Providing stability, security & substance
02 August 2018
Guernsey’s core funds messages have been given a global boost with the publication of a new report on Guernsey Fund Services, produced with Global Fund Media. The report identifies Guernsey as a leading jurisdiction for both start-up managers and established funds. Here, Paul Smith of the Guernsey Investment Fund Association discusses the advantages of Guernsey as an international financial centre.
In an era when uncertainty and the unexpected can be relied upon to spoil the best-laid plans, Guernsey is one jurisdiction able to provide a stable, secure base from which to operate, and has the infrastructure and resources to ensure the highest levels of service quality while also being able to provide businesses with true substance.
With 50 years’ experience behind us, Guernsey is still a popular destination for investment managers seeking a jurisdiction in which they can establish an office, and which is able to offer them the luxury of a dual regulatory regime, whereby they can launch funds under AIFMD-compliant regulations or Guernsey’s own regulations. We have nearly 1,000 funds under management or administration and increasing numbers of fund managers are establishing a physical presence in Guernsey.
As a Crown Dependency, Guernsey operates under a constitutional arrangement with the UK, and this relationship provides Guernsey with the authority and autonomy to create and enforce its own laws and regulations through its own government, the States of Guernsey. Guernsey is therefore able to provide a level of political and fiscal stability that is the envy of many other jurisdictions around the world.
Guernsey is not a member of the European Union and has effectively carried on its business with the EU as a third country ever since the EU came into being. It is well placed to assist the UK with its experience and knowledge of how this could work for the UK post-Brexit and there have been numerous meetings between industry bodies, government officials and government ministers of Guernsey and the UK since the referendum in June 2016. These meetings are ongoing and will continue throughout the negotiation and withdrawal process.
A key concern for everyone these days is security, and that encompasses both physical security and cyber security. Guernsey is fortunate as an island in that physical security is a natural by-product of island life. Guernsey is a lovely, safe place to bring up children and to enjoy an environment in which crime levels are very low.
The digital economy and cyber security are also high on Guernsey’s agenda and the island is uniquely placed to be able to provide significant redundancy and security of internet connectivity. Guernsey is a key intersection for the provision of data flows between the UK, Europe and the United States with multiple cables carrying data into, through and out of its data hub. The e-gaming industry that established itself in the Bailiwick was highly dependent upon internet access and the security and contingency of that connection. Considerable investment was made by Guernsey to develop that network, which is now used for other industries, such as the fund sector.
The fund industry has been thriving in Guernsey for more than 50 years and, during that time, Guernsey has built a comprehensive infrastructure of professional firms capable of providing all the services normally required by an investment manager. Guernsey’s law firms are consistently recognised in legal industry awards lists and all the top four accountancy practices have a significant presence in the island.
This provides a strong pool from which businesses new to the island can draw resources, expertise and experience to develop and sustain their service provision. Recent changes to the population management regime have also made it much more straightforward to recruit key staff from outside the island.
Combined with Guernsey’s reputation for flexible regulation, innovation and entrepreneurialism, the jurisdiction is a prime location for the establishment of funds and investment managers. With the impending introduction of BEPS (Base Erosion and Profit Shifting) controls and the further scrutiny of the work carried out compared to the revenue earned in a jurisdiction and the unintended consequences that this is having on the funds sector, Guernsey is well placed to be able to demonstrate true substance on island and to provide the added value required to ensure that businesses located here are not seen as part of a BEPS network.
Guernsey is a leading jurisdiction in providing tax transparency and is fully compliant with international co-operation and reporting regimes, which enables it to provide a tax neutral environment that results in taxes being paid in the appropriate jurisdiction and prevents the double or even triple taxation of investment businesses.
With more than 50 years’ experience behind us, Guernsey is one of the leading international finance centres in the world, facilitating investment in businesses by investors from countries worldwide.
The Guernsey Investment Fund Association was established 30 years ago as a trade association for the island’s fund management industry. It has almost 200 members, including fund managers, administrators, custodians, law firms, accountants, non-executive directors and other professional firms.
Paul Smith on…
I started in the industry as a junior administrator. The industry itself was still quite young and was growing rapidly. Those were the days before regulation and it was very different in terms of working methods. You worked on one fund – they were generally unit trusts – and did everything on that fund and your relationship was directly with the client. It gave you a very broad foundation.
The changing face of funds in Guernsey
The industry has changed in terms of the products that we have, and the way we work has also changed, led, in part, by the growth of digital and fintech. That change offers an opportunity for Guernsey – we have outsourced labour-intensive back office functions in the past, but with the use of technology some of that work could effectively come back to Guernsey.
With the pioneering use of blockchain now being seen in the island, I do see a future where we can take back those outsourced administration functions, with corresponding benefits in terms of revenues and greater control. The fund industry faces an everchanging regulatory environment and in Guernsey we have consistently adapted to the demands placed upon us. In an environment of increasing regulation, monitoring and scrutiny, Guernsey can hold its head high as a good global citizen helping to ensure the free flow of capital around the world.
The innovation we have always seen and continue to see in our industry and Guernsey’s adaptability is a key element of our success. We have always been prepared to listen to new ideas and explore new ways of achieving our clients’ goals, which is crucial in this era of technological advancement.
We are a stable, secure jurisdiction, with a responsible attitude towards our international obligations, and an experienced, flexible and efficient industry. Guernsey is still a great place to live and work and once people come here they are often “blown away” when they see the way that we work, the accessibility of all participants in the industry, and the level of interaction between industry, regulator and government.
An original version of this article first appeared in The Global Fund Media special report on Guernsey fund services, July 2018. Click here to access the full report.
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