British, but not part of the United Kingdom
Guernsey is not a sovereign state but a dependency of the British Crown. The Queen is the island’s Head of State, as the latter day successor to the Duke of Normandy, and Guernsey’s Lieutenant-Governor is Her Majesty’s personal representative in the island.
In 2004, Guernsey celebrated 800 years as a dependency of the British Crown.
The island has its own parliament, the States of Guernsey, which is democratically elected every four years. The States of Guernsey is responsible for domestic affairs, its economy and tax regime. Guernsey enjoys autonomy in tax and regulatory matters.
European, but not in the European Union
Guernsey has a special relationship with the EU, which is described in Protocol 3 to the Treaty of Accession when the UK joined the then EEC in 1973. The effect of the protocol is that Guernsey enjoys free access to EU markets for physical exports.
Other EU rules do not apply to Guernsey, though the island has voluntarily implemented appropriate EU legislation, and meets the international standards on which they are based, as a respected ‘third country’ in its own right, rather than as a dependency of the UK.
Recent examples include the voluntary implementation of the Alternative Investment Fund Managers Directive (AIFMD), which will ensure Guernsey can continue to market investment funds to European investors.
However, Guernsey has chosen not to implement Solvency II, the EU’s harmonised insurance regulatory regime, in order to protect its position as the leading captive insurance domicile in Europe.