A resilient finance sector

IT’S an upbeat William Mason who greets me via a laptop screen as we meet to reflect on all things pandemic, including lockdowns. The past 12 months have been tough for individuals, families and businesses. But we are coming through it, and as Mr Mason notes, the vital finance sector has emerged in a good shape. Far better than was initially feared. That is good news given the number of people it employs and tax it pays to support public services.

‘As an overview, I think it was a lot more positive than we feared it might be as we went into lockdown in March last year,’ says the director-general of the Guernsey Financial Services Commission.

Application levels for Bailiwick-based entities ended up being just five percentage points down in 2020 compared with 2019. Encouragingly, January 2021 applications were ahead of both 2019 and 2020. Income tax receipts also appeared to have held up, said Mr Mason, noting Deputy Mark Helyar’s recent statement, with the finance sector paying the lion’s share of these.

‘What helped? The enormous global scale of quantitative easing. I think that has kept asset prices much higher than they might have otherwise have been. That’s undoubtedly helped financial services. Genuinely I think the financial service sector has shown its resilience. We’re very fortunate, and this is where being cautious paid, that we were able to move around freely for the last six months of last year.’

Global issues

More broadly, Mr Mason says many countries were now grappling with how to deal with Covid-related expenditure. Locally, he says the States of Guernsey had been focused in terms of what financial support it had provided – ensuring that the burden on taxpayers was more limited. Allowing a little bit of gentle inflation, while keeping tax receipts running, was a more sensible wealth enhancing strategy than risking a ‘death spiral’ of tax increases on key groups.

He touches on the impact of technology globally, with many white collar jobs being automated. But that frees up people to do higher value added work – although they in turn need a higher skillset. ‘What I’d say for Guernsey applies to everywhere else in the world, there is a need to have more highly-skilled workers, and there is going to be less work for what you could describe as the most clerical office workers in the future,’ says Mr Mason.

‘Very labour intensive manual office work continues to decline on Guernsey as it does everywhere else in the rest of the world. So, there is a premium on having access to a highly-skilled labour workforce able to do higher-value tasks. But it’s actually quite a helpful trend because Guernsey is uncompetitive in terms of labour rates for lower skill tasks.’

Economic substance could also be defined as having higher value jobs locally, making Guernsey an ideal jurisdiction.

Commission initiatives

Mr Mason reflects on the work that the GFSC has done in spite of the pandemic. ‘From our point of view, we were very pleased to able to advance a number of initiatives last year. We were pleased to be able to make it easier for funds to redomicile into Guernsey and to make it easier with our new green insurance rules, which we introduced in December, for insurers to invest in productive green assets.

‘Also, we made it easier for insurance managing general agents to apply to set up in Guernsey, and made it easier for captive insurance cells to be formed more quickly to allow insurance managers here to better meet the demands of a very hard insurance market.’

The commission consulted on enhancing its private investment fund rules, which looked at creating different pathways to become a private investment fund – including provision of a family office option. Subsequent changes could be made in the second quarter of 2021. Deregulation of non-Guernsey fund rules was also consulted upon, with changes that could come later this year.

This year, Mr Mason is looking forward to a new suite of laws, helping ensure the Bailiwick complies with international standards – and thus retaining and hopefully enhancing ‘critical access’ to international markets and financial services. Sustainable and green finance also remains an important area for the GFSC.