Guernsey innovates for
Middle Eastern wealth
Innovation has been at the heart of
Guernsey’s financial services offering
for decades. The launch of 2-REG,
the Channel Islands Aircraft Registry,
at the end of last year further added to
the Island’s track record in this regard
and provided yet another differentiator
for Guernsey over many other offshore
wealth management centres. Indeed one
of the early registrations was an Embraer
Legacy 600 corporate jet, which is based in
the Middle East/Gulf region and flies on
behalf of the owner between the Middle
East, US and Africa.
Likewise, Guernsey remains the only
jurisdiction in the world to offer its own image
rights legislation and image rights register after
introducing its own law in late 2012.
established structures, including trusts. The
trust concept is rooted in common law and
most popular in the US and UK, but some
clients based in other parts of the world,
including the Middle East, are less familiar
with it and sometimes unsure about the
prospect of losing control of assets which are
held by trustees – albeit professional service
professionals – on behalf of the beneficiaries.
Many are more familiar with a foundation,
a civil law structure and an alternative to the
trust. With this in mind, another development
for Guernsey’s private wealth sector saw
it introduce its own foundations law at
the beginning of 2013, thus giving service
providers with an additional tool on the menu
of options available for best meeting client needs.
The foundation has been available in
other jurisdictions for some time, but the
Guernsey model is quite different. It was
Fiona Le Poidevin, Chief Executive of Guernsey Finance,
looks at what sets Guernsey apart from others as a premier
location for private wealth.
The introduction of both 2-REG and the
Guernsey image rights register enables the
Island to continue to meet the varied and
ever-changing needs of international clients,
who have an increasing desire to place their
wider wealth management arrangements
in a reputable and reliable domicile where
quality service provision is at the fore.
The platform to be in this position comes
through the significant experience Guernsey
has built up over more than 50 years as an
International Finance Centre (IFC) servicing
structures, such as companies, partnerships
and trusts, formed for the protection of assets.
Many of the Island’s 150 licensed fiduciaries
already have Middle Eastern clients who have
issue twenty nine - October-decEMBER 2014 www.cpi f inancial .net
behalf of the beneficiaries. However, within
the arrangements of a standard Guernsey trust
there are now special provisions which allow
for the Settlor to have some oversight of the
wealth or assets. By using a structure involving
a Private Trust Company (PTC) or purpose
trust, the Settlor can have greater control –
they may sit on the board of the PTC and also
be in command of the purpose trust which is
the ultimate authority over the PTC board.
It should be stressed though that, aside
from the tax implications, there are dangers in
the Settlor having control, especially if they are
not experienced or have particular expertise in
managing such affairs. Indeed, trusts have been
successfully used for many years in the UK and
US precisely because the trustees have been
independent financial professionals.
Similarly, where dynastic planning is the
goal, for the family wealth to successfully pass
down through the generations, the client will
have to give up control at some stage. The
PTC structure allows for control to be handed
over gradually with following generations
brought in as and when most appropriate.
Middle East families
What we are now seeing in Guernsey when
specifically dealing with clients from the
Middle East is that they often require a
more flexible structure for asset protection
and succession planning than is available
through a Shari’a compliant trust.
Guernsey’s depth and breadth of
experience means it is well placed to
provide for this type of family office
service. For example, trust structures for
Middle Eastern families can span from
strict Shari’a compliance through to fully
flexible Shari’a compliance, where the
patriarch wishes to entirely ring-fence assets
outside of the Islamic world, with a view to
departing from the application of Shari’a
law for a proportion of his wealth. This is
particularly brought into play to rebalance
the distribution of wealth between male and
female heirs as modern families are just as
likely to have daughters at schools abroad
who will then return to the Middle East and
play a key role in the family enterprise.
In such cases, the patriarch may be
keen to ensure his daughters are provided
for in the same way as his sons, and this
can be achieved by putting assets offshore
outside of the Islamic world, Guernsey
being one such suitable jurisdiction.
Section 14 of the Trusts (Guernsey) Law,
2007 provides a useful anti-forced heirship
measure to protect assets held in Guernsey
trusts from attacks by the Shari’a courts.
Similarly, robust firewall provisions are also
contained in Guernsey’s foundations law.
The addition of a tailored foundations law to
Guernsey’s wider private wealth management
offering is yet another example of what sets
the Island apart from other IFCs. Similarly,
the launch of 2-REG and the introduction
of our world-first image rights legislation
further demonstrates that Guernsey’s hardwon
reputation for creating an environment
synonymous with innovation and high
standards shows no sign of slowing down.
tailored to meet the needs of international
private client advisers and their clients and
as a result contains a number of advantages.
A foundation is more like a company in
that it is an incorporated entity with a separate
legal personality where assets are owned by
the structure. Having said that, a foundation
differs from a company in that it does not
have shareholders to whom the board are
accountable but instead it holds assets (in its
own name) on behalf of the beneficiaries, for
particular purposes, or both. Council members
act in good faith and cannot, without express
authorisation, profit from their position.
A particular innovation of the Guernsey
foundation is the ability for beneficiaries to
be classed as either being ‘enfranchised’ or
‘disenfranchised’. Enfranchised beneficiaries
will have rights to certain information
regarding the foundation, whereas
disenfranchised beneficiaries are not
entitled to any at all.
Guernsey has also taken note of the
fact that some clients may worry about
confidentiality because as foundations are
registered entities, they are, unlike trusts,
publicly visible. In Guernsey, only very
limited details are available to the public
whereas in some other jurisdictions the
whole charter is commonly visible. Yet,
Guernsey’s approach means the limited
visibility offers the benefit of easily proving
the foundation’s existence.
The early foundation registrations in
Guernsey were for philanthropic purposes
but we are also now seeing structures set
up for more traditional private wealth
management, estate planning purposes and
other family arrangements.
The emergence of the Guernsey foundation
does not mean the trust concept has become
any less popular in Guernsey, but means
clients and advisers now have a greater choice
for what best suits their needs.
Trusts differ from foundations and
companies in that they are not incorporated
entities and have no legal personality. Assets
within a trust are owned by the trustees on
Fiona Le Poidevin is Chief Executive of Guernsey Finance, the promotional
agency for Guernsey’s finance industry.
Her role includes business development and the promotion of Guernsey’s
finance industry in the Island’s target markets including Europe, the US
and the emerging markets, technical research to support promotional
activities and liaison with industry associations and government.
Previously a senior tax manager with a Big 4 accountancy firm, she has 16
years’ experience working in financial services in both the UK and Guernsey.
Miss Le Poidevin is a Chartered Accountant, a member of the Institute of
Directors and holds the IoD Diploma in Company Direction.
www.cpifinancial.net issue twenty nine - october-decEMBER 2014