Dominic Wheatley, Chief Executive of Guernsey Finance, delves into some of the latest developments to be launched on the island.
Guernsey has continued to solidify its position within the mainstream of international finance over the course of 2016.
Notable developments to take place in the island’s financial services sector over the past year include introducing not one, but two new fund regimes, opening a representative office in Hong Kong, reaffirming its global leadership on standards of anti-money laundering (AML) and being recommended for a ‘third country’ passport under the Alternative Investment Fund Managers Directive (AIFMD).
The high-regard in which Guernsey’s finance industry is held internationally was also evidenced in October when it played host to a Chinese family office delegation. The delegation were so eager to learn about Guernsey, its position as a leading offshore jurisdiction and to understand the regulations and structures that exist on the island, that they requested for a bespoke fiduciary qualification to be put on for them during their week-long trip. The visit and training was arranged by Guernsey Finance in conjunction with the GTA University Centre, the Guernsey Association of Trustees and the Guernsey branch of the Society of Trust and Estate Practitioners.
Antoine Kuo, founder of Griffin Plutus Family Office, was one of five people from his Shanghai office to complete the qualification. Mr Kuo, who has more than 25 years’ experience in private banking and offshore finance, explained that the island’s standard of regulation and flexible range of structures were important to the Chinese market and that the course had provided a greater insight into the way Guernsey operates.
“Through more than 40 meetings and classes over five days with some of the best practitioners in Guernsey, we were not only impressed by the professional expertise and well-regulated environment Guernsey has to offer, but also the warmth and hospitality shown towards us. These are some of the key reasons why Guernsey maintains its leading position in the private wealth market,” said Mr Kuo.
We are delighted that someone with Antoine’s background recognises Guernsey’s significant experience and expertise in this area and wants to learn from us in terms of how we establish and operate fiduciary structures for global clients. Bringing these influential contacts to the island is a significant development in Guernsey’s relationship with China and we are already aware of enquiries that have taken place since the delegation’s visit.
Building relationships with firms and contacts not only in China, but across Asia remains a key focus for Guernsey.
Indeed, we opened our second representative office in Asia in March 2016. The Hong Kong office in Admiralty follows the opening of our Shanghai office in 2007. Guernsey Finance Asia representative Wendy Weng, who is based in Shanghai, uses the Hong Kong office as a base from which to carry out further promotional activities concentrated on the wider South East Asian market, while it is also utilised by the Guernsey Financial Services Commission (GFSC) to provide on-the-ground regulatory advice to those in the region who might be considering Guernsey-specific ventures.
Establishing the Hong Kong office has resulted in further Guernsey activity across Asia. This has included hosting our own events in Hong Kong, Singapore and China during recent months.
The seminars in Singapore and China both had a focus on the Asian private client market, with nearly 200 in attendance in Shanghai to hear from our speakers on the requirements of the Common Reporting Standard (CRS). The OECD-devised standard for the automatic exchange of financial account information between the tax authorities of participating jurisdictions is a much-discussed topic in China and one their industry is looking for further clarity on. More than 100 jurisdictions have so far signed up to CRS, with the exchange of information relating to the 54 ‘first wave’ jurisdictions, including Guernsey, taking place by September 2017, while China, as one of the 47 second wave jurisdictions, will begin to exchange information from September 2018.
Compliant and transparent
Being amongst the ‘early adopters’ of CRS was important for Guernsey as it demonstrated our commitment to tax transparency and meeting global international standards. The fact that we are then able to host an event in China on the subject which attracts nearly 200 people, most of them senior practitioners in banking, trust, securities and other financial industries, emphasises the fact that Guernsey is regarded as a leader in international finance and one that is ahead of the curve in terms of international regulatory standards.
This was again evident at the beginning of the year when an evaluation of Guernsey by MONEYVAL, a body of the Council of Europe tasked with assessing the measures in place to prevent money laundering and the financing of terrorism, found that Guernsey had surpassed the standards set in the equivalent International Monetary Fund report in 2010.
In addition to finding the island as being compliant or largely compliant with 48 out of 49 of the Financial Action Task Force (FATF) recommendations on AML and countering the financing of terrorism (CFT) – the highest standard of any jurisdiction so far assessed – MONEYVAL found that Guernsey has in place a range of measures to facilitate various forms of international cooperation and plays host to competent authorities and financial institutions that are highly efficient, knowledgeable and aware of their obligations.
The findings were consistent with how we see Guernsey’s leading position within the mainstream of international finance not only in terms of AML and CFT, but also regulation, beneficial ownership, tax transparency and CRS.
Attaining and working to these standards is a key reason behind why Guernsey was recommended for a third country passport under the Alternative Investment Fund Managers Directive (AIFMD) by the European Securities and Markets Authority (ESMA).
The independent EU regulatory authority assessed Guernsey, alongside 11 other non-EU jurisdictions, as part of its non-EU AIFMD passport reviews and gave Guernsey one of only five ‘unqualified and positive assessments’. ESMA’s advice is now with the European Commission for its approval. Until that happens, alternative investment fund managers (AFIMs) on Guernsey continue to have access to EU markets under national private placement regimes.
New fund products
Ahead of receiving the ESMA backing in July, the Guernsey regulator introduced the Manager Led Product (MLP), a regime designed in light of AIFMD, which places the regulatory burden on the manager. By virtue of the AIFM’s sponsorship, no alternative investment fund or underlying licensee will have rules imposed on it, while the regime avoids duplicating regulatory requirements over several entities and derogation requests acceptable to the host country will be considered by the GFSC.
The MLP was followed by the November launch of Guernsey’s Private Investment Fund (PIF) regime, which again looks to provide fund managers with greater flexibility and simplicity. It recognises that certain investment funds are characterised by a relationship between management and investors that is closer than that of a typical agent and accordingly, the GFSC is prepared to dispense with the formal requirement for information particulars such as a prospectus.
The PIF, which can be either closed or open-ended, should contain no more than 50 legal or natural persons holding an economic interest in the fund. One exception is where an appropriate agent, such as an investment manager or occupational pension scheme, is acting for a wider group of stakeholders. While there is a limit imposed on the number of investors in the PIF, no attempt has been made to limit the number of investors to whom the PIF might be marketed – a feature not available under comparable regimes in other jurisdictions.
Under the new rules, the fund will benefit from an application process that can be completed in one business day. As part of the application process, the fund manager provides warranties on the ability of the investors to assume loss. Considering that the PIF is predicated on a close relationship between management and investors, the GFSC considers this a reasonable representation.
These product launches, coupled with our increased focus on Asia show that it is an exciting time for Guernsey’s financial services industry across all our key sectors. It also further demonstrates that Guernsey’s hard-won reputation for creating an environment synonymous with innovation and high standards shows no signs of slowing down.
An original version of this article was first published in eprivateclient's 2017 Guernsey report, January 2017.