Guernsey and Jersey form part of the Channel Islands and are situated approximately 30 miles and 15 miles respectively off the Normandy coastline. Guernsey is the most westerly island with an area of around 25 square miles and a population in the region of 60,000 people. Jersey is the largest island with an area of around 45 square miles and a population in the region of 90,000 people. Guernsey and Jersey have direct air and sea links to many destinations in the UK and the Brittany coast of France, as well as the other Channel Islands and operate in the same time zone as London.

Constitutional Position of the Channel Islands
The Channel Islands form part of the British Isles but are not part of the United Kingdom. They are, in fact, the remnants of the Duchy of Normandy. When King John of England (Magna Carta 1215) ceded the rest of Normandy to the French crown by treaty in 1204 AD, the Channel Islands were omitted and have continued to be ruled by the English monarchs in their capacity as Dukes of Normandy ever since. Guernsey’s and Jersey’s separate constitutional systems were retained and have been independent from the Parliament in Westminster for over 800 years. Their constitutional relationship with the EU was established in 1972 by Protocol 3 of the UK’s Treaty of Accession to the Treaty of Rome. As a consequence, the Channel Islands are not members of the European Union and are not subject to EU legislation.

The Legal System
With their historic ties to Normandy, the legislation of each island was originally based on Norman customary law. However, since the beginning of the 20th century both islands have become heavily influenced by English common law. Consequently, the laws of trusts and negligence and, to a lesser extent, contract, reflect in large measure those in England. As is the case in other common law and commonwealth jurisdictions, the ultimate court of appeal is the Privy Council. The islands’ parliaments are each run on non party-political lines and, following a comprehensive review in the early 2000s, each now consists of a Chief Minister and a streamlined ministry system. For further information visit: www.gov.gg (Guernsey) or www.gov.je (Jersey).

Guernsey and Jersey as Offshore Financial Centres
Guernsey’s and Jersey’s roles as leading Offshore Financial Centres (OFCs) has evolved dramatically in the last 40 years. Major international and UK banks, investment businesses, insurance companies and asset management institutions operate out of the islands, servicing a global client base. The calibre of the professional practices offering support services also ensures that sophisticated, professional infrastructures are in place.

Financial Services Regulation
The islands’ reputations as OFCs depend upon stability, integrity and quality of service. Both islands have statutory regulatory bodies - the Guernsey Financial Services Commission (GFSC) and the Jersey Financial Services Commission (JFSC) which adopt the highest standards of corporate governance and regulation.

The GFSC and the JFSC each operate with general and statutory powers, regulating banks, directors, insurers, insurance intermediaries, investment firms and trust and company administrators. Only organisations complying with international standards of practice are licensed to operate in Guernsey and in Jersey. For further information visit: www.gfsc.gg and www.jerseyfsc.org

Channel Islands Stock Exchange
The Channel Islands Stock Exchange (CISX) was established in 1998 and has attracted international recognition. The CISX was appointed a ‘designated offshore securities market’ by the US Securities and Exchange Commission and recognised by the UK Inland Revenue under its Income and Corporation Taxes Act and by the UK Financial Services Authority under the Financial Services Markets Act 2000, a recognition that the exchange operates to the highest standards. The CISX is also registered by the World Federation of Exchanges as a ‘corresponding market’, an Associate Member of the International Securities Market Association (ISMA), a member of the European Securitisation Forum and recognised by the Australian Stock Exchange. The CISX is also an Affiliate Member of the International Organisation of Securities Commissions (IOSCO). Visit: www.cisx.com

Corporate Law
Legislation governing the operation of the finance sector has kept Guernsey and Jersey competitive in the global market place. In addition to limited liability companies, Guernsey and Jersey law allows the incorporation of Protected Cell Companies (PCCs) and Incorporated Cell Companies (ICCs) (together, ‘Cell Companies’). Cell Companies structures are ideal for Umbrella Funds of all descriptions, because they segregate assets and liabilities between different ‘cells’. This, combined with contractual limitations of rights of recourse, provides an excellent platform from which to launch a portfolio of fund products. Guernsey and Jersey Cell Companies are also popular for use as captive insurance and securitisation vehicles. Shares of no par value can also be issued, enhancing the ability for redemption payments to be funded out of the share premium account rather than the sale of assets. Statutes also clarify the position of security granted by Guernsey and Jersey companies under foreign law, as well as contractual set-off and subordination arrangements.

Critical Mass of Service Providers
Guernsey is globally recognised as the European centre for offshore captive insurance companies, whilst Jersey is recognised as the European centre for securitisation. This has allowed the islands to develop a critical mass in the provision of services related to the finance industry.

In Guernsey there are around 50 licensed banks (with total deposits in excess of £85 billion) and 40 fund managers, administrators and custodians (looking after assets worth more than £111 billion). Collective investment schemes have been established in Guernsey for over 40 years and are promoted/sponsored by institutions in 38 different countries.

In Jersey there are 46 licensed banks (with total deposits in excess of £190billion) and a flourishing fund management and administration sector with a net asset value of funds under administration of approximately £156 billion (total value of funds under management of £58.3 billion) and a world-renowned expertise in trusts. There are 200 registered trust company businesses. The local market for trustees, custodians, administrators, auditors, actuaries and lawyers is therefore sophisticated and competitively priced and there is a readily accessible pool of suitably qualified and regulated individuals who can act as directors of offshore companies.

Taxation
There are no capital gains, inheritance, gifts, sales or purchase taxes in either Guernsey or Jersey. Special purpose companies incorporated in Guernsey and Jersey can apply for tax exempt status and, in return for a small annual fee, will not even incur corporate tax on their income.

International Recognition
The G7 Financial Stability Forum considers both islands to be amongst the Group 1 jurisdictions (the top group of offshore financial centres), determining that they have appropriate legal infrastructures, supervisory practices and levels of resources, relative to the size of their financial activities.

The Channel Islands are within the jurisdiction of the Organisation for Economic Co-operation and Development (OECD) and OECD conventions therefore apply. Agreement by Guernsey and Jersey in 2002 to follow the OECD’s harmful tax practices initiative underlines the willingness of the islands to participate in the development of international standards of best practice in terms of information exchange and transparency.

Guernsey and Jersey were recently assessed by the International Monetary Fund (IMF) to have a ‘high level of compliance’ for each of the international standards against which they were judged, and that Guernsey’s and Jersey’s legal framework was fully consistent with the Offshore Group of Banking Supervisors’ (OGBS) Statement of Best Practice for Company and Trust Service Providers.

The expertise that each of the islands has built over many years, together with the strength and breadth of their financial services industries and the good infrastructure in place, ensures that Guernsey and Jersey maintain their position as premier offshore financial centres.

Source: www.gfsc.gg. with the exception of taxes and dwellings in Guernsey and stamp duty on immovable property in Jersey and probate. www.jfsc.org and www.jerseyfinance.je