By Leo Zhang.
As a widely recognized global financial centre, Guernsey is an Island situated between the UK and France which is 62 kilometres in size and has a population of just over 60,000. With the status as a British Crown Dependency, which means its links are through the British Crown rather than the UK Parliament, it also has a special relationship with the European Union so that there is access to EU countries for physical exports without tariff barriers but other rules and directives do not apply, unless voluntarily accepted.
Guernsey has 50 years of experience in serving clients all over the world by delivering a wide range of financial products and services. There are 39 licensed banks with more than £114 billion (US$ 176 billion) worth of deposits; investment funds business valued at more than £274 billion ; an investment management and stockbroking sector with more than £81 billion of assets; more than 150 fiduciaries holding in excess of £350 billion of assets in trusts and companies.
Besides, the island also features a world leading international pensions business; and an insurance sector that is the largest captive insurance industry in Europe and fourth biggest globally. These core sectors are supported by a network of professional services including actuaries, tax advisers, investment advisers, accountants and lawyers.
The Island's financial services regulator, the Guernsey Financial Services Commission (GFSC), has grown a reputation for its robust yet pragmatic approach to regulation. This means that firms in Guernsey operate to international standards but principles of proportionality - assisted by the personal approach at the Commission - ensure there is sufficient flexibility to allow innovation.
In January this year, the IMF released reports recommending Guernsey's financial regulation, supervision and stability. Indeed, the Island was judged to have a high level of compliance with all the criteria against which it is assessed and scored the highest of any jurisdiction so far assessed.
Also in that month, the OECD built on its white listing of Guernsey. Indeed, Guernsey has now signed Tax Information Exchange Agreements (TIEAs) with 29 jurisdictions, including China.
Guernsey introduced a new Company Law and a brand new Company Registry in July 2008, enabling it to tap the latest online technology while being small enough to offer the highest levels of personal customer services.
Simple solvency test has replaced minimum capital requirements while only one director is required as minimum. There are full online real-time services for incorporation, searches, filing, information management, document request, transfers and dissolutions with competitive prices.
As Europe's leading captive domicile, Guernsey has an insurance industry whose origins dating back to the 18th century and the island's first captive insurance company was incorporated in 1922. Since then, Guernsey's insurance market has grown to the extent that independent analysis recognises the Island as the largest captive domicile in Europe and number four globally.
The strength of Guernsey's captive insurance sector is reflected by the fact that approximately 40 percent of the leading 100 companies on the London Stock Exchange with captives have them domiciled on the island. Nearly 60 percent of the international insurers licensed in Guernsey have their parent company located in the UK, however the island's insurance sector is truly international. Firms from across Europe, the USA, South Africa, Australia, Asia, the Middle East and the Caribbean have established captives in the Island.
The island's insurance sector has seen the value of business increase markedly over the past 10 years. In 2003 the industry had gross assets of £13 billion, a net worth of £5.3 billion and premiums of £2.5 billion. Now there are gross assets of £23.4 billion, a net worth of £8.1 billion and premium written of £3.4 billion. In addition, figures from the GFSC show the number of licensed international insurance entities has experienced a net rise from the end of 2010 so that by 31 July 2011 the total reached 680. This is encouraging considering the maturity of our captive industry and the prevailing soft market conditions.
In 1997, Guernsey pioneered the cell company concept with the introduction of Protected Cell Companies (PCCs). This development has made the captive insurance concept more attractive to not just large multinationals but also small to medium sized enterprises (SMEs).
From a captive insurance perspective, a manager can establish one PCC structure which is then utilised by several clients, each owning a cell. This 'rent-a-captive' structure is particularly advantageous for smaller SMEs where establishing their own captive (or even PCC) is not economically viable. Alternatively, captive owners can use the PCC structure to write separate classes of insurance within different cells.
In terms of investment funds, the cell company concept allows for separate share classes and different portfolios / investor strategies to be undertaken within the same legal entity, providing increased choice for investors at economical levels.
In the fiduciary space, the cell company concept can be used as an alternative structure for private wealth management, including holding a variety of assets such as property and also intellectual property rights and royalty ownership as well as offering different options for family governance and succession planning as well as tax planning.
Over the past half a century, Guernsey's asset management industry has experienced significant growth, particularly of esoteric asset classes through the middle of the last decade. This experience means that the Island has built a wealth of expertise and first class infrastructure for the structuring, management, administration and custody of not just traditional funds but also alternatives, in particular private equity as well as more exotic asset classes such fine wine and art.
The www.FundDomiciles.com Stability Index 2011 shows that Guernsey was the highest placed jurisdiction to show the most improvement, with a move up from sixth place in 2010 to third this year. The FundDomiciles.Com rankings are based on a combination of macroeconomic and fiscal data, as well as fund flow statistics.
Latest figures show that the value of fund business in Guernsey reached a new record high of £274 billion at the end of June 2011 - up 4 percent in the quarter and 22.5 percent year on year. This builds very positively on the exceptional increases during 2010 and by maintaining the upward trend the industry has now recorded eight consecutive quarters of growth.
In particular, Guernsey closed-ended funds continue to attract a lot of interest, especially from promoters in alternative and niche asset classes, such as aircraft, classic cars, dispute resolution and renewable energy.
The Island's private equity and venture capital sector has seen particularly strong growth to reach more than £75 billion at the end of June 2011 and a survey published in Private Equity News earlier this year reported that 61 percent of CFOs chose Guernsey as their preferred destination for private equity outsourcing.
Jon Moulton, Chairman of private equity firm Better Capital, gave a ringing endorsement of the Island's funds industry when speaking in front of more than 300 delegates at the Guernsey Funds Forum in London this May. Jon, who has a house in the Island and whose Guernsey-domiciled investment company is listed on the main market of the London Stock Exchange (LSE) , said: "Guernsey has a very good reputation; it works very well Guernsey needs to carry on doing what it's doing into the future and it will prosper."
Another significant figure in the private equity industry is Guy Hands, Chairman of Terra Firma. As well as the private equity firm joining the likes of Permira and EQT by establishing an operation in Guernsey, Mr Hands has also decided to buy a property and live in the Island. This reflects the fact that Guernsey is not just an ideal location for locating management companies but is also attractive as a residence for the managers themselves.
Guernsey has already stepped up efforts to explore the Chinese market by signing a TIEA with China's taxation authority in late 2010 and opening a Shanghai office in 2007. The island has also signed a Memorandum of Understanding (MoU) with Shanghai's financial services office and aims at reaching an agreement with Shanghai's stock exchange to let Guernsey-registered companies to list there after gaining the green light from the Hong Kong stock bourse.
In August, Representatives from Guernsey Finance made a visit to China, which is expected to accelerate efforts on the signing of a MoU between the islands with China's banking regulator. Guernsey is also looking to sign similar deals with China's securities and insurance regulators.
In a press release, Peter Niven, chief executive of Guernsey Finance, commented that "We have made real progress in increasing awareness of the Guernsey brand and this is now being assisted by the growing number of firms with a base in the Island who are establishing operations in the Far East and in particular, China".
He added, "We have now met CBRC on several occasions and we had yet further encouraging discussions towards signing a MoU his will be an extremely positive step for Guernsey firms doing business in China and highlights the strengthening relationships between the two jurisdictions."