Guest blog: Guernsey - a centre of dynamism for financial services

Blog
05 June 2024

What makes Guernsey valuable to the UK? The island has five decades of financial services expertise and is known as a key member of the British family. But what does this mean in real terms?
In a report by one of Europe’s largest economic research houses, Frontier Economics, analysts found that Guernsey-based funds currently channel £57bn of investment from around the world and into the UK economy.

This is important partly because of what that funding is used for - infrastructure projects, financing business through private equity, and property investments. But this is also important in terms of the wider context for the UK's inward investment, because funding through Guernsey has been growing at approximately 14% per year since 2020.

The findings also highlight that UK fund managers are generating more than £2bn of fees from Guernsey-based funds annually, generating additional tax revenue for the UK, and providing £7bn of investment returns for UK investors.

The island’s financial services industry has played a significant role in increasing the international competitiveness of UK financial services providers, improving risk-adjusted returns, diversifying portfolios, allowing UK clients greater access to the significant expertise that international finance centres like Guernsey provide, and offering access into global markets.

The relationship between Guernsey and the UK is built on deep linkages built up over generations due to geographical, historical and cultural ties, as well as overlaps in legal and regulatory frameworks.
Because of that unique relationship with the UK, the island is able to channel significant investment into the UK that would not be forthcoming from other international finance centres. The report demonstrates that £13bn of the £57bn of investment into the UK would be unable to be recouped in the long term if these funds were domiciled in other jurisdictions, representing a significant proportion of the total amount.

The report further shows that investment flows into all four nations across the UK, in accordance with both parties’ levelling up policies, with over £3bn providing wider social value to the UK, including improved infrastructure in the energy, health or education sectors, as well as more extensive social housing stocks.

Guernsey’s long-established fund industry also encourages investment into sustainable UK infrastructure through regimes such as the Guernsey Green Fund, the world’s first regulated green investment fund designation. The Guernsey Green Fund enhances investor access to the green investment space by providing a trusted and transparent product that contributes to the internationally agreed objectives of mitigating environmental damage and climate change.

Investments through this regime align with UK policy objectives such as the development of a resilient, low cost, low carbon power sector. Specifically, the British Energy Security Strategy has set out a target for the UK to deliver a five-fold increase in the deployment of solar by 2035.

A prime example of this sustainable growth comes from the Guernsey-domiciled Bluefield Solar Income Fund Limited (BSIF), a Guernsey Green Fund-accredited closed-ended collective investment scheme that primarily targets utility-scale solar, wind and energy storage assets and portfolios.

Since IPO in 2013, BSIF has saved over one million tonnes of CO2 from being released into the atmosphere through the displacement of fossil fuel generated electricity supplying the grid. The fund has a net asset value of £831.3m and more than 200 UK assets.
Guernsey has long been an innovator, an island that does not shy away from embracing innovation and harnessing new technology to improve market efficiency.

In April, Investment services firm Sanctum FI LLP launched an artificial intelligence-powered investment scheme in Guernsey, demonstrating the island’s suitability as a fund domicile.

Financial Science Holdings Limited (FSHL) aims to generate long-term capital growth through a diversified portfolio primarily consisting of equity securities and bonds. The investment strategy focuses on enhanced investment performance at low cost through evolving machine learning algorithms. The core algorithmic engine applies machine learning to a wide range of fundamental, price and other data to select undervalued stocks and bonds across a risk adjusted portfolio.

The island’s regulator, the Guernsey Financial Services Commission, has also recently published a policy statement on tokenisation, which outlines the Commission’s measured yet encouraging approach to fund tokenisation, which has been welcomed by the investment funds industry in Guernsey.

With the support of innovative financial products like Guernsey’s PCC and ICC structures, coupled with regulatory clarity, we can truly call our island an innovator that bridges the gap between traditional finance and the emerging digital asset space.

It therefore makes sense for the UK to tap into the expertise and dynamism of the island, bolstering UK competitiveness and the generation of UK-based fees, along with the associated investment returns that generate revenue in the UK.

Guernsey continues to add considerable value to the UK and remain strategically important as a secure and stable conduit for international capital. It represents a mutually beneficial collaboration and a symbiotic relationship; the success of one greatly adds to the success of the other.

Guernsey Finance will be represented on the 'Evolution of the UK regulatory landscape' panel at TheCityUK Annual Conference by Katherine Jane, Co-Deputy Director General, Guernsey Financial Services Commission.
Find out more and register:

Rupert Pleasant photo
Rupert Pleasant Chief Executive, Guernsey Finance

Rupert’s career in financial services has taken him around the globe, living and working in London, Hong Kong, Cape Town, Zurich, Geneva, and Guernsey. His background is in private banking and trust and corporate services, where he has held a number of senior management roles in global companies. As well as an MBA from the University of Cape Town, Rupert holds a law degree, and is a member of STEP, CISI and the Institute of Directors.

Rupert sits on a number of local government and industry committees, and represents Guernsey at TheCityUK, BVCA, AIC and the City of London Corporation. In his spare time, Rupert is Chairman of the Guernsey Rugby Academy.