Substance and stability
18 Sep 2019
In a difficult political climate and Brexit on the horizon, Dominic Wheatley of Guernsey Finance explains how the island’s funds industry is positioning itself for growth
Image: Shutterstock
The funds servicing sector has been transformed over the past couple of years with key issues of substance, stability and service converging, and driving the factors of locational preference for fund managers.
Research carried out by Guernsey Finance has shown that complexity, technology and global uncertainties are combining to hone managers’ focus on cost, service and jurisdictional substance.
Guernsey has long offered a stable and secure base from which to operate—politically secure and physically stable—with the infrastructure and resources to ensure the highest levels of service quality.
The island has more than 50 years of experience in investment funds and is a specialist in servicing private equity structures. The island has a comprehensive infrastructure of professional firms capable of providing all the services required by an investment manager.
Throughout last year, focus in Guernsey was on satisfying the requirements of the EU Council’s Code of Conduct Group on Business Taxation over substance, which was achieved earlier this year, with confirmation from the European Council of Finance Ministers (ECOFIN), that we had satisfied its specific economic substance requirements for entities operating in or through the jurisdiction.
As a result, Guernsey was reaffirmed as a cooperative jurisdiction in terms of good tax practice and transparency, which, as some competitor jurisdictions failed to pass the test, was a boost to our global competitiveness.
The outcome of the process was formal recognition that Guernsey meets the international standards of tax transparency, principles of fair taxation, and is committed to fighting base erosion and profit shifting, and also addresses any concerns that profits were not commensurate with actual economic substance on the island.
This should be seen as a further indication of our ongoing commitment to meet international standards not just in tax, but also in regulation, transparency, and the fight against money laundering and the funding of terrorism.
Fund structures and jurisdictions are evolving but we remain confident that Guernsey has many positions covered.
Although the direct impact of Brexit on Guernsey is expected to be minor—the island is not part of the EU and never has been, sitting outside as a so-called “third country”, as the UK will become after 31 October—we do expect to see opportunity emerge through the initial uncertainty as managers and their advisers see certainty in Guernsey’s position and continuing market access.
Guernsey has also seen an uplift in business flows over the past 18 months or so. The launch of the Guernsey Green Fund, a world-leading regulated green fund product for Guernsey-based structures, was one catalyst, while the island’s relative immunity to Brexit was another, as managers came to realise that Guernsey’s access to fundraising in Europe through the National Private Placement Regime offered the opportunity to access European capital, irrespective of Brexit.
The National Private Placement Regime is still working for European fundraising and is proving particularly attractive to the US market, offering an efficient and effective way in for managers who do not feel they have fully tapped into European capital.
The US is increasingly a target market for the Guernsey funds industry, as US managers take a wider look at what is available to them around the globe, inspired, in part, by the outcome of the OECD’s BEPS project and the substance process with the EU.
Portfolios which have moved to Guernsey have been impressed by high standards of service delivery and a desire to innovate to serve the client better.
Guernsey continues to be a focus for private equity and infrastructure investment, and remains the premier jurisdiction outside of London for listings on the London Stock Exchange.
In terms of future service provision, we expect fintech and regtech to play an enhanced role in the island’s financial services industry, and in an environment which encourages innovation, both in fund structures and investment strategy, we can be sure that Guernsey will not stand still, but will remain ready and able to prove that it is a jurisdiction of substance and stability.
Research carried out by Guernsey Finance has shown that complexity, technology and global uncertainties are combining to hone managers’ focus on cost, service and jurisdictional substance.
Guernsey has long offered a stable and secure base from which to operate—politically secure and physically stable—with the infrastructure and resources to ensure the highest levels of service quality.
The island has more than 50 years of experience in investment funds and is a specialist in servicing private equity structures. The island has a comprehensive infrastructure of professional firms capable of providing all the services required by an investment manager.
Throughout last year, focus in Guernsey was on satisfying the requirements of the EU Council’s Code of Conduct Group on Business Taxation over substance, which was achieved earlier this year, with confirmation from the European Council of Finance Ministers (ECOFIN), that we had satisfied its specific economic substance requirements for entities operating in or through the jurisdiction.
As a result, Guernsey was reaffirmed as a cooperative jurisdiction in terms of good tax practice and transparency, which, as some competitor jurisdictions failed to pass the test, was a boost to our global competitiveness.
The outcome of the process was formal recognition that Guernsey meets the international standards of tax transparency, principles of fair taxation, and is committed to fighting base erosion and profit shifting, and also addresses any concerns that profits were not commensurate with actual economic substance on the island.
This should be seen as a further indication of our ongoing commitment to meet international standards not just in tax, but also in regulation, transparency, and the fight against money laundering and the funding of terrorism.
Fund structures and jurisdictions are evolving but we remain confident that Guernsey has many positions covered.
Although the direct impact of Brexit on Guernsey is expected to be minor—the island is not part of the EU and never has been, sitting outside as a so-called “third country”, as the UK will become after 31 October—we do expect to see opportunity emerge through the initial uncertainty as managers and their advisers see certainty in Guernsey’s position and continuing market access.
Guernsey has also seen an uplift in business flows over the past 18 months or so. The launch of the Guernsey Green Fund, a world-leading regulated green fund product for Guernsey-based structures, was one catalyst, while the island’s relative immunity to Brexit was another, as managers came to realise that Guernsey’s access to fundraising in Europe through the National Private Placement Regime offered the opportunity to access European capital, irrespective of Brexit.
The National Private Placement Regime is still working for European fundraising and is proving particularly attractive to the US market, offering an efficient and effective way in for managers who do not feel they have fully tapped into European capital.
The US is increasingly a target market for the Guernsey funds industry, as US managers take a wider look at what is available to them around the globe, inspired, in part, by the outcome of the OECD’s BEPS project and the substance process with the EU.
Portfolios which have moved to Guernsey have been impressed by high standards of service delivery and a desire to innovate to serve the client better.
Guernsey continues to be a focus for private equity and infrastructure investment, and remains the premier jurisdiction outside of London for listings on the London Stock Exchange.
In terms of future service provision, we expect fintech and regtech to play an enhanced role in the island’s financial services industry, and in an environment which encourages innovation, both in fund structures and investment strategy, we can be sure that Guernsey will not stand still, but will remain ready and able to prove that it is a jurisdiction of substance and stability.
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