We talk to practitioners on the island about the effects of the pandemic ahead of a major revision of its regulations regimes.
We have been asking practitioners across international financial centres how travel and other restrictions imposed by the pandemic have affected their business. It is the turn of Guernsey. The island is about to release an overhaul of its regulatory framework that comes into force next month. We spoke to private client partner at law firm Ogier, Catherine Moore, to talk through the changes and the work the island typically attracts. We also hear from Rupert Pleasant chief executive of Guernsey Finance, the island's promotions and advisory agency, about how the island is staying competitive.
Changes to migration numbers are a useful indicator of the dampening effects of the pandemic. Pleasant says that Guernsey’s numbers are marginally down, but there has been more movement than expected.
“We have seen some former residents returning to work in Guernsey due to the relative freedom the island has offered through the pandemic. There has also been a sharp increase in the purchase of open-market housing on the island, indicating a large influx of new HNW residents,” he said.
A strong vaccination programme, lifestyle advantages and a "business-as-usual" message have been selling points over the past year, he said. “During 2020, while the majority of the rest of the world was in lockdown, Guernsey was very effective in controlling COVID-19 cases. Our exit from lockdown began in early May 2020, with life on the island returning to normal by mid-June,” he said.
He is convinced that this resilience and keeping the workforce largely operating normally has put the island in a stronger light.
Before the pandemic, Guernsey was posiitoning itself as a leading centre for green finance, with green fund products being launched and a new ESG framework for insurers.
The island has also been quick to voluntarily implement EU equivalency legislation for financial services so that it can continue marketing financial services into the EU. A big piece of this has been implementing the Alternative Investment Fund Managers Directive (AIFMD).
Pleasant said that during the restrictions the island has "seen significant interest" from other jurisdictions in flux from social, economic or political uncertainties, but declined to offer which ones.
In private client work, Ogier's Catherine Moore has seen a strong interest in using foundations over the last 20 months.
“They were bought into Guernsey statute a lot later than trusts so logically we haven’t seen as many. But there are now over 200 on the register here. In the last year there have been a lot more inquiries."
As many wealthy families have been caught short by a pandemic and are more alert to their own situations, has Moore struck a different chord with clients?
“Through the pandemic clients had two things happen: there was a bit of pause button pressed and everyone ended up being back in their houses. With that pause came time to reflect. It gave people time and a real desire to speak a lot more with their families.
“Combined with that, very rightly, were a lot of people concerned about their wealth and what would happen to them if they were to become ill. Would their affairs be in order? Would their families be looked after?”
In practice, those who were considering a new structure or restructuring had new emphasis to get things done, she said. “It brought into focus that actually things can change very quickly in your life.”
"Some of these structures were drafted 20 years ago, so the terms might not be as modern as they could be. It also gives us an opportunity to look at any applicable case law and any general good practice that has developed over the last couple of decades," she said.
Guernsey has been an offshore centre for around 50 years with plenty of time to develop a reliable pipeline of accountants, lawyers, trust companies, and administrators that accompany managing offshore wealth. This is one stability that draws clients, Moore said.
Another is the reputation of the legislature and judiciary. "Guernsey’s court system is highly knowledgeable on trust disputes and well supported by English judges and QCs, who also sit on the court of appeal," she said.
The island's modern trust law introduced in 2008, and followed by many jurisdictions since then, in her view, gives settlors "the confidence that a good decision will be reached,” she said.
Clients also look for strong support from regulators to set standards. Activity has increased around both economic substance legislation and beneficial ownership legislation.
"These are relatively new areas but they have a desire to operate to the highest international standards," she said.
A substantial revision of the island's supervisory laws is due to come into force on 1 November, bringing current standards in line with periodic reviews by the EU, the IMF and other international standards setters. The updates encompass banking and fiduciary responsiblities and will give the Guernsey Financial Services Commission a wider remit on protecting investors.
“We don’t want our clients to be concerned that this is huge overhaul but a revision," Moore said. Rather than a wholesale change, it is bringing “legislation in line with where the entire industry has moved."
As governments around the world, in theory at least, have agreed a minimum 15 per cent corporate tax rate, the island’s deputy treasurer Mark Helyar has made clear Guernsey's support of a worldwide approach to tax and levelling the playing field. “As we ourselves have previously argued, [this] will help avoid the complexities of unilateral action by individual countries,” Heylar said.
The dust is still settling on which IFCs have done well from the pandemic and which ones have not. Some centres will have found themselves more exposed to clients not being able to travel, or from slower vaccination rollouts or longer spells in lockdown, and will have suffered more economically.
The institutional and societal responses to the crisis haven’t escaped any country.
But Moore and Pleasant agree that Guernsey has largely sailed through on quarantines and lockdowns that were light compared with those in the UK. Hiring and attracting talent has largely continued, people have been able to fly in and out, and the only real hold up has been visa restrictions in the destinations clients are coming in from, Moore explained.
“The government handled it very well."
IFCs will remain important to the global financial world in spite of the current challenges of beneficial ownership disclosures, crackdowns by certain governments, and jurisdictions falling on and off grey and blacklists. But where does Guernsey see itself a decade from now?
For Pleasant, opportunities lie in niche financial services markets and being a centre for green and sustainable finance. “We are known for innovation and entrepreneurship, creating concepts such as the Protected Cell Company in 1997 [that gave companies more favourable asset liability], and the Guernsey Green Fund in 2018. It is always difficult to predict the future, but we anticipate the island continuing to lead in these areas.”