Guernsey’s financial watchdog gives aggressive fund promotors what they want: a quick turnaround time for new products. Silvia Pavoni explains.
Being isolated has both positive and negative points. Islands have always been granted a certain degree of independence and the Channel Islands’ case is indicative. The Islands have benefited from a special agreement that allowed them to maintain their own traditional Normandy laws, customs and liberties, even when they became part of the King of England’s territories in 1204. Their independence has been respected throughout the centuries and they still enjoy autonomy in all matters, with the exceptions of international representation and defence.
However, isolation also requires a certain degree of creativity and flexibility when times change and traditional ways of providing for the population’s prosperity begin to fail.
Guernsey is very familiar with this. The island has proved over the years to be very adaptable, as Stephen Dewsnip, director of Rothschild in Guernsey points out. “The development of the financial sector has been an example of this, as the island has moved from the traditional sectors of tourism and horticulture.”
Guernsey’s financial sector expanded thanks to the deposit activity from UK residents. Things have now changed and financial business is increasingly international, attracting clients that are more and more sophisticated.
Private bankers and trust managers in Guernsey are keen to point out the increasing sophistication of their services and the constant personal attention given to clients. And they become even more passionate when they talk about Guernsey’s reputation as a financial centre.
“We work in a very regulated environment,” says Sandra Platts, managing director of Kleinwort Benson in Guernsey. “I think that the Channel Islands have received some unjustified bad press in the past and both the regulators and the banks themselves are keen to point out that that’s not the case.”
“The regulator realises that the word ‘offshore’ brings people to think the worst of it,” says Paul Redhead, a director at Fortis. “The authorities really have to be seen to be very proactive, robustly regulate and at the same time regularly consult with the industry about what they are proposing so that we get rules that will keep the outside world happy and that banks can work with as well.”
“I think that it’s clear that the island has passed every [regulatory] test with flying colours,” adds David Piesing, director of the fiduciary arm of wealth manager Praxis. “That reputation is catching very quickly and the effect of new wealth coming to the island is felt on the private client side as well as on the fund side.”
Speedy service
Mr Piesing is proud of fund regulation in Guernsey. He says: “The legislation for funds is state of the art. Guernsey is very much a leader rather than a follower in this field. The regulator has a quick turn around time for new funds. And that’s what aggressive fund promoters want, they don’t want to wait six weeks for a new fund.”
And judging by its figures, Guernsey and its regulator are doing a good job in supporting the finance sector. Funds under management and administration at the end of March this year were at a record Ł140bn (€203bn) – December 2006 saw Ł130bn in assets under management, which represents an increase of more than 20% from the Ł100bn at the end of 2005.
Total deposits in the island passed the Ł100bn mark in the first quarter while the fiduciary sector boasts some Ł200bn held in trusts.
Close knit
Having a good relationship with the regulator helps business too. “The regulator is just a short walk away,” says David Fitch, head of business development at Investec, Guernsey. “They are open to dialogue and we are able to work with them to improve our services to clients.” Ms Platts agrees: “Regulators are an important facade to the financial business. Guernsey regulators have a pragmatic approach and are very approachable, particularly when you are talking about new product lines or structures.”
Strong regulation, however, also has its downsides because it increases costs. This ultimately attracts a wealthier segment of clients: those that are prepared to pay more for the reputation and clear regulation of an offshore centre, on top of its expertise. Many believe that this is the direction that offshore centres should be taking anyway, that they should move away from the ambiguous appeal of banking secrecy.
“The future is about really good reasons why banking relationships exist, why you have portfolios with your manager, why you choose certain structures to make it more efficient,” says Mr Clifford. “You can find that the island is more expensive, but that’s because things are done properly.”
The regulator, the Guernsey Financial Services Commission, is also drafting its Handbook on Countering Financial Crime and the Financing of Terrorism, adding Guernsey-based directives to international policies. The handbook invites banks to adopt a proactive approach and mitigate the costs of regulation through correct assessment of money laundering and terrorist financing risks presented by a particular client and managing such risks with effective and appropriate procedures and controls.
Even with an increasingly solid reputation, Guernsey is not immune to competition from other financial centres and last year the island approved legislation that will annul tax for many corporates. From January 2008, a zero tax regime will apply to income tax on company profits and specific banking activities will be subjected to taxation at 10%. Currently corporate tax is 20%, allowing for exemptions for non-locally owned businesses.
Favourable taxation is also a strong incentive for the trust business, as Alasdair McLaren, director of the fiduciary business of Saffery Champness, points out. Trusts are a common law concept, which makes them difficult to understand and accept in civil law jurisdictions, and Guernsey offers a tax-neutral treatment for trusts. Mr McLaren enthusiastically explains the appeal of a trust as a tax-efficient solution, but also as a way of bypassing other unwanted legal burdens, such as inheritance rules that prevent women from inheriting the same amount of family wealth as men.
Apart from praising the regulator, another aspect of Guernsey’s wealth management world that brings together all professionals, whether involved in private banking, asset management or the fiduciary business, is the constant quest for talent.
Talent spotting
The island’s limited size and strict housing permit system – required for non Guernsey-born professionals which is not automatically renewed – can make recruiting and retaining personnel difficult. Focusing on the most profitable areas of expertise is one response to staff shortages. Technology and outsourcing are others, allowing the moving of certain back-office functions to cheaper jurisdictions.
Despite the understandable concern with limiting the number of people and property construction on this 78 square kilometre island, it is difficult to imagine a lack of candidates for wealth management jobs in Guernsey: high-profile positions, located a walking distance from a tranquil harbour and only an hour’s flight from London might be difficult to beat.
