Guernsey: Regulation Of Fiduciaries And Administration Business

At long last (regulation was first mooted in 1984!) the States Advisory & Finance Committee has published proposals with respect to regulation of fiduciaries and administration businesses ("fiduciary business") These were approved by the States on 1st June. The legislation will be Bailiwick-wide. Whilst reserving supervision of fiduciary business to the Commission in Guernsey, the independence of Alderney and Sark will be respected with appropriate jurisdictional safeguards.

The draft legislation was published on the Commission’s website in July, together with draft codes of practice. Following consultation on the draft law and codes, final versions are being prepared with a view to the draft law being brought to the States for approval in November 2000, thereafter to the other insular governments and into force early in 2001.

The proposed regulatory structure involves the licensing and supervision of fiduciaries, and covers all individuals, partnerships or companies offering or providing fiduciary services within the Bailiwick by way of business. This latter qualification is crucial: an occasional or casual fiduciary activity, particularly for no remuneration, is unlikely to be carried on "by way of business". The legislation also recognises circumstances in which particular activities should be exempt from regulation. The legislation extends to Guernsey or Alderney companies (Sark, at present, does not have separate companies legislation) providing fiduciary services anywhere. The offering and provision of fiduciary services by way of business without a licence from the Commission will constitute a criminal offence.

Regulated activities may be summarised as follows:

1. trust formation and management services, including administration of trusts and acting as trustee (in which context trusts will include e.g. foundations), and regulated activities will extend to cover enforcers or protectors of trusts, whether or not the trusts are established under a Bailiwick law or another law;
2. corporate administration services, including the formation and administration of companies, partnerships or other entities wherever established, the provision of corporate and/or individual directors and corporate officers, the provision of nominee shareholder services and registered office or accommodation addresses, and also acting as a director;
3. executorship services, including administration of estates.

Certain activities will be expressly excluded from regulation, including the following:

1. where the particular activity is already regulated by the Commission under separate legislation, e.g. acting as trustee or custodian of a collective investment scheme; acting as director of a supervised institution;
2. acting as director of a company with an established place of business in the Bailiwick (intended to exclude directors of trading companies), or of a ‘family’ company, or of up to six companies of which directorship is not otherwise exempt;
3. acting as book-keeper or company secretary of a company with an established place of business in Guernsey;
4. acting as executor and trustee to, or guardian of, persons resident or domiciled within the Bailiwick;
5. advice given or documents drafted by an accountant or advocate in the ordinary course of professional duties;
6. activities incidental to a profession or business and undertaken without separate or additional remuneration, provided that the person does not hold himself out as undertaking those incidental activities.

Two categories are proposed to be granted by the Committee: a Full Fiduciary Licence, and a Personal Fiduciary Licence. These licences can be conditional and are revocable.

A Full Fiduciary Licence may only be granted to a company or partnership i.e. not an individual, and will authorise the licensed entity, and those acting on its behalf, to carry on in or from within the Bailiwick any regulated activities, and if the licensed entity is a Guernsey or Alderney company, to carry on such activities anywhere else.

A Personal Fiduciary Licence may only be granted to an individual, and will authorise him to act as a director of any company or other entity (wherever established), or to act as a trustee (providing he acts only as a co-trustee), as enforcer or protector of trusts or as executor.

Any applicant for a licence must be ‘fit and proper’, requiring the Commission to evaluate the applicant’s integrity, honesty, competence and solvency.

The prospective licensee must fulfil minimum criteria as follows:

1. the business must be carried on with prudence, professional skill and integrity appropriate to the activities, in a manner which does not bring the Bailiwick into disrepute.
2. the business must bring economic benefit to the relevant part of the Bailiwick;
3. the applicant must satisfy the Commission as to its or his probity, competence and experience, educational and professional qualifications, procedures for the vetting of clients, and record of compliance under fraud investigation and money laundering legislation.

For a Full Fiduciary Licence there must be at least two persons directing the business (the ‘four eyes’ principle) and the business should be conducted in a prudent manner, tested against such matters as capital, insurance cover, liquidity, accounting records and staff.

The Commission will publish ‘codes of practice’ setting out best practice against which the standards of any particular fiduciary business will be tested. Other proposed powers of the Commission are to regulate the form and content of advertising by fiduciaries; the names of the fiduciaries; and the power to object to a particular individual becoming a significant shareholder or controller of a licensed fiduciary. There will also be further powers of investigation and production including the power to apply for a warrant to enter onto premises.

Licensees will be required to make an annual return to the Commission including (for holders of full fiduciary licences) audited accounts, together with the names of the directors, managers, controllers, and partners of the business, the number of staff, the number of clients in total (broken down by types of service provided), and the total (estimated) of liquid assets under administration.

The legislation may appear draconian, but it must be, given the great range of fiduciary activities undertaken, the variable quality and ingenuity of fiduciary service providers. The legislation is to be welcomed as providing Guernsey with an appropriate framework within which to carry on fiduciary activities, and for the protection of present and prospective clients. Equally as importantly, it is necessary for the enhancement of the reputation of all the islands of the Bailiwick in an international environment which is increasingly hostile to offshore activities.

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