The current business climate is certainly a lot more positive than it was last year. This is mainly a reflection of the general world economy, which is more buoyant than in 2009.
In Guernsey this can be measured for example in terms of the net asset value of funds under management and administration which grew by 7.2 per cent in the first quarter of 2010. During the year since 31 March 2009 total assets grew by 12.2 per cent. As a result there are now close to £200 billion of funds under management and administration.
So while there are fewer funds, the casualties of the crisis, the actual strength of asset under management is quite positive.
The funds business is just one of several limbs of the financial services industry in Guernsey. Financial services are quite broadly spread in that there is a fund industry, which is a little bit different from Cayman because we have more physical managers here. That has been one of the trends, private equity companies establishing here and hedge fund managers actually setting up shop here, which is distinctive from what is going on in Cayman and possibly what is going on in other jurisdictions.
In addition there are three other limbs to the financial services sector in Guernsey, including a strong fiduciary sector with the administration of funds, which seems quite buoyant. The captive insurance business, for which Guernsey is the largest centre in Europe, may lag behind Bermuda or Cayman but still attracts a strong inflow of business.
And finally there is an extensive banking element in the financial services sector, consisting mainly of deposit banking.
Christopher says he was “pleasantly surprised when Guernsey was on the initial white list announced by the G20”, but notes that there has been pressure. Guernsey, as a result, has entered into 15 tax information exchange agreements and 12 double taxation agreements and will continue to do that.
In addition Guernsey is a member of the OECD global forum on harmful tax competition and participating peer review on that.
In terms of tax competition a review of the tax regime in Guernsey has been proposed and a public consultation document on the corporate tax regime was issued on 21 June 2010. In contrast to the Cayman Islands such a review is not the result of a fiscal deficit, but rather that of external pressure.
We are not facing the same challenges here in terms of the finances of the island. Instead the review has been forced by certain members of the European Union Code of Conduct Group on Business Taxation, who no longer deem the Crown Dependencies 0/10 tax regimes to be compliant with the ‘spirit’ of the Code.
The current 0/10 tax regime, which came into force on 1 January 2008, is broadly similar in the Isle of Man, Jersey and Guernsey, although there are important distinctions.
In Guernsey it means is that, while individuals are subject to a 20 per cent income tax, core banking activities are taxed at a rate of 10 per cent, utility companies are taxed at 20 per cent and all other companies are taxed at 0 per cent.
All three jurisdictions will be subject to a corporate tax review by the EU Code of Conduct group.
The financial crisis saw two headline grabbing events for Guernsey. One was the fact that struggling mortgage lender Northern Rock maintained a subsidiary in Guernsey and the other that collapsed Icelandic bank Landsbanki held a considerable number of deposits on the island.
That and just the general climate has led to the implementation of a deposit compensation scheme in Guernsey.
Vision for the future
There was a review of the banking industry, issued in November 2009 and conducted by Lord Hunt. It looked at the concepts that emerged in relation to deposit taking. Its recommendation is that Guernsey banking sector is to promote the diversity of business models and to seize the opportunities provided by superior locational offer in attracting new businesses to the island.
So it is slightly ‘jargonistic’ but strictly speaking it says that Guernsey really needs to diversify banking activities.
Guernsey has worked hard and has a good reputation for integrity, transparency and standards, it has an international clean bill of health and now it has to find strategies to maximise the economic benefits of the island as a whole.
We would agree with all of that, and are looking to move to higher value added services over time.