Guernsey's New Law Regulating Fiduciaries

Introduction

In June 1999 the Guernsey Financial Services Commission issued a Consultation Paper containing proposals for the much anticipated new Law to regulate the provision of fiduciary services in or from within Guernsey, Alderney and Sark.

It is important to be aware that at this stage, the Commission has done no more than issue its proposals for the new Law. The legislation, when enacted, may differ in any number of respects as a result of the consultation process.

Who and What Activities Does the Commission Intend to Regulate?

There are three activities which the Commission wishes to regulate. These are:

• 'Trust business' (broadly, forming/administering trusts and acting as a corporate or individual trustee);
  
  
• 'Corporate administration business' (broadly, forming/administering companies and carrying out directorships/nominee services);
  
  
• 'Executorship services' (in essence acting as a professional executor, for instance of a will).

Very significantly, each activity will only be regulated if it is carried on 'by way of business'. No guidance is given on what is meant by these words, and this may be deliberate to retain flexibility. However, in most cases it should be apparent whether a business is being run, and by whom. In the case of a managed trust company for instance it seems clear that the manager and the managed company are likely to both be providing a fiduciary service by way of business.

Will any Activities be Excluded from the Law?

The paper contains a number of specific exclusions. The most important ones are:

• acting as a director of a Guernsey trading company;
  
  
• where the activities in question are not undertaken in the course of a business (examples given include acting as a trustee of a local occupational pension scheme or local charity);
  
  
• acting as trustee or custodian of a collective investment scheme authorized by the Commission;
  
  
• where the activities in question are incidental to other activities already regulated by the Commission and are undertaken for no additional remuneration.

The last of these will be particularly important for banks, insurance companies or investment businesses who have fiduciary subsidiary companies. These will need to look closely at their arrangements to decide whether they fall within or outside the Law.

What Form will Regulation Take?

Anyone carrying on a regulated activity will need a licence from the Commission. There are two kinds of licence, a personal licence for an individual and a fiduciary licence for companies and partnerships.

Licensees will be required to pay an annual fee, which will differ depending upon the category of licence. The holder of a personal licence will be expected to have professional indemnity cover of £1 million, and fiduciary licensees, £5 million.

There is a proposal that there should be a minimum level of capitalization for holders of a fiduciary licence. The suggested level is £100,000. A concession may be given to managed trust companies, which whilst needing a fiduciary licence, will be required to have a level of capitalization which is appropriate to the level of activities undertaken.

Applicants for personal and fiduciary licences will be judged by reference to 'fit and proper' criteria, and fiduciary licensees must also demonstrate an economic benefit to Guernsey.

Once they have a licence, personal and fiduciary licensees will be subject to ongoing supervision. Both will be required to submit an annual return (with fully audited accounts in the case of fiduciary licensees) giving details of clients, assets etc. Fiduciary licensees must also appoint a firm of 'reporting accountants' to carry out an annual compliance review. This will look at in-house systems and controls, and compliance with anti-money laundering legislation.

As with other regulatory legislation in the Bailiwick, the Commission is likely to have power to revoke, and refuse requests for, licences, and will have search/seizure powers.

When is the Law Likely to be Introduced?

Comments were sought by the Commission on its' proposals in the Paper by July 14 1999 and it is currently reviewing representations. The intention at present is that the Law will be introduced by next summer at latest, and it remains to be seen how closely it will follow the proposals already issued.

This article is not intended to be a definitive statement regarding the proposals for the forthcoming law, and advice should always be sought in a specific case. For advice, please contact the writer, Paul Buckle, at Collas Day on e-mail: [email protected], or alternatively write to Paul at

Collas Day is one of the largest firms of Guernsey advocates. Details of its areas of practice can be found on the firm's website at www.collasday.com


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