How to Establish an Offshore Banking Presence in Guernsey.
So let's assume you are a bank planning to to establish an offshore business presence in Guernsey, either through a branch or a subsidiary company. Specific requirements for incorporating and further consideration on accounting systems and practical details of staff recruitment and locating business premises are discussed in the following sections.
When a bank is deciding whether of not to establish a presence in Guernsey, it is advisable to discuss that matter with the Director General of the GFSC ( Guernsey Financial Services Commission), or the Superintendent of Banks. Formal applications are made under The Banking Supervision Law. As previously referred to, the GFSC has to be convinced that there is a significant net income benefit to the island. they take into consideration benefits to the local treasury from Guernsey tax on operations against the social costs of providing housing and other key services to imported staff.
New licences are only granted to banks with a high international standing and preference is given to banks from areas without a large financial presence in the island: European and Far Eastern Banks are particularly encouraged. Usually, applications from reputable banks which intend to establish a profitable business using a minimum of office space and staff will be treated favourably.
It is important at the start to obtain the services of a firm of lawyers and a firm of accountants with Guernsey banking experience. They can assist in obtaining the necessary approvals and can offer other services as detailed below.
Lawyers can offer the following services:
Advising on the detailed legal procedures for incorporating in Guernsey.
Reviewing leases for premises.
Providing advice on legal agreements such as loan and custody agreements, registration of legal charges, etc.
Accountants can provide the following services:
Advising on the detailed procedures in applying for a licence and assisting in the outline proposal and formal application forms.
Assisting in the preparation of financial projections.
Providing branch or company Guernsey tax advice.
Providing personal tax assistance for staff from outside the island of Guernsey.
Advising on premises and staff.
Advising on accounting systems and operational procedures.
Advising on financial and regulatory reporting requirements.
Performing annual audits in accordance with group and Guernsey local requirements.
Guernsey Banks do not have to undergo a "probationary" period on a representative basis and usually commence trading fairly soon after obtaining a Guernsey licence. The following steps need to be taken in order to obtain an offshore Guernsey Licence.
Secure the services of a reputable firm of accountants and lawyers experienced in Guernsey banking.
Consider international tax planning aspects of establishment.
Consider the type of corporate vehicle that is required, whether a subsidiary or branch, after considering important taxation and operational factors in conjunction with the type of business proposed.
Consider whether to operate as an administered Guernsey bank, or to set up a physical presence in Guernsey.
Visit the Guernsey Financial Services Commission (GFSC) to discuss in outline a proposal to obtain a Guernsey banking licence. it is advisable for your Guernsey accountant to be present at this meeting.
Prepare a letter of intent or an outline proposal for submission to the GFSC. This letter of intent should include the following details:
1) The background of the bank requesting the licence. This normally includes a brief history of the parent bank together with a copy of its most recent annual report and financial statements.
2) A business plan describing the activities of the proposed branch or subsidiary.
3) Money laundering procedures.
4) Proposed capitalisation and details of shareholders.
5) Business forecast and projected financial statements. This will include detailed balance sheets and profit and loss accounts for the first three years, indicating the level of taxation payable.
6) Proposed year end.
7) Anticipated staff levels, including detailed information on senior management and specialist members of staff that would be transferred to Guernsey.
8) Names of directors including their country of residence and occupation together with details of the managing director.
9) Proposed auditors and advocates who will act for the branch or subsidiary.
10) Projected date for commencement of operations.
11) A proforma letter of comfort in which the parent bank confirms its legal responsibilities in respect on the proposed subsidiary and its moral responsibilities in ensuring the subsidiary will meet its continuing liabilities in depositors and creditors. The bank should also confirm its intent to ensure that the subsidiaries activities are operated in an efficient and responsible manner.
In addition, where the proposed subsidiary or branch is to be an administered Guernsey bank, details of the manager and copies of the proposed management agreements should also be enclosed. The agreements should cover the rental of premises, services and employment of staff from the manager and demonstrate that central management and controls are on Guernsey. Appropriate indemnities should be included in the agreements to protect the proposed administered bank and the manager. The agreement should take into account taxation requirements in the parent country which may require the demonstration of a certain level of autonomy in order to avoid taxation in that country.
Physical Presence or Administered Bank.
The Guernsey Financial Services Commission (GFSC), have similar criteria for the admission of administered banks to those for banks establishing a physical presence in terms of the standing of the parent and benefit to the island. However, because of pressures on office space and staff levels, administered banks are actively encouraged as opposed to banks requiring a physical presence. In deciding whether to set up as an administered bank there are a number of practical considerations which should be addressed.
1) Type of business.
An administered bank structure is more appropriate for an institution proposing to undertake a low volume of large transactions which would not utilise large numbers of staff and resources of the managing bank.
2) Cost benefits.
Considerable cost savings can be made by administered banks in that they are utilising, on a part time basis, staff of the managing bank. Thus they do not require a full compliment of staff, some of whom would be under utilised if they set up on a stand alone business with a physical presence. Cost savings are similarly made with regard to shared premises and services. these savings need to be offset against the management fees payable.
The administered bank needs either a terminal link to its parent's computer system, or to use the manager's system which may not necessarily be compatible for reporting and accounting policy purposes. A further option is the installation of a new system at the managers for its sole use.
In deciding on computerisation, consideration needs to be given to client confidentiality; i.e. whether customers would wish the managing bank to have full knowledge of the administered bank's customer affairs or whether in the case of a terminal link a problem arises if the affairs of the customer are known and available in the home country.
5) Managing bank.
Assessment needs to be made of the ability of the potential manager to service the administered bank's affairs and cope with planned levels of business and any future expansion. It is also important that conflicts will not occur if the administered bank and its manager are competing for business.
The advantages of being able to set up in the offshore island of Guernsey without establishing a physical presence and with reduced operating costs need to be weighed up against the disadvantages of being reliant on the manager, the lack of total secrecy for customers and potential competitive conflicts with the managing bank.
Issue of Licence
On receiving preliminary approval the following steps should be taken before the licence is issued:
1) Company name.
Apply through the advocates or accountants to the Guernsey Financial Services Commission (GFSC) for approval of the name in which the ban is to be registered.
2) Company registration.
arrange for the advocates to deal with the formalities of incorporating the company.
3) International tax planning.
Discuss with the accountants and group advisers the local Guernsey tax considerations involved in dealing with the head office or parent bank, including the subject of intergroup fees for referred business and any intergroup overhead expense allocations.
4) Staff recruitment.
Senior staff including the managing director or branch manager, the chief foreign exchange dealer, the operations manager and the accountant should be recruited approximately three months before the opening date in order to share the preparation work. Clerical and secretarial staff can be recruited later when required. the accountants can assist the bank in preparing salaries and benefits plans which is helpful when negotiating staff recruitment. The lawyers can advise on contracts of employment.
Develop operating procedures, controls and accounting systems. The accountants can provide assistance to the bank's staff in these matters.
Engage a firm of property agents to find suitable Guernsey premises. The advocates can assist in reviewing the lease for the premises and the accountants can advise on the Guernsey tax treatment of any premium paid for the lease. Agents may also find suitable residential property for staff recruited from outside of the islands or transferred from head office or the parent bank.
7) Formal application for the banking licence.
Make a formal application for a licence to the Guernsey Financial Services Commission (GFSC), after further discussions of projections and background information. The application must be accompanied by a fee which, if successful, will cover the licence fee to 31 December, the annual renewal date.
8) Administrative details.
The accountants can advise on the requirements to register with local Guernsey Tax and Guernsey Social Security authorities and on other needs such as insurance and pensions. Arrangements will also need to be made for office alterations and the installation of necessary equipment.
An administered bank will not have to address staffing and premises issues but it will need to formalise its arrangements with the manager.
Prior to receipt of the licence the auditors will be required to confirm to the regulatory authorities that the capital of the subsidiary has been received and the shares have been issued.
Banking Division - Fees - 2009
Full details of the revised fees payable under the Banking Law (and other legislation administered by the Commission) appear in the Financial Services Commission (Fees) Regulations 2008, but for ease of reference a summary is shown in the table below.
Sliding fees scale for licensed banks: The fees are chargeable from 01/01/09 and payable by 31/01/09. Fees are based on activity level defined as net interest income plus fee income closest to each licence holder's most recent full financial year.
Fees Due 2009
INCOME AT YEAR END
Up to £4,999,999 £19,150
£5,000,000 to £9,999,999 £22,000
£10,000,000 to £19,999,999 £26,350
Above £20,000,000 £32,950
BRANCHES OUTSIDE THE BAILIWICK
Fee per branch outside the Bailiwick £6,600
NEW BANKS APPLYING FOR A LICENCE
New Banks applying for a licence within the calendar year 2009 are required to pay an application fee of £19,150 and by the last day of the month in which the licence is granted, pay a further pro rata fee of £1,596 multiplied by the number of complete months between the licensing date and the end of that calendar year. Existing licensees establishing a branch outside the Bailiwick shall by the last day of the month in which the branch is established pay a fee of £550 multiplied by the number of complete months between the date of establishment and the end of the calendar year.