Guernsey
11 February 2015
Resilient by nature, Guernsey has taken FATCA in its stride, but has more than mere regulations to overcome
Image: Shutterstock
The second sibling of the Channel Islands, made entirely of granite and taking a battering from the choppy English Channel, Guernsey is intrinsically a robust little island. So it should be no surprise that it has grown an equally hardy funds industry that sits comfortably among the world leaders, even though it is squished in to a mere 25 square miles.
With the recent increase in regulatory requirements and reporting obligations, pressure has been piling on to fund managers, and on to the regulators that have to keep abreast of what they’re regulating.
The introduction of Foreign Account Tax Compliance Act (FATCA) meant that financial institutions were suddenly obliged to report information on accounts held by US taxpayers. It came as a shock to managers and left investors puzzled, but in July 2014, when it came in to effect, Guernsey was ready, emerging way ahead of some of its European counterparts.
Dominic Wheatley, CEO of Guernsey Finance, puts this primarily down to the first law of business: proper preparation.
He says: “Guernsey as an island has invested a lot in putting the right infrastructure in place, and there has been a lot of investment, at a company level, in getting the reporting infrastructure and the IT sorted.”
“Now it’s just part of the furniture. Once you’ve done all the preparatory work, it just becomes another part of the compliance infrastructure that has to be done.”
It’s the same preparation that has put firms in good stead to comply with their reporting obligations under the Alternative Investment Fund Managers Directive (AIFMD), while others have emerged a little more prepared for the Markets in Financial Instruments Directive (MiFID) II.
Collectively, the onslaught of acronyms has also led companies to compile and consolidate their data, encouraging more accurate data analysis and streamlining internal processes.
Emma Bailey, director of the Guernsey Financial Services Commission (GFSC), puts that down to the diversity on the island, and the skill-set of its staff.
She says: “We’re not just policy makers, we’re not just sitting at the policy end looking at these directives. We’re also at the sharp end implementing agreed international standards.”
“We know our industry, and we know the impact it has on a lot of other industries as well, and that is because we’re so integrated globally; our domestic market is very small.”
Such drastic changes in operations come at a cost, no matter how willingly they’re implemented or how smoothly they run, and there is some concern that more regulations like FATCA could be on the way.
Wheatley says: “I think the big issue is that every country looking for that same transparency will do it slightly differently, so there will be incremental complications.”
“If the international community could agree on one basis on which that information is being reported that would meet every country’s standards, that would make everything much easier. But, that’s a pipe dream. There will be global standards, but they will be re-interpreted by every country.”
Guernsey’s drive to overcome regulatory challenges and prove a commitment to compliance is intrinsically linked to the island’s reputation and the drive to improve that. As far as Bailey is concerned, the phrase ‘tax haven’ is not in her vocabulary.
“I have trouble with the term because it simply isn’t correct,” she says. “Guernsey is clearly a highly reputable international finance centre with a well-respected regulatory regime, and that’s the message that we all need to
get across.”
“Our international engagement is through being a participant as well as just an attendee at events, and actually trying to bring our influence to the table as a small jurisdiction and one of the smaller regulators.”
She does concede, however, that it may take some time, saying: “We are chipping away at the misconceptions, and we are doing this in a very robust style.”
Wheatley agrees that there are problems in the perception of the island’s funds industry, attributing the problem to a blanket judgement of offshore jurisdictions in general, but also points out the steps that Guernsey has taken to enhance its reputation.
In fact, in many ways Guernsey has taken its questionable reputation and turned the issues in to positive factors. As a small jurisdiction with strong communication channels between financial sectors, the island has high levels of transparency, allowing the regulators to easily identify what is going on, and to spot any anomalies, all in an expertly discreet manner.
Wheatley says: “It’s a combination of the island’s adaptability and the ability to deal with things efficiently. We do this in a way that the international community likes, and therefore there’s a reputational benefit as well.”
Bailey goes a step further with this, suggesting that it is, at least partly, Guernsey’s reputation and perceived susceptibility that has led to its success in anti-money laundering.
“We’re still fighting those perceptions of the island, and anyone looking to illegally use funds or place funds may still have that perception as well.”
“Like any international finance centre, we’re potentially exposed to each of the traditional layers of money laundering because we’ve got the banks, the investment world, insurance—we’ve got a bit of everything really.”
“But on the flip side, we have higher standards because of this. We have the high standards in place for deterring and detecting it, and the reality is that places like London are just as susceptible than Guernsey is.”
On top of this, the island also now has a dedicated financial crime division within the GSFC, showing an ever-increasing determination to tackle money laundering, along with the dreaded tax transparency issues.
There is a general feeling that this reputation is not going to go away easily, but for the time being, Guernsey is taking it in its stride, while trying to prove it wrong.
Wheatley says: “There are those who disapprove of the finance industry generally, and in that case, you just can’t win the debate. But, importantly, our clients understand what the island has to offer.”
Bailey is also resigned to the fact that those wrong views of the island are something they will have to work around.
“We do have to be conscious of it,” She says. “We would like to lose that perception, but where we come across it, we deal with it head on.”
And ‘dealing with it’ seems to be a standout trait of Guernsey’s authorities. FATCA didn’t cause a drama, and they take AIFMD and MiFID in their stride, too.
Ultimately, that poor perception has led Guernsey to grow as a better funds base, and the ability to turn bad press in to positive results, is a skill that can only lead to more good things.
Any struggles with reputation and jurisdictional bias seem to have led to a more communicative industry that works in harmony towards a common goal.
“We haven’t done this in isolation,” Bailey concludes. “One of the key things for GFSC is working with the industry, with the government, the funds firms and the finance firms, as well as with Guernsey Finance, making sure we approach this in a way that is right for Guernsey and Guernsey’s clients.”
With the recent increase in regulatory requirements and reporting obligations, pressure has been piling on to fund managers, and on to the regulators that have to keep abreast of what they’re regulating.
The introduction of Foreign Account Tax Compliance Act (FATCA) meant that financial institutions were suddenly obliged to report information on accounts held by US taxpayers. It came as a shock to managers and left investors puzzled, but in July 2014, when it came in to effect, Guernsey was ready, emerging way ahead of some of its European counterparts.
Dominic Wheatley, CEO of Guernsey Finance, puts this primarily down to the first law of business: proper preparation.
He says: “Guernsey as an island has invested a lot in putting the right infrastructure in place, and there has been a lot of investment, at a company level, in getting the reporting infrastructure and the IT sorted.”
“Now it’s just part of the furniture. Once you’ve done all the preparatory work, it just becomes another part of the compliance infrastructure that has to be done.”
It’s the same preparation that has put firms in good stead to comply with their reporting obligations under the Alternative Investment Fund Managers Directive (AIFMD), while others have emerged a little more prepared for the Markets in Financial Instruments Directive (MiFID) II.
Collectively, the onslaught of acronyms has also led companies to compile and consolidate their data, encouraging more accurate data analysis and streamlining internal processes.
Emma Bailey, director of the Guernsey Financial Services Commission (GFSC), puts that down to the diversity on the island, and the skill-set of its staff.
She says: “We’re not just policy makers, we’re not just sitting at the policy end looking at these directives. We’re also at the sharp end implementing agreed international standards.”
“We know our industry, and we know the impact it has on a lot of other industries as well, and that is because we’re so integrated globally; our domestic market is very small.”
Such drastic changes in operations come at a cost, no matter how willingly they’re implemented or how smoothly they run, and there is some concern that more regulations like FATCA could be on the way.
Wheatley says: “I think the big issue is that every country looking for that same transparency will do it slightly differently, so there will be incremental complications.”
“If the international community could agree on one basis on which that information is being reported that would meet every country’s standards, that would make everything much easier. But, that’s a pipe dream. There will be global standards, but they will be re-interpreted by every country.”
Guernsey’s drive to overcome regulatory challenges and prove a commitment to compliance is intrinsically linked to the island’s reputation and the drive to improve that. As far as Bailey is concerned, the phrase ‘tax haven’ is not in her vocabulary.
“I have trouble with the term because it simply isn’t correct,” she says. “Guernsey is clearly a highly reputable international finance centre with a well-respected regulatory regime, and that’s the message that we all need to
get across.”
“Our international engagement is through being a participant as well as just an attendee at events, and actually trying to bring our influence to the table as a small jurisdiction and one of the smaller regulators.”
She does concede, however, that it may take some time, saying: “We are chipping away at the misconceptions, and we are doing this in a very robust style.”
Wheatley agrees that there are problems in the perception of the island’s funds industry, attributing the problem to a blanket judgement of offshore jurisdictions in general, but also points out the steps that Guernsey has taken to enhance its reputation.
In fact, in many ways Guernsey has taken its questionable reputation and turned the issues in to positive factors. As a small jurisdiction with strong communication channels between financial sectors, the island has high levels of transparency, allowing the regulators to easily identify what is going on, and to spot any anomalies, all in an expertly discreet manner.
Wheatley says: “It’s a combination of the island’s adaptability and the ability to deal with things efficiently. We do this in a way that the international community likes, and therefore there’s a reputational benefit as well.”
Bailey goes a step further with this, suggesting that it is, at least partly, Guernsey’s reputation and perceived susceptibility that has led to its success in anti-money laundering.
“We’re still fighting those perceptions of the island, and anyone looking to illegally use funds or place funds may still have that perception as well.”
“Like any international finance centre, we’re potentially exposed to each of the traditional layers of money laundering because we’ve got the banks, the investment world, insurance—we’ve got a bit of everything really.”
“But on the flip side, we have higher standards because of this. We have the high standards in place for deterring and detecting it, and the reality is that places like London are just as susceptible than Guernsey is.”
On top of this, the island also now has a dedicated financial crime division within the GSFC, showing an ever-increasing determination to tackle money laundering, along with the dreaded tax transparency issues.
There is a general feeling that this reputation is not going to go away easily, but for the time being, Guernsey is taking it in its stride, while trying to prove it wrong.
Wheatley says: “There are those who disapprove of the finance industry generally, and in that case, you just can’t win the debate. But, importantly, our clients understand what the island has to offer.”
Bailey is also resigned to the fact that those wrong views of the island are something they will have to work around.
“We do have to be conscious of it,” She says. “We would like to lose that perception, but where we come across it, we deal with it head on.”
And ‘dealing with it’ seems to be a standout trait of Guernsey’s authorities. FATCA didn’t cause a drama, and they take AIFMD and MiFID in their stride, too.
Ultimately, that poor perception has led Guernsey to grow as a better funds base, and the ability to turn bad press in to positive results, is a skill that can only lead to more good things.
Any struggles with reputation and jurisdictional bias seem to have led to a more communicative industry that works in harmony towards a common goal.
“We haven’t done this in isolation,” Bailey concludes. “One of the key things for GFSC is working with the industry, with the government, the funds firms and the finance firms, as well as with Guernsey Finance, making sure we approach this in a way that is right for Guernsey and Guernsey’s clients.”
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