Recent legislative and regulatory developments in the corporate finance sector
Ian Kirk and Gareth Morgan
Collas Crill
St Peter Port
Ian Kirk (Bio)
Gareth Morgan (Bio)
A number of regulatory and legislative developments have either come into effect or are on the horizon in Guernsey, which have particular effect on the finance industry.
Improvements to the Companies (Guernsey) Law, 2008
On April 1 2010 the States of Guernsey released a consultation paper for industry feedback on over 80 proposed amendments to the Companies (Guernsey) Law, 2008. Although this legislation is just over two years old, the amendments are being made to ensure that Guernsey retains its edge in the highly competitive offshore market.
Whilst a large number of amendments are proposed, given the size of the Law (588 pages, the Island's largest piece of legislation) and the fact that it consolidated, updated and upgraded decades of piecemeal drafting, the number of proposals should not be seen as representing dramatic change. It is also true to say that the majority of the amendments proposed deal with smaller peripheral changes, with only a small minority dealing with issues that could be considered substantial. Such proposed changes include:
- allowing a company to exempt itself from audit indefinitely;
- streamlining migration and amalgamation procedures;
- simplifying the dividend/distribution regime; and
- improving the certification procedure for the 'solvency test' (used for distributions and dividends).
The consultation has now closed and the States of Guernsey are aiming to implement the changes before the existing transitional provisions of the Companies Law expire (July 1 2012).
Licensees (Conduct of Business) Rules 2009
The Licensees (Conduct of Business) Rules, 2009 (COB Rules) came into force on January 1 2010. Licence holders (i.e. those entities licensed to provide investment services) face a number of challenges in order to comply with the rules. In a first step towards compliance, licence holders must classify all of their clients as either: retail clients, professional clients or eligible counterparties.
Once classified, licensees must ensure that they treat the client appropriately under the COB Rules, with variations in requirements for the differing classifications. Affected parties would be well advised to take advice on the rules, as they offer further details regarding classification and its effects.
Corporate governance principles and guidance
The consultation period for the proposed new 'code' of corporate governance closed on June 1 2011. The guidance sets out 'best practice' for the local boards of regulated entities in Guernsey. The main principles, of which there are eight, highlight the collective responsibility which boards are expected to take for maximising the success of Guernsey companies and directing and supervising its affairs.
The target date for publishing the guidance is January 1 2012.
Listing of Guernsey companies on the Hong Kong Stock Exchange
Guernsey has been given the regulatory green light for its companies to list on the Hong Kong Stock Exchange (HKEx). The decision, made by HKEx's listing committee formally recognised Guernsey as an "acceptable overseas jurisdiction for the purpose of companies incorporated in the Island seeking to list on the exchange".
The ability for Guernsey companies to list on HKEx is seen in Guernsey as vitally important as it provides a gateway into the Chinese economy, allowing Guernsey and China to more easily do business together.
UK Bribery Act
The Bribery Act 2010, which is due to come into force in the United Kingdom on July 1 2011, will have a significant extra-territorial effect. The Bribery Act applies to acts committed anywhere in the world by companies that carry on business or part of their business in the UK. Whilst the degree to which business must be carried on to be caught by the Act will be determined by the courts, the indications are that this will be a fairly low threshold. Also caught by the Act are the relevant actions of any British Citizens (which includes Guernsey-born people) wherever in the world those actions are committed.
Guernsey already has similar legislation in place with regard to preventing bribery. However, the significance of the Bribery Act is the creation of a 'corporate' strict liability offence of not preventing bribery taking place; something which is not contained within existing Guernsey laws.
Conclusion
How the finance industry conducts itself and issues of corporate governance have, for obvious reasons, been under close scrutiny on an international level this past year and beyond. As a result, Guernsey has been quick to demonstrate its resolve to continue to improve its regulatory and legislative framework in order to remain an attractive destination for both foreign and domestic investment. The latest changes to the Companies Law and the regulations governing Guernsey's licensed entities and institutions will surely further Guernsey's reputation as a premiere international finance centre.