Suggestions made by Mr Edwards (pictured right) in his report for changes to Guernsey's regulatory and legislative framework are being studied by special working groups set up by the banking, insurance, investment and fiduciary divisions of the Commission. Their investigations, along with the conclusions of the Commission, will be reported to a coordinating group established by the States of Guernsey Advisory and Finance Committee to oversee issues raised by the report. Membership of the group includes representatives of the Island Government along with Mr Peter Crook, the Commission's Director General, together with one of the Crown Officers.
Mr Crook says:
'We need to analyse carefully all of Mr Edwards' suggestions, several of which reflect a different approach, through a fresh and objective eye, to an existing successful operation. Whatever changes are deemed necessary by the coordinating group will be taken forward by the Commission as part of its existing development programme. During the next three years there will be several alterations to the Bailiwick's regulatory structure, not the least of which will be the introduction of significant new company and trust legislation.'
He adds: 'It should not be forgotten that some of the issues raised by Mr Edwards involve potential significant change to the UK's regulation of financial services. Some of his other suggestions for Guernsey were already in hand before his review was announced. This includes the up-dating of insolvency legislation, the regulation of fiduciary services and directors and the introduction of 'all crimes' money-laundering legislation. Other issues, such as whether the Commission should have political representation and the introduction of a separate enforcement division, had not been considered previously.' says Mr Crook.
The review by Mr Edwards, a former UK Treasury executive, was initiated by the UK Government. It looked at the laws, systems and practices for regulation; the combating of financial crime, and international cooperation by the international finance centres of the Bailiwick of Guernsey, the Bailiwick of Jersey and the Isle of Man. It was published on 19 November last in four volumes. The first volume contains Mr Edwards' own assessment of how the three Crown Dependencies meet the terms of the review. The remaining volumes were prepared by each of the insular authorities in consultation with Mr Edwards and serve as a professional's guide to the financial services available in and financial regulation of each territory. Mr Crook says: 'The tone and conclusions of the report are positive. There is, for example, favourable comparison with fellow OECD members and others, as can be seen from the following extracts. 'The Crown Dependencies have been very successful. They are clearly in the top division of offshore finance centres.' 'Compared with other offshore centres they have developed reputations for stability, integrity, professionalism, competence and good regulation.' 'The Islands' judicial and prosecution system have shown themselves well able to deal with international finance centre business.'
NEW DIRECTOR WILL OVERSEE REGULATION OF FIDUCIARIES
The Commission's long-held plans for the supervision of the trust and company administration sector of financial services businesses ill the Bailiwick have come closer to fruition with the appointment of Mr Talmai P. Morgan (pictured) as its first Director of Fiduciary Services and Enforcement. He will be mainly responsible for the introduction of a new regulatory regime for trust and company administration under pioneering legislation which the Commission is preparing in consultation with the Crown Officers and representatives from the finance sector of the economy.
Mr Morgan (46), who took up his duties in January, graduated from Cambridge University with an honours degree in Economics and Law before qualifying as a Barrister in London in 1976.
Subsequently he held various commercial appointments in London before moving to Guernsey in 1988 to work for Barings. He joined the Bank of Bermuda four years ago to head up their trust company.
Mr Peter Crook said:
'Mr Morgan's training and background make him ideally suited to supervise fiduciary business. His legal background will also enable him to provide invaluable support for the very occasional enforcement problem that may arise.'
FUNDS MARKETED IN SOUTH AFRICA
South Africa has become the latest country in which Guernsey funds rnay be marketed to the public following approvals granted by the republic's Financial Services Board. The approvals relate to a number of sub-funds of two Guernsey authorised Class A1 schemes. Mr Nigel Taylor, Director of Investment Business at the Commission, says:
'In 1998 the FSB of South Africa enacted new legislation which requires non South African fund promoters to obtain authorisation for their funds before they can be marketed to South African residents. Such funds have to meet certain criteria also applied to South African unit trusts.'
Mr Taylor explains that regular exploratory talks regarding the possibility of marketing Guernsey funds in South Africa had been held with the FSB for several years before 1998, and that the FSB had been supplied with detailed information about the Guernsey regulatory regime for funds.
'At the request of the Guernsey fund managers concerned, the Commission has provided the FSB with written confirmations regarding the authorised status of the Guernsey funds.' said Mr Taylor.
Guernsey retail funds can also be publicly marketed in Australia, Hong Kong, Ireland, japan, the Netherlands, Switzerland and the United Kingdom.
PROGRESS AT CISX
During February, the number of Listings on The Channel Islands Stock Exchange ("CISX") increased from three to eleven.
First there was the addition of Exeter Enhanced Income Fund Limited, a Secondary Listing of a closed-ended investment company, and second the Listing of seven Unit Trusts managed by Schroder Investment Management (Guernsey) Limited. Of these latter funds six were Secondary Listings, with one Primary Listing.
Ozannes Securities Limited sponsored the listing of Exeter Enhanced Income Fund Limited whilst Guernsey International Fund Managers Limited sponsored the listing of the seven Schroder funds.
As a consequence, the total value of securities listed on the Exchange is now in excess of US$2.5 billion.
Tammy Menteshvili, Chief Executive, says: 'The CISX is steadily developing and there have been a number of milestones. With regard to trading activity, the total volume of International Energy Group Limited shares traded on the CISX to date is in excess of 2.3 million shares.' 'Interest in utilising the listing and trading facilities of the Exchange continues to grow and further announcements will be made in due course.' Further information on the Exchange may be obtained from its web-site: www.cisx.com
MORE CAPTIVES ESTABLISHED IN GUERNSEY
Guernsey continues to remain an attractive location for the formation of new captives by non-UK parents. Among the latest is Contrex Insurance Limited set up by the IIR Group (Institute of International Research), based in the Netherlands and specialising in conferences, training, exhibitions and publishing.
IIR describes itself as the world's market leader in business conferences. Abigroup, a major Australian Construction Group, quoted on the Australian Stock Exchange, has established Abigroup Risk Management Services Limited. The parent has substantial government and private projects in Australia.
Among new captives with UK parents is one formed by Hiscox plc, a well-known group within Lloyd's, plus two others set up by major UK holiday and tour operators. One is Thomson Travel Insurance Services Limited which is owned by Thomson Travel Group plc and the other is Absolut Re Limited, owned by First Choice Holidays.
INTERMEDIARIES MUST BE REGISTERED
Legislation empowering the Commission to supervise the market conduct of those advising on and/or selling insurance products in Guernsey and Alderney is now in operation and is expected to be extended to Sark in the near future. The July 1998 amendment to the Insurance Business (Guernsey) Law, 1986, requires all insurance companies and intermediaries to be either registered or recognised by the Commission.
Registered insurers are those with a physical presence in the Bailiwick by having an office and/or agents. Those without a physical presence have to be recognised. All domestic insurance must be placed only with registered or recognised insurers. Since January, when the amended law came into operation, 51 domestic insurers have been registered.
The Commission has also received in excess of 50 insurance intermediary applications of which 33 have been registered. Applications from more than 110 recognised insurers have also been processed. Guidance notes and a Code of Conduct are available from the Commission.
MASTERS IN CORPORATE GOVERNANCE
Nine Guernsey students have gained the dual qualifications of MSc in Corporate Governance and Administration/Grad ICSA, the Civil Service Board and Finance Training Agency have announced. One of the nine, Joanne Luff, of Dresdner Private Banking, Kleinwort Benson, also received during the graduation ceremony at Bournemouth University, a prestigious Livery Award from the Worshipful Company of Chartered Secretaries and Administrators. The award was for the best performing student, including all UK students, on the course. Another successful student was Audrey Branch of the Commission's banking division.
Jane Walden, Deputy Training Manager at the FTA, said: 'All the students endured a demanding two year schedule of studies involving weekend lectures. It was the first Masters' programme delivered in the Island by a UK university. However, its success has attracted fifteen more students on the second run of the two-year programme.
There have been successes, too, for those studying for the Securities Institute Diploma. Against a general pass rate of 53% for the private Client Investment and Advice Module, Guernsey students gained a remarkable 78% with four students obtaining credit grades. This course was delivered for the first time on the Island by City of London trainers Hyperion, who were commissioned jointly by the Guernsey Fund Managers Association and the FTA. BPP Financial Education has since delivered a second, fund management module, that also leads to the diploma. Five other students have recently completed MSc courses in Corporate Governance and will graduate in November - a 100% pass rate.
PERSONALITY OF THE YEAR
Judges at the European Risk Management Awards gala evening held at the Dorchester Hotel, London, selected Steve Butterworth, Director of Insurance at the Commission, as the industry's personality of 1998. The judges commented that Mr Butterworth (pictured) is 'no ordinary regulator' and 'an obvious choice' for the award and he was complimented for promoting Guernsey world-wide and for his speeches at international meetings on captives, regulatory issues and the avoidance of insurance fraud.
EXTENSION OF POI LAW
Following a lengthy consultation process with representatives of the finance sector of the Guernsey economy and their professional advisers, the Protection of Investors (Bailiwick of Guernsey) Law, 1987 ("the POI Law") was extended with effect from 1 July 1998 to encompass "Category 2: General Securities and Derivatives" as controlled investments.
Prior to the extension, the only controlled investments under the Law were "Category 1: Collective Investment Schemes". This initiative was taken in order to further safeguard the interests of the investing public and the reputation of the Bailiwick as an international finance centre. Since 1 July 1998, the majority of existing licensees have applied for an extension of their licence and some 100 institutions have applied for a licence solely in respect of Category 2 controlled investments.
The Commission applies the same selection criteria to those entities carrying on Category 2 controlled investment business as Category 1 . Any entity now engaging, by way of business, in a "restricted activity" in connection with a "controlled investment" (as set out in Schedules 2 and 1 respectively to the POI Law) should be duly licensed. Enquiries in this respect should be addressed to the investment business division of the Commission.
SOLID DEPOSITS AT YEAR END
Total deposits held with Guernsey banks at the end of December 1998 reached a record level of £52,922 million. This is an increase of over 7% on the same time last year. The currency breakdown at the year- end was split 45% US dollars; 35% sterling; 14% currencies joining EMU and 6% other currencies.
The total number of banks at the year end stood stood at 78, the same number as at the end of 1997 but with a slightly different constituency of banks (as three new licences were issued during the year substituting three surrenders). Of the three new banks one was from Germany (Hamburgische Landesbank) and two from Greece (National Bank of Greece and Ergobank). The three banks surrendering these licences were two restructuring UK clearing banks (who reduced their number of bank licences by one each) and one subsidiary of a UK conglomerate which no longer wished to carry on banking business.
STATISTICS
The figures shown below give a brief statistical overview of the current status of the principal activities within Guernsey's financial services sector.
78 Licensed banks Deposits £52.9bn 191 Open-ended investment schemes Managed £10.5bn 202 Closed-ended investment schemes Managed £5.2bn 349 Captive insurance companies plus Total assets £5.2bn* 30 PCC cells 13 Offshore life companies Total assets £2.2bn* *1997 figures
ELEVEN PCCS - THIRTY CELLS
Two new Protected Cell Companies ("PCCs") formed for insurance purposes during December brought the total number established during the year to eleven which, between them, have over 30 cells. Director of Insurance, Steve Butterworth, says: 'This demonstrates both confidence in and a continuing high level of interest in our innovative PCC legislation which, since its introduction in 1997, has been reviewed and strengthened.' Among companies who incorporated PCCs last year were Guardian Insurance, and Benfield and Polygon as a joint venture. Later entrants were sponsored by Chubb and Swiss Re New Markets. Under the name of European Credit & Guarantee Insurance PCC Limited, Swiss Re, in conjunction with Winterthur, through Xenum Finance, will insure credit and surety and related classes of insurance and reinsurance. Chubb intend to use Foundation Reinsurance PCC Limited to offer their corporate clients a structure which will lower their total cost of risk, retain elements of their traditional insurance programmes and finance risk not easily insurable in the conventional market.
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