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Confidentiality and transparency are the new watchwords of the global financial community. Peter Niven looks at how Guernsey is responding
Guernsey now features prominently alongside the UK and US on the Organisation for Economic Cooperation and Development’s (OECD) ‘white list’ of transparent jurisdictions that was published at the conclusion of the April G20 summit in London. The issues of confidentiality, secrecy and transparency are at the heart of the debate on the role of international finance centres.
Confidentiality is not a recent phenomenon and banks have traded on that concept for hundreds of years.
It is still a cornerstone of banking today, and Guernsey is no exception. Indeed, it is true to say that all players in the much wider financial services marketplace adhere to this concept. For trust companies, for example, this duty is no less real, but in their case it arises through their fiduciary relationships with clients.
But confidentiality is not enshrined in the law in Guernsey, nor indeed in the UK: it is case law that gives the island its precedent, and the 1924 case of Tournier v National Provincial & Union Bank of England is the reliably held English court case that decided that a bank owes all its customers a duty to keep their affairs confidential.
Importantly, it also gives us three occasions when this duty can be overridden:
- where the law compels it;
- where there is a duty to the public where the bank’s own interests require it; and
- where the customer permits it.
And here is where the distinction lies between confidentiality and secrecy.
Guernsey, like the UK, does not have a banking secrecy law and sees no reason to have one, unlike Switzerland, Liechtenstein and others. But how many times have we heard the comment in newspapers and the media in general of ‘secrecy’ in so-called ‘tax havens’. All very emotive stuff, and designed to catch either the reader’s or the viewer’s eye.
The truth, and certainly in relation to Guernsey, is far less exciting. Guernsey, unlike those other jurisdictions, has never passed any law relating to banking secrecy and has no intention of doing so.
While there are those areas where there is a break in that duty of confidentiality, we must ensure that for the vast majority of clients confidentiality is real and seen to be real.
At the same time as accepting the need for confidentiality, the new watchword in the international financial community is ’transparency’. Tax transparency in particular has been highlighted by the OECD in its harmful tax practices project, which was launched more than 10 years ago and where 32 international finance centres, including Guernsey, have agreed to participate and enter into tax information exchange agreements (TIEAs). The ‘level playing field’ that was promised at the outset to ensure that no economic harm would befall smaller jurisdictions has proved far too difficult to achieve, however, and with very few TIEAs signed, the OECD has revised the manner in which transparency will be measured, and hence the new post-G20 list, which designated “white” and “grey” jurisdictions.
Guernsey has now signed 13 agreements, including one with the US and one with the UK, putting it on the white list. This momentum will be kept up in 2009 and beyond.
I believe these efforts will come at no cost to confidentiality where it remains fully intact for those who are undertaking legitimate business.
There have been many scaremongering stories about information being made available at the drop of a hat, but in each case this could not be further from the truth. In each TIEA there is a very specific procedure for accessing information, ensuring that there is a bona fide reason for the information request - fishing expeditions are not allowed.
Indeed, there have been cries that this will be the end of private client business for those who sign up. Well, if it means that those clients who have been sailing close to the wind decide to move to another, more accommodating jurisdiction, then we should say “so be it”. We really do not need any of that business; there is far too much good business out there to have a long-held reputation tarnished by the one or two not-so-good apples.
Coming out of the recent economic
crisis there will be calls for even greater transparency, but with greater transparency must come the level playing field - and that requires standards to be maintained by everyone and not just dictated to those that are the seen as the easiest ones to bully. Let us have agreed standards to which we all adhere.
In the end, those clients who are doing legitimate business will have nothing to fear from the initiatives to enhance transparency in all the world’s financial centres and client confidentiality still has a pivotal role to play in our day-to-day business.
Peter Niven is chief executive of Guernsey Finance