13 September 2018
For more than 50 years, Guernsey family offices – both single and multi-family – and supporting providers have been providing solutions, performing co-ordinated services and coming up with strategies for a diverse range of wealth families located across the globe.
A top jurisdiction for AML compliance
The authorities in Guernsey ensure that providers fully respect the need for clients to keep their affairs confidential while also following leading international standards of tax transparency and exchange of information.
Guernsey is one of the very few jurisdictions in the world to regulate trust providers and is on the Organisation for Economic Co-operation and Development’s ‘white list’. In 2016 MONEYVAL, the European Financial-Action-Task-Force-style regional body, reported the island as ‘compliant or largely compliant’ with 48 out of 49 of the FATF’s recommendations. The FATF is the world’s standard-setter in the international fight against money laundering and terrorist finance. This is the highest standard reached by and jurisdiction that MONEYVAL has assessed.
Many countries have changed their laws in order to co-operate with the US Foreign Account Tax Compliance Act 2010 or FATCA, and to implement reporting via the global Common Reporting Standards. Following OECD pressure, registers of beneficial ownership have also been created. Guernsey has struck a balance between acquiescing to the requirement for a register of beneficial ownership to be set up, with the need for the respect for client privacy, by ensuring the island’s register is not publicly available.
Such developments require the family office and their service providers to have a high level of relevant knowledge and awareness and, as fiduciaries, to give the best advice they can to the families in question, while dealing with complexities thrown up by banks, custodians and counterparties and handling the administration so that the client or family office does not have to.
These high regulatory standards ensure that the integrity, reputation and robustness of Guernsey is maintained and ensures it is a stable jurisdiction for family offices and their service providers.
The rise of the non-standard asset
Guernsey practitioners are having to cope with the fact that the working environment, along with the clients themselves, is becoming increasingly complex.
A further factor for consideration is the relative sophistication and financial literacy of the second and third generations who have come to the fore of wealthy families.
Today’s family offices are, increasingly, including non-standard investments including hedge funds, private equity, property and family businesses in their portfolios. There is often an element of innovation and entrepreneurial investing to handle alongside the usual standard investments. This requires family offices to pay attention to the management of risks that are associated with these types of investments and to take into account the scrutiny of counterparties that have flowed from the credit crisis that came to the fore in 2008-9.
In addition, high net worth families may have assets such as yachts, aircraft or art and antiquities, which require the involvement of specialist counter-parties in terms of yacht and aircraft maintenance and operations, and collection management and curating for art, as well as further considerations such as insurance and storage. These can often be passion projects of the client and their family, and so fiduciaries need to understand the balance between investment assets and those for pleasure, as well as accommodating any trends that the family way wish to explore such as impact or ethical investing and philanthropy.
By way of example, we work with a substantial Middle East client with a dedicated family office in London and custody and banking arrangements primarily in Guernsey and Switzerland. All the client’s investment assets are managed by Saffery Champness and held in trust structures, compromising commercial and residential property, hotel, hedge funds, private equity, fixed-interest investments and various businesses, with a view to these enhancing and preserving the trust value for future generations. We also deal with clients’ luxury personal assets, including superyachts and aircraft, which are held in Special Purpose Vehicles rather than trust structures, due to the depreciating nature of the assets.
Guernsey providers have shown themselves to be very capable of reviewing, understanding and testing all the complex assets and counterparties involved in a family office, adding a great deal in the form of clarity, efficiency and cost-effectiveness.
The uses of protected cell companies (PCCs)
At Saffery Champness, we pride ourselves on our high level of service. By thinking rather than processing, we have become a trusted adviser around the family table.
In this context the benefit of PCCs – structures (along with incorporated protected cell companies) pioneered in Guernsey, is that they allow for consolidated reporting. A family patriarch can receive one report that consolidates all assets and liabilities across the entire family cellular structure, while the assets and liabilities remain segregated and operate independently, thereby mitigating risks.
In addition, Guernsey offers a range of structures that family offices can use to hold assets of all types across the globe. These include corporate entities, trusts, foundations, limited partnerships and limited liability partnerships.
Legal and political stability
As a jurisdiction, Guernsey has a readily accessible and highly skilled legal infrastructure. The Guernsey court system has a robust and independent judiciary whose deliberations rest on Common Law principles and its reputation of being at the forefront of the development of trust and company law sets it aside from other jurisdictions.
In addition, Guernsey offers political stability. With its own firmly established government, it is attractive in particular for families with a need for asset protection. Whilst Guernsey has its own government and is not part of the UK or EU, it maintains close ties with the UK. Therefore post-Brexit, it is expected Guernsey will continue to have an intrinsic and strategic partnership with the UK.
When it comes to meeting the complex requirements of wealthy families, Guernsey has a proven track record. The regulators, legislators and financial practitioners work together closely to maintain and grow this solid reputation. The advantage of the flexibility and continuing refinement of the legislative and regulatory framework in Guernsey further assists in it being a highly reputable jurisdiction for family offices and their service providers.
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