposed; clients' funds need to be segregated from other trust assets; and new accounting safeguards have been installed.

The law provides extensive powers to the Guernsey Financial Services Committee in the granting, refusal, revocation, and application of conditions to fiduciary licences. It also has authority to control the names of, and advertising by, fiduciary businesses, rights to obtain information and documents, and powers to conduct investigations.

The Guernsey law of trusts was codified in 1989 along broadly Anglo-Saxon lines in the Trusts (Guernsey) Law 1989. This law does not apply directly in Alderney or Sark, but has a substantial influence on trusts in those jurisdictions.

Trust documents are in English. There are no registration requirements for trusts, no fees are payable on formation, and there are no annual reporting requirements other than for resident trusts (ie those with resident beneficiaries). Trust accounts must be kept but there is no audit requirement.

The maximum perpetuity for Guernsey trusts is 100 years. The law provides for non-recognition of foreign judgements, and forced heirship provisions in foreign law can be over-ridden. The Hague Convention has been incorporated into Manx Law.

In September 2005, the Guernsey FSC launched a consultation with trust professionals, lawyers, accountants and regulators to: investigate the requirement for changes to enable new trust products and services to be available to the Fiduciary Sector in Guernsey; to consider the availability of competitor trust products and services from other jurisdictions; to consider marketing requirement for the Fiduciary Sector; and to make recommendations for the desired changes.

New trust legislation (the Trusts (Guernsey) Law, 2007), which was approved in July 2007, came into force on March 17th, 2008. The changes overall are designed to create a more flexible framework for the local trust industry, and to ensure that Guernsey, as a jurisdiction for the establishment and administration of fiduciary structures, remains well placed and competitive.

Some of the most significant changes to the Island’s trust legislation include:

  • The introduction of (non-charitable) Purpose Trusts;
  • Removal of limits on the length of a trust’s duration – allowing perpetual trusts;
  • Clarification of the position of retiring trustees, making the transfer process more streamlined;
  • Clarification of the circumstances under which information has to be given to beneficiaries;
  • Abolition of the liability of directors of corporate trustees based in Guernsey or acting as trustees of Guernsey law trusts, particularly as a way to encourage greater use of Private Trust Companies (PTCs); and
  • Revision of arrangements regarding limitation periods and Alternative Dispute Resolution (ADR).

The new law has its roots in a series of proposals made in the ‘Evans Report’, which was published following a root and branch review of the Island’s trust legislation by a working party under the chairmanship of Guernsey advocate Rupert Evans.

“This is yet another example of how the Guernsey government, the Island’s financial regulator and its industry practitioners, continually work together to maintain an environment that maximises business flows,” stated Peter Niven, Chief Executive of GuernseyFinance.

Guernsey has more than 50 years experience in providing trust and corporate services. As of February 2008, the Island hosted more than 140 licensed fiduciaries, ranging from large organisations to independent, boutique operations. Together, they held between GBP200 and GBP300bn worth of assets in trust.

Mr Niven added that: “Guernsey’s fiduciary industry has built a reputation for professionalism and expertise in using the modern structures that are available on the Island for the preservation of both institutional and individual/family wealth and assets. The amendments to Guernsey’s trust legislation include several significant changes like the introduction of Purpose Trusts that will particularly enhance the Island’s fiduciary environment."

He concluded: “However, we are far from resting on our laurels and work continues to introduce legislation that will allow the establishment of Foundations. The addition of this innovative tool will ensure that the Island’s practitioners are able to offer their internationally mobile clients the widest spectrum of products and services.”

In July 2009, Guernsey's Financial Services Commission announced proposals to overhaul regulation to enhance protection and oversight of Retirement Annuity Trust Schemes.

Retirement Annuity Trust Schemes (RATS) have been available as a form of personal pension provision in Guernsey for many years. Recently, with other options such as retirement annuity contracts becoming less widely available, RATS have been formed in larger numbers.

Their flexibility in relation to how assets may be invested, and benefits drawn on retirement, makes them useful in many circumstances. However, the same flexibility gives rise to the risk of RATS being used in circumstances where they are not the best solution or are not fully understood by the member.

The Commission fears that due to the cross-sectoral involvement in the schemes, regulatory framework, which applies to the firms which operate in different sectors but provide services in relation to the same structure or product, needs revision to set broader, more effective, guidelines.

In late 2008 the Commission circulated a discussion paper on RATS, highlighting some concerns about the present position. This arose from discussions with a group of practitioners across the relevant sectors of finance business. The problems identified by the group included:

  • The quality of initial advice: there are concerns that not all firms involved in RATS understand the specific factors and requirements which apply to them. There has sometimes been insufficient analysis of existing pension arrangements and the merits of transferring out of those into a Retirement and Annuity Trust Scheme.
  • There has sometimes been inadequate disclosure of fees and charges. Those have a particular significance with RATS because they are comparatively expensive to administer and clients need to be able to factor that into their decisions. There have also been problems with the disclosure of commission and investment performance, it informed.
  • There have been issues with the expertise of some firms to advise on suitable assets to ensure that Income Tax requirements for RATS are met, and that the investments are suitable to allow benefits to be drawn down on retirement.
  • A particular problem relating to investment policies pursued within RATS has been the use of heavy gearing (borrowing) by trustees of RATS, with the serious risks involved not always being clear to the RATS’ members.

The Commission reportedly received some very helpful responses to the discussion paper. It was clear to the Commission, both from the number, and the content of those, that there is widespread concern about the above areas within firms across all sectors of the finance industry.

As a result, the Commission produced a consultation paper summarizing its proposals for improving the regulatory framework under which firms provide services relating to RATS.

The Commission’s proposed rules include:

  • Training for those advising and acting as trustee of or administering RATS;
  • At set up stage, a trustee accepting trusteeship must be certain that the RATS and the proposed investment and investment strategy is a suitable form of retirement provision for the member;
  • Before transferring funds from a defined benefit pension scheme to a RATS, the trustee must produce an impartially verified report showing that the RATS would be more financially beneficial over the existing set-up;
  • Trustees must make the member aware of the risks of using gearing to enhance investment, and the trustee must get the member to sign a copy of the statement, stipulated within the Commission’s guidance note, underlining that they understand the risks;
  • Trustees must report full financial reports of the RATS financial standing to the member at least annually;
  • The trustee must ensure that, once income starts to be drawn down and paid to the member in the form of an annuity, the trustee can demonstrate that the level of payment is appropriate to secure a satisfactory provision for the retirement of the member, but also that reviews are carried out to ensure that the amount annuitized remains appropriate with respect the amount remaining in the RATS, and the life expectancy of the member;
  • A trustee must make fully transparent what its fees and commissions are, with regards assets at any level, including not limited to trustee’s own fees and fees or commissions payable from the assets to the trustee, any independent financial advisor, other intermediary, investment or fund manager or adviser.
  • No financial services business licensed by the Commission shall inaccurately or misleadingly advertise or promote RATS, or investments or investment strategies (including gearing) for use as part of retirement provision involving RATS. The Commission's proposals are listed comprehensively on its site, where responses will be welcome until September 2, 2009.

For the taxation of trusts in Guernsey see Offshore Legal and Tax Regimes.

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Guernsey Banking Law

Banks are registered in Guernsey under the Banking Supervision (Guernsey) Law 1994 as amended in 2003, which is administered by the Guernsey Financial Services Commission. Applications from new banks are carefully vetted both from a prudential point of view and commercially.

The Banking Law has three main objectives:

  • To protect depositors;
  • To protect the reputation of Guernsey as an International banking centre;
  • To protect the best economic interests of Guernsey.

It contains capital adequacy rules which are stiffer than the Basle requirements.

In November 2001 the Financial Services Commission announced that it would be applying customer 'due diligence' standards according to the Basel Committee on Banking Supervision's "Customer Due Diligence for Banks" paper (4 October 2001, "the CDD paper").

Section 2.2.3 of the CDD paper sets out what the Commission now regards as best practice for banks on introduced business. The criteria listed under paragraph 36 include the recommendation that "all relevant identification data and other documentation pertaining to the customer's identity should be immediately submitted by the introducer to the bank, who must carefully review the documentation provided. Such information must be available for review by the supervisor and the Financial Intelligence Service or equivalent enforcement agency, where appropriate legal authority has been obtained."

Under Regulation 1(4)(a) of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 1999, in determining whether a person carrying on any financial service businesses in the Bailiwick of Guernsey is in compliance with the regulations, a court may take account of "the Guidance Notes on the Prevention of Money Laundering issued from time to time by the Guernsey Financial Services Commission and any other guidance issued, adopted or approved by the said Commission."

The Commission said its announcement represented guidance issued by the Commission for the purposes of Regulation 1(4)(a) mentioned above.

In early 2002 the Guernsey FSC, along with its peers in Jersey and the Isle of Man announced new measures to tighten anti-money laundering regimes.

The new measures included three main features:

  • In addition to being required to know their own customers, banks and other institutions will be required to look beyond their customers (for example, when they are trusts or companies) to establish the principals behind them.
  • The new measures tighten up the requirements on banks and other institutions to ensure that due diligence is done properly - even where the customer is referred to them by another institution which claims to have carried out the background checks already.
  • All institutions will be required to embark upon a progressive risk prioritised programme to bring the records of existing accounts up to current standards (where there are deficiencies in information and documentation held) if the nature of the client or transaction meets certain criteria.

In December, 2003, the FSC responded to concerns raised by the jurisdiction’s financial services sector by clarifying kyc rules for 'introduced business' following the introduction of the FATF's revised 'Forty Recommendations' which included rules comparable to the Basle rules but administratively somewhat simpler.

The FSC said: "Accordingly, from the date of this statement, the Commission will adopt the standard embodied in FATF Recommendation 9 (see below) with regard to the provision of information to financial services businesses in respect of introduced business. As a minimum, financial services businesses should receive written confirmation from the introducer, by way of a certificate or summary sheet(s), detailing the necessary information and the documentation held by the introducer and also take adequate steps to satisfy themselves that copies of the necessary information specified in FATF Recommendation 9, will be made available upon request without delay."

"The Commission expects that financial services businesses should have a programme of testing to ensure that introducers are able to fulfil the requirement that relevant documentation can be made available upon request without delay. This will involve financial services businesses adopting ongoing procedures to ensure they have the means to obtain that information and documentation."

"In order to determine that the new standard is being applied, the Commission, during its on-site visits, will seek to verify that financial services businesses have obtained the necessary information by way of a certificate or summary sheet(s) and that the requirement for copies of such identification data and other relevant documentation to be made available upon request without delay has been tested."

"It should be noted that, ultimately, the responsibility for customer identification and verification will remain, as always, with the financial services business relying on the introducer."

In August 2008, the GFSC issued a consultation paper to members of the Association of Guernsey Banks to seek their views on proposals to amend several key areas of regulatory policy and to introduce a range of measures aimed at safeguarding retail depositors.

The proposals, contained in the paper 'Consultation on Parental Upstreaming and the Introduction of Depositor Protection and Ombudsman Schemes,' aim to reinforce Guernsey’s reputation as a mature and well regulated finance centre. The consultation closed on September 15, 2008.

Peter Neville, Director General of the Commission explained:

“The review has its origins in the 'credit crunch' and more specifically in the problems experienced by the Guernsey subsidiary of Northern Rock plc prior to its transfer into public ownership.

"That episode led us to consider the vulnerabilities inherent in a banking model that is widely used in Guernsey, which involves gathering retail deposits and then lending a large proportion of those funds to the parent bank – what we call 'upstreaming'. The Northern Rock case also highlighted the fact that we do not have a deposit protection scheme to protect people who put their money with banks based here."

In order to provide greater protection for retail depositors the GSFC proposes to reduce parental upstreaming to a maximum of 85% of total assets. The Commission may also impose further restrictions based on the level of perceived risk associated with the parent bank.

The regulator also wants to discourage the use of branch structures for new licensed banks, unless they are perceived to be systemically important at least in their home jurisdiction or are highly specialised in nature, and introduce a deposit protection scheme limited to a maximum of GBP35,000 per individual depositor and to retail depositors only.

The GFSC says its proposals would strengthen the banking sector by requiring greater transparency through disclosure by individual banks to their depositors of: the existence (or otherwise) in the jurisdiction of a deposit protection scheme; the existence or possibility of parental upstreaming; and the status and nature of support extended by the parent to the local bank.

Other proposals would:

  • require banks to monitor the liquidity and solvency of the parent entity when they place funds with it;
  • require banks to have in place a contingency plan to withdraw some or all upstreaming without destabilising the parent;
  • impose stronger corporate governance arrangements through the requirement for at least one independent non-group non-executive director on the Boards of local banks; and
  • introduce an ombudsman scheme. Such a scheme would not be limited to the customers of banks and therefore this proposal will require further consultation with other regulated financial services sectors in Guernsey. The Commission believes that the introduction of such a scheme will afford further safeguards to depositors and customers generally.

The consultation paper sets out the benefits that would flow to Guernsey from having a deposit protection scheme and addresses the costs associated with a scheme which would be funded by the banking sector.

The views of the banking sector are also being sought on the possible establishment of an ombudsman scheme to resolve complaints from members of the public who have suffered losses or have other grievances.

"The way forward which is being suggested would involve limiting the costs by having the Commission provide resources to support an ombudsman in a way which did not conflict with our supervisory and regulatory responsibilities," Neville added.

"Once we have received the responses to the paper on the proposed ombudsman scheme, we will consider extending the consultation process to the other parts of the finance sector," he concluded.

A Guidance Note providing additional Guidance on certain sections of the Banking Supervision (Bailiwick of Guernsey) (Amendment Law), 2003 with regards up streaming was published by the Guernsey FSC in January 2010 and is available on the Commission's website.

In April 2010, the Guernsey Financial Services Commission published the final draft of new Capital Adequacy Rules, mandatory for all entities licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987. The release of the Rules in the their final form is the culmination of a November 2009 consultation.

The Capital Adequacy Rules became effective on April 16, 2010, but contain transitional rules that allow licensees until June 30, 2010, to meet the requirements.

The Guernsey FSC has released details on the following rule changes:

  • Capital Adequacy Requirements for Designated Managers administered by another firm: Several respondents asked whether, for designated managers administered by another licensee, the Capital Adequacy Rules should be relaxed. The respondents were concerned about barriers to entry. The Commission no longer has the power, or the duty, under section 4 of the Law to consider economic benefit for licence applicants. The Commission, in arriving at these Capital Adequacy Rules, has considered the general risks that it considers licensees are exposed to. The risk for such licensees is in being a designated manager; the Commission does not recognise a distinction between an administered designated manager and one with its own staff and premises.
  • Use of Carry Value for adjustments at Rule 5: The Commission has been made aware that the concept of carry value is more appropriate than market value. This is because, under certain GAAP provisions, some assets are carried at cost in the balance sheet. The Commission does not wish to force companies to apply market value or fair value where they are not required to under GAAP. Therefore the Commission has accepted this point.
  • Inter-Company Group Loans: The Commission received significant feedback about the disallowing of inter-company group loan debtors. Some respondents suggested to the FSC that this might be appropriate in cases where capital is then placed outside the Bailiwick of Guernsey but should not apply where the debtor is another company domiciled in Guernsey. The FSC considers that this is not an appropriate principle on which to negotiate. It has been regulators’ experience that such arrangements lead to a recycling of capital that disguises, maybe unintentionally, insufficient cover to the group as a whole, the FSC said.
  • Counterparty Risk: The absence of a definition of counterparty risk provided a major problem for respondents. Whilst the Capital Adequacy Rules have been designed to protect licensees from an over-exposure to any single counterparty they were not designed to capture balances with counterparties for every outstanding bargain or trade. Consequently, the Capital Adequacy Rules now exclude outstanding trades unsettled for 15 days or less from the Counterparty Risk computation. In addition, respondents were concerned that cash held at bank would also be captured under counterparty risk. The Commission has accepted this concern: any cash held at bank with a term of less than 90 days should be excluded from the Counterparty Risk computation, the new rules state.
  • Matching of Fees Payable and Receivable: Lastly, respondents expressed concern at the inclusion of fees payable (which were directly attributable to fees receivable) in expenditure for the purposes of calculating the Financial Resources Requirement. The Commission has accepted this inclusion did not reflect the behaviour of such businesses and therefore the risks of undercapitalisation. Such fees payable are now excluded from the Financial Resources Requirement (and Liquidity Requirement) calculation.


Guernsey Insurance Companies

Insurance companies are regulated by the Financial Services Commission under the Insurance Business (Guernsey) Law 1986, updated by the Insurance Business (Bailiwick of Guernsey) Law, 2002, the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002, the Insurance Business (Bailiwick of Guernsey) (Amendment) Ordinance, 2008, and the Protected Cell Companies Ordinance 1997.

The minimum capital requirement of a licensed insurance manager or a licensed insurance intermediary is GBP25,000 or 125% of the licensee’s professional indemnity insurance deductible or excess, if higher; a fee of GBP4,070 is payable on registration and GBP3,860 annually thereafter (for a 'Pure' insurance manager. Commercial insurance managers pay an annual fee of GBP6,460. These fees are effective as of January 1, 2010.

Annual audits are needed, and there are substantial annual information requirements, including business plans, solvency calculations, reports on claims, banking and investment schedules, and, for life companies, actuarial certification.

In March 2010, it was announced that Heritage Insurance Management in Guernsey had achieved a worldwide first by amalgamating two Protected Cell Companies (PCCs).

The companies, Harlequin Insurance PCC Limited and Friary Court Insurance PCC Limited, are both insurance PCCs with 17 independently owned cells between them.

The companies were used by Heritage and Heath Lambert Insurance Management (Guernsey) Limited (now merged) to provide cell captive insurance facilities to their clients. It was decided that amalgamating the two PCC companies into one would create a more efficient structure which ultimately will save money for the clients involved in the cells.

Speaking about the amalgamation, Martin Le Pelley, Compliance Officer for Heritage, said at the time that: “The amalgamation of two PCCs is not straightforward as each cell represents a separate class of share, which in turn means that all cell shareholders must vote in favour of the amalgamation in order for it to take place. Nevertheless, having achieved this milestone, we consider that the combined company will provide a more secure and efficient platform for our cell captive clients going forward.”

The combined company has retained the name Harlequin Insurance PCC Ltd.

Insurance companies can choose between various bases of taxation, see Offshore Legal and Tax Regimes and Offshore Business Sectors.

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Guernsey Investment Funds

Collective Investment Funds are supervised by the Financial Services Commission (FSC) under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (as amended) and the Collective Investment Scheme Rules 1988.

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 USD100,000 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.

The growing use of Guernsey structures as vehicles for hedge funds has highlighted a number of areas where the existing investment fund framework can create problems, leading the Guernsey Financial Services Commission to issue a consultation document: ‘The regulatory framework for Hedge Funds in Guernsey’ in November 2003, setting out a range of practical issues, and seeking views from interested parties on those issues and the solutions which may be available.

The Guernsey Financial Services Commission also 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 of Guernsey) 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.

In mid-2004, the GFSC published a document setting out its main conclusions regarding hedge funds. The findings are directed at the funds industry for vehicles which are popular with institutional investors, said Fiona French, the commission’s assistant director of investment business: "We always had the power to waive our rules. Now we’re saying publicly to hedge fund managers that these are the ones we’re prepared to waive to establish funds here. We’re technically not changing the rules because some elements we’ve always waived."

Areas where the commission will show flexibility include: not requiring a Guernsey-domiciled and licensed custodian to fill the role of a suitably qualified prime broker; no need for 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, there may be waivers of client money rules requiring segregation of subscription and redemption monies.

In May, 2006, the report of a Committee appointed in 2005 to consider investment sector legislation and regulation and to report to the Guernsey Financial Services Commission and to the Commerce and Employment Department recommended the creation of a "registered" fund sector, alongside the existing "regulated" sector. Unlike regulated funds, registered funds would not need prior approval from GFSC.

The report suggests that the same framework should apply to both open and closed end funds, which should be subject to a dedicated Funds Law, leaving the existing Protection of Investors Law to deal with other aspects of investment business.

It also recommended that public offers should be made subject to specific Prospectus legislation, rather than to the current Control of Borrowing regime, and that provision of services to certain funds domiciled outside Guernsey should also be liberalised.

The report additionally recommended that definitions of investment business in the POI Law be reviewed, that economic benefit should be abandoned as a criterion for licensing investment firms, and that some of the sets of rules made under the POI Law should be merged.

The report further reflects on the importance of expanding Guernsey's intellectual capital by attracting new service providers in areas other than fund administration, and notes the significance of personal tax rules and housing policy in achieving those objectives.

Peter Neville, Director General of the Guernsey Financial Services Commission, announced following publication of the report that:

"We very much welcome the proposals put forward in the Harwood Committee report. Streamlining authorisation and licensing processes will benefit: the investment sector by allowing faster responses; the Commission by letting its dedicated staff extend their monitoring of licensees rather than on pre-vetting funds; and Guernsey in general by ensuring that the service delivered by Guernsey investment firms continues to support and enhance our established reputation."

"Recent trends have seen new businesses - stockbrokers, asset managers and private wealth managers - outside the pure funds sector establish themselves here in Guernsey. We also endorse the report's recognition of the importance of expanding the widest range of investment activity in Guernsey."

"Once we have seen how the investment sector responds to the consultation, we look forward to working with them, with the Finance Sector Group and the Department of Commerce and Employment to bring about agreed change as soon as possible."

In May 2008 the Guernsey Financial Services Commission commenced a public consultation on a proposal to fast track the application process for specified licensees associated with Qualifying Investor Funds or Registered Closed-ended Investment Funds.

The main thrust of the proposal is that a Licence Assessment Committee will be convened to consider the issue of a licence under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (the POI Law) within 10 business days of receipt of a complete formal application, together with confirmations from an appropriately licensed Guernsey service provider to the Commission that:

  • They have performed sufficient due diligence to be satisfied that the beneficial owners or controllers of, and relevant parties to, the applicant for a licence are fit and proper and meet the requirements as set out in the POI Law and that in this respect consideration has been given to all of the issues set out in the Guidance Document issued by the Commission;
  • They have undertaken sufficient due diligence to confirm that the application for a licence under the POI Law which includes the relevant application form and supporting documentation and information, is complete and accurate.

The introduction of the Qualifying Investor Fund regime in February 2005 and the Registered Closed-ended Investment Fund regime in February 2007 provided fund promoters and their Guernsey regulated service providers with two fast track application processes for defined investment funds, giving a guaranteed response time from the Commission.

Since the introduction of the two regimes, a significant number of fund applications have been made under them, and at the same time associated licence applications under the the POI Law have been made for parties seeking to provide management services to the funds.

Due to the statutory obligations imposed on the Commission when considering applications for licences under the POI Law, which do not apply in the same way to fund applications, the Commission said that it is not possible to guarantee considering applications for licences in the same time scale that apply to the two fast track fund application processes.

The Commission has acknowledged that this apparent “mis-match” in timescales is not ideal and proposes to introduce a regime which will reduce the timescale for the consideration of licence applications in specified cases.

Due to the statutory obligations referred to above it is not possible to reduce the relevant timescale to that applying to the associated fund applications, but it is considered that the proposed regime will introduce certainty of response in respect of licence applications made to the Commission.

The Commission proposes to introduce a framework applicable to licence applications under the POI Law for parties seeking to provide management services to Qualifying Investor Funds or Registered Closed-ended Investment Funds.

Parties seeking to conduct activities such as administration or custody for such funds or who intend to conduct restricted activities in connection with other types of investment fund business and/or non-fund business will need to apply and be assessed under the Commission’s standard licence application process.

In April 2009, it was announced that the Guernsey Financial Services Commission, in conjunction with a Working Party representative of practitioners across the investment industry, has been preparing new Conduct of Business Rules mandatory for all entities licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended.

The Conduct of Business Rules are the first, and major, part of a process to replace the Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules, 1998 and the Collective Investment Schemes (Designated Persons) Rules, 1988. The second and final part of the process is a revision to the Capital Adequacy Rules, which went into effect in April 2010 (see Banking above).

The Conduct of Business Rules recognise the very different activities undertaken by the population of licensees under the Law. The main highlights of the Conduct of Business Rules include:

  • a comprehensive set of rules outlining the Board of a licensee’s responsibility for the compliance function;
  • a recognition that the term 'designated manager' applies to administrators of open-ended and closed-ended collective investment schemes;
  • the proposed rules do not impose MiFID-style provisions on licensees; nevertheless, the Rules recognise that group requirements will apply to some firms and do not, therefore, conflict with MiFID provisions;
  • the client money rules have been made more rigorous.

In October 2009, Guernsey’s Chief Minister, Lyndon Trott, expressed confidence that discussions between the jurisdiction and key players in Europe will secure the future for the funds industry in Guernsey.

Trott said that he was fully aware and had been for some time of the serious threats posed by the EU Alternative Investment Fund Managers Directive, which seeks to regulate all alternative investment funds including private equity and closed-ended listed funds, where the island is a world leader.

Guernsey’s political and industry response, being led by the Commerce and Employment Department with the Guernsey Financial Services Commission and the Guernsey Investment Funds Association, has involved a series of meetings in Brussels.

Deputy Trott said:

“This development demonstrates just how vital it is that Guernsey continues to build relationships with Brussels.”

“Brussels is increasingly influential in setting global regulatory standards and our continued prosperity will increasingly depend on our relationship with them.”

The States team has held discussions with the European Fund and Asset Management Association, a number of financial institutions in Europe, and other key individuals involved in this debate.

Commerce and Employment Minister Carla McNulty Bauer said that the purpose of discussions in Brussels were four-fold:

  • To ensure that there is a clear understanding among decision-makers of Guernsey’s current regulatory regime;
  • To obtain information on how the directive is likely to be amended and when it is likely to be finalized;
  • To offer suggestions on how the directive could be amended to ensure that it meets the objective of better regulation but also ensures that European professional investors can continue to access global capital markets; and
  • To develop appropriate contacts within the various European institutions to build relationships and understanding about Guernsey.

Deputy McNulty Bauer said: “There is no doubt that this directive has the potential to have a significant impact on the global alternative funds industry. Guernsey is not immune from those effects.”

“But the directive also presents a significant opportunity for us. Our standards of regulation of alternative funds are high and stronger than that of many EU Member States. My Department is confident that Guernsey is well placed to achieve equivalence under the directive at some time in the future, though that will depend on how the directive changes during the coming months.”

The directive is unlikely to be finalized until the summer of 2010 and will then not come into force until 2014 or 2015. Until that time the status quo remains and Guernsey’s fund industry can continue to enjoy its current market access for the next five years.

Guernsey Finance, the promotional agency for the Island’s finance industry, has assured that, despite the European Union’s continued steps towards introducing the controversial Alternative Investment Fund Managers Directive, the future of Guernsey as a leading funds domicile is not in jeopardy.

Peter Niven, Chief Executive of Guernsey Finance, said:

“I am confident that no matter which approach is finally adopted by the European Union, Guernsey is well positioned to remain an attractive and competitive jurisdiction for European professional investors.”

“Under the latest proposals any third country hedge fund or private equity group will be able to gain an EU passport if it complies with the new rules and its home country applies global standards. We certainly believe that Guernsey meets all the relevant criteria, not least through our long-standing commitment to adopt international standards on regulation, transparency and information exchange. This has been recognized by the Island’s inclusion on the OECD ‘white list’ and the findings of the Foot Review.”

Niven added: “Guernsey’s government, industry and regulator will be continuing the joint work to understand the implications of the Directive, lobby for changes to the proposals, and promote a better understanding of our regulatory regime and alternative funds industry to ensure we have the best possible outcome for the island.”

In May 2010, European Union finance ministers reached an agreement on a mandate for the Spanish Presidency of the EU to negotiate with the European Parliament on a directive establishing an EU framework for managers of alternative investment funds. A final vote on the draft directive by the European Parliament was scheduled for July, 2010.

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