Guernsey: Overview of the Key Developments in Guernsey in 2011

By Paul Christopher, Partner, Mourant Ozannes, Guernsey (01/12/2011)


"We are all in the gutter, but some of us are looking at the stars" wrote Oscar Wilde.

Guernsey continues to react to remarkable changes in the world's economy and especially the financial services sector. The international environment is complex and uncertain and is likely to remain so for some time. This environment is likely to attract continued scrutiny of financial services generally and, in particular, those jurisdictions with significant businesses in those fields.


International Monetary Fund (IMF) Review

In January 2011 the IMF, as part of its Global Financial Stability Assessment Programme, published six reports arising from its evaluations in March 2010 and May 2010 of Guernsey's financial supervision and criminal justice frameworks. The IMF's last evaluation reports on Guernsey were published in November 2003. The 2011 reports commended Guernsey as having financial sector regulation and supervision of a high standard across all sectors, and a legal framework which provides a sound basis for effective AML/CFT regime, with preventive measures being largely in line with Financial Action Task Force (FATF) recommendations.


Guernsey was assessed as having a high level of compliance with international standards against which it was judged – the 25 Basel Core Principles for Effective Banking Supervision, the 28 Insurance Core Principles of the International Association of Insurance Supervisors, and the FATF 40 Recommendations on Terrorist Financing. The financial stability of the finance sector was also assessed by evaluation of the vulnerability of the banking and insurance industries by stress test.


Tax Information Exchange Agreements (TIEAs)

Guernsey has now entered into TIEAs with 33 territories following its signing TIEAs with Canada, Romania, South Africa, Indonesia (the latter two were the first for each country), Mexico, Argentina, Cayman Islands, Czech Republic, Bahamas, Slovenia, India, Romania and Seychelles. This comprises 14 agreements with EU Member States, 21 with members of the Organisation for Economic Cooperation and Development and 13 with G20 major economies.


The Global Forum on Transparency and Exchange of Information for Tax Purposes (created in 2000, and consisting of 97 member jurisdictions, to develop international standards on transparency and effective exchange of information for tax purposes) reported in January 2011 that Guernsey had followed through its 2002 commitments, observed the OECD Principles on Transparency and Exchange of Information for Tax Purposes and made a substantive development in expanding its exchange of information network. There will be a phase two review in 2012 where the review team will look at the practical implementation of the exchange of information process.


It is with type of information that has persuaded US democrat senator, Carl Levin, to remove Guernsey from his ‘black-list’ as reported in July 2011.


G20 Report

The Financial Stability Board (FSB) made a report for the G20 Summit in Cannes in November 2011 in response to the call by G20 Leaders in the April 2009 Summit in London for the FSB to develop measures to promote adherence to financial standards and cooperation amongst jurisdictions. Guernsey was included in the FSB's initial pool of 60 jurisdictions for evaluation as it ranks highly in financial importance. Guernsey was placed in the top tier of jurisdictions and was reported as having demonstrated ‘strong commitment’ to financial stability.

The assessment was based on evidence compiled by the IMF, the World Bank and the International Organisation of Security Commission.

Corporate Tax Review



Given the similarity of Guernsey's corporate tax regime to that of Jersey and the Isle of Man, which were under review by the EU Tax Code of Conduct Group on Business Taxation (the ‘Code Group’) the consequences of the reviews on those jurisdictions would inevitably have an effect on Guernsey.


Given the primary concerns of the Code Group are around the ‘deemed distribution’ regime, the outcome is likely to be of most concern to locally resident shareholders in Guernsey.


The removal by Jersey and the Isle of Man of the ‘deemed distribution’ and ‘attribution regime for individuals’ brought their regimes in to compliance with the relevant principles. However, Guernsey is still awaiting clarity in relation to the assessment by the Code Group on Gibraltar's territorial regime in order to evaluate all of the potential options.


It is clear that the ‘zero product’ and tax neutrality for Guernsey's international client base will remain, irrespective of the outcome of the review. The exempt status of the investment fund industry is not effected by the review, ie, collective investment schemes remain exempt from Guernsey taxation. Indeed the exempt regime was extended in September 2011, updating the definition of bodies which can be granted exempt status - exempt status can now apply to any body forming part of the structure. It is clear Guernsey does not wish to place itself at a competitive disadvantage to other jurisdictions.


London Stock Exchange (LSE)

Guernsey remains home to more non-UK entities listed on LSE than any other jurisdiction globally. At the end of December 2011, there were 108 Guernsey-incorporated entities listed on either the Main Market, the Alternative Investment Market (the 'AIM'), the Specialist Fund Market (the 'SFM') or as ‘Trading Only’.


Emerging Markets

In May 2011 the Hong Kong Stock Exchange Listing Committee formerly approved Guernsey as an acceptable overseas jurisdiction for the purposes of companies incorporated in Guernsey seeking to list on the exchange. This allowed a streamlined process for any Guernsey company listing on the exchange.

Relationships with China and Hong Kong have been further enhanced with various delegations throughout the year and visits to a variety of institutions including the Shanghai and Shenzhen Stock Exchanges. As well as having a TIEA in place with China there is also a memorandum of understanding (MoU) with the Shanghai Financial Services Office and this year a statement of corporation (which provides a framework for regulatory cooperation between the two supervisory authorities) has been entered into between the Guernsey Financial Services Commission (GFSC) and the China Banking Regulatory Commission and it is anticipated a similar arrangement will be entered in to with the China Securities Regulatory Commission in due course.


A TIEA with India has now been signed. Delegations continue to visit India and progress is being made with Guernsey companies now being a popular choice for AIM listed India projects.


MoU with Germany


The GFSC has signed a memorandum of understanding with Germany's Banking, Insurance and Securities Regulation (BaFin). This provides a framework for enhanced cooperation between the two supervisory authorities.


Credit Rating

A change in methodology by Standard & Poor's means that Guernsey's sovereign credit rating has been revised to AA+ (the highest rating a jurisdiction without its own currency is likely to achieve). The measure remains largely academic as Guernsey has not issued any debt.


GFSC Related Matters

Fiduciary Sector


The Department launched a consultation in relation to a law for foundations in Guernsey. The introduction of the law has been agreed in principle.



Also in January 2011 the Commerce and Employment Department (the ‘Department’) and the GFSC released a joint statement outlining the position regarding the regulation of Guernsey's insurance sector and, in particular, in relation to the EU's proposed Solvency II framework. The position statement made it clear that Guernsey had no plans to seek a regulatory position that was equivalent to the EU's proposed Solvency II framework. The Department and the GFSC confirmed that developments on Solvency II would continue to be monitored.


The Department and the GFSC stated they would be amending Guernsey's regulatory regime to take account of the international accepted regulatory standards as set out by the International Association of Insurance Supervisors and endorsed by the G20 on risk based insolvency. The position received industry support.


Investment Funds


A Private Equity News / State Street survey of chief financial officers in March 2011 revealed that 61 per cent of responses elected Guernsey as their preferred destination for private equity outsourcing.


Information from London Stock Exchange's Market Authority shows there are significantly more Guernsey incorporated companies listed on the London Stock Exchange than any other competitor jurisdiction.


Statistical information reflects total funds under management and administration grew by £27.9 billion (11.5 per cent) for the year preceding 30 September 2011 with an aggregate net asset value of total funds at £271.1 billion. Strong growth was recorded across all sectors but especially in the closed ended sector with a £19.8 billion increase (18.7 per cent).


Asset management and stock broking confirmed increases of gross assets under management and substantial increases of turnover of stock broking activities although total numbers of accounts decreased.


Corporate Governance


Following the GFSC's initial consultation in the first quarter of 2010 and a subsequent consultation in 2011 the GFSC issued its Code of Corporate Governance on 30 September 2011. The Code comprises Principles and Guidance, and provides a formal expression of good corporate practice against which shareholders, boards and the GFSC can assess the governance exercised over companies in Guernsey's finance sector. There is a deeming of complicity of certain companies which report against other specified corporate governance codes.


Independent Evaluation of the GFSC


The independent evaluation review by Ernst & Young LLP of the GFSC was published on 30 November 2011. Whilst it acknowledged that the GFSC is highly regarded, not just in Guernsey but by the global regulatory community, global financial services institutions and their advisers, the report suggests a number of amendments that need to be made in Guernsey.


These include the development of a strategy for financial services for Guernsey by the government based on a thorough risk analysis and using existing economic data and trends as well as informed views by the industry and the GFSC (from a regulatory perspective). It also recommended the reorganisation of regulatory processes to respond to emerging regulatory challenges and the appointment of a chief operating officer with responsibility for the efficient and effective running of the GFSC as well as rationalisation of committees and projects.




Guernsey continues to receive meaningful and positive external examination as well as initiating its own internal initiatives in the financial services field. The jurisdiction continues to attract business and grow in unsettled times. Whilst the international environment will continue to present challenges, the continued success of the jurisdiction will depend on how it reacts to those challenges.