Guersney has enjoyed phenomenal growth in recent years but increasingly faces pressures on its limited resources. Keren Holland reports
That Guernsey is extremely successful in attracting new business is a matter of fact. But with a recent decision by the States of Guernsey to keep the population at its current level of around 60,000 people, the financial services industry is asking questions about how it will meet the growing demand for its limited resources.
The latest statistics released by Guernsey Finance demonstrate the huge success that the island has enjoyed in recent times. Initiatives such as the introduction of a registered regime for closed-ended investment schemes helped to grow funds under management in the first quarter to a record £140bn, an increase of 7.8% from the £130bn recorded at the end of 2006. And according to Peter Niven, chief executive of Guernsey Finance, the foot will remain firmly on the accelerator.
Next year Guernsey moves to its Zero Ten Corporate Tax Rate Structure, where the standard rate of income tax on company profits will be 0%, with only a limited number of specific banking activities being taxed at 10%. Having decided against a value added tax to make up the hole that will be created in revenue, the States of Guernsey is instead looking to increase business flows on the island. However, in April, the States endorsed a strategy for maintaining its population, despite previous proposals allowing it to rise above 64,000, through net inward migration of 200 a year.
Niven admits there will be challenges because of limitations on the number of qualified people available to do the work, but says Guernsey must take advantage of opportunities while they exist. He suggests one solution is to look for more value added business, and to outsource those functions that do not have to be carried out on the island. He says: "It is undoubtedly going to cause problems but outsourcing is a means to an end. Where there are shortages there needs to be a greater look at the business model our industry is working to. One of our hallmarks is we have managed to adapt and this again is something we are doing. We are adapting to the pressures of a restricted resource by looking at those areas that can be done elsewhere. Those lower value parts of the process are being outsourced, while we maintain the more front-facing, client-focused parts of the value chain on the island."
Robert Clifford, group chief executive of Investec Trust, says the growth of trust business is hard to measure compared to other sectors such as banking and investments, but demand for its services has definitely been growing. In the first quarter of 2007, the total value of deposits held with Guernsey banks reached £105.3bn, an increase of £13bn (14%) from the £92.3bn held at the end of last year. Clifford says bank deposits are a good indication because a lot of the business comes from private trust companies. He adds: "From our experience I would say Guernsey has been growing very well and trust business is keeping pace with indicators such as bank deposits and funds. When we look at business within our trust company, we have seen very rapid growth - 30% compound growth year on year. We have seen a very significant increase in the number of employees we have on the trust company side. We have spun a third party administration business out of our trust company and that has moved from two people two years ago, to 25 people now."
Clifford says with such demand there is a need for high quality people, and this is an issue not just for Guernsey but for Jersey as well. He adds: "There is a real demand on talent, a real pressure for the right type of people who can deliver the right quality of service. The big issue is, do we actually have the people in the islands to be able to support the level of growth and deliver high quality service on an ongoing basis? The trust industry is completely reliant on people with very good relationship skills, so I think it is a real challenge for the industry to continue to grow in that sort of environment."
Clifford says outsourcing is one solution, and businesses that have a presence in other jurisdictions will have the best chance of success. He says: "I think you can use the advantages of other jurisdictions in the clients' interests, you can also leverage off skills you have in other places. For example, we have a trust group with offices in six jurisdictions and we would have a legal team that supports all of those jurisdictions. If you can use technology and some leveraging off a multiple jurisdiction type solution, you have a model that can be cost-effective and bring the skills to the client."
Ian Burns, group managing director of Anson Group, which provides fund administration services in Guernsey, says Anson has grown substantially as a result of the boom in Guernsey, doubling its staff in the past year. He says: "We administer a lot of niche, boutique or very unusual funds and there is a very strong appetite for that sort of product in the market at the moment. Guernsey has got the balance right between regulation and the need for shareholder protection, and, particularly when you are dealing with sophisticated shareholders, the need to get something up relatively quickly and at a relatively low cost. The cost of establishing a Guernsey fund isn't that high in comparison to some jurisdictions, and the time taken to get the fund up and running is relatively short."
Burns agrees staffing is an issue across the financial services industry but says there are solutions. He adds: "It is a small place so there is a limit on the number of staff who can work out of Guernsey. A number of the fund administration outfits, including ourselves, are able to outsource a proportion of the work to other jurisdictions which allows us to grow our book of business. Although staffing is an issue, we believe we have got the model right to allow our business to grow."
Peter Franks, partner at Ernst & Young in Guernsey, said staffing was a problem being faced by a number of specialist financial services centres. He said: "It's not just Guernsey that is experiencing the great growth in assets under management and the people with the specialist skills to service those organisations are being demanded everywhere around the globe. What we have to do is push the good aspects of living in Guernsey, such as the quality of life and the beneficial tax rates."
Franks adds that Guernsey is doing a good job of bringing people into financial services through courses provided by the Guernsey Training Agency, and has also been able to outsource some functions to other jurisdictions. But he believes the limit on population is a problem that will have to be addressed if the Government's zero-ten tax strategy is to work. He says: "The zero-ten tax strategy is based on the continual growth of the financial services market in Guernsey and for that to grow there needs to be an increase in the number of people providing services to that industry. While there are certain economies you can get out of outsourcing, new systems and efficiencies, there is still a need for more people to be working in the financial services industry. The current government strategy of restricting population growth is not going to enable the tax strategy to be implemented effectively and the high quality of servicing that has come to be expected in Guernsey to be applied.
"The government needs to have more active dialogue with the financial services industry to ensure its current population growth policies will not restrict the growth of the financial services industry and to enable it to effectively implement the zero-ten strategy." n
Set up Vanguard in 1975
‘In the know’
Owen to pay £3m
Lasting power of attorney
Three risk profiles