GIBA - Guernsey's Financial Services Sector

GUERNSEY'S FINANCIAL SERVICES SECTOR

INTRODUCTION Guernsey has been a centre for international finance since the 1960s.

Our financial services sector employs over 7,000 people directly and includes nearly 400 employers. At least 80% of those 7,000 people are local residents, raised and educated in Guernsey.

It is no surprise that the sector is the largest employer in Guernsey. This means that finance is the largest contributor to employment, taxes and social security.

The finance industry has driven Guernsey’s relative prosperity over the last 40 years, and we believe that can continue for many years to come.

Finance - the central pillar of Guernsey’s economy The industry adds in the region of £1.2bn to the economy - approximately 44% of the island’s economic output. Furthermore, Guernsey’s finance sector requires many ancillary services to support its operations. This benefits those working in marketing, real estate, hospitality and more.

It offers career opportunities for local school-leavers and graduates that usually can only be found in major finance centres like London. In addition, most employers also encourage flexible working of many kinds and genuine equality of opportunity.

A global reputation - regulation and innovation The industry has a global reputation for quality, security, innovation and compliance with international standards. This is driven by Guernsey’s network of professional services and a robust, internationally recognised regulatory framework.

Through the Guernsey Financial Services Commission (the GFSC), Guernsey has an internationally respected regulator. The work of the GFSC, the aspiration of successive States to meet the highest international standards and the quality of our finance businesses mean that Guernsey is positively assessed as such regularly by international bodies like the EU, the OECD and the G20. We are also proud of Guernsey’s reputation for financial services innovation, including protected cell companies and the Guernsey Green Fund.

INTRODUCTION CONT'D Looking to the future Being acknowledged as a leading global financial centre in the future is in no way guaranteed. Other centres are very well funded and very competitive. Guernsey needs to be agile and responsive in adapting to changing global standards, in implementing new products and in amending legislation to help us maintain our competitive advantage.

Representing the finance industry GIBA (the Guernsey International Business Association) is the body that represents the financial services industry in Guernsey. Its members are the individual associations for each of the various sectors - banking, funds, insurance, trusts and private wealth, lawyers and accountants.

This paper can only give a brief overview of what is a very diverse and complex industry, faced with unprecedented challenges. If you want to find out more about our great industry, please contact the various associations listed here.

Together we are stronger.

Tony Mancini Chair, Guernsey International Business Association

*Statistics from The States of Guernsey and We Are Guernsey

GUERNSEY’S (RE)INSURANCE SECTOR The industry provides a diverse range of insurers run by licensed insurance managers but has historically been dominated by captive insurance and protected cell companies, at least in terms of the number of licensed insurers operating from the island.

In recent years, the industry has expanded through the development of insurance-linked securities (ILS) products and longevity risk swaps, but Guernsey insurers also provide a significant share of the market capacity for kidnap and ransom and fine art insurance.

The sector extends beyond insurers and insurance managers to those industries that support insurance activities on the island, such as accountants, lawyers, investment professionals, bankers and actuaries.

Sector overview: Guernsey is the largest captive insurance domicile in Europe.

More than 20% of UK FTSE-100 companies have captives in Guernsey.

There are almost 700 international insurer and reinsurance entities in Guernsey.

In 2019 Guernsey developed the world’s first mixed purpose Protected Cell Company (PCC) / Incorporated Cell Company (ICC), which is both a licensed insurance company and an investment fund.

In 1997 Guernsey became the first jurisdiction in the world to introduce Protected Cell Company legislation, which has subsequently been replicated in many countries worldwide.

In 2017 a Guernsey-domiciled reinsurance company issued the first notes ever to have been digitised on the blockchain.

Guernsey is recognised as the leading domicile for longevity risk swaps. In 2015 a Guernsey-incorporated cell was used to undertake a £16 billion longevity risk swap on behalf of the BT Pension Scheme. Guernsey continues to be used for such transactions today.

In 2018 international insurers on the island held gross assets totalling £30.15 billion.

The sector employs circa 775 with an estimated GDP per employee of £187,000.

In 2018 premium written totalled £5.25 billion.

Did you know? The first captive insurer was incorporated in the island in 1922.

What does the future of Guernsey’s (re)insurance sector look like?

Guernsey’s international insurance sector is diverse – key areas that are developing include Captive Insurance, Rated Reinsurance, Life & Longevity, Insurance Linked Securities (ILS).

The industry is entrepreneurial and innovative, the future outlook is to encourage individuals and businesses to relocate to the island.

The worldwide insurance market is experiencing rate increases and restrictions to the cover on offer. This provides an opportunity for growth in the captive industry, with entities seeking to retain more risk and widen their cover through their own insurance vehicle. As a result, Guernsey has experienced an increase in enquiries and formations during the past 12 months.

Guernsey used to be acknowledged as the leading financial centre to handle pension longevity swaps, however this position has changed as rival domiciles such as Bermuda are willing and able to change their insurance and company legislation to become more competitive. Guernsey is not so nimble, changes to legislation take far longer and this presents a real threat to our competitive edge going forward.

The insurance industry has benefited from a robust but proportionate and approachable regulatory regime. It is important that this does not become too unwieldy and overburdensome, leading to increased operational and regulatory fees, making Guernsey uncompetitive when compared to other jurisdictions.

The Guernsey International Insurance Association (‘GIIA’), was formed in 1983 and is the industry representative body for insurers and insurance managers who work in insurance and risk management in Guernsey.

GIIA Key Contact Mike Johns, GIIA Chair +44 (0)1481 735664 mike.johns@willistowerswatson.com www.giia.gg giia@giia.gg

GUERNSEY’S TRUST AND FIDUCIARY SECTOR The industry provides a diverse range of trust and corporate services to an international client base covering private high-net-worth client, corporate and institutional businesses.

Formation and administration of trusts and other vehicles allow clients to manage their wealth for current and future generations in an efficient and effective manner.

The sector is substantial and long established; it benefits from and contributes to Guernsey’s mature and sophisticated professional infrastructure.

Relationships tend to be personal and long term as we are dealing with a family’s own wealth therefore trust between the parties is critical. This means the sectoral income is stable and secure.

Sector overview: The sector directly employs 10% of Guernsey’s total workforce and indirectly a significantly higher number including lawyers, accountants, bankers and investment managers. These employees make valuable fiscal contributions to the local economy through taxation and social security.

Profits generated by trust companies are subject to Guernsey tax at 10%. Where the owners of the fiduciary business are Guernsey-resident individuals, they will be subject to Guernsey income tax at 20% upon receipt of distributions.

The trust sector in Guernsey has been regulated since 2001, but active in the island since the early 1970s.

Trusts are established for a variety of reasons, many not tax related. Guernsey practitioners pride themselves on their ability to cater to the holistic requirements of their clients, fulfilling financial, philanthropic and familial needs.

Other indirect benefits to the island include local office rental and corporate social responsibility activities which support charities and the wider community.

The trust sector contributes substantially to entity registration and licensing fee revenues in Guernsey. Of the 1,544 companies incorporated by the Guernsey Registry during the year ending March 2019, approximately 75% were asset-holding companies or other structures administered by fiduciaries.

Guernsey is committed to international standards of transparency and our clients’ right to privacy, and is compliant with the highest standards of tax transparency, antimoney laundering and combating the financing of terrorism.

In 2017, Guernsey introduced a central register of beneficial ownership of legal entities incorporated and created in Guernsey. This register is not public – access is only granted to authorities such as law enforcement, tax authorities and other regulatory bodies and only where their interest in the data is legitimate, meaning we are able to maintain a client’s right to privacy but protect our island from criminal activity.

Did you know? In the UK, the trust sector is not regulated!

What does the future of Guernsey’s trust sector look like?

The fiduciary industry is a material contributor to the local economy and island. Criticism from the UK and Europe with regard to our services continues to be incessant, we need government support to continue to staunchly defend our reputation, whilst adapting laws and regulation quickly in areas required to dispel any criticism. It is also imperative that we are very cautious when making and changes to Corporate Tax in Guernsey to ensure that we remain competitive and compliant with the EU regime.

Changes in the regulatory environment are a concern both from the perspective of ensuring that our regulation remains sufficient and appropriate whilst not overbearing.

Balancing compliance with international standards with cost effectiveness and maintaining our competitive edge with our competitor jurisdictions is imperative.

A fall in employment in this sector would not only reduce the overall tax take of the island, but also potentially increase the level of unemployment and government dependency.

Training opportunities and professional qualifications are essential. The vast majority of senior staff in fiduciary firms will hold at least one professional qualification – Guernsey is regarded as having a workforce that understands trusts and is well qualified. The onisland provision needs to be maintained.

Raising Guernsey’s profile remains of utmost importance to the trust sector. Ongoing communications and the fostering of relationships with linked professional service providers such as lawyers and accountants in London will ensure continued growth in the industry and create work to replace business naturally lost through changes in circumstance. Travel links need to be reliable and efficient to service the requirements of the business community.

The Guernsey Association of Trustees (‘GAT’) is the industry representative body for the fiduciary industry in Guernsey (the trust or fiduciary sector).

GAT Key Contact Rhona Humphreys, GAT Chair +44 (0)1481 742473 rhona.humphreys@imperiumtrust.com

www.guernseytrustees.org info@guernseytrustees.org

GUERNSEY’S ACCOUNTANCY SECTOR All the major international accounting firms are represented in Guernsey and all have significant or total ownership held by Guernsey residents.

As with Guernsey's other financial services sectors, the accountancy sector is substantial and long established, and benefits from and contributes to all of the sectors within Guernsey’s finance industry.

There are more than 1000 qualified accountants in Guernsey and currently more than 120 individuals training for a professional accountancy qualification on the island.

Sector overview: Qualified accountants play a crucial part in all sectors of the Guernsey economy, including commercial businesses (e.g. retail, manufacturing, construction), the finance sector, public sector and third sector organisations.

In addition to sponsorship and charity volunteering, local firms provide valuable pro bono services to third-sector organisations in the island, with the greatest value we can bring being our professional expertise and skills.

The accountancy sector plays a crucial part in maintaining and promoting regulatory excellence in Guernsey’s finance sector through the provision of assurance (e.g. audit) services, compliance advisory services and rigorous AML/CFT compliance.

Accountancy qualifications offered in Guernsey span all of the major professional accountancy bodies and training is available in accountancy firms as well as industry.

All of the major firms invest heavily in training, offering contracts to local school leavers as well as returning graduates, thereby boosting the skills set in the local employment market and increasing the value of the contribution to the economy.

Most of the firms, as well as GSCCA, offer bursary scholarships to local school leavers in order to support them through university as well as providing valuable work experience and paid vacation placements.

A snapshot of the value provided by the six largest accountancy firms in Guernsey: Contribution to economy through direct employment tax (ETI) >£9.3m Direct donations to charities >£320,000 Approximate value of pro bono work gifted to charities and community organisations >£250,000

What does the future of Guernsey’s accountancy sector look like?

One of the biggest threats and opportunities to the audit sector is considered to be from automation. Whilst some see this as a threat to traditional ‘people-heavy’ audit service models, others see it as a tremendous opportunity to free up capacity among auditors, using technology to do what it does best (crunching large volumes of data), and allowing auditors to focus on providing higher ‘value add’ skills through interpretation, experience and professional judgement that cannot be replicated by technology. In order to maximise the value to Guernsey from this, it is essential that, as an island, we enable local school leavers and employees to develop the necessary digital skills to complement traditional accountancy training that the sector provides.

The move to digitisation creates opportunities to change the way the accountancy profession delivers services to clients, with remote working from home being just a small example of this, but also sharing skills globally with colleagues outside of our Bailiwick. This means we can work virtually alongside global colleagues with expertise that may not be available on island due to scale, and to upskill local professionals efficiently and travel-free. The downside is that work can also be outsourced to less expensive jurisdictions, as we have seen in some of the licensed sectors such as fund administration, insurance managers and fiduciary services.

As with many sectors, the audit profession is facing ever-increasing regulation, particularly from national and global regulators. Whilst we have local regulatory oversight, this is delivered through relevant UK professional bodies. It is essential that the local regulatory framework is maintained at an equivalent level as the UK in order to preserve the reputation of the island’s finance sector as a credible jurisdiction, whilst not gold plating by adding extra local regulatory requirements on top of the established national regulatory bodies.

One of the biggest risks to the local accountancy profession has for many years been the availability of good quality staff and a strong pool of school leavers and returning graduates to bring into the training programmes. Limitations on population seriously damage the local economy, with firms outsourcing high paying jobs to other jurisdictions with more capacity.

GSCCA Key Contact Richard Searle, GSCCA Chair admin@gscca.gg

www.gscca.gg admin@gscca.gg

GUERNSEY’S INVESTMENT FUNDS SECTOR Guernsey’s funds sector is a well established part of the island’s financial services industry; there are currently 1,000 investment funds either domiciled or administered in Guernsey.

If a vehicle established in Guernsey satisfies the criteria for a ‘collective investment scheme’ or ‘fund’, it must either be registered or authorised by the Guernsey Financial Services Commission (‘GFSC’) and no Guernsey-licensed entity can provide services to such a vehicle without it being so registered or authorised.

Generally, all Guernsey-domiciled funds must be administered by a locally licensed administrator and open-ended funds must also have a locally licensed custodian.

Fund promoters new to Guernsey have to demonstrate a proven track record to obtain the required licence.

Sector overview: As at 31 March 2020, the net asset value of Guernsey funds and other funds where some aspect is serviced in Guernsey was £267.1 billion (31 March 2010 - £197.4 billion).

As at 31 March 2020, within the totals for Guernsey funds, Guernsey green funds held a total net asset value of £3.3 billion.

The sector represented by GIFA directly employs some 2500 people (8% of the island's workforce), not to mention the other indirect sectors (retail, hospitality, construction etc.).

Whilst Covid-19 has had an impact on asset values, the sector’s business operations were not overly impacted as people were able to successfully work from home.

Whilst Guernsey is utilised internationally, the key markets for the sector are: UK, USA, Europe, Switzerland and South Africa.

The Guernsey funds industry acts as a conduit for £24.6bn of inward investment into the UK from global investors, and £51.4bn into Europe (KPMG capital flows 2015).

Guernsey is one of the world's largest offshore finance centres. Almost 1,000 investment funds, and well over 2,000 sub-funds, are currently administered in the island (Carey Olsen).

The sector continued to grow throughout Covid-19 with many new products being launched/approved by the regulator.

Sector overview, continued: By 2025, global assets under management are expected to double from $85 trillion in 2016 to $145 trillion (PwC Asset Management 2025).

A significant amount of asset growth in the sector is coming from Asia.

What does the future of Guernsey’s funds sector look like?

Guernsey is and needs to remain a jurisdiction with strong expertise, reputable service providers, a responsive regulator and a government that is adaptable and flexible.

Our opportunities will come from targeting a small portion of the expected growth in the global assets under management in target growth markets such as Africa and Asia, whereas the EU is likely to become a smaller, more challenging market over the next five years for Guernsey.

Guernsey’s competitors such as Jersey, Luxembourg and Ireland are supportive of their financial services industry and have seen significant growth as a result of direct investment to market their services globally.Guernsey needs to be able to travel to develop and build trusted relationships around the globe. As such, our business travel needs to keep pace with the rest of the world. Guernsey fund services providers may well see a lean period going into 2021, with a delay to new product launches due to Covid-19.

The funds industry has faced challenges historically including air travel costs, onerous regulatory requirements, being less competitive with regard to tax when compared to competitive jurisdictions, slow-moving legal drafting and population/housing restrictions.

The Guernsey Investment & Funds Association (‘GIFA’) was established in 1989 as a trade association to represent the island’s funds industry and, following the merger with the Guernsey Investment Management and Stockbrokers Association in January 2019, now represents the wider investment industry.

GIFA Key Contact Christopher Jehan, GIFA Chair christopher@midshoreconsulting.com www.gifa.org.gg info@gifa.org.gg

GUERNSEY’S BANKING SECTOR The Guernsey banking sector plays a critical role in the island's financial services ecosystem; bank accounts and banking services underpin and support all of the other aspects and sectors of the Guernsey finance industry.

Banking has been a key part of Guernsey’s finance sector for more than 40 years.

There are currently 22 licensed banks in Guernsey, although some banking groups have more than once licence so the number of individual Guernsey banks is actually 19.

Sector overview: The banking industry in Guernsey is very diverse. People will be familiar with the ‘high street’ banks or ‘clearing banks’ - in fact Guernsey is also home to offices of international banks, private banks, retail banks and institutional banks, all of which offer a wide range of services.

This is often misunderstood, even by the government. The true diversity and breadth of banking services available in the island is complex, especially as they often overlap.

It can be very difficult for anyone outside of the sector to recognise these differences and fully appreciate the variety of banking services available in Guernsey.

Guernsey banks provide domestic banking services which islanders rely upon and a number of banks are of systemic importance to the local economy.

Some of the island’s private banks also cover the domestic market but often have a much higher international footprint and visibility.

Many of the banks in Guernsey are catalysts for the growth and wellbeing of the other financial services sectors operating in the island, and banks remain extremely important to the retention and development of those sectors, which in turn are critical to the continued prosperity of 'Guernsey PLC’.

The importance of Guernsey banks and their contribution to the economy is difficult to portray in statistics, especially as the services they offer underpin all the other finance sectors in the island.

Sector overview, continued: Guernsey banks also financially support (and always have done) much of the island's social, charitable and sporting activities that contribute to the wellbeing of the island across multiple strands of our community.

Guernsey banks also provide indirect benefits to the island via business travel and entertainment, supporting local hotels, catering, airlines etc. and the number and prosperity of banks in the island are absolutely key to the visibility and quality of Guernsey as a financial jurisdiction.

What does the future of Guernsey’s banking sector look like?

Consolidation will continue, meaning a further reduction in licences.

As has been the trend, deposits/assets in Guernsey banks have managed to grow over the years and continue to be stable, however, they are serviced by fewer and larger banks; we need this to continue for the sector to thrive.

The ever-changing and increasing regulatory environment has caused banks across the world to invest in automation and as such we can expect to see a reduction in employment by banks, this will affect Guernsey too.

A key challenge to the sector in the future is attracting and retaining talent. The banking sector needs to raise its profile to be an attractive career choice and be supported by the States to fulfil its resourcing needs for key specialist roles. This is essential to maintain our competitiveness an our critical position in the financial services ecosystem.

The Association of Guernsey Banks (AGB) is the industry representative body for the banking sector in Guernsey.

AGB Key Contact Graham Thoume, AGB Chair graham.thoume@gmail.com

GUERNSEY’S LEGAL SECTOR (FINANCE) This sector focuses on commercial law. There are currently 11 firms of Advocates in the island with a focus on commercial law interests.

Advocates' firms play an essential role in the operation of Guernsey’s finance industry by advising international clients who choose to establish, operate or invest in Guernsey companies, partnerships, trusts and other structures.

This sector supports local and international clients seeking to establish or operate investment structures, fund management companies, insurance vehicles, private wealth management companies or trusts in Guernsey. This includes representing persons investing into the structures operated or administered by local service providers.

Guernsey’s legal system is central to local providers of fund, corporate, trust, banking, insurance and investment services in order to assist them in their business operations.

Sector overview: The represented sector firms employ more than 500 people.

The sector advises on the establishment and operation of regulated investment funds, using Guernsey's stable and flexible regulatory regime as a means to coordinate investment from a wide range of overseas jurisdictions, as well as trusts and corporate structures for the management of private wealth for domestic and international clients.

We advise on finance transactions, with Guernsey structures arranging borrowing from international commercial lenders and providing security over Guernsey-based assets.

Dispute resolution and litigation, including acting in relation to disputes involving international investment structures, is also in the sector’s remit.

The principal referrers of work are overseas law firms, especially those based in the City of London. The sector spends a considerable amount of time promoting Guernsey as a jurisdiction so that those overseas law firms will encourage their clients to choose Guernsey as a place to do business.

In order to be successful, it is essential that Guernsey-based lawyers are able to demonstrate they have the depth of experience and technical expertise required in order to work alongside those international law firms on major international transactions.

A number of Advocates and employed lawyers have built up their expertise in a career based in Guernsey but the majority have gained experience in countries such as the United Kingdom, Australia, New Zealand, South Africa and other offshore financial centres before coming here. This experience, and the connections made while working in law firms overseas, are invaluable assets when promoting Guernsey as a place to do business.

We work closely with the Law Officers, the States of Guernsey and the GFSC in order to ensure that the island's laws and regulations are fit for purpose and serve the evolving needs of the business community, whilst being robust enough to protect and maintain the reputation of the island as a safe, well-regulated, reliable and efficient place in which to do business.

The sector proactively suggests amendments to laws in order to enable the island to capitalise on business opportunities, and participates fully in the legislative process to ensure that proposed legislation has been scrutinised with a critical eye from a practitioner's perspective before it is finalised.

What does the future of Guernsey’s commercial legal sector look like?

It is of vital importance that we ensure that the legal and regulatory framework of the jurisdiction is conducive to attracting commercial and financial services business for the long term.

We will continue to raise any legal or regulatory issues which are identified with the relevant industry bodies.

The sector will continue to provide a practitioners' perspective for legislative proposals and government policy.

The success of the sector and the wider finance industry depends on being able to attract and retain the best legal talent with overseas experience (including those originally from Guernsey) in order to maintain a strong independent legal sector focussed on promoting Guernsey.

The Guernsey Commercial Bar Association (CBA), is a sub-committee of the Guernsey Bar and was established as the representative body for part of the legal sector which is focused on commercial business in Guernsey.

The Guernsey Commercial Bar Association (CBA) Key Contact Tony Lane, CBA Chair +44 (0)1481 732086 tony.lane@careyolsen.com www.guernseybar.com