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Dependencies


FOCUS ON Crown


YEARS OF PROGRESS


MICHAEL BETLEY TEP IS MANAGING DIRECTOR OF TRUST CORPORATION IN GUERNSEY


Michael Betley considers the reasons for the growth of incubation of managed services in Guernsey


ONE WAY Guernsey is developing high-value new business is through fi duciaries incubating family offi ces, boutique investment fi rms and private equity managers that can tap into existing expertise and infrastructure. This is of particular value to family offi ces or businesses taking an initial look at Guernsey before becoming fully established in the jurisdiction. The likes of Terra Firma and BlueCrest are prime examples of the transitioning of a business into Guernsey before establishing a full-blown presence on the island. Why is this is a growing trend? What structures are used to facilitate the arrangement? And what are the benefi ts to the incoming organisation of working alongside an established fi duciary?


GUERNSEY


CAPITAL: ST PETER PORT POPULATION: 65,345 AREA: 78 KM2


Developments in managed services While in the past, incubation or managed services were reserved for professional fi rms and international corporates, the current trend attracts privately owned businesses and family offi ces that are coaxed to the island’s business environment, which provides easy access to the London and European markets and same-day trading with Asia and North America. For many, London has provided a lifestyle of choice, coupled with unrivalled access to investment markets, but recent changes to the once-sympathetic tax regime have unsettled many UK-resident non-domiciliaries. This, together with increased fi nancial regulation, has prompted people to look elsewhere to provide a home for both business and family and, as a consequence, Guernsey has become a preferred jurisdiction for those looking to establish a tax and business-effi cient hub on Europe’s doorstep. Historically, Guernsey attracted many fi nancial and banking institutions that did not necessarily wish to tie up signifi cant capital in investing in the full cost of a standalone operation; as an alternative they entered incubation or managed contracts with established local institutions. The managed bank had its heyday in the 1980s and 1990s, well before the signifi cant increase in capital adequacy rules. This enabled the local regulated business, or host, to provide all of the infrastructure and regulatory compliance needed. Fiduciaries then followed, with a proliferation of foreign-owned managed trust companies in


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Guernsey. With the advent of the protected cell company in Guernsey, the insurance market was then also able to off er its own managed services through the new ‘rent a cell’ being off ered principally to captive insurance companies. Next followed the investment fi rms and, more recently, the private equity houses. The latest development of managed services has been the arrival of niche investment fi rms and family offi ces, which are easily able to plug into the island’s fi nancial infrastructure.


Why Guernsey? Internationally, there have been dramatic changes in Western economies, turbulence in the fi nancial sectors and political unrest in many parts of the world, in particular the Middle East and North Africa, against a background of a slow but continued shift of economic power from West to East and North to South. The Eurozone debt crisis may be less headline-grabbing, but the underlying themes are still there. The speed of change has never been so fast, nor has our need to react been so acute. Private family wealth and the discreet wealth-management houses are looking to position themselves in quieter, more secure locations, and Guernsey is seen as such a safe haven. The qualities that have historically attracted business to Guernsey (such as integrity, stability, tax neutrality, robust regulation and a common- law framework) are to be found elsewhere too, but what sets Guernsey apart from its Caribbean and Asian competitors are the administrative skills that have developed, which work hand in hand with the often complex fi duciary decision-making ability and sound corporate governance principles. It is the experience in operating businesses, as well as the investment and fi duciary skillset, that is key to the longer-term aims of the new and more entrepreneurial wealth of today. With greater scrutiny being placed on international fi nance centres (IFCs) and those that use them and operate from them, it has become increasingly important to demonstrate the substance of those operations and show that real decision-making is taking place in the chosen jurisdiction. Those running investment and fi duciary structures will need to demonstrate


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