Guernsey Offshore Banking Legislation

 Guernsey offshore banks are subject to legislation and since the Control of Borrowing Ordinance 1959 was enacted, a number of laws have been passed to protect investors and enhance the Bailiwick of Guernsey's reputation as a financial centre. Since 1971 the banking sector in Guernsey has been regulated under the Protection of Depositors Ordinances which have now been superseded by  The Banking Supervision Law. This gives the regulatory authorities the power to licence and supervise any institutions in a business that accepts deposits.  Legislation for collective investment schemes (investment funds) and insurance are administered by the GFSC.

Compliance with these laws is a condition for obtaining annual licence renewals for banks, collective investment schemes and insurance companies.

This law is based on the UK Banking Act 1987 and its main provisions are to protect depositors by licensing, supervising and controlling banking business in the island of Guernsey. Reflecting recent developments in banking it allows the GFSC statutory powers to enforce many of the international standards previously imposed on its moral authority. Although the island is not obliged to alter its laws in compliance with EU banking directives, the Guernsey Financial Services Commission (GFSC) recognises the need to adopt similar prudential requirements in areas such as capital adequacy, consolidated supervision and financial reporting standards.

The law contains exact definitions of deposits and deposit taking business and regulates the the registration of deposit taking institutions. It sets out the procedures for applications for, and annual renewal of, banking licences and regulations covering names, ownership and officers of such institutions. There are advertising controls and a requirement for annual audits of the accounts. The format of the accounts is not specified but there is provision for the GFSC to make rules prescribing their form and contents. Banks are required to notify the GFSC of large exposures and submit other returns as the GFSC may specify.

The supervisory powers of the GFSC are set out in the law and they are given the power to appoint inspectors to investigate institutions. The law also provides for auditors to communicate with the GFSC in certain circumstances and for the GFSC to communicate with its counterparts in other jurisdictions. There is a provision in the law for the states to set up a compensation scheme, but no such scheme is currently in place.

The main provisions of this legislation control the raising of capital ,other than from banks, the circulation of prospectuses and the formation of companies and unit trusts. The desired form of a prospectus is not specified, but it would normally follow the same pattern as those prepared under UK company legislation and will have to comply with the requirements of any stock exchange on which the securities are to be quoted. Authorised collective investment schemes are exempt as they are covered by the Protection of Investors legislation.

 This provides for the licensing of persons who carry on any controlled investment business and the authorisation of collective investment schemes by the GFSC. Collective investment schemes include unit trusts and open ended investment companies. They do not include closed ended companies which are regulated under the Control of Borrowing Ordinance.

The law allows powers to the GFSC to make rules and regulations to cover requirements for both authorisation and issue of licences and the ongoing regulation of fund managers and collective investment schemes. these rules also include provision for compensation to investors for certain kinds of funds.

It was as a result of this law that Guernsey obtained 'designated territory status' under section 87 of the Financial Services Act 1986 which enables certain collective investment schemes administered in the islands to be freely marketed in the UK.  These schemes can also be marketed in Jersey and the Isle of man with investors having the equivalent protection.

This legislation designated the UK, Jersey, Isle of Man and the Republic of Ireland as territories that afford adequate protection to investors in respect of the promotion and authorisation of specified classes of collective investment schemes. The effect of this allows persons regulated in the designated territories to promote such schemes directly in the Bailiwick without a Guernsey licence.

 This legislation regulates all insurance business in Guernsey and prohibits a person from carrying on insurance business unless authorised to do so. Authorisation is through registration with the GFSC who are responsible for ongoing supervision of authorised institutions. A national member state of the EU who is authorised to carry on business of a specific class in that state is exempted from the need to register to carry out that class of business in Guernsey.

 This law applies to both Guernsey and foreign trusts administered within the island and covers inter alia creation, administration and termination of trusts and the duties and power of the trustees.

 This law establishes beyond doubt the ability of banks to obtain and enforce security over intangible moveable property.

 This legislation includes the regulation of insider dealing, investigations into insider dealing and penalties. If an offence is committed there is, on conviction, a maximum term of 7 years imprisonment.

 This legislation places responsibilities on bankers and other intermediaries to notify the authorities where they believe that funds or investments are derived from or used in connection with drug trafficking. If an offence is committed in accepting such funds knowingly, then on conviction there is a maximum term of 14 years imprisonment.

 Guernsey's finance community are also encouraged by the authorities to comply with the Basle Committee paper on Banking supervision entitled 'Prevention of criminal use of the banking system for the purpose of money laundering'. The paper sets out ethical principles and stresses that all institutions should be totally satisfied as to the integrity of their depositors and to the legitimacy of beneficial ownership of all deposits.

The Prevention of Terrorism (Bailiwick of Guernsey) Law 1990 makes it an offence to assist someone in retaining the benefits of the proceeds or terrorist activities. The Money Laundering (Disclosure of Information) (Guernsey) Law 1995 provides protection from breach of confidence to any person reporting suspicion to the authorities that funds are derived from criminal activity.

 The Companies (Guernsey) Law 1994 came into effect on 31st March 1995 and consolidated the previous company law which comprised a number of laws in French and English ranging in date from 1908 to 1990. The new law (all in English), introduced some minor amendments where the original law was considered to be obsolete.

 Further chapters in my Guernsey Offshore Finance series will be coming soon. Keep checking the bottom of previous chapters to see the new links, or check out my profile to see a full list.