Guernsey has just become one of the first jurisdictions to enact regulatory legislation for fiduciary business with the draft Regulation of Fiduciaries, Administration Businesses and Company Directors (Bailiwick of Guernsey) Law 2001, which came into force on 1 April. The principal object is to procure the supervision and licensing by the Guernsey Financial Services Commission (GFSC) of the 200 or so fiduciary service providers operating by way of business within the bailiwick of Guernsey. These are mainly trust companies, company administrators, corporate service providers and professional executors, accounting for 20 per cent of Guernsey's finance industry's labour, and administering more than £50bn of assets. The provision of fiduciary services is a significant sector of the bailiwick economy. So it is no surprise that the GFSC is eager to look at this unregulated sector of the finance industry.
The regulations codify what is at present best practice regarding the application of the "four-eyes" principle, insurance requirements, capitalisation requirements and professional qualifications. However, as with most complex new laws, difficulties may be identified. One possible problematic area concerns the impact of human rights resulting from Guernsey having signed up to the Convention on Human Rights. The GFSC is a public authority for the purposes of the convention, so its operation will be scrutinised under the convention to ensure that it respects the rights of individuals, regardless of what domestic law provides. Furthermore, when Guernsey's human rights legislation comes into force next year, it will be possible to invoke convention rights in the courts of the bailiwick.
In drafting the law, the law officers of the Crown and the GFSC considered the application of human rights issues. A local firm of advocates hit the headlines by stating that early drafts of the law had more than 100 human rights problems. While much of the adverse publicity attracted locally may be put down to scaremongering, there are certain drafting points that may require attention in order to ensure that the law is fully compliant.
Another issue concerns the present lack of a public trustee office in Guernsey. Her Majesty's Receiver-General does not have the resources or the authority to act as a public trustee. In the absence of someone willing, at the expense of the public, to take over the portfolio of clients, and more importantly the assets administered by those who are unsuccessful in their application for a licence or who have their licence revoked, a whole host of problems can be envisaged. The law officers of the Crown have indicated that they recognise this need, and legislation creating a public trustee is being prepared, but will not be in situ before the law comes into force.
One can also foresee difficulties in seeking to enforce (without public financial support) any order of the Guernsey Royal Court compelling transfer of administered assets in foreign jurisdictions where those assets may be situated. In the present political climate, to effectively regulate the whole finance industry, and to be seen doing so, is essential. Guernsey needs to keep clear blue water between it and the less reputable "offshore" and indeed "onshore" jurisdictions. Guernsey already has an impressive armoury of laws and regulations to cover other aspects of the finance sector (better laws and regulations than those found in many "onshore" jurisdictions), and so regulation of fiduciaries, a step the UK and other "onshore" jurisdictions have not yet taken, was perhaps inevitable.
There are concerns with the new law that may not have been thoroughly thought through in the authorities' eagerness to introduce the regulations. Certainly, some of the issues highlighted above were not fully aired during the parliamentary process when the draft law was approved unanimously in the three bailiwick parliaments. Perhaps this is the price one pays for being the trailblazer and seeking to maintain Guernsey's reputation as a leading, well-regulated and well-managed financial centre.
Russell Clark is a partner at Carey Langlois in Guernsey